471 Customer Body Labor – Cars & Trucks
Sales
Fixed Operations
Sales Synopsis
Account 471 is established to record Body Shop Labor sales paid directly by customers for repairs performed by the Body Shop Department.
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Debits |
Credits |
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671 Customer Body Labor – Cars & Trucks
Cost of Sales
Fixed Operations
Cost of Sales Synopsis
Account 671 is established to record the Cost of Sales, which is defined as compensation paid to technicians, for customer paid Body Shop Labor.
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Debits |
Credits |
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Example 1
Record a customer cash sale of $3,740 for body shop labor, parts and materials. The body labor sale is $740 and the paint labor sale is $595. The parts sale is $1,975. The paint and body shop materials are $315 and the sales tax is $115. The cost of the labor is $795 with $350 due to paint labor and $445 for body shop labor. The parts cost is $1,380. The cost of body shop materials is $235.
Journal: Service Sales - Cash
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Entry: |
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Debit |
Credit |
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Account 225 |
Cash Sales |
$3,740 |
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Account 670 |
Cost of Sales – Customer Paint Labor – Cars & Trucks |
$350 |
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Account 671 |
Cost of Sales – Customer Body Labor – Cars & Trucks |
$445 |
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Account 677 |
Cost of Sales – Parts – Body Customer Repair Orders – Cars & Trucks |
$1,380 |
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Account 679 |
Cost of Sales – Paint & Body Shop Materials |
$235 |
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Account 242 |
Inventory – Parts & Accessories |
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$1,380 |
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Account 245 |
Inventory – Paint & Body Shop Materials |
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$235 |
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Account 247B |
Inventory – Work in Process – Body Shop |
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$795 |
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Account 324 |
Sales Taxes Payable |
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$115 |
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Account 470 |
Sales – Customer Paint Labor – Cars & Trucks |
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$595 |
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Account 471 |
Sales – Customer Body Labor – Cars & Trucks |
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$740 |
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Account 477 |
Sales – Parts – Body Customer Repair Orders – Cars & Trucks |
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$1,975 |
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Account 479 |
Sales – Paint & Body Shop Materials |
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$315 |
Note:
Labor sales can be costed either on an actual basis or on a percentage basis. However, it is recommended that whenever practicable labor sales be costed on actual basis because material losses of productive time may be concealed by the inaccuracies inherent in percentage costing methods. Such inaccuracies can result from failure to update costing percentages when changes occur in the compensation of technicians and in the structural of selling prices of labor, and from other reasons.
The following examples show how labor may be costed under various compensation plans:
1. Technicians are paid on a flat rate hour and customers are billed on a flat rate hour.
· Actual costing may be accompanied by multiplying the technician’s flat rate by the flat rate hours spent on a particular job.
· Percentage costing may be accomplished as illustrated below.
2. Technicians are paid an hourly rate and customers are billed on a flat rate hour.
· Actual costing may be accomplished by multiplying the technician’s hourly rate by the hours spent on a particular job.
· Percentage costing cannot be accomplished with any degree of accuracy.
3. Technicians are paid on an hourly rate and customers are billed on an hourly rate.
· Actual costing may be accomplished by multiplying the technician’s hourly rate by the hours spent on a particular job.
· Percentage costing may be accomplished as illustrated below.
4. Technicians are paid a percentage of customer labor sales.
· Actual costing may be accomplished by multiplying each labor sale by the percentage received by the technician. Actual costing may also be accomplished by applying the percentage to the total labor sales at the month end.
· Percentage costing does not apply under these conditions.
5. Technicians are paid a minimum guarantee with additional compensation based on production which cannot be determined until the end of a pay period.
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· Actual costing cannot be accomplished. · Percentage costing, in this instance, may be accomplished as illustrated below with the exception of Step #1, which should be revised as follows: ·
Total Productive Wages
including incentives |
$54,910 |
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· Total Hours Worked |
/ 3,800 |
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· Hourly Prime Cost of Labor |
$14.45 |
It is preferred that added incentive pay of technicians and compensation of technicians’ helpers be comprehended in the costing of labor sales. Therefore such pay should be debited to Acct. 247. If this is not practicable, such pay should be debited to Acct. 665 and 675, as applicable.
EXAMPLE FOR DEVELOPING PERCENTAGES TO
BE USED IN COSTING LABOR SALES
STEP #1: Determine the weighted average hourly rate of technicians. This is the hourly prime cost of labor.
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Number of Technicians |
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Hourly Rate |
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Compensation |
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2 |
X |
$16.00 |
= |
$32.00 |
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3 |
X |
$17.00 |
= |
$51.00 |
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3 |
X |
$15.00 |
= |
$45.00 |
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TOTAL |
8 |
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$128.00 |
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/ 8 |
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Hourly Prime |
Cost of Labor |
$16.00 |
STEP #2: Determine the effective selling price of customer labor by sampling a consecutive number of repair orders.
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! Total customer labor sales on repair orders examined |
$21,900 |
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! Number of labor hours sold on repair orders examined |
/ 500 |
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! Effective Customer Selling Price of Labor |
$43.80 |
STEP #3: Determine the percent of the effective customer selling price that represents cost.
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! Hourly prime cost of labor (#1) |
$16.00 |
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! Effective customer selling price of labor (#2) |
/ 43.80 |
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! Costing percentage of Customer Labor Sales |
36.5% |
STEP #4: Determine the percent of internal selling price that represents cost.
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! Hourly prime cost of labor (#1) |
$16.00 |
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! Internal selling price of labor |
/ 39.42 |
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! Costing percentage of Customer Labor Sales |
40.6% |
NOTE:
This study should be repeated whenever changes occur in either the hourly rate of technicians or the selling price of labor.