ANSWER ID:1602

Labour, or other non-stocked items or events, present a problem when they are a necessary component of an Auto-Build item. Using the following steps it is possible to create the labour as a stocked item without distorting the accounts. Inventory Auto-Build has more information on the Auto-Build function.

1. Create a new account (go to the Accounts command centre and click Accounts List). Click the Cost of Sales tab then click New. Give the account a number that suits your account list and a meaningful name, for example Labour Costs.
2. Create a new item in the Items List called Labour, and select the I Inventory option only. For the requested Inventory Account, enter the Cost of Sales account created in step 1 (ignore the warning that it should be an asset account). This item is to be defined as the minimum time period that will be used in the finished product, for example 5 minutes.
3. Enter the labour units into stock by going to the Inventory command centre and clicking Inventory Adjustment.
   1. In the Item Number field, select the labour item created above.
   2. In the Quantity field, enter the quantity of the labour item you want to enter as the opening balance.
   3. In the Unit Cost field, enter the value of 1 unit of Labour Cost. When you Tab or click out of the field, the Amount automatically calculates.
   4. In the Account field, select the Cost of Sales account you created above.
   5. In the Memo field, describe the inventory adjustment, for example, Adding 3 hours of labour.
4. Add the Labour Item to the Auto-Build information of the finished product.

When the finished product is made, the cost of the Labour will be taken from the Cost of Sales account and transferred to the Inventory Account for the finished product.

When the finished product is sold, the cost will be incorporated into the Cost of Sales account for the finished product. The Labour portion of the finished product's Cost of Sales will be cancelled by the negative balance of the Labour item's Cost of Sales account.

This is necessary to stop the Profit & Loss showing the Labour costs twice, as it is actually paid in the Wages or Salary expense account/s instead.