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AccountRight Premier and Plus, Australia only

In manufacturing, labour costs associated with the production of an item are usually included in the cost of the finished goods. For example, if you own a car repair shop and and an employee of yours spends 30 hours repairing a car, you'll want to transfer that payroll amount onto labour value onto the cost of the finished, saleable car.To include labour in the cost of an item, you first need to setup your company file with a new expense account, labour Item and Direct Wage Category. Then, using an Inventory Adjustment, this expense is allocated to the newly created Labour Item. Finally, a Build Items transaction is recorded to transfer the cost of the Labour Item to the inventoried finished good

You can do this in AccountRight by allocating employee labour costs to a "labour" inventory item, then transferring that value to your finished goods.

Let's take you through the details.

Before you begin

Before There's a few things you need to set up before transferring labour costs to your item, you first need to setup your company file with the right account and item that accurately tracks the movement of money from payroll to finished goods.

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title	1. Setup Create a Direct Wages expense account

Your first step in setting up your company file is creating

1. Create a Direct Wages expense account

. All

This account is needed to track all labour expenses associated with production will be allocated to this new accountthe inventory item.
Create a new expense account (Accounts > Account List > Expenses > New).
Give the account a unique number that
Specify a unique Account Number that suits your account list
(we chose 5300 for our example) and name the account Direct
.
Enter an Account Name, such as Direct Wages.
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Click OK when finished.

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title	2. Create a Labour inventory item

2. Create a Labour inventory item

Next, Create create a new item called "labour" (Inventory > Item List > New) with the name Labour. Enter an item number that . This item is needed to allow labour costs to be transferred to your saleable inventory item.

Use an Item Number that suits your item list.
For the Item Name, enter 'Labour'.
Select the option I Inventory This Item

. Click the Asset Account for Item Inventory drop down arrow

and select your inventory asset account

. See our example below.

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Click OK when finished.

for the Asset Account for Item Inventory.
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Your final setup step

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title	3. Setup the Create a Direct Wage Category

payroll category

3. Create a Direct Wage payroll category

The last bit of set up is to create a new wage category for your labour hours. This will differentiate those paid hours from the other wage categories.Create a new payroll category payroll wages category (Payroll > Payroll Categories > Wages > New). Enter Direct Wages in the Name field and then select the Hourly option. Check that the Regular Rate Multiplied By option is selected and that 1.0000 is entered in This category is used on your employees' pays to track the labour costs associated with the finished product.

For the Wages Name, enter 'Direct Wages'.
For the Type of Salary, select Hourly.
For the Pay Rate, select the option Regular Rate Multiplied By and enter 1.0000 in the adjacent field.
Select

the option

the Optional Account option then select

the Direct Wages account (as set up in Task 1) in

your new Direct Wages account in the Override Account field.

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Select the option Automatically Adjust Base Hourly or Base Salary Details.
Click Employee and select the employees whose labour will be factored into the finished product.
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Transferring payroll expenses to the value of finished goods

With your company file setup completeAfter completing the above setup, you're all set ready to transfer your labour payroll. Your first step will be to process your payroll, using the Direct Wages account created above. Then, you'll adjust your inventory to put the Direct Wages balance into the value of the Labour item. Finally, you'll use the Build Items function to transfer the value of the Labour item to your finished goods.So lettrack labour costs for inclusion in your finished goods. This is done by specifying labour costs on an employee's pay, then transferring this value to the finished goods.

Let's walk you through the process.

First, pay your employees using Process payroll.

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title	1. Pay your employees using Process Payroll

Include labour costs in employee pays

1. Include labour costs in employee pays

When paying your employees, the new Direct Wages payroll category will be available in the relevant employee's pay.

Allocate the number of hours your employees worked to either Direct Wages or Base Hourly for hours not directly attributable to labour.In the following example, let's assume Mary Jones worked 30 Direct hours and the employee worked on the finished goods to the Direct Wages category. The employee's Base Hourly or Base Salary details will be automatically adjusted without affecting the Net Pay.

Here's an example where the employee worked 30 hours of Direct Wages and 10 indirect (non-productionsproduction) hours.

Note that the direct wages are now charged Example pay with 30 hours against direct wages Image Added

When the pay is processed, the Direct Wages value will be posted to the Direct Wages account, which we set up expense account you created earlier.

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title	2. Transfer the Payroll payroll expense to inventory

Make

2. Transfer the payroll expense to inventory

You can now record an inventory adjustment (Inventory > Inventory Adjustments) that allocates to allocate the balance in the Direct Wages expense account to the value of the Labour item . In doing this, the balance (created earlier). Doing this will:

reduce the balance of the Direct Wages expense account

will be reduced as

, and
increase the value of

the Labour

the Labour item

is increased

.

From On the Adjust Inventory window, check the Inventory Journal # and Date. Then :

Enter a Memo which explains the transaction.
In the Item Number field, select the Labour item

created in setup

.

Enter the Enter the

In the Quantity field, enter the number of

hours recorded in the paycheque as Direct Wages in the Quantity field of the Adjust Inventory window. In our example, we'll record 30 hours.

Direct Wages hours (from the employee's pay).
In the Unit Cost field, enter the employee's hourly rate

as the Unit Cost

.

For

For our example, Mary Jones makes $24.038 per hour.

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AccountRight calculates and enters the total value (Quantity x Unit Cost) in the Amount field. Alternatively, enter the amount in the Amount column, field and AccountRight will calculate the Unit Cost which is will be equivalent to the employee's hourly rate.

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title	3. Use Build Items to add labour cost to finished goods

3. Use Build Items to add labour cost to finished goods

The final step in the process is step is to transfer the value of the Labour item to your finished goods. This is done by recording a Build items transaction (Inventory > Build Items).

From On the Build Items window, check the Inventory Journal # and Date. Then enter the finished item's number in :

Enter a Memo which explains the transaction.
On the first line:
- In the Item Number field

. In our example, we'll use item 100. If the quantity of the item has already been accounted for in your company file, enter zero in the

- , select the finished item.
- In the Quantity and Unit Cost fields,

then manually

- enter zero.
- In the Amount field, enter the total value

in the Amount field

- .

In

On the second line:
- In the Item Number field, select the Labour item

(item 101 in our example). Enter a negative amount in the Quantity field and a positive amount in the Unit Cost field. AccountRight will then enter the

- .
- In the Quantity field, enter the number of Direct Wages hours (from the employee's pay) as a negative value.
- In the Unit Cost field, enter the employee's hourly rate. AccountRight will calculate and enter the total value in the Amount field

.The following example shows that 30

- (as a negative value)

Our example shows 30 hours of labour , at $24.038 per hour, has been added to the value of the finished good item (item number 100). Notice that the (worth $721.16) being transferred from the Labour item to the finished goods item. The physical Quantity of the finished good hasn't been increased, just its value. If If the quantity of finished goods needs to be increased, then enter enter the incremental quantity in the Quantity field. You will then need to enter a unit cost Unit Cost.

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Building items

Making inventory adjustments

Creating accounts

Creating items

Set up accounts

Payroll Creating wage categories

Print or email pay slips

Making inventory adjustments

Building items

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Key

Before you begin

1. Create a Direct Wages expense account

2. Create a Labour inventory item

3. Create a Direct Wage payroll category

Transferring payroll expenses to the value of finished goods

1. Include labour costs in employee pays

2. Transfer the payroll expense to inventory

3. Use Build Items to add labour cost to finished goods

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