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What are my options to record and include Labor cost in the value of my Products?

If I have a Product X which has components A and B, and the process of making X uses C hours of labor, my product cost should be A material cost + B material cost + C X hourly labor cost. 

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Ray Carnes (ray)
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V12?

The easiest way is to define a service Product called "Labor" with cost representing the hourly burden, or multiple Products if you have different labor rates.

When finishing up a Manufacturing Order, add the amount of Labor at the same time you get to adjust the initial BoM Quantities.


Worked Example:

1. Products A and B are in Stock with a Cost Price of $10 and $23 each, respectively:



2. Create a Labor Product as a Service:



3. Create your finished Product X with a Bill of Materials that includes A and B:



4. When completing the Manufacturing Order for X, add the number of Labor Hours:



5. Once you are done, the Cost Analysis Report of the Manufacturing Order shows:



6. The Inventory Valuation Report shows:



Since $99 worth of Materials [$10 + $10 + $10 + $23 + $23 + $23] went into Work In Progress (the Stock Output account on the A and B and the Stock Input account on X) and $147 worth of Materials and Labor [$99 + $75] came out, you have to move this amount out (probably in bulk at the end of the month) with a debit that is offset by a credit into a liability account (for example).

This is the Balance Sheet after everything above is done:



If you Shipped a unit of X and Invoiced your Customer, the Journal Entry would be:




It is possible to get more complex in the way you model and account for a labor burden, but this is the simplest way I know of.

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Sherif Gamal
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@Ray

We have followed your process, but once it comes to the point to add the Labour cost from the predefined product, classified as service, the dropdown menu only limits the list to Non-services items. It only works, if we create a new service right then. Pls help. As it makes no sense to create new service product each time we create a new MO.

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Ray Carnes (ray)
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Try with a Consumable instead of a service. There has been a change made at version 13.0 - the same process seems to work well with a Consumable. Work Centers is another solution for Labor, but this is move involved.

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Sherif Gamal
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Thanks a lot Ray. I have tried and it’s working fine.

Regards,
Sherif Gamal
Managing Director
M: +20 111 511 7771
E: sherif@yarnovus.com
Address: Industries Complex – Unit B13
Southern Developers Area
10th of Ramadan, Egypt
“The 1st Weaving Factory Built on Industry 4.0 Pillars.”

From: Ray Carnes (ray) <ray@odoo.com>
Sent: Wednesday, March 25, 2020 5:06:33 AM
To: Sherif Gamal <sherif@yarnovus.com>
Subject: Re: What are my options to record and include Labor cost in the value of my Products?
 

Try with a Consumable instead of a service. There has been a change made at version 13.0 - the same process seems to work well with a Consumable. Work Centers is another solution for Labor, but this is move involved.

Ray Carnes
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