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.
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.
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.
Hi Ray Carnes,
I'm looking for the same as Sherif in Odoo, I analyse your answer but it let me one relevant doubt:
When you suggest put the labour as a service (product) in BoM the unit of this product will defined the way of their consumption in the MO and since it comes from the BoM will be proporcional of the finished goods in spite of the amount of time expended.
My intrepertation is correct or there's some way to related the labour-service(product) with the time expend?
Looking forward to get your answer,
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.