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Hello,
In a manufacturing implementation, we setup the cost of labor (working on a machine to produce items) as a work center or machine center by applying Direct unit cost; this cost will be added to Finished item cost, in addition to components consumed to produce the Finished Item.
The question is: What is the relation with Salary / Wage for this labor? are we making double entries when setup cost for labor and then accounting department post salary wage journal voucher?
kindly advice.
Regards,
David
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Omar,
You can certainly update Work Center costs and then implement the change and perform any Standard Cost Worksheet roll-up's. However, if the Work Center Cost is not implemented and rolled it will not appear on the Standard Cost and Expected Cost columns under Statistics. Since the Released Production Order has been processed and completed, you cannot go back and make changes when Finished.
Thanks,
Steve
Direct Cost is part of the WIP equation. Raw Material Cost + Direct Cost (Work Center / Machine Center Labor) = the WIP cost. Direct Cost is the expense to run the Work Center / Machine Center. You have a choice to include the estimated wages/salaries to run this machine within the "Direct Cost" or use the "Indirect Cost Percentage / Overhead Rate" as an addendum to the overall cost. The accounting is up to you and your organization. That being said, if you want to raise the Finished Goods cost so it contains a wages/salary component, that can be achieved in one of the scenarios noted above.
Direct labor cost is aligned with what? then.
The salary/wage and the labor costs are totally separate. You can add Indirect Cost percentage or Overhead to better align the Finished Good Inventory value to compensate for the salary/wages. This will reduce the margin/profit and raise the COGS. But in the end, your accounting department will post a separate journal entry for the salary/wages.
Hello,
My question is regarding the wages related to those labors working in production.
If we suppose that efficiency is 100%:
For ex: we set up direct cost for machine center (for a labor) based on his wages per month divided by number of hours.
The question is when system post production order this cost is added to cost of Finished item. Then accounting department post the wages to expenses against cash. Is this double entry?
Or this is right?
Need someone Financial expert to clarify.
Each company defines it. First of all, not all in the production workers have the same salary and their efficency ins't 100%. Then normally there are other cost to input there like the cost of the machine and maintenance or electricity.
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