657A – Adjustment Cost of Labor Sales

Service Department

Cost of Sales Synopsis

Account 657A

Debits

Credits

The wages paid to productive employees for whom there is no offsetting revenue or expense (unapplied labor).
The adjustment required when the productive labor on incomplete repair orders is less than the balance in the Labor in Process - Mechanical inventory.

The adjustment required when the productive labor or incomplete repair orders is greater than the balance in the Labor in Process - Mechanical inventory.

Remarks:

Productive mechanical labor costs should be controlled through Work in Process – Labor (Account 247). Account 247 should be maintained on a schedule and reconciled daily against open repair order.

Unapplied labor represents a failure to supply the technician with a sufficient amount of productive work; and is a reflection against the Service Department.

Effective time-keeping procedures should be followed, and periodic productivity and efficiency studies conducted.

When productive technicians are paid for time on the premises for which no productive labor was performed, this pay is considered unapplied time and should be charged to this account. This does not include vacation and time-off pay, or non-productive pay which is chargeable internally to an expense account. In summary: unapplied time is the amount of technician's compensation which has not been able to be sold on a Repair Order.

When productive technicians are paid on a flat-rate basis, with a guaranteed minimum wage, this is a form of standard labor rate costing; the difference between the total amount earned on productive labor and the guaranteed wage should be charged to this account.

Minimal differences between the monthly book and physical inventories of mechanical labor in process should be debited or credited to this account.

If abnormal amounts of unapplied labor continue to exist, it may be an indication of inefficiency and should be promptly investigated and analyzed.