In our last post we described how to setup an item to add labor expense to inventory. We showed how to include that item in the bill of materials of an assembly type item in QuickBooks.
The effect would be to instruct QuickBooks to add 25 cents in labor expense to every unit of the finished goods item we created.
Below is a screenshot of the bill of materials for this assembly type item, the finished good that the sample company will sell to its customers.
The list clearly shows the cost of each component of the assembly item. The items listed above the Direct Labor item are inventory type, the most common item type to use in an assembly item bill of materials. QuickBooks computes the cost of those.
For the labor item, we did the calculations and made the decision to use 25 cents for each finished assembly item.
We use the Build Assembly process just as we normally would. Note that the labor item is included in the list of items that will be used in the assembly. We have elected to build fourteen. Fourteen ‘units’ of labor will be used.
We don’t really specify a unit size, but in setting up the labor item, we used a cost of 25 cents. 25 cents then becomes the unit of labor we want to use in each finished assembly item.
Clicking on Build and Close or Build and New will create the fourteen new assembly items with labor as part of the cost.
As with any accounting entry, an increase in one account causes a decrease in another. Let’s look at our profit and loss report and find the decrease.
Here is a portion of the profit and loss report for the sample company. $3.50 has been subtracted from expense and added to inventory on hand. Once the items are sold, that $3.50 will become part of the cost of goods sold expense, along with all the other component pieces of the assembly item used on an invoice.