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How to include labour costs in a production order?

It is common business practise to include the time it takes to fulfil a production order in the item cost of the end product.

In a production order, this can be achieved with the inclusion of a labour-type, non-stock item:



The issue method is set automatically to ‘Backflush’. The item should be defined to have a standard cost:



When including this item in a ‘Bill of Materials’ (BOM), its sales price according to the price list chosen is included in the price of the end product:



2*0.8 = 1.6

2*1.2 = 2.4

0.2*50 = 10

1*10 = 10

3*1.5 = 4.5

->  1.6+2.4+10+10+4.5 = 28.50

The journal entry created upon fulfilling a production order of that BOM includes the labour costs:



Raw Materials (Other Components) -> GBP 2.45

+ Labour Component -> GBP 3.00 ( that is 0.2*15 (standard price of labour item) = 3)

Total cost posted to the end product -> GBP 5.45

A sales document will also include the labour costs in its gross profit calculations according to the base price list setting:




EOP_EOP, EoP_April08, EoP_Stock, EoP_Item, EoP_Logistics, EoP_Production

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