Cloud Business Cases: Job Costing-Actual Labor vs. Estimated Labor
Cetec ERP allows you to choose whether to calculate job costing based on actual labor or on estimated labor.
A customer wrote in with the following:
“Our old system didn’t track labor per job, and only recalculated it based on what we said it should be for that assembly. The additional power to track this is a feature of Cetec we eventually want to make proper use of. At the same time, we don’t want someone forgetting to log out of a job to skew our visibility on costing . . .. Right now we have [an assembly showing an inaccurate cost] because someone forgot to log out a job on a sub assembly . . . This makes it difficult to estimate actual costing on that assembly.”
What if you’re in a similar situation, where you eventually want to track costs based on actual labor times, but in the meantime, you want to protect your cost calculations from human error?
This was our guidance to the customer who wrote in:
- Labor Rate = $10/hour
- Overhead = $5/hour
- Material cost (from receipts/bin cost of the inventory) = $20
Say the labor plan says it’ll take 1 hour. Someone logs 1 hour of time on the job and you complete the job (to finished goods inventory). That part is worth $35 (10+5+20) in inventory.
Those cost buckets then go on to hit the ledger as COGS (cost of goods sold) when you ship & invoice that product to the customer. Easy, no problem here.
Second Scenario Now, take the scenario where a user logs 5 hours instead of 1. You can decide at the end of that work order to use the estimated labor (labor plan total)—so, in this case, 1 hour. Go to any work order, and navigate to the Complete/Receive screen. At the bottom left you’ll see a checkbox that says “use est. labor.”
If that’s selected, and you complete the order, then we will ignore the actual time log/cost and use the labor plan’s estimate to impact the ledger and inventory cost of the finished good. Your time log report for the job will still reflect 5 hours, but the ledger/inventory will reflect the 1 hour worth of work.
How to Do the Config Setting Furthermore, if you want this to be a global setting for every work order (meaning you don’t want to click this checkbox every time), you can turn this config setting to 1: “Invoice - Default Use Estimated Labor.” To do this, go to Admin > Config Settings > Config Settings and then type “invoice - default” into the search bar.
It is strongly recommended that you review this with your accounting team. This will impact your financials significantly!
Cetec ERP allows you the flexibility to calculate costs not just accurately, but practically, allowing for the realities of day-to-day business situations.