• From: Indonesia, Japan
  • Registered: 01/08/2014
  • Posts: 190

Topic: WO journal seems strange

I have raw material A 1 kg and B 1 kg. I want to create finished goods C 1kg using 1 kg A and 1 kg B. I don't have any stock for C. A is costed 20.000 and B is 50.000 (set in standard cost and purchase pricing). For C, I set 0 for all cost (raw material cost, labour cost, and overhead cost). I create a work order and add labour cost 5.000. When I enter this labour cost, an automated journal entry occur which contains the memo like this : "WO labour cost settlement JV for zero/negative respository of C".

What does it mean? What is the logic behind this process? After I produce this work order, I get 1 kg C and the raw material cost become 70.000 and another cost is 0. Shouldn't the labour cost become 5000 as well?

My background is not from accounting but when I asked an accountant, he also confused with this process. FYI, I set my balance with raw material asset 70.000 and payable account 70.000 with no entry in profit and loss statement.

  • joe
  • Administrator
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  • Registered: 03/15/2007
  • Posts: 5,107

Re: WO journal seems strange

Well, as I told in another topic, I am not an expert in Manufacturing. These routines were written by somebody else several years ago.
Maybe someone in the audience can help us, or you may be the guy smile. Just try to explain in simple terms what should be changed. Thank you in advance.

/Joe

  • From: Indonesia, Japan
  • Registered: 01/08/2014
  • Posts: 190

Re: WO journal seems strange

I'm also confused with this problem because I don't know what  purpose of the labor cost and overhead cost in Items. Another thing that I'm still have some doubt is whether the labor cost is added to the finished goods value. For the example like above, the total amount to manufacturing C is 75.000. But I don't know if it should write 75.000 in balance sheet and -5000 from another account in cash/bank or +5000 in liability account or it still 70.000 but the 5.000 will add to COGS account and -5000 from cash/bank account.

Balance sheet before ->

                                Asset                                          Liability
bank                                0
raw material           70.000                      payable      70.000
finished goods                0

For case 1 :

After ->
bank                        -5000
raw material                   0                       payable      70.000
finished goods        75.000

or (labor cost is claimed as payable)

raw material                   0                       payable      75.000
finished goods        75.000

case 2:
balance sheet:
bank                        -5000
raw material                   0                       payable      70.000
finished goods        70.000                      revenue       -5000

P/L:
Income                           0
COGS                        5000
Calculated return    -5000
                         

I must consult my accountant for this. If anyone can help, please share your opinion.

4 Reply by apmuthu (edited by apmuthu 01/10/2015 09:17:32 am)

  • From: Singapore, India, Chennai
  • Registered: 05/02/2009
  • Posts: 6,160

Re: WO journal seems strange

The "period(.)" is truly confusing (thousands separator in EU land and a decimal point in others) - we follow the en_US-general/demo sqls for COAs when reporting generic issues. Putting in a country in your profile might save some confusion in such cases.

apmuthu's Website

  • Miles
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  • Registered: 05/06/2012
  • Posts: 8

Re: WO journal seems strange

Hi barbarian, did you ever figure out the purpose of these journal entries? I can't figure them out. I think if I make a product with $1 parts, $1 labour, $ 1 overhead then I should have a GL entry:

Finished goods Dr $3
                Inventory Cr $1
     production labour Cr $1
           overhead a/c Cr $1

I can't see why the journal entries are needed. I notice that they only appear when there is no stock of the finished goods and for the amount that isn't part of the BOM. I'm using advanced manufacture.