Inventory—Labor in Process – Ford Online Accounting Manual

Assets

INVENTORY—LABOR IN PROCESS		ASSET ACCOUNT
		1440

Labor costs incurred to date on uncompleted repair orders that have not been recorded as sales.

			Jrnl.	Dr.	Cr.

Gross wages (before deductions) for technicians			PR
	Inventory—Labor in Process			1440
		Accrued Payroll			2410

Cost of repair labor sales			PS
	Cost of Sales—Service Labor—Repair Shop			6700
		Inventory—Labor in Process			1440

Cost of body shop labor sales			PS
	Cost of Sales—Body Shop Labor			6810- 6820
		Inventory—Labor in Process			1440

Accrual of gross wages earned by technicians during period from close of last completed payroll to end of month			SE
	Inventory—Labor in Process			1440
		Accrued Payroll			2410

Monthly adjustment required to reduce the labor in process inventory to agree with schedule of cost of labor performed on uncompleted repair orders			SE
	Unapplied Time			6740
		Inventory—Labor in Process			1440

Labor costed out at time of repair to vehicles damaged in transit			PS
	Cost of Sales—Labor—Repair Shop			6700
	Cost of Sales—Labor—Body Shop			6810- 6820
		Inventory—Labor in Process			1440

Repairs to a customer’s car under the company Extended Service Plan			PS
	Cash Sale (customer’s deductible)			1010
	Ford Receivables—Extended Service Plan			1185
		Sales—Labor—Service Contracts			5710
	Cost of Sales—Labor—Service Contracts			6710
		Inventory—Labor in Process			1440

At month end, an inventory should be taken of gross wages earned by service department and body shop technicians on repair orders that have not been recorded as sales. The balance in this account should be adjusted to agree with the total amount of wages determined by the inventory.
If monthly adjustments to this account are substantial, accounting and inventory practices should be reviewed.
The accrual of gross wages earned by technicians during the period from the close of the last completed payroll to the end of the month should be reversed at the beginning of the following month.
Labor costs incurred by service department employees in preparing new vehicles and reconditioning used vehicles should be charged to this account. These charges should be transferred to appropriate accounts when the internal sale is recorded.
Compensation to technicians for vacations, holidays, and sick leave should be charged to Account 7790, Vacation & Time-Off Pay—Technicians—Service, or Account 7890, Vacation & Time-Off Pay—Technicians Body Shop.
For departmentalization, this account may be subdivided between the service department and the body shop, using Account 1439 for the body shop, and 1440 for the service department.