Impact of Labor Cost in BOM and Trial Balance

[Former Member]

Based on activity rates labor, electricity and other overheads are part of the BOM cost. However, when Accounts processes the invoice it is shown as a separate line in trial balance. My question is that since the over heads are built in BOM and it is in COGS part of trial balance, presence of invoice payment in same trial balance in another line is not a double count? One in invoice payment line and other in COGS which comes from standard cost of BOM?

Please help

[Former Member]

Hi Atul,

        When invoice is processed, it will not create P&L line item, but hit only BS lines.

        While you calculate Labour Hour Rate & apply it as part of BOM cost, it is part of COGS (as you rightly wrote), but it will be a P&L Line item (eg Labour Cost). It should be compared against same cost element (Labour Cost) coming from Trial Balance.

        It may happen that amount actually booked in Trial Balance will be different than what is absorbed productwise in your model. So the difference you should allocate externally on products.

         In this way there is no duplication.

Regards - Vivek Karandikar