We will use the same data in this example as we did in the previous example. We are applying 40 hours of employee John Doe's time to the 20' pleasure boat for customer Smith. This time instead of charging the standard labor rate of $30.00, we are charging the employee pay rate, $8.00 directly. The Labor Hours screen looks like this:
Notice that the job cost ledger, jc, and the job Activity Id, 8900.100l, are entered in the expense fields. The Labor Charges fields are left blank. The Labor Charges fields are only used when you are charging the standard labor rate.
The costs are distributed to the job activity when the payroll process, Calculate Payroll is run. The debit is to the job and the expense account listed on the Enter or Change Activities screen. The credit is to the wages payable account listed on the Employee screen.
After the Calculate Payroll process is run the activity screen looks like this:
When using the direct labor charge method, you can apply the overhead manually by entering a general journal transaction to credit the general ledger overhead accumulation account and debit the job activity. The screen belows shows a general journal transaction to manually apply overhead to our example activity 8900.100l. Account 410 is the overhead accumulation account.
As with the other methods, if the job is not closed when Post / Work in Process is run, the overhead charge is moved to the work in process account by a credit to the job activity's expense account and a debit to the work in process account. Later, when the job is closed and the process is run, the charges for the job are moved back to the expense account by debiting the expense account and crediting the work in process account. The expenses for the job will show up on the income statement after the closing processes on the Closing menu are run.