Applying labour cost at a different rate than employees are paid

Question

We are a small manufacturing company and track each job we build for a customer as a separate Job Number. This is the way we've always tracked income/expense for each particular job, using the Job column on invoices and purchase orders.

We've then manually added in our employee's hours and calculated expense at a rate designed to encompass their wages, super, etc as well as overhead costs such as electricity, rent etc. etc. (This includes a number of processes and entering data multiple times into diaries, spreadsheets and back to a written page - gotta be a better way!)

Currently looking for a more efficient way to track all of this.

I was wondering if there was any way to capture this within the context of MYOB so that when we run a Job Activity Report or Job P&L we can get all the costs in the one place.

I can use Timesheets and allocate to jobs, which captures the wage only. I looked at the options to track labour costs for auto-build and job costing, but can't quite see a way to use our calculated rate instead of the employee fees.

I feel like I'm nearly there but not quite to the elegant and efficient solution I'm after. Any advice would be much appreciated.

BEHROUZ1 · Answer

Unfortunately, MYOB is not capable of this functionality to help with jobs and overhead allocation.

If your employees are not contractors and not on a casual contract, then their salary would be a fixed cost regardless of whether they do this job or that job.

ou should gather data from the previous month or quarter or year and see how much you incurred in all the expenses that relate to jobs,that is manufacturing overhead, again excluding admin and marketing. If the office is on the same premise as the workshop then you should come up with a way to split the expenses such as rent and insurance. At best you should create a category called Overhead and all of your utilities, rents, wages, depreciation of machines, and so on, are allocated to this category every time you pay a bill or for instance pay cleaners who clean the job sites. It is important that you do not include administration expenses as they are not related to jobs. This category will give you a good estimate for future period's calculations and allocations of overhead.

After you have a good estimate of how much in these overhead expenses you should incur in the following period including wages ( could be a month or a quarter. Does not matter unless your business has fluctuations in sales during the year. in that case you must use longer periods to even out everything), you divide the total amount by the total number of hours you work to arrive at an OVERHEAD ABSORPTION RATE PER HOUR.

Now go to inventory items and create an item called OVERHEAD ABSORPTION.

Now imagine you want to invoice a customer for a job of installing CCTV cameras. You include the cameras from inventory, add the next item as labor and the next two-item would be OVERHEAD ABSORPTION, one positive and one negative. If you have worked 10 hours on the job and your absorption rate is 45 per hour, you add one 450 and one -450 to cancel the effect. BUT, make sure that you assign the job to the positive number and leave the job field empty for the negative number. You can use a code like XYZ if you do not want your customer to see OVERHEAD ABSORPTION. Now if you run a report you see that overhead is deducted from your profit.

It goes without saying that labour hour MAY not be a good basis for allocation and it all depends on the support activities you have such as procurement, inspections and set ups. Talk to your manager and see if tracing these costs and arriving at a more appropriate absorption rate has more benefits than the costs it incurs.

If you want to track costs and improve your processes, I am afraid that the MYOB you are using is designed for small businesses with no such concerns. You should be looking to invest in an ERP or another software that has flexible COST CENTRE functionality

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karen-bomac · Answer

Thank you again for your time @SamaraM

We had set up the Timesheets previously to try and use the Teams app (didn't work for the way our guys record their time, but the structure was already in place - to give context) so I entered the workshop hours into the Timesheet function against the job numbers, which was great.

So, one step in the right direction! 😃

Now . . . you mentioned in your last reply that this would put the hours against the job but no monetary amounts, however, when I run a P&L report on the job, it is putting a monetary amount against the job, equivelant to the wages. Same when I run a job activity report. This is not in and of itself a bad thing, but it would also be good to see how many hours that corresponds to.

Am I not using the Timesheets in the way you intended, or is there another report that would give me the detail in hours instead of/in addition to wages?

Thank you

Karen

SamaraM · Answer

Hi @karen-bomac

In that case, you might want to skip the Activity Slips and just use Timesheets. This will put hours against a Job but no monetary amounts. For instructions on how to turn this feature on and how it works see our Help Article: Timesheets.

Hope that's what you are looking for.

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