Accounting for labor on an assembly?

@Brent530 

Your thinking is spot on.  Labor costs to build the machine should be capitalized into the cost of the machine, not expensed as a payroll expense.  That expense is incurred when you sell the machine, not when you pay the employees.  To properly capitalize the labor cost into the cost of the machine, see the video below from @hectorgarciacpa.  He covers it in detail.  It is a process that is too involved to be explained in a post on this forum.

https://www.youtube.com/watch?v=M7JEAmRkgiE&ab_channel=HectorGarciaCPA   

Thank you so much for the video link.

He seems to somewhat gloss over the intricacies of how he's allocating said wages from the primary payroll expenses, however.  I guess as long as it's a service that is referencing a subaccount under payroll expenses, then it just automatically allocates?  I feel like I'm missing something.

The way our company is setup (wrongly or rightly), we have the primary account as Payroll Expenses, then we have subaccounts of Gross Wages, Payroll Fees, and Payroll Taxes.  Would I then just create a sub-subaccount under Gross Wages called something like Assembly Labor (Allocated) ?  (Was actually surprised I could do a 3rd-level subaccount, but it is indeed possible.)

Thank you for your help!

@Brent530 

"I guess as long as it's a service that is referencing a subaccount under payroll expenses, then it just automatically allocates? I feel like I'm missing something."

It allocates when you build an assembly.  That labor cost will be removed from payroll expenses (with the negative allocation entry) to the inventory item.  It will then expense to COGS when sold.  That's what allows you to more accurately track the profitability of each machine, as I'm sure you're aware.  

"Would I then just create a sub-subaccount under Gross Wages called something like Assembly Labor (Allocated) ?"

How you want it to appear on your P&L is up to you but, yes, that is how I would do it.