Labor Cross Charge Approaches

In Vision project accounting, labor and revenue follow the project's organization. When employees work on a project in an organization other than their own, your firm can use Labor Cross Charge in several different ways.

• Approach 1 — Firms that measure the labor charged and the revenue earned by the employees in an organization often move labor expense and revenue back to each employee’s home organization.

• Approach 2 — Firms that prefer to measure the labor charged and the revenue earned by the projects owned by each organization often transfer revenue (net of labor), back to the employee’s organization — or they transfer overhead to the organization the employee charged.

• Approach 3 — Firms that view cross charging as subletting services may transfer labor expense and revenue in the form of a consultant expense back to the employee's organization.

Firms use Approach 3 less often than Approaches 1 and 2. Whichever approach you use, you must negotiate or otherwise arrive at a transfer price.

If You Choose Approach 1

• An organization’s Income Statement reflects the revenue and expenses for all the employees in that organization. This would be valuable to organizations who focus on their employee's effort, no matter which projects they charge.

• Labor "belongs" in the employee's organization, so the cross charge moves labor from the project’s to the employee’s organization.

• Revenue "belongs" in the employee’s organization, so the cross charge moves all or a portion of revenue from the project’s to the employee’s organization.

• Overhead "belongs" in the employee’s organization, so no cross charge entry is made for overhead.

Project Organization's Income Statement
A	Project Labor Revenue (from Revenue Generation)	900.00
B	Intercompany Revenue Transfer Out (from Cross Charge)	(900.00)
C	Direct Labor (from Timesheet Posting)	300.00
D	Intercompany Direct Labor Transfer Out (from Cross Charge)	(300.00)
	Profit	-0-
Employee Organization’s Income Statement
E	Intercompany Revenue Transfer In (from Cross Charge)	900.00
F	Intercompany Direct Labor Transfer In (from Cross Charge)	300.00
G	Actual Overhead Costs (Employee’s organization)	538.00
	Profit	62.00

If You Choose Approach 2

• An organization’s Income Statement reflects the revenue and expenses for all of the organization's projects, regardless of which organization the employee belongs to.

• Labor "belongs" to the project's organization, so no cross charge entry is made for labor.

• Revenue "belongs" in the project's organization, so no cross charge entry is made by for revenue.

• Overhead "belongs" in the project’s organization, so the cross charge process moves some amount of overhead from the employee’s organization to the project’s organization.

Project Organization's Income Statement
A	Project Labor Revenue (from Revenue Generation)	900.00
C	Direct Labor (from Timesheet Posting)	300.00
H	Intercompany Overhead Transfer In (from Cross Charge)	540.00
	Profit	60.00
Employee Organization’s Income Statement
H	Intercompany Overhead Transfer Out (from Cross Charge)	(540.00)
I	Actual Overhead Costs (Employee’s organization)	538.00
	Profit	2.00

If You Choose Approach 3

• Labor and revenue "belong" in the project's organization, so no cross charge entry is made for labor.

• Overhead "belongs" in the employee's organization, so no cross charge entry is made for overhead.

• The cross charge process creates a journal entry moving consultant expense from the employee's organization to the project's organization.

Project Organization's Income Statement
A	Project Labor Revenue (from Revenue Generation)	900.00
C	Direct Labor (from Timesheet Posting)	300.00
H	Intercompany Consultant Expense In (from Cross Charge)	540.00
	Profit	60.00
Employee Organization’s Income Statement
H	Intercompany Consultant Expense Out (from Cross Charge)	(540.00)
I	Actual Overhead Costs (Employee’s organization)	538.00
	Profit	2.00