Seeing parts margin apart from workshop labour
Where a workshop's parts sales and labour land in Achekam's ledger, how to read parts margin from the income statement, and what can distort it.
By Achekam · · 4 min read · For Automotive businesses in South Africa, Nigeria, Kenya
Ask a workshop owner whether the business makes its money on parts or on labour and you often get a shrug. Both arrive on the same job, both are paid for at the same counter, and at month end there is one sales figure. Yet the two behave very differently. Labour is time you already pay for; parts are stock you bought, carried and sometimes wrote off.
You can see the two apart in Achekam's monthly figures, but only if parts and labour reach the ledger by different roads. This article explains which road each one takes, how to read the result, and what makes a parts margin look better than it really is.
Where till sales post
Every sale rung up at the till that reaches the server posts a balanced journal in the same step. It includes:
- the payment, to the account for its method (cash, card, EFT, M-Pesa and so on);
- the sale itself, to revenue account 4000;
- the output VAT, to account 2150;
- cost of sales, to accounts 5000 and 5100, against inventory in account 1300, at the product's cost price.
So a part sold at the till brings its own cost with it. The income statement shows what you charged and what the part cost, in the same month, from the same sale.
Where invoices post
Customer invoices take a different road. All invoice revenue posts to one account, Professional Services Revenue (4100), whatever the line says, and a line cannot name another sales account. Invoice lines are typed in rather than picked from your product list, so an invoice neither moves stock nor posts cost of sales.
For a workshop that is useful, as long as you use it on purpose. If labour goes on invoices and parts go through the till, account 4100 becomes your labour income and account 4000 becomes your parts income, with the parts' cost sitting right underneath it.
Reading parts margin from the income statement
Management accounts in Achekam show an income statement for a period you choose, beside the period before, and a balance sheet at period end, added up from your own journals. Both export as PDF or CSV.
A worked example in words. Open the income statement for last month:
- Take revenue in account 4000: that is what customers paid for parts at the till, before VAT.
- Take cost of sales in accounts 5000 and 5100: that is what those same parts cost you, at the cost prices on the items.
- The difference is your parts gross margin. Divide it by the parts revenue to get the margin as a share of sales.
- Account 4100 is labour (and anything else you invoiced). It has no cost of sales beside it, because the cost of labour sits in wages.
Compare the result with the month before, which the statement already shows beside it. If you want a fuller explanation of the measure itself, Investopedia's guide to gross margin explains what share of sales revenue a business keeps after the direct costs of the goods it sells, and how to calculate it.
You can also set a budget per account and period and compare it with actual figures, so a target parts margin can sit next to the real one every month.
Why the margin depends on the cost price you typed
Cost of sales uses the single cost price typed on each product. There is no FIFO or weighted-average costing. And no screen lets you change a product's price or cost after creating it.
That puts a lot of weight on the day you create each part. If a part was created with last year's landed cost and the supplier has since raised prices, every sale of it shows a margin that is too high. If an imported part's cost was rounded up, the margin shows too low. Setting cost prices for imported parts covers how to work out a cost that holds.
Questions to ask when the parts margin looks too good
A parts margin that suddenly improves is more often a bookkeeping effect than a buying triumph. Go down this list:
- Were parts typed onto invoices? Then their sale went to account 4100 with no cost of sales, and their purchase cost sits elsewhere. Labour looks richer, parts look thinner or vanish. Why parts on a workshop invoice do not leave stock explains the fix.
- Are cost prices out of date? Check the cost on your top-selling items against the latest supplier invoices.
- Did stock go missing? Stock counts, wastage and transfers do not post to the general ledger; only till sales and till returns move the inventory account. Shrinkage found in a count will not show as a cost unless your accountant posts it.
- Were parts given away on warranty or comeback jobs? If they were rung up at nil, the cost still posts but the revenue does not. That is a real cost; make sure it is the one you expected.
- Is the period right? The year-to-date preset in management accounts starts on 1 January, not on your own financial year start, so set the dates yourself if your year starts elsewhere.
A monthly habit
Each month, export the income statement as CSV, put parts revenue, parts cost and labour revenue side by side for the last few months, and look at the trend rather than one month alone. The same reading discipline that partners in a consultancy apply to their monthly pack, described in a monthly management pack for partners, works just as well on a workshop floor. Start with last month's figures this week.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
