How do I record a product and labor loss from a job we had to replace because of faulty product? This is not a bad debt.

If you paid for an outside contractor to do the labor, then that is just an expense you paid.  Otherwise if an employee did the work there is no labor loss since you paying him anyway and payroll is already an expense.

You can account for the products being used in one of two ways

1. use inventory adjust, set the adjusting account to COGS, and lower the qty on hand

or

2. Sell the product to the customer for a zero sales price.