Accounting • Proven • Driven
Job Costing in Company Accounting, What are the Advantages & Disadvantages, What Formulas & Software to Use?
Job costing is gathering the costs of materials, labour and overhead for a specific project. This approach is an excellent tool for tracing specific costs to individual jobs in order to invoice your customer as well as evaluation for quoting comparable future projects. This method of costing is commonly used in businesses involved in construction, interior design, and manufacturing of a product at a small-unit level. For example, job costing is applicable in calculating the cost of manufacturing a custom machine, house and building construction, or manufacturing small batches of a product.
Material: The cost for direct materials like wood, steel, cabinets as well as indirect materials like nails, and glue. Any rented equipment is to be included as well.
Labour: Employees charge their time to a job when they fill out their time card. The resulting labour cost will show in the job cost report.
Overhead: Non-direct costs are aggregated into one or more cost pools, and costs are allocated to open ongoing jobs based upon a measure of cost usage.
The job costing record (or project code) is a unique job number with information about the job. The bookkeeper and business owner can review the job costing report to ensure that a specific cost should really be assigned to that job.
Typically, there are many jobs currently in progress at varied phases of completion; there is a strong chance that the costs may be incorrectly assigned. The very nature of the job costing system makes it highly auditable.
For jobs spanning a long time period, the bookkeeper can periodically compare the costs accumulated and alert management when the costs are running over the estimates. This feedback provides for management to take corrective action either to get the costs under control for the rest of the project, or approach the customer for billing approval to cover some or all of the cost overrun.
Job costing takes a considerable amount of time and accuracy in the design and setup of the software and the processes needed in order to make it function effectively. By using the job costing modules within the bookkeeping software (QuickBooks, Sage, etc) us bookkeepers can run the process in a smooth and timely manner.
At Green Quarter Consulting - Accounting and Bookkeeping Services for White Rock, South Surrey, Langley and Surrey BC, we are here to help! We have considerable experience in job costing and are able to design and implement a system specifically for your business's job costing needs.