The objective of Job Costing is to prepare for the onslaught of questions that will eventually show up during and after a big project. If your company spent $50 million in costs for this project, someone is going to ask:

  • Where did all the money go?
  • How much was spent on materials?
  • How much did we spend on labor?
  • How much was regular time hours and dollars, hours, and dollars and how much was overtime?
  • Where was the profit earned? Labor? Materials? Overhead?
  • What was our overhead application rate and was it accurate? What was the variance?

The beauty of recording the costs at such a low level is that one day someone is going to ask questions about this cost and that cost. Because you budgeted and tracked those costs in the General Ledger (GL),  your answers are immediate and thus valuable for the person asking. And, because those financial transactions are in the GL, you should be able to access them anytime. In effect, you are paying it forward.

To the folks who don’t work in the Job Cost world, this whole process may seem like a waste of time; however, you might want to recall the old adage that time is money. If you are selling cars for a living, you might want to consider how much time it took to make your gross earnings on your next paycheck. How much time did you spend on each customer to whom you sold a car and compare that to the amount of time you spent to not sell a car?

The Facts

You are a construction company and you have a client who wants you to bid on a project. If you decide to accept it, your mission is to budget all the expenses and then track all the expenses, including payroll, to the customer, by the project and each phase of the job.

Here is a solution using Plus & Minus Accounting Software

All Costs and Revenue amounts are entered into the accounts in the Budget section and those accounts are automatically shown in the recording section of the GL. At least this happens with Plus & Minus.

I will assume you treat all costs as Expenses and recognize the Revenue as it is invoiced according to the AIA (American Inst. of Architects) draws to the contract.

Because a project is more Cost intensive than Revenue intensive, I will start with the General Ledger (GL) Costs section and address the Revenue accounts later in Part 2.

Direct Costs

Direct Costs start with account number 5, which means all Direct Costs are recorded in the GL accounts starting with the number 5.

I segregate my expenses by type of customer.

I assigned account number 5010 for Government-related jobs and account number 5020 for non-Government related jobs. With Plus & Minus, you can have up to 99,999 GL accounts, but most big companies use under 500.

Now you proceed to a subaccount. With Plus & Minus, you have 999 million subaccounts available for each GL account to use, so don’t be afraid to be creative: just be consistent.

You assign a 3-digit number to your client; your customer’s name is the ABC company but internally you call this customer 897.

You assign a 3-digit number for the project for this client; this is project number 456 for this client.

You allow 3 digits for different phases of this project.

You allow 3 digits for different sub-phases of this project.

(You can divide the subaccounts any way you want.)

Now let’s show this in a GL format for this non-government client:

5020  001001456897

In the GL the name of this account will read as follows:

Non-Government, ABC Co, Proj 456, Phase 1, Sub Phase 1

What we are doing here is creating the backbone for cost reports separated by Sub-phase, Phase, Project, and Client company.

And the fun doesn’t stop here. We can use that same sub-account number for Direct Labor so the employees can record their time spent on a contract by sub-phase, by phase, by project, and by customer. And all the labor costs can be combined with the other direct costs for an Income Statement by sub-phase by phase, by project, and by customer.

Indirect Costs can follow the same procedures as Direct Costs

To be continued…