How Job Costing Increases Profits

What is the point of taking on a project if you can’t accurately identify and estimate the costs? That makes it impossible to determine if it will be profitable or not.

If you are a business owner that has difficulty tracking the cost of a job, you could be pricing your work too low or not making a profit at all. It may not be easy, but managing and tracking your job cost is the only solution.

What is job costing?

Job costing is the process of accumulating the cost of labor, materials, and overhead, and then using that information to give an estimate. This cost determination process is important for carpenters, roofers, plumbers, and other businesses that provide services on a job-by-job basis.

If a business can’t accurately estimate these costs, it can’t determine its profit margins per job. When the actual cost of the job exceeds the estimate, then the company loses money. And now you see why it’s so important to accurately predict the cost of the job from the start.

A closer look at job costing

Determining the cost of mileage, maintenance, repairs, leases, insurance, supplies, labor, and other expenses needs to be broken down into economic units. You can calculate and allocate these costs into two different categories.

Direct expenses

These are your direct materials and direct labor expenses. They are the materials and hours “directly” associated with completing the job. While direct materials costs are pretty straightforward to calculate, direct labor costs are a bit more tricky. That’s because it’s not so easy to determine precisely how each employee spends their time.

For direct labor costs, leveraging technology makes job costing a whole lot easier. Based on how employees fill out their timesheets, it can allocate the right percentage of labor costs to the job, which can include payroll, benefits, taxes, paid time off, insurance, and training.

Indirect expenses

These are all of your overhead expenses; utilities, rent, office supplies, and so forth. These are the costs associated with keeping your business up and running. If you don’t include them in your job costing, then you’re losing money. They include salaries, telephone bills, printing, accounting fees, legal charges, and so on. These costs are shared among departments and segments within your business.

For job costing, your indirect expenses need to be included in each job. For example, if you have liability insurance that costs $50,000 a year, that would be $4,167 per month. With the help of your accountant, you can divvy that up among the different jobs you have for that month. Now you no longer have a $50,000 overhead—that expense is an indirect job cost.

Job costing made easy with time tracking

Manual reporting is time-consuming and inaccurate. If you have employees that fill out timecards, their hours might get reported days later. This makes it difficult to determine which job they worked and what hours to assign to each job. Plus, they may have written down different hours than they worked. This can lead to overcharging or undercharging clients, which can give your company a bad reputation.

With an automated time tracking solution that provides robust reporting, business owners can keep better track of their direct and indirect expenses. The InfiniTime workforce management system integrates with hundreds of payroll systems and accounting packages. This will give you all the information you need to make accurate job costing to ensure a profit is made on every project.

To learn more about how InfiniTime can help with job costing for increased profits, request a demo today.

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