What Is Job Costing? A Simple Example
Job costing is the accounting function that tracks revenues and costs by job. Why is this important? It allows you to analyze actual job performance compared to your estimate. This means you have actual results to better compare job revenue and cost data to help estimate future jobs more accurately. Job costing is also the first step in being able to prepare our beloved Work-in-Progress Job Schedule that everyone who uses absolutely loves!
Job costing in itself is conceptually and actually easy – just add a job number to all transactions. Done! The only problem is that “just add a job number” is really just the start of job costing. But, because how you begin makes all the difference to your success, we’ll start there.
Your accounting software is like a file cabinet, made up of columns and rows. It is more complex than just a file cabinet, but in its simplest form, it’s a way to organize information just like a file cabinet. I’m not techy so I have to give you my version of software and in my mind, I imagine it with columns of titles and rows of transactions. Because I think in Excel, below is a picture of what it looks like in my brain:
See that “JOB” column? Job costing, in the beginning stages, is the act of filling out this cell in each transaction. Once you start filling out that cell in each transaction, that column populates. Once that column is populated, reports can be run in your accounting system by “JOB.”
Imagine the possibilities of having this data for all your jobs? Because we are job costing transactions related to each job our company performs, we can tell others how much we spent to complete job 1234 vs how much we spent on job 5678. Billing gets easier because we know how much cost is in the job and therefore we can cover our costs. Profitability typically rises because we are paying attention to the costs we have per job. Not to mention that job costing gives a sense of control in our lives. We are in charge of the job and its costs and revenues and we can prove it by running a report!
Job costing is awesome!