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Secrets of JC PDF Print E-mail
Written by Cecilia Chee, Singapore   
Tuesday, 04 October 2011 11:18

 

 

Secrets of job costing

OK, these aren’t really secrets, but if you want to use job costing effectively, you need to understand these three concepts. The people who are frustrated with job costing most likely don’t understand these concepts.

  1. Job costing uses items. You should use items when purchasing as well as when selling goods and services if you want to use job costing. This means using an item type instead of an expense type on a check, bill or credit card charge.
  2. Items must be set up properly. In the new item dialog box, you select the I buy this item check box for items that are purchased, the I sell this item check box for items that are sold, and fill out the standard cost field if you are using standard costs.
  3. The same items used to record costs for a job must be used to invoice for the job. Expenses become revenues, and to be able to compare direct costs to gross revenues, you must use the same item on both sides of the transaction.

Of these three secrets, the third may be the most difficult to achieve. Often the bookkeeper meticulously enters bills and records checks using items, and has the items set up properly, only to have the owner invoice the job using a generic item rather than the items used to record costs for the job. If this is your situation, you have two options: either re-educate the owner about proper invoicing procedures, or, if the owner insists on a simple invoice for the job, let the owner create job invoices in Excel or Word, and create a matching invoice in Small Business Accounting using the proper items.

 

 

Think about how you purchase for a job

Can you identify your customers when you purchase materials for a job? If so, then you can enter the job name in the bill or check and associate the expenditure with a specific job. Now you can use Small Business Accounting not only to track your expenses by job, but you can also convert those bills into invoices, making sure that all expenses are accounted for and nothing falls through the cracks. By using the same item on the bill that is used on the invoice, your job cost reports will show cost, revenue and profitability by item.

Do you have items that are purchased in bulk and later allocated to a job, so that at the time of purchase you don’t know which customer will receive each item? If so, then you can use standard costs. Since you don’t know which customer will receive the item being purchased, you cannot assign the cost to the customer at the time of purchase, but by using standard costs, the standard cost will show in job cost reports when the item is used on an invoice.

Do you have large dollar amount items that you keep in stock, and don’t purchase for a specific customer? Use inventory items to track the cost of these items, and your job profitability reports will show revenues and actual costs on a first-in, first-out basis.

Last Updated on Tuesday, 04 October 2011 12:34
 
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