Category: Job Costing

• What Is The Importance Of Job Costing?



To understand the profitability of a potential project, you first need to know what things cost and factor them in. This requires job order costing, a process that puts a price tag on every process in your supply chain.

This is not only important, it must also be done correctly. This piece will look at the job costing process and how it should be done right. 

What is job costing?

Job costing or job order costing is the method a company uses to determine the cost of manufacturing items for a particular project. The primary elements considered when performing job costing are labour costs, material costs and manufacturing or factory overhead, but each of these will have subsets that need to be conserved such as third-party fees. This needs to be done with precision to ensure that projects are concluded successfully, on time and within budget. 

What are the important features of job order costing?

As mentioned above, the three main features to consider when job costing are material, labour and overhead costs. Here’s a closer look at each of these.

Material cost

When manufacturing products, you have to determine both the direct and indirect costs of your materials. The direct costs relate to raw materials that are used in the manufacturing of the product. The indirect costs of materials are those needed to supplement the production process. When manufacturing wooden furniture, the direct cost would relate to the wooden materials and nails. However, the indirect costs would be items such as oils needed for the maintenance of the equipment. 

Labour cost

Another feature is the cost of your employees involved in the production process. Once again, these can be subdivided into direct and indirect labour costs. Your direct labour refers to those employees whose day-to-day job is directly related to the creation of the product. However, the running of a business requires more than just those involved in production. There are administrative staff, cleaning staff and others who all contribute – albeit indirectly – to the process. 

Factory or manufacturing overheads

Where you perform your operations will also factor into your costing – as every venue has costs involved. Besides material and labour costs, you will need to consider elements such as water and lights, cleaning products, tax requirements, and even the depreciation value of your property and equipment. This all goes into how much a job will cost you. 

How to calculate job costing

The sheer quantity of items that need to be considered when job costing is vast, but it must be done. Now that you understand the ‘what’ it’s time to move on to the ‘how’.  Here’s an overview of the steps that need to be taken. 

Step 1: Establish the scope of the job

Sit down and consider all the factors that will contribute to the project so that you understand the scope before outlining an estimate. The time frame, material requirements and other elements must be considered. In furniture manufacture, you’ll need to look at everything from the amount of wood needed to the electricity consumption.

Step 2: Cost calculation

Once you’ve established an itemised list of the job requirements, it’s time to put price tags on those elements. Remember to incorporate both direct and indirect costs so that you’re not out of pocket. 

Step 3: Establishing a comparative base

While some of the elements can be worked out in isolation, much of the job costing requires you to compare it with previous jobs done. For an experienced company, this can be a fairly simple undertaking as it means comparing costs from a previous job and factoring in inflation and petrol price increases – among others. For new businesses, this will require a bit more research. 

Step 4: Quote for the job

Once you’ve put your job costs together, you can submit this to the client as a quote for a potential job. If your client is happy with the costing, they will accept the quote and you can begin work on the job. 

Step 5: Maintain your cost sheets

Unfortunately, job order costing doesn’t end at the quote – you need to constantly monitor the cost of the job while in operation to ensure you’re remaining within budget. This ensures you’re on top of any incorrect costing or inefficiencies before they snowball.

Step 6: Cost revision

On successful completion of the job, you need to go over your costing and update it with any additional costs incurred or savings made, which will then be provided to the customer. This way, they’re able to understand the final amount. 

Who uses job costing?

There are many organisations that use this process in their project planning. These include:

• Marketing and advertising agencies
• Construction companies
• Consulting firms
• Energy utilities
• Engineering
• Manufacturers
• Retailers
• Transportation and logistics providers
• Health care providers

What are the advantages of job costing?

There are many reasons you need to perform a thorough job costing ahead of a project. These include:

• Establish job profitability

There’s no reason for taking a job if it isn’t going to be worth your while financially. Through job costing, you’re able to establish the actual amounts you’ll owe for material, labour and overhead and how much you’ll have to charge to make the project profitable. 

• Creating a database

Once you’ve performed enough job costings, you have a really valuable collection of data that can be drawn on for future projects. It does take some time to put together, but once you’ve done a few, you’re benefitting from a useful database from which to work. 

• Monitor your costs

Another great benefit of job costing is it makes you analyse how much you’re spending, directly or indirectly, and where you can improve operational efficiency. You might find yourself overstaffed. Or possibly that you can reduce your electricity consumption. Implementing cost-saving technology can really assist in the long run. 

What’s the best way to cost jobs?

There’s no doubt that job costing is a really massive undertaking. Fortunately, there is innovative software that can automate the process for you. An integrated software solution, such as ERP, includes modules related to inventory planning, human resources, customer relationship management, etc. Through this software, you’re able to monitor your costs and quickly run estimates. 

The benefits of job costing software include:

• Quick estimations
• Real-time reporting 
• Accurate job costing
• Reduction in customer conflicts

For a customised ERP solution that makes job costing that much easier, contact Omni Accounts today.

• Estimates vs Actual Costs: Do You Have an Early Warning System?



 

Estimates vs Actual Costs: Do You Have an Early Warning System?

With the constant threat of load shedding, fuel hikes and many other escalating costs to contend with, businesses have to keep on top of their estimates to minimise any loss. In this piece, we’ll give you a clear idea of how estimates and actual costs can differ, and how to manage this so your business doesn’t suffer.

What Is an Actual Cost?

This is simply the actual amount you pay for a product or service recorded in the accounting books. It will include the cost for an entire project such as labour, materials and any other miscellaneous expenses.

What Is a Cost Estimate?

When compiling a cost estimate, you will gather the standard cost related to items such as labour and materials to provide an estimate for a project. This is a highly flexible number as various circumstances will come into play here that could impact the actual cost.

Factors that impact your job costing:

• Clearly outlining the tasks of the project;
• The availability of updated and valid data;
• Provisioning for any uncertainties;
• A broad participation in preparing the estimates;
• An independent review of estimates;
• Taking inflation into account;
• Standardising all the structures for estimates;
• Considering possible excluded costs; and
• The review of estimates for any major project change.

What Are the Key Differences Between Estimates and Actual Costs?

1. Variance

This is literally the difference in amount between the estimation and the actual cost of a job – you want a favourable variance where the actual cost is lower than the estimate, rather than the other way around.

2. Financial statements

The estimated costs include the net sales amount and remain separate from the financial statements whereas the actual cost will be a separate entry in the statements.

3. Inventory value

Job costing will value inventory at a pre-established price with variances added to the product costs, whereas actual costs show the final production cost.

Tips for accurate cost estimation

Minimising variance is key to costing, which is why you want to get it right the first time. Here are a few tips to consider before we look at the actual techniques involved in cost estimation.

1. Define the purpose: Figure out how much detail is required and who the estimate is intended for.
2. Develop a plan: Get your cost-estimating team, outline your approach and timeline before assigning relevant tasks.
3. Figure out the characteristics: Create your baseline description such as system configurations, schedules and strategies.
4. Determine your approach: What’s your work breakdown structure and estimating method for this?
5. Rule and assumptions: Know what will be excluded from the estimate.
6. Data collection: How will this be done and how will the cost drivers be identified?
7. The point estimate: Create a cost model by estimating the work breakdown structure.
8. Sensitivity analysis: Determine the sensitivity of your costs to changes in estimations.
9. Risk and uncertainty analysis: All the risks associated with each item and management techniques.
10. Document: Keep every step of the estimation documented.
11. Presentation: The estimate should be presented to necessary stakeholders for approval.
12. Updates: Changes to the estimate must be updated and reported on, with notes taken for future projects.

Techniques for Cost Estimation

Now you have a firm grasp of the steps involved in getting to and implementing a cost estimate, here’s a guide to some of the techniques currently used for the most accurate costing.

– Statistical Modelling

This estimation technique relies on historical data to calculate projected costs, including the changing of any project elements.

– Analogous Estimating

Experts who’ve worked on such projects previously can assist you in creating cost estimates, particularly for the early project stages.

– Three-point Estimating

This is where you consider three scenarios when estimating; most likely, optimistic and pessimistic ranges.

– Bottom-up Estimating

This is where you estimate every individual task and tally them for the project cost.

– Reserve Analysis

This determines how much contingency reserve is needed to avoid any uncertainty.

– Digital Tools

One of the most useful tools for accurate cost projection to prevent inaccuracies is implementing relevant job costing software. This will incorporate the aforementioned techniques to facilitate the entire process while tracking the costs as the project continues.

What Are the Benefits of Using Job Costing Software?

There are many reasons why industries across the board are implementing job costing software to decrease the variance between estimates and actual costs.

– Cost Comparisons

Reputable job costing software will allow you to import prices from your suppliers and compare them with others, as well as amend quantities where needed.

– Storage and Tracking Information

Cost tracking software can store all the relevant data in one central database so that you can easily access details related to pricing without duplicating and mislaying files.

– Easy Recalculations

There are always changes to project costing as quantities or prices change, and performing this manually is not only time-consuming but high in risk. With job costing software, you’re minimising hassle and risk. In fact, the right software will automatically adjust all relevant areas so there is no room for error.

– Monitor Construction Costs

For those in the construction industry, job costing software is suited to preparing bids, calculating prices and quantities. It is also suited to monitoring any changes to cost estimates once the project is underway. This means keeping on top of project costs at all times.

– Technological Integration

This particular cost estimating software should be able to communicate with your other project management applications including accounting and management tools. This gives you the freedom to collaborate with all stakeholders so everyone is constantly on the same page.

– Scalability

Your job costing software should be scalable so that, no matter the size of your business, the software should suit your operating needs. This means anything from an advertising agency to a complex manufacturing industry should be able to rely on the software.

– Determine Profitability

Because the software allows you to assign separate costs to individual operations, you can calculate the profit margin for each specific product so you can make informed business decisions.

– Assess Performance

Your great job costing software will allow you to monitor not only the progress of the project but also the performance of your employees in every department. This provides valuable insight for performance evaluations at a later stage.

– Increased Accuracy

A quality job estimation tool will ensure complete accuracy throughout the project. This will ensure complete accuracy by calculating direct and indirect costs, and keeping track of all project changes every step of the way.

What to Look For in Job Costing Software

When choosing the right job estimation software for your business, there are a few things you’ll want to consider before investing. These are:

Depth of features: If you require more than simply comparing estimates with actual costs, then check the level of features your software provides. You might need to assign budgets and costs to activities as well.

Industry-specific: Generic software will often be cheaper but you might require something that is more industry-specific for construction, manufacture and the like.

Customer support: Most of us would prefer to have quick and comprehensive customer support, so check what your provider can assist you with in terms of training and ongoing assistance and support.

Report templates: Even with an entry-level system, check the software has basic templates that can convert your data into an easy-to-understand format.

Scalability: Anticipate business growth which means investing in a system with sufficient scalability. This allows you to take on new employees and contracts where needed.

When it comes to the top choice in job costing software, it’s best to work with Omni Accounts. These tools will allow you to manage costs accurately including labour, buy-out, stock usage and outwork costs. You can also plan raw material requirements, analyse actual costs against job estimates, determine the value of the work at all times and create additional job costing where needed.

Contact Omni Accounts today to find out more!

• How Do I Keep Track of Sales Quotes?



How Do I Keep Track of Sales Quotes?

Fact: Nurturing leads is a key component of good business practice.

Therefore, keeping careful track of sales quotes – which are considered among the more reliable prospects – makes sound business sense.

Do you know exactly what is happening in your sales department? How many quotes are your team working on? Which items are still in progress, which is urgent, old, or still actionable?

Answers to these questions (and a host more) are at your fingertips.

The smart extension you’re looking for is called job costing software. Once you have it integrated into your business accounting system, you’ll wonder how you ever did without it.

How Can You Track Your Sales Quotes?

Whatever the size of your enterprise, no one should neglect sales quotes. And if you’re a true blue sales geek, then tracking is in your blood, and you’ll love automated software’s control and overview.

Ultimately you want to improve your lead win/loss ratio right?

Salesforce well says; “Since every customer you serve represents an important relationship for the organization, every quote you present is a vital part of nurturing and developing these relationships.”

You will appreciate investing in software that enables every prospective customer to receive a service that makes closing the deal easy.

You may have thought you had it all in the bag when you set up your CRM software. (Which, by the way, was a great decision.) But there’s more. Imagine knowing, at the click of a mouse, how many quotes your team have sent, who on your team sent what, when, how, and to whom? What if there was a clever extension that details all the quotes your company sends?

Before we dive into the details, let’s take a look at what goes wrong in the quote to closure cycle and walk a mile in your customer’s moccasins.

A Customer Perspective on Tracking Sales Quotes

Our friend, Anonymous, contacted three different companies for quotes for executing the same task.

1. Sales Quote Disaster

First, a salesperson was asked to deal with the quote. After a reasonable amount of time passed with no sales quote arriving, Anonymous called the manager. A quote was hastily arranged after a few technical people swung into gear. Anonymous ordered but heard no more, so cancelled the order.

2. Sales Quote Failure

The second likewise passed the contact on to salespersons who failed to follow up. A quote was once again generated when Anonymous called again. The figure was over-the-top, so Anonymous questioned it and was told things were tough since Covid. Really? So we load quotes? No deal there for Anonymous.

3. Sales Quote Falls Through the Cracks

The third group seemed to engage more vigorously and a sales quote arrived as promised. Anonymous waited before accepting to see what would happen. After two weeks, he was clearly not important enough for follow-up protocol and was obviously forgotten.

These are sad stories indeed, but oh, so real. Read on if you want to be sure this is not happening in your business.

Sales Quotes, Untracked

There is an undeniable sigh of relief from salespeople who get to the quotation stage. However, as you well know, the job is still far from a done deal. Prospective customers who have been supplied with quotes need to be kept tight in the pipeline.

There is no doubt that untracked sales quotes continually fall by the wayside. Some progressive companies employ a Customer Success Manager (CSM) to bridge the gap, close the cracks and assist the business in navigating the journey to closing.

Give your newly appointed bridge-over-troubled-water CSM a tool that tells them exactly what’s happening in the quotes department in real-time. Watch your quote-to-order success rate climb with the right tools for the job.

Cloud-based Automation Quotation Tools

Cloud-based tools can certainly increase your conversions in targeted sectors and are great when integrated into your own systems.

The flow looks something like this:

1. Re-route – website queries, emails, referrals, or calls get sent on to your projects manager.
2. Online Forms – are to be created to keep everyone in the team in the workflow.
3. Notification station – project manager gets quotation info onto forms and allocates appropriate staff.
4. Business Owner Check – once ready for review, the business owner receives the form for signing off.
5. Send Quote – on approval an appropriate template is selected and the quote sent.

Nice to see a good quote-to-sale process, but it still seems like there is a lot of manual effort involved.

Switch for Track Sales Quotes

If there was a magic switch you could flick to get a grip on your sales quotes, there’d be no looking back, right?

It is not just possible, but imperative that you either get hold of a quote tracking add-on or find the right accounting solution that has the switch you need to up your sales quote win ratio.

The ideal is real. You can have a seamless workflow from inquiry, to quote and follow up complete with an automated invoicing cycle that leaves your team free from paperwork overload.

How Do You Automate and Track Sales Quotes?

Good question, and it means you already understand how much time and man-hours you save with comprehensive automation processes.

The simplification is brilliant in itself, let alone how much time and human error is spared. Once you have a fully automated module, quotations become part of the system’s chain of operation.

With quote tracking software and job costing extension add-ons, sent quotations do not affect your stock, nor will sales transactions be created. The idea is to track sales quotes and keep a tight rein on this otherwise nebulous part of your operation, which should generate more sales for you. A logical add-on or switch portal links the customer-quote document, which your customer would have been sent.

Quotations usually have an expiry date, so smart software enables you to generate either a sales order and/or an invoice from that documentation.

Once the quote has been accepted by a customer, the quote is linked to the relevant customer account as well. Your system should ideally be fully integrated with your accounting software so that your whole business module will be synchronized.

Track Sales Quotes Across Devices

In order to have an automated accounts system that tracks sales quotes efficiently, you have to do your homework. You want to look for data automation moving in and out of the accounts module.

Imagine for example, that you manage a salesforce and you need to synchronize data moving between handheld devices and your accounts department. Quote-tracking automation means real-time transactions, proposals, and changes even at this embryonic stage of prospective sales are simultaneously updated across all platforms. Similarly, data movement between your website and your accounts system is updated in real-time.

It becomes possible with a system that tracks sales quotes to set up additional checks such as helpful reports running automatically at set times of the month. This includes having necessary reports emailed to specific users on your system.

In certain high-end module automation, it is possible to ‘silent call amounts using pre-set commands to perform specific tasks automatically.

Tracking sales quotes is not only an efficient way to plug up leaks in your business system, but it also enables you to automate your processes and increase productivity. It’s an old cliché, but most apt in this instance, ‘you have nothing to lose and everything to gain.’

Contact us at Omni Accounts – we have branches in 4 provinces, so pick one of our helpful and understanding experts for advice on the perfect set-up for your business.

• How Do Accurate Quoting Systems Give You a Competitive Advantage?



How Do Accurate Quoting Systems Give You a Competitive Advantage?

If you were to take a stab at how long it takes your sales team to respond to a customer’s request for a quote, what would that number be?

We’ll leave you to ponder that while we explore the fascinating topic of the role fast and accurate quoting systems play in the health of your business. You’ll likely be surprised at the far-reaching effects that they have.

As you read, we invite you to measure your current systems against the ideal and note how a little money spent on a reliable and speedy system adds up to major business benefits.

What is a Quote Management System?

A quote management system is a piece of software that allows a business to generate, send, and track customer quotes.

It’s easy to scribble some numbers on a sheet of paper and call it a quote. A professional business, though, is more likely to use a quote management system which is a fast and accurate way to serve your customer needs.

Ideally, a quote system is not a stand-alone application. Rather, it should integrate with other business processes to create a seamless flow from quote to sale. Quote systems are ideal for industries such as manufacturing, engineering, and construction that deal with a final product made up of multiple processes and parts.

Quotes Versus Customer Experience

A subject that we’ve touched on before and one close to our heart is that of customer experience or CX. This simple term sums up every touchpoint between your company and your customer. This could be online, a conversation with your receptionist or a call to your sales team. The feeling that your customer comes away with is their CX, and all too often, you only get one shot at making it awesome.

When a customer asks for a quote, they are considering buying from you, right?

This is the result of labouring over marketing, advertising, the perfect web design, the best pricing, market positioning, and a host of other factors.

Did you know that 30 – 50% of sales go to the vendor that responds first?

These stats are not limited to B2C interactions.

“Among B2B decision makers, lack of speed in interactions with their suppliers is the number one pain point, mentioned twice as often as price.” (Source)

Speed is the result of a streamlined quoting system that takes the pain and frustration out of providing an accurate quote.

How Important is an Accurate Quoting System?

Just for a minute, let’s put ourselves in our customers’ shoes while we answer this question.

The Early Bird

With reference to the statistic mentioned above, when you’re first out of the starting block with a clean and correct quote you gain an immediate advantage over your competitors. As your customer, there’s a strong possibility that we’re already knee-deep in negotiations and the finer points of your quote before the competition sends along with their offering.

Do I really want to start this process with another company? I have limited time and capacity as it is without having to run through a series of questions with another group of salespeople. Remember, we humans prefer fewer hoops to jump through and will readily take the course of least resistance.

Impressive First Impressions

Perhaps they’ve dealt with your company before, perhaps not. If this is their first contact with your organisation, then this is the time to make an excellent first impression. A quick turnaround and an accurate quote tell the customer that you are a professional business and their business matters to you.

Conversely, if you’re battling to get a simple quote to them in their expected time frame, what are the chances of delivering a good product or service? Food for thought.

Speed and Accuracy

Never do we want our salespeople to hustle to get a quote out quickly at the expense of accuracy. Both are critical in the race to secure the sale and an automated quoting system will give you both.

Intelligent Quoting

When a quote is complex and needs to pull information from several sources such as in the manufacturing industry, things can get tricky. Taking the guesswork out of your quote by including details of additional parts or third-party services highlights your accuracy and professionalism.

As your customer, I see that you have taken the time to include the finer details of my request so that there are no surprises down the road. This also means that, if a competitor comes in with a lower price but a less-detailed quote, I’m still more likely to do business with your company as I know exactly what I’m working with.

Customer Relations

A quote that ties in automatically with your CRM, adds the details to your customer records and updates these as the process unfolds, irons out so many potential issues. This same information is being fed into your accounting system, and your customer communications are carefully recorded for future reference.

As your customer, when I receive an accurate and timely quote followed up with a confirmation email (where all my details are correct) and a detailed contract, I’m satisfied that my business is in safe hands. My invoices all tie incorrectly with what was agreed upon, my emails to your business are handled quickly and any changes are reflected immediately.

Wow, I’m a happy customer right now!

What Can the Omni Job Costing Module Do For You?

Isn’t it interesting how multifaceted the quoting process can be?

In today’s business, those who employ integrated processes to create a logical and streamlined flow are more likely to win new business. They are also far more likely to retain existing customers who, incidentally, have been shown to spend 67% more than new customers over time.

The Omni Accounts Job Costing module does the thinking for you. It includes features such as:

• Linking a job to a quote and to the customer account
• Posting to job costing from source documents or from your stock room
• Allocating outwork to the job and customer information
• Allocating sundry costs on the job and within your accounting system
• Accurately allocate labour costs with the option to configure employee profiles within their labour categories
• Determine the value of all your work in progress at any point.
• Synchronise accounting from start to finish
• Report on estimated costs versus actual spend during and after the project

Let’s Talk

If you’re planning on growing your business in this highly competitive economic environment, then there is no doubt that you need support from the right partners in the right areas.

Yes, quoting can be a trial for some. But it remains an essential part of business and when done right, allows you to tower over your rivals and offer better service to your valuable customers.

You have nothing to lose – chat with our team to find out more about the complex topic of accurate quoting systems. It’s our pleasure to assist you.

• Why is Job Costing important?

 



Why is job costing important?

Understand the importance for your business

Understand the importance of accurate job costing in your business. Our guide will give you all the information you need to know.

What is job costing?

Fundamental business skill is pricing jobs and services accurately so as to achieve the target gross profit margin. Job costing involves managing, tracking, controlling and categorising the costs incurred with every job or service offered. This allows you to keep track of where your money is being spent so that you’re coming away with the desired amount.

Who uses job costing?

Job costing is typically used in the construction industry, however, there are many other industries benefitting from this valuable functionality. These include:

• The healthcare industry – hospitals, clinics and doctors’ offices
• Private investment companies
• Engineering firms
• Accounting firms
• Law firms
• Advertising and marketing agencies
• Distribution organisations
• Food processing organisations

What calculations go into job costing?

There are many financial factors that will go into job costing, and while certain elements will change depending on the industry, these are the biggest factors to calculate for a specific job or project.

– Labour costs

You will have to assess how many staff members will be required to work on a job or project on a daily basis, and then determine the costs involved. The labour costs will also include any sub-contractors that will be brought in if your organisation requires such, so this calculation will require an estimated daily payroll for outside operators as well.

– Material costs

It’s important to consider all relevant material costs for any job, referred to as Bills of Material. In terms of construction, material costs will be related to timber, screws, wiring, and more. However, outside of the direct Bills of Material, it’s also vital that you factor in the indirect material costs related to items such as cleaning products and supplies.

– Overhead costs

These are the operating costs related to any job and can often be the most difficult to determine as you have to rely on an approximation, rather than the actual figure. Some of the overhead costs you will have to include are:

• Administrative costs
• Rental
• Utilities
• Insurance
• Office equipment (computers and telephones)
• Salaries (outside of those directly related to the project)
• Office supplies
• Depreciation costs related to equipment used

Some businesses, for better or worse, will charge a blanket overhead fee – such as 10 per cent of the job total. However, a job costing software system will help you deduce a much more specific amount, which works out in your favour in the long run.

Some job costing questions

Job costing allows businesses to identify opportunities and minimise overheads. A thorough job costing analysis will include questions, such as:

• Which are the most and least possible clients?
• Do we need to re-price clients?
• Are we running our jobs on budget and reaching target margins?
• Do we need to hire more staff?
• Who are the most productive employees?
• Can we identify any operational inefficiencies?
• Where can we direct our sales’ staff?

The advantages of job costing

Effective job costing will make a huge overall impact on your business operations. Here are a few ways your business will benefit:

– Enhanced profits

Job costing calculates individual projects, allowing you to determine which jobs are more profitable, and either re-evaluate or drop less profitable ones.

– Better performance

Using job costing you are able to evaluate individual performance data, which allows you to identify which employees are performing, and which need some assistance.

– Overview

You are able to assess the cost of every project, including all items and services, which gives you a better understanding of the business expenses overall.

– Flexibility

Determining overhead costs can be quite tricky, however, job costing systems will allow you to easily calculate these across various projects, for everything from small business to major operations.

– Enhanced accuracy

Modern job costing systems are incredibly accurate, so you can start a project without concerns about hidden costs.

Which job costing system to choose?

One of the biggest decisions comes down to selecting the right job costing software system for your particular business needs. This is an application of Enterprise Resource Management (ERP) software, and it’s important to partner with a reputable supplier that will match you with the correct job costing software, provide installation and necessary training and assistance.

 

• Job Costing

 



Job Costing Definition

The basic definition of Job Costing is the calculation of all costs incurred in order to do a Job. These costs can be comprised of raw materials, labour, outwork, and overhead costs.

Definition of a Job

What a Job is will depend on the type of business. A manufacturing business will define a Job as being the process to manufacture one or more products. In some cases, these products will always be made in the same way. An example is a company that manufactures bottles of vinegar. The number of products being made by a Job will also vary, depending on the type of product. Some manufacturing companies manufacture high volumes in a single Job. Other companies will manufacture small quantities often with a high value and often made to order for a customer, for example, a company making specialised trailer bodies.

Other businesses will define a Job as being work done specifically for a customer and where the item is manufactured, is to the customer’s specific requirements. An example here is a company making curtains and soft furnishings.

Jobs are also used in businesses that repair or service items. Motor repair workshops and plumbers fall into this category of business. Sometimes these Jobs will have a Quote done initially, so the price to the customer is fixed in advance, other types will raise a Quote but then add on any extra costs to the final invoice.

In essence, what defines a Job is not the same for all businesses. The common factor is that the actual cost of the Job, regardless of its size or duration is calculated.

Why Use Job Costing?

There are a number of benefits for Job Costing. The main benefit is that the costs of Jobs are accurately measured so that profitably can be calculated and areas, where costs are too high, can be identified and rectified quickly. In some cases, Jobs can be categorised and the average profitability can be calculated over all Jobs in a category. This can help to identify patterns and to investigate specific types of Jobs which are less profitable than others. Job Costing is also used to ensure the selling price of manufactured products are correct and, in the case of a business having more customer-specific type Jobs, that charges are being correctly calculated.

A Job can have an Estimate or a Quote linked to it, which will be used to measure the expected costs and usage against the actual cost. This helps to ensure that Quoting methods are efficient, with all costs being taken into account and realistic labour times being used. The same applies to Estimates.

Creating Jobs assists with planning. Regardless of whether you are manufacturing bulk items, making specific products to order, or repairing or servicing items, having Jobs can assist with the allocation of the resources required and issuing efficient purchase orders to suppliers to avoid time lost due to stock shortages.

Another valuable use of having Job Costing is the control over Work in Progress (WIP). This may not be a factor when the Jobs are low value and of short duration, but for many businesses, it is important to control the value of WIP products.

An Integrated Job Costing Software System

Depending on the complexity of the business, gathering, collating and analysing costs for Jobs can be time-consuming and complex. Often the difficulty of doing all this manually means that it just does not get done at all. An integrated Job Costing software can change all of that.

This is a software package that handles all the Accounting and Bookkeeping requirements as well as handling Stock or Inventory Control. The system allows the various costs, to be allocated to the relevant Job at the point at which the transaction is entered into the system. This drastically reduces the time factor and also improves accuracy. The system can also link Quotes or Estimates to Jobs and information such as raw material requirements and movements can be linked, making planning and WIP control more manageable and efficient. The system can then be used to analyse Jobs making it easier to increase productivity and profitably. These are just some of the basic benefits of having an Integrated Job Costing System which often falls under the ERP (Enterprise Resource Planning) terminology.

Examples of Integrated Job Costing

A company that manufactures custom made off-road trailers.

This company manufactures off-road camping trailers. They have four standard models which they supply to dealers on order but they will also modify a trailer to a customer’s requirements at an extra charge.

When an off-road trailer is ordered, a Job is created with all the customer details. For standard models, a Bill of Materials (BOM) is pulled in, which contains all the raw materials and labour costs that are required to process the order. The Stock Control system picks up the raw material requirements and will show if any items need to be ordered from the suppliers. Certain items may not be held in stock and the system will allow Purchase Orders for these items to be linked to the Job and when the goods are delivered the cost of the items are allocated to the Job automatically. Stock issued from the stock room can be linked to the Job as it is issued, meaning that all raw material usage is captured. Labour timesheets are also captured and linked to the Job, covering the labour costs. Once the trailer has been completed the Job can be invoiced out to the customer. If the trailer was ordered with some custom requirements, a Quote could be done when the Job is created, and once the trailer is manufactured the Quote is invoiced, thus ensuring that the invoice value is correct.

With a fully integrated Job Costing system, all transactions are allocated to a Job at the point that they are entered into the system. Supplier Invoices, Timesheets, Stock Issues, and Sales Invoices all are allocated to the Job, which gives control of the whole process from start to end. The Bill of Materials links into the Stock Control, highlighting shortages. This all gives the ability to extract information about the actual cost of the Job, as well as comparison to estimates as the Job progresses, without the overhead of data being captured more than once.

A plumbing company that does emergency repairs.

In this scenario, sometimes a quote will be given to the customer and at other times, the charge will be for the labour and parts used. A Job will be opened in the system for each job or repair for a customer. In some cases, a Quote will be linked to the Job. As stock or parts are used, they will be allocated to the Job; this can be either part bought from suppliers, parts from stock, and outwork done by suppliers. Timesheets capturing the number of hours worked by various employees will be captured, as well as travel costs and any extraordinary expenses. Once the job or repair has been completed, an invoice will be raised, either from the Quote or otherwise from all the costs incurred during the course of the job and marked up accordingly. As in the first example, reports can be extracted from the system, and once again, transactions are only captured once into the system.

Omni Accounts offers a fully integrated Job Costing solution that caters to many different types of Jobs and business environments.