Understanding job costing

Definition

Job costing is the habit of tracking revenue and cost for one job, project, or order at a time. On the books, each job is its own pile of numbers, not a single monthly blend.

A kitchen remodeler who buys cabinets for the Maple Street house charges those cabinets to Maple Street. Paint used on Oak Avenue stays on Oak Avenue.

Cash-basis books may record the vendor payment and the customer check when cash moves. Accrual books hold open-job cost in work in process inventory and recognize revenue as the contract allows.

This method is a way to read one job. It is not a single account that lives on the Balance Sheet by itself.

Where it shows up

Balance Sheet: Related to work in process and unbilled amounts on open jobs.

P&L: Related to revenue and cost tracked per job.

See also: Direct Labor · Direct Materials · Overhead Allocation

When you look at your Balance Sheet, open jobs often sit in work in process. Cost already incurred but not yet billed can also sit as unbilled receivables if the contract lets you recognize the work.

When open-job balances are high, cash is often sitting in cabinets, tile, and labor that the customer has not yet paid for. When they are low, jobs may be billed as they go, or the shop may be between houses.

The Income Statement still shows the period's revenue and the related cost. Job files tell you which house produced those totals.

On the Statement of Cash Flows, paying suppliers and crews is the cash event most owners notice. Collecting a progress bill is the matching inflow; the job file is how you see whether that house covered itself.

How it works

The remodeler opens a job when the contract is signed. From that point, every cost that belongs to that house should land on that file.

Direct materials are the cabinets, tile, and fixtures you can point to in that kitchen. They move from the yard or the supplier into the job as they are used.

Direct labor is the crew time spent on that house. Hours from the timesheet are priced and posted to the same file.

A share of shop rent, trucks, and supervision is often added with an overhead rule. That allocation is a method sitting on top of the job, not a substitute for the materials and wages.

As the kitchen progresses, the owner compares cost on the file to the contract price. A job over budget is visible before the final invoice.

When the house is complete and billed, the job's cost leaves work in process. On a product shop, that move is into cost of goods sold; a service remodeler may use cost of services instead.

Stay with one job when you read these numbers. A good month on the company P&L can still hide one kitchen that lost money.

Keep the contract, the purchase tickets, and the hours that support the file. Anyone asking why Maple Street looks tight should be able to see the cabinets and the crew days.

Do not treat the monthly company total as the job result. The company total is a blend; this method is the per-house read.

After close, finished jobs no longer sit as inventory. Their revenue and cost already hit the P&L in the periods the contract required.

Example

A kitchen remodeler takes the Maple Street job for $24,000. Cabinets and tile cost $11,000, crew wages cost $5,000, and a share of shop overhead is $2,000.

The job file now holds $18,000 of cost against a $24,000 contract. The leftover $6,000 is what that house contributed before office costs that were never put on jobs.

Nothing in this method requires a single journal by itself. The materials, wages, and overhead each have their own entries; the job number is the tag that keeps them together.

If Maple Street later needs a $1,500 extra sink the contract did not include, that sink goes on Maple Street too. Oak Avenue's numbers do not change.

Common mix-ups

This method is not the same as a company-wide P&L. The P&L blends every house; job files show which one made or lost money.

This method is not only a timesheet. Hours matter, but cabinets, subcontractors, and a share of shop cost belong on the same file.

This method is not percentage of completion by itself. Percentage of completion is a revenue rule; job costing is the file that holds the costs that rule uses.

Related terms

• Direct Labor: Wages for the people who directly make the product or deliver the service.
• Direct Materials: Materials that can be traced directly to a finished product.
• Overhead Allocation: The method for spreading indirect costs across products, jobs, or departments.
• Work In Progress Schedule: The job-by-job schedule comparing cost incurred, revenue earned, and amounts billed.
• Gross Margin: Gross profit expressed as a percentage of revenue.
• Timesheet: The record of hours worked, used to drive payroll and job costing.
• Cost Variance: The gap between actual cost and the standard or budgeted cost.
• Percentage Of Completion: Recognizing revenue in proportion to how much of a job is finished.