Finding Out The Cost of Your Job
Job costing is an accounting practice whereby costs are accumulated by job. Generally, you will be tracking direct material and direct labor until the job is completed. Once you add overhead to the figures you generate after tracking the labor and material, you know how much your job cost is. This allows you to determine the profit margin of each job which will help you to estimate funding for future projects.
One step in projecting the profit of a particular job is on the labor side. You will determine the man-hour rate. When you have this figure, you will know what you need to make per hour on each job to meet your labor expenses. Determining this will also allow you to find the actual man-hour rate you are getting on jobs you have done. Through this exercise, you will probably find just because a project brings in a lot money, doesn’t necessarily mean it is more profitable.
To calculate the man-hour rate you will need to know how many workers you have, how many hours they work per week, and how many weeks are in your season. You will need to figure your yearly costs and desired profit margin. To determine your gross dollars per production hour, you will take the total costs plus the profit margin and divide it the your total yearly man hours. This will be your target man-hour rate per job.
To find out how close you are coming to meeting this amount, take the amount of man hours to date and divide it by the gross revenue from property to date. Paying attention to where the time is going is an essential step in trimming project costs. Once you begin tracking time, you can see if your rate per job is on track and this will allow you to monitor your laborers effect on your bottom line. In better times, you may have been able to absorb the inflated true cost of your employees. However, in today’s economy, the personal e-mails, smoke breaks, and not accounting for the training curve will ruin your budget.
With this information you can determine if hiring a better skilled employee at a higher rate will help your bottom line or hurt it. The longer you track your jobs, the better your information and, in turn, you can arrive at a more informed decision.
How to Prepare an Effective Analysis
Much like accounting, you will need to have a main category or “account” underneath that you will need to add subcategories. The subcategories should roll up into the main category or categories. Begin by creating a thorough outline of the job you will be monitoring. The more minute you get your outline, the more accurate the logged time spent and materials used on it on it will be.
Job costing will be more effective if you have similar jobs that you can monitor. Once you have all of the data for a completed job, roll up your subcategories into the main categories and compare the figures to the profit margin you anticipated. Use software such as Quickbooks for your job costing to prepare an effective analysis. Job costing works best if you prepare a projection prior to the job start. At the end of the project you can compare your projection or budget to the actual cost for the best realtime job costing analysis.
There is no downside to taking a little bit of extra time and costing out your job in both labor and materials. The old adage, “Measure twice, cut once” is much like the advice “Cost it out correctly, profit every time”.