Job costing

What it means

Job costing is tracking costs, revenue and hours worked by individual job, project or client. Every cost, invoice and hour of work is assigned to a specific job, so that at the end it is clear how much the company made or lost on it.

Job costing belongs to management accounting and complements tracking by cost centre. While cost centres show what a department or site costs, job costing shows the profitability of a specific deliverable for a customer. It distinguishes direct costs, which can be assigned to a job directly, from overheads, which are allocated.

For long-term contracts spanning the end of the accounting period, job costing is also the basis for recognising revenue and costs by stage of completion or valuing work in progress.

How it works in practice

For construction, IT or consulting firms, we help set up job costing directly in the accounting software. Each job gets a number that appears on purchase invoices, timesheets and material issue notes, so costs are assigned continuously rather than after the fact.

The most valuable output is comparing the cost estimate before a job starts with the actual result afterwards. The company learns which types of job it underprices in labour, where materials overrun and which customers are persistently loss-making.

With time tracking, it is essential that people record hours honestly and promptly. Inaccurate time records are the most common reason a job looks profitable on paper when staff actually spent far more time on it.

What to watch out for

Misallocating overheads is a risk. If all overheads are spread by revenue, large jobs with little labour can look worse and small labour-intensive ones better than they really are. For pricing decisions, the contribution margin before overheads should also be known.

Job costing only makes sense if conclusions are drawn from it. If management does not read the reports or change prices or its approach to loss-making jobs, it is just extra admin. Reviewing the largest variances once a month is enough.