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What Makes Job Costing So Important

Aug 27, 2008
Job costing is important in construction industry for tracking the expenses incurred against the revenues produced by a project. It is very useful tool for building contractors, subcontractors, architects and consultants and others who track a high dollar volume per customer with a low number of customers. This may not be suitable for industries that have a high volume of customers like retail as revenues and expenses per customer may be impossible to track.

Accounting software that uses job costing is very important to enable the tracking of a number of factors and analyzing the results to aid decision making. The accounting software should easily generate a job costing report that helps the contractor ensure that all costs involved in a job have been properly invoiced to the customer. Another benefit of accounting software is the easy comparison of cost estimates versus actual costs and quoted revenues to actual revenues. This, in turn, will help the contractor analyze any variances between an estimated quote and the actual result. As a result, accurate quotes on future jobs can be made on this data.

Job costing in the real estate business will easily identify profitability of the different construction jobs in progress. The contractor can then concentrate on projects that can add or improve to the profitability of the company. On the other hand, unprofitable projects can be shunned in the future or turn around the unprofitable projects by making them more efficient. An effective job costing should track the costs involved in a project, ensure that all of the costs incurred are charged to the customer, and produce detailed reports of costs and revenue per job.

Job costing starts quotes, which are also known as estimates of projected costs before a job is awarded. Quotes are important in job costing as a means to track expenses as the construction progresses. Costs can then be compared with quotes so that expenses incurred in a project do not grow disproportionately. Effective job costing will identify cost variances so that management can deal with these quickly.

There are basically two types of jobs in the construction industry, fixed fee jobs and time and materials jobs. Fixed fee jobs are an agreement to complete a job for a customer for a set price, no matter what costs are incurred. Fixed fee jobs give the customer the peace of mind that he will only a fixed amount previously agreed upon by both parties. Fixed fee jobs are usually set at a higher price than a time and materials job because the contractor will usually set the quote high enough to cover any unexpected costs.

Under a job for time and materials, costs of labor and materials are passed on to the customer. A mark-up for overhead and profit may be built-in as a percentage of each item or stated as a separate line item. Time and materials jobs are often preferred by the seller, as any unforeseen costs may be passed on to the customer.
About the Author
Matthew Stanton writes an article about Job Costing and how one business can benefit from doing such task on a regular basis. Simply visit this website at Job Costing
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