PG 1. Collecting job costing data is simple if you set up your spreadsheet data properly.

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2 PG 1 Collecting job costing data is simple if you set up your spreadsheet data properly.

3 PG 2 Understanding the Basics of Job Costing Spreadsheets Job Costing is the accounting practice of systematically calculating and recording all of the materials, equipment, labor, and other related costs required to complete a specific project, job, product sale, or other business transaction. It allows business owners to maintain financial stability and a positive cash flow balance by allowing them to actively anticipate and track all of the costs and expenses associated with a specific business transaction. This way, price quotes and estimates can be created that accurately reflect the full value of the product, job, and/or services to be provided. Though commonly utilized by construction and manufacturing businesses ( the key benefits of manufacturing job cost software), all companies, regardless of their industry, can benefit from concentrating on managing job costs. Though manually creating a job costing sheet on your own can be difficult, and Cougar Mountain Software advises against it, this article can help you build a spreadsheet that will let you understand the importance of job costing in your business. This e-book contains detailed explanation of: The basics of job costing, including the various components of a job costing spreadsheet A review of the important formulas that must be mastered in order to analyze, interpret, and understand job costing sheets and reports A detailed step by step guide for tracking job costs The importance of regularly generating job costing reports, and how they can benefit your business Job costing is the process of tracking revenue of a job...

4 PG 3 Job Costing Spreadsheet: Creation and Use Job costing is the process of tracking the revenue of a job against all expenses that are incurred in order to complete the job or transaction. Collecting job costing data is simple if you set up your spreadsheet data properly. Your first step in the creation of your job costing spreadsheet is to determine your business s overhead rate per hour. The overhead rate per hour is a very important job costing tool because it allows you determine the necessary price that must be charged in order for you to at least break even, i.e. cover all costs and expenses associated with completing the job or business transaction. Calculating your overhead per hour rate is a simple three-step process: First, use your business s payroll register from the previous year to tabulate all of the hours your service and production employees worked during the year. Second, review your business tax returns from the previous year and add up all of the overhead expenses and costs that were incurred. Overhead costs can vary based on what sort of business you conduct. However, common overhead costs include office expenses, utilities, building maintenance, advertising, outside services, rent or mortgage, insurance, taxes, and depreciation. Third, divide the total sum of your previous year overhead expenses by the total number of work hours incurred during your previous work year. Now you have your overhead rate per hour!

5 After you ve determined your overhead rate per hour, you are now ready to set up your job costing spreadsheet. Ultimately, job costing is used to create a relatively accurate estimate of how much you should charge to cover your overhead while also making a profit. You will need to review past projects and jobs to determine which jobs provided profits, and which jobs either broke even or resulted in losses. The simplest way to do this is to review some of your more recent and common jobs and to compile the data from these jobs into a single job cost spreadsheet. You should create a spreadsheet with a single column for each of the following types of data: Price Per Unit: This data is the price that was charged for every unit of product sold. Revenue Per Unit: This data reflects the total amount received for each unit, without subtracting the costs associated with completing each unit. Cost Per Unit: This data includes all of the costs and expenses incurred by your business in order to obtain or sell a particular product unit. Fixed Costs: This is any price charged to clients that stays the same, no matter how many units have been purchased or produced. Variable costs: The costs that are unique to each unit sold. This amount varies depending on the number of units sold. Your first step is to figure your business s overhead rate per hour... PG 4

6 PG 5 You can use each row of the spreadsheet to represent a single job or purchase that has been completed, or each row can represent general categories of your business and the total costs associated with that general business category. From there a simple profit formula can be used to determine the price that you estimate must be charged in order for your business to cover overhead costs and also turn a profit. Job Costing Formulas You Need to Master In addition to calculating your overhead hourly rate, there is an assortment of other formulas that you need to master in order to make the most out of your job costing analysis. Luckily, we ve compiled some of the basic formulas that can be used to calculate the important aspects of your job costing. These formulas include: Employee Wages: This data is easy to determine when employees are paid a flat hourly rate, but becomes more complicated when an employee is not paid a flat rate. In both cases, employee wages are calculated by taking your employees total remuneration for weekly employment, and then subtracting all statutory exclusions, such as tax withholdings. This amount is then divided by the total amount of hours worked during the week that the paid remuneration covers. Cost of Job Completion: This simple formula involves summing all costs associated with completing a specific job. Simply add all of the fixed, direct, and variable costs associated with completing a job to determine your cost of job completion. From there the cost of job completion can be used to calculate the amount that you will need to charge in order to cover all costs, while also turning a profit. New Costs: If new or additional equipment or materials are required to complete a job, these amounts must be added to your original cost of job completion. All you have to do is take the original sum amount of a previous similar job, and add all of the new expenses to accurately reflect any new costs required to complete the job. You should also subtract any costs and expenses that do not apply to the current job. This job costing formula is easy to use and extremely important because it allows you track how the costs associated with a job or business transaction may fluctuate and change over time depending on new costs that arise. Carrying a Balance: A balance is essentially a debt on your accounting records, which typically occurs when the price charged did cover all of the

7 PG 6 overhead costs and other expenses that were required to complete the job. Calculating a balance carried from each project or job allows you to clearly understand when you are not charging the proper amount for jobs completed. Identifying which jobs, projects, or business categories carry a balance is a simple formula of subtracting the price charged by the total amount of costs and expenses incurred. If this number is negative the project created a debt, if this amount is zero you broke even, and if this amount is positive, you have earned a profit. Understanding these simple job costing formulas will help you accurately enter data into your job cost spreadsheet. A careful analysis of the data created from these formulas will allow you to craft job estimates that accurately reflect the total cost of job completion. The Role of the Job Cost Ledger A job costing sheet, also referred to as a job cost ledger, allows you to ensure that you are charging the proper amount necessary to earn a profit. Similar to above, you can use each row of the job cost ledger to represent a single job or business transaction that has been completed, or each row can represent general categories of your business and the total costs associated with that general category. The decision on how to use each job ledger row will depend on how your accounting personnel decide to collect and use the job cost data. Though the job costing formulas and sheets provided in this article are relatively easy to use, you should think carefully about who will fill out the ledger and create job cost reports.

8 PG 7 The decision on how to use the ledger depends on your personnel... While at first glance you may be tempted to hire outside personnel to fill out your job cost ledger, given the unique accounting aspects involved, it is important to have someone in-house who thoroughly understands your business take control of the ledger. This is because a job cost ledger will only be effective if it is constantly updated with new costs, expenses, and revenues received. Entrust the ledger responsibilities to someone who works with your accounts billable, or an employee who is involved in daily operations and is good with crunching numbers. This way, someone who understands your business and is easily accessible can ensure that all estimates provided accurately reflect the information contained in your job cost report. Though a job cost ledger contains invaluable information about your business activity, costs, expenses, and revenues, after a certain point this data may become stale and unusable. This is often the case when over time the findings from an existing job cost report have been used to adjust the prices charged and the estimates provided to clients. After these new prices and estimates take effect, the data used to tabulate these prices will no longer accurately reflect the cost of job completion. Instead the new, more accurate estimates and pricings should be used to create an updated version of your existing job cost ledger, while omitting the old data that no longer reflects the costs and profits associated with a job. As a result, it might be a good idea to create a new job cost report either annually, biannually, or monthly in order to base future pricing and estimates on the most up-to-date data.

9 PG 8 Job Costing Reports After all of the data from the previous year s job costs has been entered into your sheet, you are now ready to create your job cost report, which will reflect which jobs have turned a profit and which have negative balances. The data from this report must be carefully analyzed to spot any trends, discrepancies, and inaccuracies in job costs and revenue. This report will then be used to provide future quotes and estimates to clients. Your determination of how often to create a job cost report can depend on a variety of factors including how long your projects typically take to complete, the number of projects completed within a particular time period, as well as personal preference and resources. Below is a sample of what your job costing report should look like, using a snap shot of a report from Cougar Mountain Software s Denali Job Cost system: Now that you ve created a job cost sheet that accurately reflects the costs, expenses, and revenues of jobs, projects, and product sales that have been completed, you are ready to begin to add active or new projects to your ledger. This new project information would ideally be added immediately as the information is known, though you may decide to collect and add this data all at once whenever you are generating a new job cost report. However, adding data while the job is in progress will allow you to stay on top of all costs and expenses to ensure that a profit is eventually earned, and no surprises occur at the time of project completion and invoicing.

10 Here at Cougar Mountain we provide an assortment of effective job costing products including construction job costing software that can be used on complex building projects. However, regardless of whether you require job costing accounting for your building project or retail business, Cougar Mountain job costing software allows you to understand your project costs and expenses so that your quotes and estimates accurately reflect the value of your time and services. If you want to learn more about how your company will benefit from the use of Job Cost accounting software, feel free to contact the team at Cougar Mountain Software. They can provide information about solutions for small business accounting software and can guide you through selection, installation, and training. Call (800) to speak with a business and accounting expert. MORE ABOUT Cougar Mountain Software Cougar Mountain Software was founded in 1982 with a vision to develop powerful business accounting, nonprofit accounting, and point of sale software solutions. Our 30 years of success comes from two key practices; (1) employing in-house accounting and business professionals for our sales, support, training, and development teams, and (2) listening to our clients. These two practices make our accounting solutions unique to competitors who outsource their support and build fixed and un-scalable solutions to meet the general needs of the masses. VISIT US ONLINE Cougar Mountain Software 7180 Potomac Dr. Boise, ID Phone: Copyright 2016 Cougar Mountain Software PG 9