Job Costing
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What is Job Costing?

Job costing is the accounting process of tracking actual costs, job by job, line by line, and comparing those costs to what was budgeted. The budget is typically derived from the estimate of job costs, which was made when bidding on a job. The actual process of accumulating job costs is a natural by-product of paying bills, subcontracts, and payroll. As actual job costs are expensed, they are categorized by cost code and matched against the budgeted amounts in each cost code.

Software uses algorithms to calculate a percentage of completion for each cost code and then forecast a cost to complete each phase of each job, thereby calculating a cost variance. Of course, actual information from field reports may be used in place of software-generated forecasts to use manually forecasted costs to complete.

In summary, job costing is forecasting job costs, then accumulating and comparing actual job costs, in order to monitor the profitability of each job. When variances are caused by changes in the job specifications, a Change Order may be required, which will adjust the job budget and the amount that will be billed to the owner.

Job costing differs from general accounting processes in that it keeps track of actual costs, job by job, phase by phase, line by line, allowing precise monitoring and better control. It is an invaluable tool to contractors because the number one reason for failure in construction is costs getting out of control, resulting in losses. Using the right tool in the accounting office is as important as it is at the construction site.