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3.6 Job Costing |
  
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3.6 Job Costing |
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3.6.1 Job Costing
Job costing is the process of determining the labor and materials cost for each job in a systematic way. Job costing can be used to ensure that product pricing covers actual costs, overheads and provides a profit. The purpose of any business is to make money, and job costing is the most effective way to ensure that goal is reached.
The most important aspect of job costing is the accurate tracking of time and costs associated with any job. Latitude allows you to create different cost rates for different work types and per employee. All employee time can be tracked, down to individual tasks of a job. Latitude also allows you to create cost rates for your equipment based on work types, and create timesheet entries for them. All work done either by staff or equipment can be tracked in the system. This can be extended to track the cost of internal non-billable projects.
Before setting your cost rates, it is important to determine your general overheads. The term general overheads means the costs of running your business excluding job related employee and equipment costs. General overhead includes items such as rent, insurance, utilities, cleaning, accounts and legal fees. After calculating the general overheads for the year, the value should be divided by the estimated total billable hours for the year.
When setting your employee cost rates you should determine or estimate the employees' cost to the company (both direct and indirect costs) and divide this by their estimated annual billable hours to get a base hourly cost rate. The cost rate for an employee for a work type would then be their base hourly cost rate + the general overhead cost rate. If any work type has additional costs such as equipment & vehicle usage these should be added in as well.
For equipment, first determine the yearly costs. Include items such as repairs and maintenance, fuel, insurance, depreciation, and financing. Divide the total by the estimated yearly billable hours of the piece of equipment, this is the hourly cost rate for the piece of equipment.
Other expenses for a job can be recorded as Disbursements. Disbursements are created as timesheets with specific work types, enabling you to break-down your expenses to whatever level desired. The charge amount for a disbursement is set manually, allowing you to determine whether the costs are passed on to the customer, or absorbed by the company.
Latitude provides a number of reports to enable you to compare your actual job costs to your estimated costs. This enables you to provide more accurate quoting to your clients and to increase your own profits. Due to the level of detail available within Latitude, identification of low profitability areas or problems is made easier.