Job costing

Job costing is the method of tracking every cost tied to one specific job or project — labour, materials, subcontractors, equipment and a share of overhead — and comparing the total with what the customer was billed. The result is a margin per job, not a blended average across the business, so you know which work pays and which loses.

The four cost categories in job costing

Job costing sorts every cost into four categories: direct labour, direct materials and subcontractors — the direct costs, tagged to a job number as they happen — and allocated overhead, which is indirect (rent, vans, insurance, office staff) and spread across jobs at a fixed rate.

• Direct labour. Hours from timesheets, coded to the job, at the loaded rate (wages plus employer costs).
• Direct materials. Everything bought for the job, from the purchase order or supplier invoice, plus stock drawn from the yard.
• Subcontractors. Trades brought in for the job, at the invoiced or applied amount.
• Overhead. A percentage of direct cost, or a rate per labour hour, set so the year’s overhead is recovered across all jobs.

Its counterpart, process costing, averages cost across identical units — a factory, not a site.

A worked example: margin on one job

A kitchen refit quoted at $18,500 shows how the categories combine. Direct costs come to $12,990; with overhead allocated at 12% of direct cost, total job cost is $14,549 and the margin is $3,951, or 21.4%.

Cost line	Amount
Labour — two fitters, nine days, $220 a day each	$3,960
Materials — units, worktop, tiles, fixings	$6,400
Subcontractors — electrician, plumber	$2,150
Equipment hire — tile cutter, skip	$480
Overhead — 12% of direct cost	$1,559
Total job cost	$14,549
Billed	$18,500
Margin	$3,951 (21.4%)

Leave overhead off and the same job reports 29.8% — how an owner runs “profitable” jobs all year and ends it flat. Let the plumber’s $900 variation invoice land next month, uncoded, and the job closes at 21.4% when the true margin is roughly 16.5%.

Job cost tracking: getting costs onto the job

Job cost tracking works when every cost carries the job number at source, before it reaches the accounts. Timesheets are coded to a job. Purchase orders are raised per job. Supplier invoices are matched to the order and the delivery by three-way match before they are paid.

Costs then post to the job ledger under a cost code, and each bank line is matched to its invoice and its job. Two figures run side by side: committed cost (orders placed, invoices not yet in) and actual cost (invoices received and paid). Actuals alone flatter a job whose commitments still sit uncoded in accounts payable.

Job costing reports

Five job costing reports cover most operators: job profitability, work in progress (WIP), committed cost, cost to complete, and variance by cost code.

• Job profitability — estimate against actual, per job and job type; shows which work to stop quoting.
• WIP — cost sitting in unfinished, unbilled jobs; feeds the cash-flow forecast.
• Committed cost — orders placed but not yet invoiced; stops a job looking profitable a month early.
• Cost to complete — the estimate at completion.
• Variance by cost code — labour, materials or a subcontractor over the quote.

Job costing for construction and home services

Job costing fails four ways on site and in a home-services crew: costs are recorded after the job ends, materials go on the wrong job, a supplier invoice drifts from the quote, and a subcontractor is paid before anyone checked the work. Each is a bookkeeping gap, not an estimating one.

Fynex closes that gap: it matches every bank line to the invoice and purchase order it belongs to, posts the cost to the right job in Xero, QuickBooks or FreshBooks, and flags a supplier invoice that does not match its order before it is paid. See Fynex for construction, Fynex for home services and reconciliation.