If you’re a builder or sub-contactor you’ll perform specific jobs for your customers. Your services are tailor made for each client and each job you perform is unique. Hence, every job that you do for your customer incurs specific expenses in terms of materials, labour and overhead. The income for each job is also specific to that job. Thus the method of accounting for your income and expenses must take account of individual jobs to better reflect the profitability of your business.
What is Job Costing?
Briefly, this method of costing for your jobs records income and expenses against particular jobs. Since every job done for an individual customer is specific in nature, the costs incurred for one job is generally not comparable to that of another. The costs for a particular building job, say constructing a retaining wall in the backyard of a suburban home, would be accumulated to that job alone. All labour and material directly attributable to the job will be cost at their actual values. Every input of direct material such as the bricks and mortar is tracked individually and included in the job. The wage cost of the mason or bricklayer would be regarded as a direct cost for the job. The number of hours he worked on bricklaying for the retaining wall would be multiplied by his hourly wage rate to arrive at the direct cost of labour.
Overheads for the job are calculated based on a cost driver such as direct labour hours or direct machine hours. Where the job is labour intensive, such as that of a building contractor, then overheads would be charged to the job based on labour hours as the cost driver. As soon as the overheads are computed, the total cost for the job can then be determined. From there your bookkeeper will be able to calculate the profit attributable to the job.
Importance of Job Costing
The way job costing tracks expenses incurred on a particular job and matches it against the income generated by that job is ideal where your business has high value jobs for low volume customers. This sort of scenario is prevalent in the building contractor sector. Job costing is facilitated with the use of accounting software that will keep track of every single cost element associated with the job, charges the cost and ensures that all cost factors have been invoiced to the customer.
With job costing, you’ll be able to see which areas of your business are profitable and which are the ones that make you losses. You’ll be able to analyse the causes of your loss and make a decision on whether or not you want to divest certain operations. You may even be able to implement actions that will make your loss making business area more efficient in order to become profitable again. You can also focus on your profitable areas to enhance your business delivery and improve efficiency, thereby enhancing customer relationships.
With proper job costing, you’ll be able estimate the costs of a particular job more easily and give better and more accurate quotes to your new customers. You can manage the progress of your jobs more efficiently. You can review reports that detail the revenue and costs associated with jobs to locate your most profitable sectors and customers.
Components of Job Costing
• Quotes. Before you can begin a job, you may be asked to provide an estimate of the costs involved in successfully completing the work. This includes the material and labour costs as well as an estimated time to completion. Your customer will use this quote as a benchmark to compare against your final invoice. It will also be used as a tool for negotiating price reductions before you are awarded the job. Your quotes help you to ensure your costs are kept in check and any cost overruns can be quickly stemmed before they go out of control.
• Time and materials. On some types of jobs, you may charge the customer for the labour cost incurred and materials used on the job with an addition for overheads and a margin for profits. These jobs are termed time and material jobs. If there are sudden contingencies affecting the job, for example a sudden increase in the price of building material, you can charge this increase to the customer.
• Direct costs. These costs can be directly allied with a particular job and constitutes part of the finished product. For example, bricks and mortar are direct material costs for the retaining wall in a customer’s backyard. The time and cost taken to lay the bricks and prepare the mortar are direct labour costs for the job.
• Indirect costs. Overheads which cannot be directly attributed to any job are termed indirect costs. This includes administrative costs and rental charges, insurance expenses and motor vehicle repairs. These costs were indirectly incurred in completing the job. An element of overhead costs will be charged to the customer using suitable charge out rates.
The breadth and depth of the costs involved and the meticulous recording necessary in job costing requires you to employ accounting services that are professionally trained to prepare accurate accounts. A competent bookkeeper will be able to correctly record your costs using job costing and invoice your customer properly. This means taking account of all the cost elements for the job and not using generic invoicing methods to charge the customer.
Bookkeeping Central (http://www.bookkeepingcentral.com.au) has the professional expertise to maintain an accurate job costing system for building contractors and sub-contractors. Using state of the art computerised accounting software, costs are correctly allocated to specific jobs and invoices reflect all the associated expenses related to the completion of the job. You can obtain more accurate quotes to negotiate with your customers and track your costs speedily to limit unexpected surprises. By outsourcing your accounting services, you’ll make sure that the tedious task of keeping track of costs for every single job is left in the capable hands of your bookkeeper and improve your business.
Running a business takes plenty of focus and determination, not to mention skill in looking for and acquiring new clients to grow your enterprise. You have to be on top of numerous facets of your business entity including invoicing, debt collection, purchasing and inventory management. Above all else, you must maintain excellent customer relationships. The question arises then, how are you going to manage your payroll as well amid all that important activity?
Setting Up Your Payroll
Even before you’ll be able to remunerate your workers, you’ll have to get your payroll set up properly. This means you’ve got make sure that every employee has a Tax File Number or TFN. For those who don’t, you’ll have to apply for a TFN from the Australian Taxation Office. Your employee must complete Form NAT 1432 known as the “Tax file number application or enquiry for an individual” and submit it with the Form NAT 3092 or “Tax file number declaration”. All necessary original supporting documents must be forwarded to the Taxation Office to confirm your employee’s identity. This is important in order that you, as an employer, will know how much tax to withhold from the payment of salaries and wages to each employee.
Preparing and lodging the TFN is a somewhat meticulous and detailed exercise that your new employees may expect you to do. This is where your bookkeeper will play a vital role. In addition to the TFN preparation and lodgement, your bookkeeper will determine the superannuation choice information of each employee and register first time employees for PAYG Withholding tax. Your WorkCover application will also be handled effectively to ensure that injured workers receive adequate compensation when required. To cap all of this, your bookkeeper will be updated with the latest tax legislation to ensure that you lodge your Payroll Taxes if your business has reached the requisite threshold.
Managing Your Payroll
The key component to effective payroll management is paying your workforce the correct salaries, taking into account the necessary deductions and contributions. However, the sheer volume and detail of work that goes into managing your payroll makes this both a tedious and meticulous task. If your business employs several workers, you’ll find that payroll management is a detailed activity that is time consuming and extremely precise.
Processing the salaries of your workforce is a task that is best left to competent and capable accounting services. The net wages will be calculated after deducting the PAYG from the gross wages. You don’t have to personally devote your precious hours to preparing Excel spreadsheets, checking the relevant tax tables and computing the correct wages. The more frequently you pay your workers, the more often you’ll have to prepare the wage payments and salary slips. Your bookkeeper will perform this task whether you make payments weekly, fortnightly or monthly.
The leave entitlement of your workers must be factored into the payments made. Here is where a record of your workforce’s sick and annual leave as well as long service entitlements will be necessary. You must maintain accurate records to ensure that your workforce is neither over nor underpaid. Incorrect wage or salary payments will result in inconvenient disputes that adversely affect productivity.
Overtime payments must also be carefully computed and paid. By taking note of the overtime hours worked by employees and the overtime rates payable, your bookkeeper will be able to calculate the right overtime pay for your workers. The requisite payslips will be created for each employee to confirm details of their wages.
Your bookkeeper will also calculate your superannuation contribution obligations to determine the extent of your liability in making these mandatory payments. At present, you pay 9% of the total applicable earnings of each employee to the requisite superannuation funds. You have a duty to fully settle these compulsory payments in a timely manner. Failure to make the relevant payments constitutes a breach of law and you will be liable to pecuniary penalties.
By virtue of the Workers’ Compensation and Injury Management Act 1981, you’re required to take out workers compensation insurance, commonly known as WorkCover, to indemnify any member of your workforce who has suffered a workplace injury. This protects your business from possible legal action by a worker who was involved in a workplace accident and who suffered injury that incapacitated him or temporarily prevented him from carrying out normal work routines. Your Melbourne bookkeeper will also calculate your WorkCover obligations.
You have to withhold the correct amount of tax from the wages and salaries of your employees and pay this sum to the Australian Taxation Office as part of the Pay As You Go or PAYG system. With accurate and timely payroll calculations done by your outsourced accounting services, you’ll know exactly how much you have to forward to the Taxation Office and when the payments are due. You’ll be able to satisfy your statutory obligations as they become payable and maintain a good record with the Taxation Office.
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