Job costing and cost allocation: did that job make money or lose it?

Hook

Renovation bosses, one question: that job you finished last month — did it make money or lose it? "Should have made something lah…" — should have, means you do not know. A business that takes on jobs and projects has to read its accounts by job, not by month. Today we cover project accounting and how the costs get split.

Why by job

An ordinary business reads a monthly report: revenue this month, expenses this month. But a job business runs one project across three months, five months, and the monthly report will only tell you "this month was busy". It will not tell you which job is bleeding. So the first step in job costing: open a project in the system for every job. Back in the fourth lesson on the chart of accounts we said large companies split by project — in truth the renovators and the contractors are the ones who need it most. Income tagged to the project, costs tagged to the project. One small set of books per job, ready to pull whenever you want.

The direct costs of a job

Every job has three blocks of direct cost, and you cannot skip any of them. One, materials — cement, plasterboard, light fittings; tag them to the job at the point of purchase. Two, sub-contractors — the plastering, the wiring, the air-conditioning you put out to others. Every sub-con bill states which job it belongs to. As the eighth lesson covered, subcontractor has its own column on the tax form, so tagging it to the right project keeps both sides clean. Three, labour — which jobs did your own workers work on? And the cost of a foreign worker is not just the wage: the levy, the lodging, the insurance, the food. All of it is the cost of that person, worked out per head and then split across the jobs they worked on. Get those three tagged accurately and the gross margin of a job falls out by itself.

Splitting the awkward shared costs

The hard part is the shared spending: the workers' meals, the phone lines issued to staff, petrol claims, toll, Grab rides, Lalamove deliveries of materials. These happen every day, and who remembers which job each one was for? Three rules. One, charge it where you can — if a Lalamove run delivered materials to a site, write the site on the document and charge it straight to that job. Two, what cannot be charged goes to the pool — phone lines and office costs go to overhead; do not force them onto one particular job. Three, if the pool has to be split, use a fixed rule — by labour days on each job, or in proportion to contract value. As the eighth lesson said: once the rule is set, it stays the same all year. And the claim discipline from the fifth lesson matters even more here: when a worker claims petrol or a meal, four extra words on the document — which job it was for — bring the whole thing to life.

A step further: by job, by task

The project is only the first layer. If your system is capable, you can cut it finer: one renovation splits into several jobs — demolition, wiring and plumbing, carpentry, painting — and a job splits into tasks. The finer you cut, the better you know where the loss actually happened and which crew is the fast one. You do not have to get there in one go. Reach "one set of books per job" and you are already ahead of most of your trade.

To close

Honestly: accounting as a craft, in the right hands, can go very fine and very technical — by job, by trade, by task, with the numbers doing the talking. With nobody willing to touch the detail for you, it stays stuck at "should have made something". LTT is built on business analytics and financial reporting, and job costing is exactly our home ground. Grab a coffee first and talk about your business. For the accounting, come to LTT. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.