Job costing for a small business
What job costing is, how to gather materials, labour and overhead for each job, and practical ways to track job costs with accounts, budgets and journals.
By Achekam · · 5 min read · For Running a business businesses in South Africa, Nigeria, Kenya
A shopfitter quotes for a new store interior, wins the work, finishes it a week late, and is paid in full. Was the job profitable? Without job costing, the honest answer is "probably". The timber, the fittings, the two extra days the team spent on site, the van and the workshop rent all went into the general expense accounts alongside every other job that month, and nobody can pull them back out.
Job costing is the habit of keeping each job's costs together so that the question has an answer. It matters most for businesses that price each piece of work separately: builders, engineers, printers, event companies, IT installers, signwriters and many more.
Job costing versus process costing
AccountingTools defines job costing as accumulating the costs of materials, labour and overhead for a specific job. Its examples include constructing a custom machine, designing a software program, putting up a building or manufacturing a small batch of products.
The alternative is process costing. AccountingTools explains that job costing tracks costs for individual, customised jobs, whereas process costing averages costs across all units of mass-produced, identical products. A bakery turning out the same loaf all day uses process costing. A cake maker building one wedding cake to order uses job costing.
If each piece of work you do is quoted separately and differs from the last, job costing is the method for you.
The three kinds of cost on a job
Direct materials
Materials bought for and used on the job: the timber for this shopfit, the cable for this installation. These are usually the easiest to trace, because the supplier invoice or the stores issue can name the job.
Direct labour
AccountingTools explains that labour directly traceable to a job is charged to that job as direct labour. The electrician's hours on site belong to that job. The hours of a supervisor who oversees several jobs, or the workshop cleaner, do not; AccountingTools says such indirect labour goes into an overhead cost pool and is shared out across open jobs.
The practical requirement is a timesheet or job card that records whose hours went to which job. Without it, labour cost cannot be traced.
Overhead
Everything else that keeps the business able to do jobs: the workshop rent, tools, vehicles, insurance, indirect labour. None of it belongs to one job, but every job uses some of it.
Allocating overhead the same way every month
Overhead is shared out using a basis, such as direct labour hours or machine hours. The choice matters less than the consistency. AccountingTools stresses that the same types of costs should be charged to overhead in every period and applied to jobs consistently, so that the allocations can be explained from month to month.
A worked example in words: a joinery decides that workshop rent, power and tool costs are overhead, and shares them out by direct labour hours. A job that used a large share of the month's direct hours carries the same large share of the month's overhead. Next month, the same costs go into the pool and the same basis is used. If the joinery switched to sharing by materials cost halfway through the year, job margins before and after the switch could no longer be compared.
Write the rule down: which accounts form the pool, which basis applies, and who works out the allocation each month.
Seeing job costs in Achekam
In Achekam, the practical tools for following a job's costs are the ledger's own: accounts, budgets, committed orders and journals. Which mix suits you depends on how many jobs run at once and how large they are.
Separate accounts for large jobs
Each business has its own chart of accounts, and accounts can be added, renamed or switched off. For a handful of large, long-running jobs, a business can open a work-in-progress account per job, post the job's direct costs there, and switch the account off when the job is closed. This works for a contractor with a few big contracts at once. It does not suit a business doing dozens of small jobs a month; the chart would soon be unreadable.
Budgets and committed spend
A business can set a budget per account and period and compare it with actual figures from its ledger. With the procurement module, approved purchase orders count as committed spend against budgets per expense account and period, and the screen shows budget, spent, committed and available, flagging over-committed lines without blocking a purchase. If each large job has its own account, its budget is the quote's cost estimate, and you can see during the job whether committed orders are eating into the margin.
Journals for labour and overhead
An approved pay run posts to the ledger as a wages journal. Moving the direct labour share of those wages onto a job, and allocating the month's overhead pool, are manual journals. Achekam refuses an unbalanced journal or one dated in a closed month, and a posted journal is corrected only by a reversal, so each month's allocation stays on record.
For smaller jobs, keep the job card or a job spreadsheet as the detailed record, and use the ledger for the totals.
From work in progress to cost of sales
AccountingTools explains that a completed job's cost moves from work-in-process inventory to finished goods and, on sale, from inventory into cost of goods sold. For most service and contracting businesses, the job is "sold" when it is handed over and invoiced, so the cost moves from work in progress to cost of sales at that point, by journal, in the same month as the invoice.
That timing is the point of the exercise. The job's revenue and its costs then sit in the same month, and the margin on each job, and on the business, can be read from the books.
Industry articles show the same idea in other settings: profit per event and warning signs on fixed-fee projects.
A first step
AccountingTools' article on job costing for materials, labour and overhead covers the method in more depth. Start with your next large job: give it a job card for hours, a budget from the quote, and a decision on how overhead will be shared. Compare the result with the quote when the job closes.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
