Why Construction Businesses Need Job Costing, Not Just General Accounting
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A contractor’s monthly accounts show a profit. On one site, however, the crew is spending extra time on a client-requested change, and materials bought for another project have been moved across without a transfer record. The company can see what it spent overall. Job costing shows which project used those resources and whether the work will earn the margin the contractor expected.
Trace the cost to the work
Give each project and work package a job code. Use it on purchase orders, material issues and returns, timesheets and subcontractor claims. Record transfers between sites so the cost follows the materials. Review purchase commitments alongside posted costs so unpaid supplier invoices do not hide upcoming costs.
Worked example from a commercial fit-out
During a fit-out, a client requests an extra partition after the layout is agreed. The site manager logs the request, identifies the additional materials and labour, and seeks written approval under the contract before proceeding. The team assigns the change its own code and records materials transferred from another site against that code. Finance tracks approved changes through to billing and keeps pending requests visible separately.
At the next review, the project manager updates the forecast with costs already incurred and the cost of finishing the work, including open commitments without double-counting them. Comparing that forecast with the contract value and approved variations shows whether the job margin is holding. The team can investigate extra labour or material waste while it still has time to act.
Indicators to review by project
· Forecast margin at completion. Subtract forecast total job cost from the contract value including approved variations. Divide the result by that contract value to compare margins across jobs.
· Material usage variance. Compare materials issued, net of returns, with the allowance for work actually completed. Investigate waste, rework and transfers.
· Labour hours variance. Compare actual hours with the hours allowed for the work completed. Review overruns by work package.
· Outstanding variations. Track the count and age of requests awaiting approval and approved variations awaiting billing when eligible.
M&J Africa can help you connect site records, procurement and accounting so project managers can see where margins are changing and act before close-out. Get in touch to discuss your job costing needs and enquire for a tailored quote.