Contractor Concepts
One major fundamental concept is for a costing system to support the estimating process. Feedback on the accuracy of estimates is a crucial component to adequate management information.
A well-done process that marries accounting concepts to estimating concepts can minimize the risk an organization bears.
Types of Costs
There are three types of costs a project oriented entity will incur. The three types of costs are:
Direct Costs
Labor, labor burden, Materials, Subs, Equipment and other costs that can be directly applied to jobs as incurred.
Indirect Costs
By definition, indirect job costs are costs relating to jobs that are difficult or Impractical. Examples are:
Field equipment/vehicle depreciation
Field equipment/vehicle repairs and maintenance
Field vehicle expenses
Small tools and supplies
Equipment and vehicle insurance
Employee health insurance
General and Administrative Expenses (Sales G&A) (Operating)
G&A expenditures are such things as advertising, office supplies, rent, utilities, office staff wages, etc. Project Accounting Concepts
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Calculating and Applying Indirect Costs to Jobs
Indirect costs should be pooled into a separate section of your income statement. This pool is typically called your indirect costs section. Toolbox provides for users to apply an indirect cost burden onto your jobs. This burden is in addition to payroll burdens. When the jobs are labor intensive, users will generally apply indirect costs based on field labor.
You are able to burden all jobs with a set percentage burden by using the burden entry screen under Utilities | Preferences | Burden.
You are able to burden specific employee’s hours and/or gross labor amounts under the "Rates" tab of the employee notebook.
You are able to burden in a much expanded method by utilizing the Toolbox Burden Utility. To utilize this utility, retrieve the write up labeled: "Utilization of Burdening Utilities".
In order to perfectly allocate your indirect costs, you can retro-actively apply your indirect costs to your jobs at your year end or other interval. In order to retroactively apply your indirect costs, use our burden adjustment utility. For instruction on how to utilize this utility, see the last section of the "Monthly Procedures" document that can be found in your help screens.
Note: The total of indirect costs burden you apply to your jobs will automatically show up on your income statements at the bottom of your direct costs section (as a positive number), and at the bottom of your indirect costs section (as a negative number). The following is an example of how the concepts apply to your income statements:
Direct Costs
Labor
Material
Subs
Other
Indirect Costs Applied
Total Costs Applied to Jobs
Indirect Costs
Depreciation
Field Health Insurance
Repairs and Maintenance
Field Vehicle Expenses
Less: Indirect Costs Applied
(Over) Under Allocated Indirect Costs
Total Costs of Projects
TimeSuite Toolbox 2012 User Guide
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Unit Based Bidding and Costing
A costing system need to produce the results of a job’s actual unit costs. The estimating process is unsupported without an adequate process.
Field Units vs. Material/Labor Units
An accountant cans sometime struggle with the distinction between units of material purchased and the units produced in the field. The unit of material purchased can come from an AP invoice. However, the units in the field produced must come from a field report or other information coming from the job site. An example would be the material purchase for storm, sewer and water pipe installation. The units purchased can be different than the field production. If unit costs are to measure throughout the production of the job, consideration needs to be made for applying the correct units of material purchased to the units produced in the field. For example, if 10,000 lineal feet of material is purchased on day one, and by day 10 2000 lineal feet have been put in place, the unit cost of material will be inaccurate since the costs of all 10,000 lineal feet have been incurred. Accounting processes can be put into place to only expense the lineal feet of material that are produced. For the labor and equipment, the process is more straight forward since labor and equipment costs are incurred daily.
The costs of material, labor, equipment, subs, and other costs are accumulated for the task and simply divided by the units produced. Useful information can include the individual component unit costs. For example:
Costs Units Produced Unit Cost
Labor 1,000 1,000 1.00
Equipment 2,000 1,000 2.00
Material 1,500 1,000 1.50
4,500 1,000 4.50
It is crucial to provided unit cost feedback to the estimating process. It is also crucial to adequately consider equipment costs when providing the information.
Toolbox Reports:
Job Cost | Unit Production Reports |
Other Noteworthy Concepts
Labor burden should be considered a direct cost for costs that are based on a percent of gross labor or dollar per hour. Examples are workers compensation insurance, general liability insurance, payroll taxes (FICA, CPP, unemployment insurance), deferred compensation (401K, SEP…, and union expenses. Project Accounting Concepts
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A good cost accounting system will place job related burdens into the direct costs section of your chart of accounts.
Job costing should be based on the work date from the employee timecard. All general ledger posted labor as of the check date. The difference in the dates can result in different totals when trying to tie the financial reports (income statement) into the job cost reports.
In order to facilitate this process, a good cost accounting system will automate the accrued wages process.
Toolbox Automated Process:
Utilities | Accrue Labor
Toolbox Reports:
G/L | 7. Print Analysis Reports | 3. Payroll Accrual
Standardized Chart of Accounts Numbering Scheme
The following is a typical project oriented entity chart of accounts:
Balance Sheet: Income Statement:
1000’s Assets 4000’s Job Related Revenue
2000’s Liabilities 5000’s Direct Job Costs
3000’s Equity 6000’s Indirect Job Costs
7000’s G&A Expenses
9000’s Other Income & Expenses
