How Stampli Makes Job Costing Easier to Manage
Companies in a variety of industries use job costing to sell a product or service. With job costing, you estimate the material, labor, and overhead costs that you expect to incur, then add a profit to the total expected costs.
Job costing requires more data input, so that costs can be properly tracked. For example, a plumbing company that works on 50 different jobs in a month must track the material, labor, and overhead costs for each job in order to calculate profit per job. As this podcast episode points out, managers need a clear understanding of costs, sales, and profits, in order to raise additional capital.
Stampli’s AP automation and invoice management software makes it easier to approve spending, track purchases, and to process invoices. To understand job costing, you need to know the difference between job costing and process costing.
Reviewing Job Costing and Process Costing
The difference between these costing methods is driven by the type of goods and services produced.
Job costing assumes that each product or service created is different and that each customer receives a job estimate. Tradespeople, including plumbers, HVAC companies, and roofing firms use job costing to provide an estimate to clients.
Process costing on the other hand, is used when each product is identical, or nearly identical. Think about a company that manufactures plastic combs. Each comb requires the same amount of plastic material, and is run through the same piece of machinery. As a result, the cost to produce each comb is the same.
Breaking Down the Job Costing Process
To explain job costing, assume that Vintage Furniture manufactures customized dining room tables. Julie, the owner of Vintage, designs each table based on the customer’s preferences. Vintage makes tables that seat anywhere from four to 12 people and the customer can choose the wood and metal fixtures used for the table.
Providing a job estimate
The Smith family is interested in a Vintage table for a home addition. Once Julie and the Smiths agree on specifics, Julie provides a written estimate to produce the table. Her estimate’s sale price includes material, labor, and overhead costs, and a profit margin. The Smiths accept the price for the table, and Julie starts production.
Understanding direct cost and indirect costs
Both direct costs and indirect costs are incurred to produce a product or service. To illustrate, here is data used to calculate a sale price for the Smith job:
| Job #36 Smith | |
| Direct materials (wood, metal fixtures) | $850 |
| Direct labor ($25 per hour X 30 hours) | $750 |
| Overhead ($10 per hour X 30 hours) | $300 |
| Profit | $400 |
| Sale price | $2,300 |
Direct costs can be directly traced to a product or service. Vintage can trace the exact amount of wood and metal fixtures required for the Smith’s table, and Julie can monitor the labor hours required to complete the table.
Indirect (overhead) costs, on the other hand, cannot be directly traced to a product or service. Here are some indirect cost examples:
- Vintage incurs costs to repair and maintain equipment
- The company leases its production facility, and pays utility costs and insurance premiums for the facility
- Vintage pays salary and benefits to an office manager who handles customer inquiries and performs administrative tasks
Indirect costs are allocated, based on labor hours, machine hours, or some other measure of activity. In this instance, Vintage estimates total overhead costs for the year, and divides the total by the expected labor hours worked. The $10 overhead rate is multiplied by the 30 labor hours expected for the Smith job.
Posting expenses into the accounting records
When the Smith table is sold, the costs are posted to expense accounts in the accounting system:
| Account(s) | Total amount posted |
| #6000 wood expense, #6100 metal fixtures expense | $850 |
| #7200 labor expense | $750 |
| #8100 repair and maintenance expense, #8200 lease expense, #8300 insurance expense, other expense accounts | $300 |
$2,300 table revenue less $1,900 in expenses equals $400 profit (net income). Each journal entry includes “Smith-36”, so that the job costing information is tracked.
Connecting job costs to the income statement
As explained above, the job costing details are posted to income statement accounts. Vintage’s total revenue and total expenses for the year is the sum of all jobs completed. If 150 jobs are completed, Vintage should be able to add the revenue and costs incurred on 150 projects to compute total revenue and expenses for the year.
The information for each job is useful and businesses review each job to determine if the cost estimates were accurate, and if the job generated the expected level of profit. Companies use both the job cost data and the income statement to make informed decisions.
How Stampli Makes the Job Costing Process Easier
Think about the plumbing company discussed earlier. Completing 50 jobs in a month may be manageable, but changes can make the process more difficult.
- Let’s say that the number of monthly jobs completed increases from 50 to 150. That’s 100 more jobs to track and dozens of additional vendor orders to manage.
- What about change orders? It’s not unusual for a customer to request a change to a particular job, and that creates more work.
- Can your AP system properly account for partial shipments? Supply chain issues may prevent a supplier from shipping all of the items ordered.
Stampli AP automation platform offers flexibility and visibility to everyone involved in the process. If a shipment is late or a customer requests a change, you’ll need to communicate with vendors, spending approvers, and others in the accounts payable department. Everyone can document changes as they occur using the same communication tool, and you can get fast approval for any changes.
These issues apply whether or not you use a PO to buy items from a vendor. This is all possible within the Stampli platform, which provides these benefits:
- When an invoice is uploaded, Stampli uses AI and machine learning to auto-populate fields, such as the invoice number and GL accounts. Stampli will recommend approvers, based on past invoices.
- Stampli provides a communication hub with each invoice, and each step in the process is documented from invoice field changes to invoice-related communications. Questions and answers are listed, so that everyone can review the status of an invoice.
- Vendor relationships are important, and Stampli provides each of your vendors access to a vendor portal. Vendors can see the status of invoices that are being processed in Stampli.
Stampli’s end-to-end AP automation platform gives you full control and visibility over all of your corporate spending – all in one place. Job costing can be difficult to manage, and don’t just manage spend, control corporate spend with Stampli.
