Process Costing and Job Costing are two ways Construction and Manufacturing projects are priced.
Process Costing: Steps required to complete a job are identified and average cost to each is assigned based on previous projects or experience. Averages to produce an overall budget are then added.
Job Costing: Specific labour and materials requirements are analysed and their costs calculated. Then a charge is added to over the company’s overheads.
Process costing works best in industries with uniform costs like some forms of manufacturing. Job costing is particularly useful for the construction business, as it is more rigorous, involves fewer assumptions and provides more more certainty where many variables exist from one job to another. Even though job costing provides a precise estimate, double-checking the drawings and understanding the major cost centres involved in each project is key to successfully, and profitably, completing the job:
Calculate the daily or hourly cost of direct employees and multiply that rate by the time estimated for project completion. As subcontractors may be required, identify the areas and period, and then confirm their availability. They will likely have their own estimates for the job, but rely primarily on your own calculations and overall budget.
Calculate cost for direct materials like wood, steel and electrical wiring, then add indirect materials like fasteners and caulking. Hired equipment hire must also be taken into consideration.
Calculate how much overhead to charge for depreciation of equipment, and for other business expenses like office rental and administration. Construction business operators usually work out overheads by adding a percentage to each job. Accounting professionals are resources you can turn to when it comes to dealing with overheads, especially when things get complicated.
Bookkeeping Services Malaysia
Managing finances is one of the most important responsibilities of operating a construction business. As the business becomes more successful and the company scales up, company finances become more complicated. Therefore, ensuring that your business effectively keeps track of costs and expenses pertinent to every aspect and function of your operation requires efficient bookkeeping and finance management.
When in doubt, consulting with bookkeeping services Malaysia or JB accounting services will likely save you extra cost or prevent incurring expensive errors in your books and tax filings.