Monthly sales and overall profit may look satisfactory while individual jobs, customers or services perform very differently.
Consider a job quoted at RM5,000.
The direct materials and labour may have been included in the quotation, but what about:
- Additional transport or subcontractor charges;
- Waiting time and overtime;
- Wastage or rework;
- Discounts and credit notes;
- Unplanned site visits;
- Other costs incurred specifically for that job?
When these items are not captured, management may overestimate the job’s profitability and repeat the same pricing weakness in future quotations.
A useful job-costing process compares:
- Quoted revenue with actual revenue;
- Budgeted costs with actual costs;
- Expected margin with actual margin;
- Operational reasons for significant differences;
- Corrective action required for similar future work.
Job costing should therefore do more than calculate a final figure. It should help management improve quotations, control costs, evaluate customers and decide which work the business should pursue.