{"id":1430,"date":"2018-10-12T08:25:25","date_gmt":"2018-10-12T08:25:25","guid":{"rendered":"https:\/\/www.mrpeasy.com\/blog\/?p=1430"},"modified":"2021-08-31T13:10:48","modified_gmt":"2021-08-31T13:10:48","slug":"manufacturing-job-costing","status":"publish","type":"post","link":"https:\/\/www.mrpeasy.com\/blog\/manufacturing-job-costing\/","title":{"rendered":"5 Practices for Job Costing"},"content":{"rendered":"\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img loading=\"lazy\" decoding=\"async\" width=\"1024\" height=\"768\" src=\"https:\/\/www.mrpeasy.com\/blog\/wp-content\/uploads\/2014\/12\/inventm.jpg\" alt=\"manufacturing job costing\" class=\"wp-image-50\"\/><\/figure><\/div>\n\n\n\n<p>Job costing is considered to be something of an art form as creating a balance between your business and ensuring your employees are fairly paid is not always as easy as you may think.<\/p>\n\n\n\n<!--more-->\n\n\n\n<p>This is because you need to track and categorize all your costs based on their relationship to any project you\u2019re running. Costs can include labor, equipment, materials and subcontract charges but they can also include the timely delivery of your goods to customers and understanding exactly what\u2019s in your inventory.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_80 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #343333;color:#343333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #343333;color:#343333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-job-costing\/#1_Job_Costing_and_Margins\" >1. Job Costing and Margins<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-job-costing\/#2_Analyzing_Trends\" >2. Analyzing Trends<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-job-costing\/#3_Timing\" >3. Timing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-job-costing\/#4_Your_Inventory\" >4. Your Inventory<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-job-costing\/#5_Remember_the_Small_Costs\" >5. Remember the Small Costs<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"1_Job_Costing_and_Margins\"><\/span>1. Job Costing and Margins<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>When manufacturing a product, you will have your direct materials costs and direct labor costs that measure the <a href=\"https:\/\/www.mrpeasy.com\/blog\/total-manufacturing-cost\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\" (opens in a new tab)\">cost of goods sold<\/a> (COGS). Understanding these costs is vital but there are also other costs that you need to factor in and these are your indirect expenses. Your indirect expenses are your administrative, sales and general expenses. You should also factor in your gross margin in addition to your contribution margin and finally your earnings. Understanding your margins can help you get a clear idea as to how well your manufacturing business is performing and where changes need to be made.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"2_Analyzing_Trends\"><\/span>2. Analyzing Trends<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Another great job costing practice involves analyzing your trends, more specifically trailing twelve-month trends (TTM), Analyzing these trends will help you to spot any patterns and can ultimately help you understand where your finances are. Analyzing trends can also help you to determine where you\u2019re going wrong and how you can make your manufacturing business even more cost-effective.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"3_Timing\"><\/span>3. Timing<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>In the manufacturing world, timing is crucial. For you to make the most of your business, you will need to consider the timing of your:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Throughput \u2013 How many units you produce and sell over a certain period. Please note that only sold units count towards your throughput. Units that have been manufactured but not sold should not be counted as you have yet to make any profit from them.<\/li><li>The delivery of your finished goods \u2013 How quickly can you deliver your finished goods? Is something preventing them from reaching your customers at an agreed date? Are you using the most time-efficient methods?<\/li><li>Generating accurate financial records \u2013 closing your books quickly and having accurate records can help your business run smoothly.<\/li><li>Collections \u2013 This is important as you will need to have enough money, so you can order raw materials. If your collections fall behind schedule it could have a knock-on effect on the manufacturing side of things.<\/li><\/ul>\n\n\n\n<p>If you can consider all your timings, you will have more of an idea as to how your business is running and where improvements can be made.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"4_Your_Inventory\"><\/span>4. Your Inventory<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Manufacturing companies tend to see their inventory as the Achilles heel. This is primarily because the inventory is not properly managed, or they are involved in a few bad practices. However, once a good process can be established and your inventory is consistent it can be routinely maintained.<\/p>\n\n\n\n<p>When it comes to working with your inventory you should ideally:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Be realistic about it \u2013 deal with the obsolete inventory and write off any product that has come to the end of its life cycle.<\/li><li>Clean it up \u2013 Many manufacturing companies have a junkyard of sorts behind their facility storing equipment that they no longer use. Junkyards can pile up, equipment can get rusty and dealing with it can become something of a bind. Ask a scrap dealer to take all of your equipment away once it\u2019s been liquidated so you get a bit of cash for the equipment you no longer use.<\/li><li>Segregate your Inventory \u2013 Segregating your inventory can make it easier to deal with. For example, you should be able to see where your finished goods are in addition to your raw material and the work in progress. This is a good job costing procedure to undertake as it will be easier for you to do a physical count.<\/li><li>Do a physical count \u2013 While undertaking a physical count of your inventory may not be a lot of fun it can help you to establish exactly what you have and what you don\u2019t have enough of. Doing a physical count every six months to a year is crucial.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"5_Remember_the_Small_Costs\"><\/span>5. Remember the Small Costs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If your manufacturing company is not so small, 100+ employees, it\u2019s vital that you remember all the costs no matter how small they are, even if all you\u2019re doing is giving a client an estimate rather than a breakdown. Small costs can add up quickly and it\u2019s quite easy to go over budget if small costs are not considered. In the end, you may end up eating the costs up yourself or having to deal with an unhappy client who wants an explanation as to why you\u2019re charging them even more.<\/p>\n\n\n\n<p>Small costs may include:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Supplies such as safety gear, tape and machine lubricants.<\/li><li>Identity badges for all your employees.<\/li><li>Stationary for those who work in your offices.<\/li><li>Free tea and coffee in the canteen.<\/li><\/ul>\n\n\n\n<p>Each of these costs adds up after a while no matter how nominal they may seem. Remembering the small costs can help you to budget correctly so you\u2019ll be more able to offer a client a more accurate estimate while knowing exactly what your costs are.<\/p>\n\n\n\n<p>Job costing may involve a lot more than you originally thought but it\u2019s crucial that you remember how important it is. If you would like your manufacturing business to run smoothly you will need to consider the small costs and margins, so you know exactly where you are. Start analyzing trends to see if there\u2019s a pattern year after year and don\u2019t forget to work on your timing as it can make a difference between running a successful business and struggling to get your feet off the ground. Finally, maintaining a good inventory process may be a bit of an Achilles heel for you but if you\u2019re realistic about it and you work hard to maintain good practices your Achilles heel may eventually become something you\u2019re proud of.<\/p>\n\n\n\n<p><em>You may also like: <a href=\"https:\/\/www.mrpeasy.com\/blog\/job-costing\/\" target=\"_blank\" rel=\"noreferrer noopener\" aria-label=\"What Is Job Costing and How to Do It? (opens in a new tab)\">What Is Job Costing and How to Do It?<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Job costing is considered to be something of an art form as creating a balance between your business and ensuring your employees are fairly paid is not always as easy as you may think.<\/p>\n","protected":false},"author":1,"featured_media":49,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[92,94,93],"tags":[47],"class_list":["post-1430","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting","category-tips","category-production-planning","tag-job-costing"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.7 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>5 Practices for Job Costing - Blog for Manufacturers and Distributors<\/title>\n<meta name=\"description\" content=\"Managing job costing often is a complicated task to deal with for manufacturers. Here are 5 practical tips, how to make that process easier:\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.mrpeasy.com\/blog\/manufacturing-job-costing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"5 Practices for Job Costing - Blog for Manufacturers and Distributors\" \/>\n<meta property=\"og:description\" content=\"Managing job costing often is a complicated task to deal with for manufacturers. 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