Products and job costing in construction

Engineering and Construction Matters

With Innocent Chatikobo

Costing refers to the process of calculating and assigning costs to goods, services, or activities.

It involves identifying, measuring and recording the expenses incurred to produce or deliver a product or service.

Costing is a crucial aspect of accounting, financial management and decision making in businesses and organisations.

Costing helps businesses and organisations to

• Determine prices
• Calculate profits
• Make informed decisions
• Optimise resources
• Improve efficiency
• Reduce waste
• Construction job costing

Construction job costing is the process of tracking and managing the costs associated with a specific construction project or job.

By implementing effective construction job costing practices, contractors and builders can optimise their financial management, reduce errors and increase profitability.

Construction job costing involves identifying, recording and analysing all the expenses incurred during the project, eg

1)Labour cost— there are various labour categories at a construction site.

In previous editions, we touched on personnel in the construction industry. Some of the key personnel categories include

a)Professionals eg site engineers, clerk of works, etc

b)Coded tradesmen eg bricklayers, plasterers, tilers, welders, electricians, plumbers, etc

c)Semi skilled persons eg bricklayers, plasterers, machine operators

d)General hands / labourers eg excavators, building assistants, cleaners, etc

2)Material costs —caters for all materials and consumables for the job eg bricks, cement, aggregates

3)Equipment costs—the more mechanised a job is, the faster it can be executed. Some of the machines and equipment required are excavators, dumpy levels, theodolites, graders, tools.

Some of the machines are purchased and owned while others are cheaper when hired than trying to buy them

4)Subcontractor costs — to be able to execute some tasks well, it’s best to subcontract those who are more proficient in the areas, eg welding, electricals, carpentry

5)Overhead costs — include running costs such as electricity, water, meals, fuels

6)Miscellaneous costs — these cover some costs such as statutory fees (eg permits, inspections , etc) and unforeseen costs (unexpected breakdowns, medical bills, etc)

Construction job costing is very important in every project. Some of the goals of construction job costing are to

• Accurately estimate and bid on projects
• Track and control costs during the project
• Identify and address cost overruns or discrepancies
• Improve profitability and reduce waste
• Enhance project management and decision making
• Provide accurate financial reporting and accounting
• Common construction job costing methods

Costing of the jobs in the construction industry uses different methods.

Some methods can only be applicable to specific tasks while in some projects you can apply more than one method.

The accuracy of the costing method determines the profitability of the job. Common construction job costing methods include:

Unit costing eg costing a job per square metre like in flooring, plastering, tiling, painting

Job order costing – tracking costs associated with a specific job

Process costing – tracking costs for a specific process or activity eg excavation costs, costs of concrete works, etc

Activity based costing – tracking costs for specific activities or tasks eg drainlaying in plumbing

Time and material costing – tracking labour and material costs. Also includes possibilities of overtime.

Material costs should include a provision for extras

We also have construction job costing software and tools which can help streamline the process.

These tools help reduce errors and increase accuracy of the costing. Some that can commonly be used include:

• Accounting softwares eg QuickBooks, Database
• Project management software eg procore
• Estimating software eg Sage estimating
• Job costing software eg JobCost
• Spreadsheets eg Microsoft excel

Innocent Chatikobo is an Engineer by profession with AtroServe Engineering Zimbabwe. He has extensive knowledge and experience in Structural Engineering and Construction. For your comments, views, questions and feedback he can be contacted on the following platforms, Cell: +263 777 950 224; +263 712 376 037; +263 782 502 732, Email: [email protected]  Like the Facebook page: AtroServe Engineering ZimbabweFollow the Whatsapp Channel: AtroServe Engineering Zimbabwe