Job costing help

Methods of job costing for an architectural millwork business are discussed.July 24, 2001

I'm trying to find a money-friendly way of job costing. We have just moved into a new 18K square foot plant and it is needed now more than ever.

Forum Responses
From contributor B:
We've done several different things. When we were selling residential cabinets to dealers and contractors, we had a list price that we discounted just like big box does. We basically took materials, added margins, took labor, etc. After computers came along, we put it in a spreadsheet. After getting out of the residential game and going to commercial only, we came up with a spreadsheet to cover all this. Not perfect, but a lot easier and cheaper than going with conventional software that is available for pricing/bidding.

I just ordered True 32's Business Partner. I did a little beta testing with it in its spreadsheet format and it works beautifully. And the stand-alone package they are marketing is outstanding. I would strongly suggest you look into it. It works across all facets of cabinet building, whether you're doing frameless, frame, commercial, residential, etc. This is the simplest, most accurate method I have ever used.

From contributor D:
The pricing structure I have in place for my shop is very informative and helps to fortify my position when customers want to know the why behind the numbers. This system has taken me 8 years to bring to this point. The key to this pricing structure is that it is mine. I developed it, I know what makes it change, and I know exactly how accurate it is. This is the one thing that every woodworking business person needs to do for themselves. You cannot sub this one out. There are so many variables on a personal level with each of our businesses that no one could possibly tell another what is or isn't profitable.

For example, if you like to drive a $35,000 brand new pickup around town, you have to make $35,000 a year more than me because I drive a fully paid for 8 year old van. Is your house paid for? If not, then that's an expense to be business-supported.

What I'm getting at with pricing here is the same thing the True 32 folks are getting at with job flow. Identify your costs, then do something about it.

The parameters I track on every job are:
Material cost (every little thing)

Direct labor (if I use another person on the job)
Variable overhead (stuff too difficult to charge off to one client, like machinery repairs, etc.)
Fixed overhead (I include retirement here)
Salary overhead (what you must take home to keep the heat on)

Every item here, except materials, is tracked by the time involved using Quickbooks Pro activity timer. I track materials in Cabinet Vision Solid. Once I have identified my costs, I add on my profit (the only variable), and that is my client's price.

I try to make as many activities as possible go to a particular job so there is an accurate time rating on a per job basis. This is a bit of work to set up, but once running it is pretty easy to maintain. You just have to remember to start and stop the timer for every activity you do. I was able to do this, being a one-man shop. As for larger organizations, the employees may be an obstacle. When I use others, I just make sure to track their time myself.

I never give anything away, but sometimes I work for less profit if I think the situation warrants it. At least working for less profit for me is a business decision and not out of my control.

From contributor B:
If all of us in this business can get on the same page, help educate the guys who don't know that they're selling stuff at a loss, we're all going to be better off. The Internet is a great tool for this. I doubt that any of us in this thread have ever competed. We can freely exchange info without fear of harming our business.

Some guys may think that what they do and how they do it are a big secret, but I assure you there are no secrets in this industry.

The original question asked for help with job costing, which means to me finding out how you did or how you are doing on any given job.

This starts with the estimate, which has to be done operationally, in whatever format you want to track. In my shop, we track cutting, banding, machining, assembly and finishing, in some detail, and that is how we estimate. Each operation gets a code. When we get the job, the budget estimate goes into our accounting software.

I estimate with a complex spreadsheet, and we used to enter budgets line by line by hand. Now the budget report can be copied and pasted directly into our accounting software, which is called Master Builder and is pretty good. Estimating programs like Takeoff have similar reports, which may be better than the ones I generate. I'll bet True32 Business Partner has something you can use.

Each operation is tracked on the employee timesheets and is entered against the budget. Materials purchased for the job or pulled from inventory are also entered against the budget. Our software allows us to do a cost to complete projection but this is easily done on a spreadsheet, too.

You can make it as simple or detailed as your world requires, but if you don't do it you will never know where you are. It's probably not necessary to get into the detail we get into if you're only doing one or two jobs at a time or if you finish jobs very quickly, but it's good to start the discipline when you are small so that it accompanies you when you grow. If you are doing multiple jobs over many months, you can't really do your financials without good job costing.

From the original questioner:
We are a small architectural woodwork firm, 1.5 mil. Our shop drawings are produced from AutoCAD, and we hand-produce our cut bills. I mention this because we already have an investment in AutoCAD, for those who would suggest having Cabinet Vision or other multi-tasking CAD program assist us in tracking the cost of individual projects and the need to cost out specific tasks. Currently, we take samplings by hand of specific operations, such as x amount footage of, let's say borrow light frames, or ln. ft. of edgebanding, or the cutting of toe kicks. These samplings are used for specific estimating purposes, and are updated when a change in the manufacturing process has occurred.

The normal job costing procedure on the plant floor is handled by job, by type of work performed and/or area of the plant, as well as who is performing the work. This is done by hand with fields on a sheet of paper for the employee to fill in.

Time in:
Time out:
Operation performed:
Type of Material:
Quantity or Sq. or Ln. Footage:

From contributor B:
We do roughly the same thing you're doing, although I think we do more cabinets than you. I assumed you were building cabinets.

The same still holds true, though. Initially I set up a spreadsheet to do takeoffs and then to track actual job costs. I am using the T32 Business Partner to handle this now. While it's obviously more suited to cabinetwork, it works fine for architectural millwork as well. But if you're doing millwork exclusively with no cabinets, you might want something else.

We are using some simple and inexpensive software to gather data using Palm Pilots. It's called HourzPro by Zoskware and cost us $50. Each employee punches into his handheld the job name and task, which is then recorded in real time--no guesstimating. What you do with this simple and accurate information has been discussed in some of the other posts, i.e., export it to a spreadsheet to do your actual vs. estimated or some other software. We export into QB Pro so we can generate payroll hours but this step may not be very efficient if you have 9 employees.

From contributor D:
It doesn't matter how many employees or how much machinery or shop space you have. All that matters is the time it takes to produce and deliver product. Once you know the time, a cost per hour can be applied. I have set up rates for fixed overhead, variable overhead, salary overhead. Any overhead category can have subheadings for additional expenses added at any time. I am currently working on a ROI rate/hour to be added as a fixed overhead subheading. Since you know your material cost from your hand-produced bill of materials, isn't your overhead what you are asking about?

Cabinet Vision gives me no accurate job costing info because the program doesn't know my expenses until I input. I have found, like you, that sticking with your investment in dollars and time in a software program is the way to go. Then devise work-arounds to tweak things so that everything meshes together.

I have seen some ads for a time-tracking package that includes small portable recorders that your employees hang on their belts, so they record their daily activities such as job #, operation, time, etc. At the end of the day these devices are inserted into a reader that updates the job costing program. I know it is out of my price range for what it does, but to a larger company I can see the benefit of streamlining the employee involvement in such an important aspect of the business.