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Construction job costing

What is job costing in construction?

Job costing is the accounting method that assigns every cost — labor, materials, subcontracts, equipment, and allocated overhead — to the specific job that caused it. In construction, costs are coded to a job plus a phase, cost code, and cost type, so each project’s actual cost can be compared to its estimate while the work is still under way.

Last updated · Aequo AP editorial team

In one line

Job costing = every cost, coded to the job (and phase, cost code, cost type) that caused it, compared against that job’s budget.

Job costing, defined

Job costing (job order costing) traces individual costs directly to a final job or service. It is the standard method for businesses whose work is custom and project-based, which is why textbooks use building contractors as the example.

The opposite is process costing, which averages costs across identical units — see job costing vs process costing. A contractor’s question is never “what does an average unit cost?” but “is Job 2041 going to make the margin we bid?”

The four coding dimensions: job, phase, cost code, cost type

Most construction job-cost systems code each cost to a job, a phase within the job, a cost code for the scope of work, and a cost type such as labor or material.

DimensionWhat it answersExample
JobWhich project or contract?2041 — Riverside medical office
PhaseWhich stage or area of the job?03 — Rough-in, Level 2
Cost codeWhich scope of work?09-2900 — Gypsum board (CSI MasterFormat-style)
Cost typeWhat kind of cost?Labor, material, subcontract, equipment, other

Budget, committed, actual, and projected cost

Job costing is only useful if it shows four numbers side by side for each code: the budget, what you have committed to spend, what has actually been incurred, and what the line is projected to cost at completion.

NumberWhere it comes fromWhy it matters
BudgetThe estimate, revised by approved change ordersThe baseline margin was bid on
Committed costSigned subcontracts, purchase orders, approved change ordersMoney you are already obligated to spend, invoiced or not
Actual costApproved vendor bills, payroll, equipment chargesWhat has been incurred to date
Projected costActual plus estimated cost to complete (at least the committed amount)Shows fade before the job closes

Committed cost is the number most small contractors are missing: a $180,000 subcontract signed today does not show up in actual cost until the first bill arrives, but it is already spent. See the committed cost definition.

A worked example

A $1.2 million job with a $1.02 million cost budget looks healthy on actuals alone until committed cost and cost to complete are added.

Cost codeBudgetCommittedActual to dateProjected
03-3000 Concrete$210,000$225,000$225,000$225,000
09-2900 Drywall (sub)$180,000$188,000$94,000$188,000
26-0500 Electrical (sub)$240,000$240,000$60,000$240,000
01-5000 General conditions$390,000$40,000$170,000$400,000
Total$1,020,000$549,000$1,053,000

Projected cost is $33,000 over budget, so gross profit fades from $180,000 to $147,000 (15.0% to 12.3%). Actual cost alone — $549,000 against a $1,020,000 budget — would not have shown it. The $15,000 concrete overrun is already final, an $8,000 drywall change order was committed but never re-budgeted, and general conditions are trending $10,000 over.

Where AP fits: every bill is a job-cost entry

In construction, most actual cost arrives through accounts payable, so job-cost accuracy depends on each vendor bill being coded to the right job, phase, and cost code before it posts.

  1. 1
    Capture the bill and identify the vendor, job, and any purchase order or subcontract it bills against.
  2. 2
    Code every line to job, phase, cost code, and cost type — split lines that cover more than one code.
  3. 3
    Match it to the commitment so overbilling against a subcontract or PO is caught before approval.
  4. 4
    Route it to the project manager who can confirm the work was done.
  5. 5
    Withhold retainage at contract terms and check lien-waiver and insurance requirements before payment.
  6. 6
    Post the coded bill to the accounting system so the job-cost report and the general ledger agree.

Miscoded bills are the most common reason job-cost reports stop being trusted. Put a number on it with the job-cost error impact calculator.

Job costing in QuickBooks

QuickBooks Online can job cost with customers and Projects, classes, and products and services used as cost codes, but it has no native phase, cost-type, or committed-cost structure.

The full setup — and what to do about the gaps — is in job costing in QuickBooks Online for construction bills. If you are deciding whether QuickBooks is still enough, read construction accounting software for QuickBooks users.

Reports job costing should produce

At minimum: a job-cost detail by code, a budget-vs-committed-vs-actual summary per job, and a WIP schedule across all open jobs.

  • Job-cost detail — every transaction on a job, by cost code, traceable to the source bill.
  • Budget vs committed vs actual vs projected — per job, per code.
  • WIP schedule — percent complete, earned revenue, and over/under billing across open jobs.
  • Unbilled and retainage reports — what is earned but not billed, and what is held.

Aequo Build

How Aequo Build handles job costing on top of QuickBooks Online

Aequo Build codes invoice and purchase-order lines to job, job-specific phase, cost code, and cost type. Subcontracts, purchase orders, and approved change orders count as committed cost; approved, coded invoices post actual cost entries linked back to the source document, and re-approval or rejection reverses and reposts them so totals stay traceable.

Approved bills sync to QuickBooks Online with their GL accounts (and a class where you map one). Phase, cost code, and cost type detail stays in Aequo Build rather than being written to QuickBooks.

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Frequently asked questions

What is job costing in simple terms?

Recording every cost against the job that caused it, so you can see what each project actually cost compared with what you estimated.

What are the main components of job costing?

Direct labor, direct materials, subcontract costs, equipment, and an allocation of overhead — coded by job, phase, cost code, and cost type, and compared against the budget.

What is the difference between a cost code and a cost type?

A cost code describes the scope of work (for example drywall or site concrete). A cost type describes the kind of cost (labor, material, subcontract, equipment). The same cost code usually has costs of several types.

What is committed cost in job costing?

The total you are contractually obligated to spend on a job through signed subcontracts, purchase orders, and approved change orders, whether or not the bills have arrived yet.

Can you do construction job costing in QuickBooks Online?

Partly. QuickBooks Online supports tracking costs by customer or project, class, and product or service, but not phases, cost types, or committed cost natively. Many contractors add a construction AP or job-cost tool on top.

Related guides and tools

Job-cost error impact calculatorWhat miscoding does to margins and rework hours.Job costing in QuickBooks OnlineProjects, classes, items, and billable expenses.Job costing vs process costingSide-by-side comparison with examples.WIP reports in constructionOver/under billing and a free template.Construction accounting software for QuickBooks usersWhen QuickBooks plus add-ons is enough.Cost code glossary

Sources

  1. OpenStax, Principles of Accounting Vol. 2 — 4.1 Distinguish between Job Order Costing and Process Costing
  2. OpenStax, Principles of Accounting Vol. 2 — 5.1 Compare and Contrast Job Order Costing and Process Costing
  3. Whole Building Design Guide (WBDG) — CSI MasterFormat numbering

Part of the Construction AP Knowledge Centre.