Job Costing — The Dollar Dictionary

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Accounting

Job Costing

A method of tracking the costs — labor, materials, and overhead — associated with a specific project or job, so profitability can be measured per job rather than across the whole business.

Job costing is the foundation of profitability analysis for any business that delivers customized work — construction, consulting, law, creative agencies, manufacturing of custom products, and engineering firms. Rather than spreading costs across all projects equally, it allocates every dollar of cost to the specific job that caused it.

The three components tracked per job are: direct materials (the physical inputs used only for that job), direct labor (the employee hours worked on that job, priced at loaded cost including benefits), and applied overhead (a proportional share of indirect costs like rent and management salaries, allocated using a predetermined rate). Compare these totals to the revenue billed and you have true job-level profitability.

Imagine a contractor who builds ten houses a year but never tracks which ones made money and which ones didn't. Job costing is the financial flashlight that shows you exactly which jobs were profitable and which quietly ate into your margins. Without it, you're averaging across wins and losses and fooling yourself about what's actually working.

Real world: A custom software development agency uses job costing to track every hour billed, every contractor invoice, and every tool license against a specific client project. At project close, they compare actual costs to the original estimate. If a $200,000 project cost $195,000 to deliver, they made 2.5% margin — barely worth it. That data informs how they price the next similar project.

💡 Job costing reveals which work actually makes money — businesses that average profitability across all jobs often discover they're subsidizing their least profitable clients with margins earned on their best ones.

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