The importance of job costing and the challenges Body Shops have.cybergarage
Why is it so hard to get accurate Job Costing information?
Challenge most body shop have is they cannot track or analyze their true cost of completing repairs and delivering it back to the customer.
Job costing is an extremely important part of every body shops business. Job costing tracks the expenses for a job, and then allows you to compare those expenses to the job’s revenue. This tells you which jobs are making money and which jobs are not.
In a recent survey, 75% of contractors indicated that job costing was among their top concerns for their business. That’s not surprising, considering that successful job costing can mean the difference between a profitable business and one that struggles to stay alive.
Take where the typical body shop owner comes from. This person was a technician working out in the shop or a family member who took over the family’s business or left the family’s business and started their own body shop.
When you first opened your body shop business you knew a great deal about the collision repair business, and customer service, but very little about financial statements, labor laws and job costing. The day to day operations of running your business was something you may have learned through trial and error.
The collision repair business was taking off and you were becoming very successful and doing a great job. And then you found yourself very busy. It wasn’t long before you started to outgrow your capacity to keep up. You were working harder than ever before and working very long hours and away from your family but even then, you really hadn’t become much more profitable. The margins just weren’t growing, and cash was tight. Your company is at a crucial make-or break point. Either you figured out a way to make the company grow beyond the mom-and-pop shop where you were involved in every element of the business … or it would stagnate and die.
Job Costing & Why it’s so critical
Job costing involves the accumulation of the costs of materials, labor, and overhead for a specific repair order job. This approach is an excellent tool for tracking specific costs to individual jobs and examining them to see if the costs can be reduced or do the writing skills of the estimator need to improve or is it a combination of both. An alternative use is to see if any excess costs incurred can be supplement to a customer.
Job costing involves the following accounting activities:
Parts and materials. It accumulates the cost of parts and materials and then assigns these costs to a repair order once the parts and materials are used.
Labor. Employees log their time to specific repair order, which are then assigned to the jobs based on the labor cost of the employees.
Overhead. It accumulates overhead costs in cost pools, and then allocates these costs to jobs.
Job costing results in discrete “buckets” of information about each department in the repair order and breaks down how each department performed.