How We Do It: June 2001, Job Costing At Hittle Landscape

A willingness to accept change and to learn along with using software, and being able to break old habits, was the key to introducing a new job costing system at Hittle Landscape, Westfield, Ind.

We rely on information technology to quickly capture, track and process redundant information. We use a software package that allows us to enter inventory, track production rates, labor rates, equipment rates and the associated overhead. We build and initiate projects and jobs from within this software and it, in turn, provides us with job costing reports.

We consider annual overhead in terms of labor, equipment, facilities and administration, and then we determine how many labor and equipment hours we will use during the year. We do not squeeze overhead too tightly – we leave some room for growth. When we know our overhead, we add in our expected growth margin. Then we can allocate a portion of overhead to an actual hourly rate for labor and equipment. We load these rates into our software for all of the materials that we have in inventory and we use these hourly rates for all new project estimates. Overhead recovery software and consultation services helped us determine our overhead recovery.

Production rates are based on time spent installing materials or providing services. Labor, materials, equipment, and overhead are also factored into production rates to come up with the project, job or material cost that includes overhead. (We use the word cost not price. Cost is what you pay and price is what you charge your customer.) Once cost is determined, we add in profit margin and applicable sales tax to come up with the customer’s price.

To establish production rates, we use field labor averages in conjunction with published production rates to determine our "averaged standards." Estimating experience and industry standards help determine job standards.

Difficulty factors can affect these standards. It takes more time to cut grass on hilly terrain with obstacles then it does on level ground without obstacles. Our job is to compare and adjust production rates when the variance is consistently higher or lower than the established rate.

We use the same averaged production rate for the same material types that are within the same size parameters and have the same unit of measure. This enables us to track profitability all the way to the material unit level.

If any one part of the information chain is broken then all of the job costing efforts become exercises in futility. The information chain includes production rate research, production rate entry, estimating from new production rates, recording actual production times, comparing actual to established production times and adjusting production rates.

The time needed to initiate job costing depends on the company’s size and resolve. More employees, equipment, inventory and services affect implementation speed.

To track production times and rates down to the material level, employees must also track start and stop times. If you only want project-level details (projects normally contain multiple materials and multiple assemblies) then start and stop times only need to be tracked for the project as a whole.

Once we have actual times, we log them into our software package, and once the job is posted to the system we can determine its average time. A bit of history is needed to build an accurate average for a particular project or a job, which is why production rate accuracy improves over time. Average times based on history can be compared to production times and adjusted if the average of the actual time is either constantly higher or lower than the established production rate.

The fundamentals of understanding the true financial condition of any company are rooted in understanding and implementing basic job costing principles.

Good job costing practices breed a healthy spirit of competition among crews that ultimately lead to a higher overall efficiency rating and deliver more dollars on the bottom line at the end of the year. With a much clearer understanding of the bottom line at the end of the year or at any point in between, the future destiny of the company can be mapped out in much greater confidence.