Job Cost Accounting

Cost Controls
Cost controls are designed to segregate incompatible duties (even in very small businesses), verify general ledger data with information from outside sources, intermittently analyze specific costs (by account or line item) for reasonableness (with follow-up of anomalies), and strengthen other internal controls. Management is responsible for protecting employees from unnecessary distrust; if one person has access to all components of a function, that person is the first suspect after fraud, theft, or other irregularities are discovered. Also, in an environment where USG funding (ultimately) pays for costs, the risk of non-compliance or even suspension/debarment outweighs the inconvenience of implementation. Controls affecting cost include:

Written policies and procedures that are compliant with both laws and contract terms;
Actual practices that mirror written policies and procedures;
Travel, Business Meeting, and Reimbursement expense forms that facilitate compliance;
At a minimum, separation between the requisitioner and the payment-approver of goods/services; and
Adequately documented time tracking, for both direct and indirect labor hours.

Project Cost Analysis
Project Cost Analysis begins with a well-designed Chart of Accounts, job numbers/names that are unique but comprehensive, and data-entry source documents that segregate direct costs from indirect costs. Financial reports - from the general ledger, spreadsheets, or other output - provide only (calculated) information originally recorded. With the three well-designed foundations, reports allow the following analysis:

Contrast Direct Labor, Direct Material, and ODC for the same project from month to month - and drill down to the specific component causing a variance;
Compare profitable or wasteful components, among projects, and center on the costs/practices to cultivate or reduce; and
Improve the basis of spreading indirect costs to better match the causal/beneficial relationship.

Job cost accounting formats the general ledger to accumulate costs by project or contract. Process costing excludes job cost accounting. Standard costing and fund accounting accommodate this complex added dimension. The majority of organizations selling on contract to the federal government do not use process, standard, or fund accounting; cost is recorded for the company as a whole. Segregating recorded cost allows project cost analysis. The goal is not to determine net profit or loss for the organization, but for each job (or project or contract). Building a budget for each job, by month, promotes comparison to actual incurred cost (AIC) by month. Contractual milestones are planned and tracked during contract performance; likewise, cost to accomplish each milestone is budgeted and evaluated for variances. Project cost analysis determines the causes of variances.

The chart of accounts for job cost accounting might impact the Income section and significantly impacts the subsequent sections. One section of random accounts for Expenses (for input of data) prevents reporting (output) that permits project cost analysis. Immediately after all Income, the next section - Cost of Goods and Services Sold - holds all direct-charged accounts. Typically, these are Direct Labor, Direct Material, and Other Direct Costs (ODC). ODC accounts contain Subcontracts (which are purchases, not Direct Labor) and Travel. After Cost of Goods and Services Sold the Expenses section follows.

Expenses are organized by indirect rate. Generally, Labor Overhead pool accounts top the Expenses. Facilities followed by General and Administrative (G&A) accounts might suffice. If the company proposes or invoices Material Overhead, the accounts comprising that pool follow Labor Overhead accounts; between Facilities and G&A, additional "pool" accounts can be added. Job cost accounting separately records all costs of the project, including AIC for indirect pools. Project cost analysis considers overheads and other indirect costs when calculating net profit or loss on a job or contract. Facility rent or mortgage principle represents cash money out the door; achievements on the project required an allocable share of that cost.