Job Costing Examples

To illustrate how useful job cost accounting can be, let's look at some of the construction projects in the movie Star Wars.

You already know Luke and Leia. You've seen Han and Obiwan. But, do you know about Steve?

Steve is in charge of accounting at the Hoth base. He needs to make sure construction and maintenance work are done on time and under budget. The Rebel Alliance is not well funded, much like a startup company, so keeping a budget is critical to their success.

Construction of the Hoth facility was a large project, plagued by cost overruns. Accounting was done with manual methods—paper and pencil. Project managers were constantly in the dark about the true cost of the project because they were not able to run real-time reports. They had to dig through paperwork to find any data. It wasn't until the project ended that they saw how far over budget the build was.

Runaway costs are a major problem in the construction industry. What may seem like a minor adjustment in a job could actually turn out to be quite significant. The only way to control costs is to accurately project expenses and stick to a budget.

After overspending so badly on the Hoth base, Steve was brought in to restore balance to the acounting department. Steve implemented a job cost accounting program so there wouldn't be any more suprises. It only took a day to install the new system, and about a week of training. The staff were hesitant to change to a new system, but it was worth the effort to have something reliable in place.

The first job was maintenance on the shield generator. Apparently the heater core had gone out and the generator kept freezing. The heater would need to be replaced. An estimate was prepared and imported into the accounting system. That estimate could now be used as a budget to keep the project on course.

Partway through the project, a notification came up in the software. It was an alert about a possible budget issue. Steve wanted to dig a little further, so he ran a report to find out what was going on. Because the costs were categorized so well, he was able to narrow down the problem right away. It looked like labor costs were exceeding the original estimates. Steve was able to take that information to management, who realized they had too many workers on the job. They only needed 2 or 3 workers, but there were 5 showing up each day. If it hadn't have been for the specific expense tracking, management may not have ever found out about this problem until the job was over. Instead, they were able to make a simple adjustment and keep the job on budget.

Shortly after project completion, disaster struck. The Alliance needed to flee the base and resume operations elsewhere. Fortunately for them, their data was backed up in the cloud. Once they set up their new office on a distant planet, they were able to restore all their accounting data from their time on Hoth.

Meanwhile, construction of the Death Star was moving along quickly. Unfortunately for them, their accounting was in disarray. Although they did have accounting software in place, it was a complicated system. Most people in the accounting department preferred not to use it. As a result, there were many things that went unrecorded. Management was in the dark, and they didn't realize it. For example, they only had 4 guys guarding the Shield Generator base on Endor. Also, they hadn't secured the entryway to the main reactor.

These oversights resulted in catastrophic failure for the Empire, and could have been avoided with better record keeping.

Darth was not happy with Larry.

The point of these illustrations is that having data at your fingertips is helpful for avoiding surprises. Having a system that can track data in real-time keeps management up to speed on progress. Also, in order to make informed decisions, that data should be well categorized and accessible through customizable reporting. This keeps all project stakeholders informed and on the same page. If a concern arises, the relevant parties can discuss their options and make a plan to remedy any issues.

Never underestimate the power of accounting.