Contractors switching to QuickBooks from another accounting program are often concerned about how to enter Job to Date Costs and Billing Data when converting, so they don’t loose this vital information.
Below is a procedure that I found several years ago, unfortunately I don’t remember where I found it or who wrote it (otherwise I would be happy to give them credit for it), but I do want to share it with you; as it is one way to handle this task.
Use this procedure to enter Job-to-date (“JTD”) costs and JTD billing so the Job Profitability Summary is accurate after converting your existing accounting software to QuickBooks, when you convert your existing QuickBooks file to a new database file, or after archiving old QuickBooks transactions.
Run your Job Profitability Summary Report to obtain the JTD figures as of the conversion date. In the date fields, leave the first field blank, enter the conversion date in the second date field. You will use the figures on this report for your data entry. If your cut-off date is 12/31/08, for example, use the next day (1/1/09) as the date for all the transactions below.
- Create a fake Vendor called “Opening Balance”. You will make this inactive after completing this procedure.
- Create an Other Expense account in the chart of accounts called “9999 • Conversion – JTD Costs”. You will make this inactive after completing this procedure.
- Create an Other Income account in the chart of accounts called “9998 • Conversion – JTD billing”. You will make this inactive after completing this procedure.
- Create a service Item called “Opening Balance JTD Billing” and link it to “9998 • Conversion – JTD billing”. You will make this inactive after completing this procedure.
To enter the JTD Costs for each job:
Enter a Bill to the “Opening Balance” vendor for the JTD cost. On the expenses tab select the appropriate Customer/Job, and select “9999 • Conversion – JTD Costs” for the account.
Enter an AP Bill Credit to the “Opening Balance” vendor for the same amount, but do not select the Customer/Job. On the expenses tab, select 9999 • Conversion – JTD Costs.
In Pay Bills, select the bill, click Set Credits, and apply the credit against the bill.
This effectively removes any AP balance, leaves no effect on GL, but leaves the cost in Job Cost.
Create a new Bill and AP Bill Credit for each active job as of the conversion date.
To enter the JTD Billing for each job:
Enter an Invoice for the Customer:Job for the total Billing-to-date on the job. Use the new service Item called “Opening Balance JTD Billing”.
Enter a Journal Entry for the total amount, the debit is to the “9998 • Conversion – JTD billing” account, leave the Name field blank. The credit is to Accounts Receivable. Select the Customer/Job name in the Name field.
In Receive Payments, enter the Customer/Job, and you will see the above Journal Entry is available as a credit against the Invoice you created above.
The net effect on GL is zero, the invoice is paid, and the correct Job To Date Billing as of the conversion date will be reflected in your Job Cost reports.
Create a new Invoice and Journal Entry for each active job as of the conversion date.
Run your Job Profitability Summary Report on the new data file and compare with the same report on the old data file. They should agree. If not, you’ll need to double check your data entry.
Determining the cost-per-hour for each piece of equipment or machinery that your company owns and uses on a job site is a great tool for understanding, and even eventually, recouping the actual cost of the machine itself. Once you have this information, you can improve the accuracy of your bidding, book equipment and machinery costs in your accounting software, and even identify ways in which you can maximize expenditures throughout the year.
Equipment and machinery cost-per-hour rates are calculated by adding together three distinct pieces of information:
- What it costs to own or lease (acquisition cost-per-hour)
- What it costs to maintain (maintenance cost-per-hour)
- What it costs to run operate it (running time fuel consumption cost-per-hour)
1. Calculating Acquisition cost-per-hour (ACPH)
Formula: Divide the total price paid (including interest paid) by the projected number of lifetime hours.
Example:
| 21” rotary mower purchase price: | $1,100.00 |
| Interest | none |
| Lifetime hours: | 750 hours (2.5 hours/day, 5 days week/30 weeks/year for 2 years) |
| Salvage value: | none |
Acquisition cost-per hour: $1,100.00 divided by 750 hours = $1.47 per hour
2. Calculating Maintenance cost-per-hour (MCPH)
Formula: Divide the estimated lifetime maintenance cost (repairs, parts, labor, blades, spark plugs, oil changes, filters, etc.) by the number of lifetime hours.
Example:
Lifetime maintenance cost: $600.00
Maintenance cost per hour: $600.00 divided by 750 hours = $0.80 per hour
3. Calculating Running-time Fuel Consumption cost-per-hour (RT/FC CPH)
Formula: Determine how long one gallon of fuel lasts for the piece of machinery. Divide the price per gallon of the fuel by the hours used each day.
Example:
Cost per gallon of fuel: $2.50
Running-time fuel consumption cost-per-hour: $2.50 divided by 2.5 hours = $1.00 per hour
| Total Cost-Per-Hour:$1.47 Acquisition cost-per-hour (ACPH)$0.80 Maintenance cost-per-hour (MCPH)
$1.00 Running-time Fuel consumption cost-per-hour (RT/FC CPH) $3.27 |
Let’s look at another example, this time determining the cost-per hour for a compact tractor.
| Purchase Price: | $23,000.00 |
| Interest: | $ 5,520.00 |
| Salvage Value: | $ 8,000.00 |
| Life Expectancy: | 3,000 hours (300 hours per year for 10 years) |
| Lifetime Maintenance Cost: | $18,000.00 |
| Fuel Price: | $2.50 per gallon |
| Fuel Used per hour: | 1.5 gallons |
Acquisition cost-per-hour (ACPH): ($23,000.00 + $5,520.00 – $8,000.00 = $20,520.00)
$20,520.00 divided by 3,000 hours = $6.84
Maintenance cost-per-hour (MCPH): $18,000.00 divided by 3,000 hours = $6.00
Running-time fuel cost-per-hour (RT/FC CPH): $2.50 divided by 1.5 hours = $1.67
Total Cost-Per-Hour: $6.84 + $6.00 + $1.67 = $14.51
| Notes: Your dealer should have data regarding estimated lifetime maintenance cost and fuel consumption. If you buy used equipment, cost it out using the “new” purchase price. The total cost-per-hour is usually the same for new and used equipment, and useful life, repair and maintenance costs, are easier to determine for new equipment. Using the new purchase price also automatically adjusts your rates for inflation and price increases.You can cost out leased machines using the same formulas and adjusting the life expectancy, lifetime maintenance and fuel price, to account for the shorter term.
To determine fuel cost, you can also fill up the tank and divide the fill-up price by the total running hours. Even if you prefer to base your estimates on a per-labor-hour rate, the Cost-Per-Hour method prevents you from understating or overstating the actual equipment cost for the job being bid. |
You can verify your Cost-Per-Hour figures in several ways:
- Compare your hourly rates to those of your local equipment rental company. Reduce their rental rates by 40-50% to remove their markups. Your rates should be reasonably close to theirs.
- Contact your local dealer to verify maintenance costs, production rates, fuel consumption, lifetime hours, etc.
- Contact your local Department of Transportation (DOT) office, they have manuals containing CPH data for maintenance, and will often share these figures with you for comparison purposes.
Ways in which you can reduce your Cost-Per-Hour figures:
- Take advantage of multi-unit discounts offered by some manufacturers.
- Check with your local dealer about new engine technologies.
- Use the CPH calculations to develop a better understanding of which piece(s) of equipment will lower your field operation costs over time.
You can also use the Equipment Cost-Per-Hour (ECPH) to develop a better understanding of which pieces of equipment, or brand, could actually lower your field operation costs over time. By matching up the purchase price of several different pieces of machinery against long-term variables, such as annual maintenance cost and serviceability, production rates, fuel costs, etc., the ECPH will help you to confirm the truth of you get what you pay for.
Armed with the knowledge of equipment cost-per-hour, bring this into your accounting program and job costing. This will help you to take the “guess-work” out of future bidding and increase your company’s bottom line.
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Realizing that these formulas are complex and time-consuming to perform; and the fact that given the current state of the economy, that it is extremely critical to be able to quickly and accurately, update these prices at a moment’s notice – we’ve developed an Excel spreadsheet that will allow you to quickly and easily update these figures.
Download our Equipment Cost Calculator at http://www.sunburstsoftwaresolutions.com/view-document-details/equipment-costs-calculator.htm.
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Once you know your Equipment Costs per hour, use QuickBooks to track these costs for job costing purposes by downloading our FREE 17-page eBook “Advanced Job Costing – Getting Equipment Costs into Job Costing” by clicking here. |
