Does labor go in cost of goods sold for a contractor?
The question usually means the job has no structure that says where each kind of cost belongs.
Job costing gives every kind of cost on a job its own code: material, subcontractor, equipment, tool, labor and direct job expense. Labor is on the job as a direct cost, and the hours come from the daily reports and are entered by cost code. How those costs are grouped on the financial statements is a question for your CPA and for the CFO or the controller, who set up the chart of accounts. The CFO and the COO choose the cost codes to match the work the company performs, so the answer is built in before the first job is entered.
Three moves, in order
Step 01: Job cost structure
Seven cost categories and three levels of granularity, built so the estimate and the ledger use the same words.
Other problems step 01 solves
Other things that go wrong
What owners ask
Does labor go in cost of goods sold for a construction business?
The question usually means the job has no structure that says where each kind of cost belongs. Job costing gives every kind of cost on a job its own code: material, subcontractor, equipment, tool, labor and direct job expense. Labor is on the job as a direct cost, and the hours come from the daily reports and are entered by cost code. How those costs are grouped on the financial statements is a question for your CPA and for the CFO or the controller, who set up the chart of accounts. The CFO and the COO choose the cost codes to match the work the company performs, so the answer is built in before the first job is entered.
Which part of the system fixes this?
The step is number 01, job cost structure. Seven cost categories and three levels of granularity, built so the estimate and the ledger use the same words. It's drawn from chapter 1 of CONTROL: C.F.O.S. Construction Financial Operating System.
Is this normal for my trade?
Across the 48 trades that publish a figure, net profit at $1M to $5M averages 7% after taxes. If you're well under that and this page describes your month, the two are usually the same story. The published average tells you where the pack is, and your own job costing tells you where you are, which is the number that pays payroll.
Where do I start?
Choose the cost codes so material, subcontractor, equipment, tool, labor and direct job expense each have a code.
Is this where an installation usually starts?
It usually is. Step 01 has nothing ahead of it in the chain, and it supplies step 03 and step 04. That's why most installations begin here, and why fixing this one unblocks work you haven't started yet.
Wrote CONTROL, the 8 step system behind these figures. More about the author.