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October 23, 2018

Construction Company Costs

There are three types of costs incurred in the operation of a construction company:  Direct job constructioncostscosts, indirect job costs, and overhead (also known as General & Administrative (“G&A”)) costs.  Project Managers, Project Administrators, Estimators, and Accounting Dept. Staff need to understand the differences amongst these cost types to assure an accurate presentation of a company’s financial position and operating results:

  • Direct Job Costs:  expenses directly attributable to the construction of a specific job. These costs include field labor (wages as well as their accompanying burden), material purchases, subcontracted expenses, equipment consumption (both rented and owned), and specific other general condition costs that can absolutely be identified as incurred by a specific project (such as portable toilets, temporary electricity, on-site office trailer expenses).
  • Indirect Job Costs:  expenses that are incurred in the performance of construction but cannot be coded to a specific job.  These costs include yard expenses, vehicular fuel (for both company cars/trucks and equipment), tool and equipment repair and maintenance, and are typically allocated across all active projects during the period, usually based upon direct costs incurred by job.
  • G&A Costs:  expenses that are incurred regardless of whether there is construction work such as home office expenses (such as utilities, rent, office supplies, accounting/administration wages and burden, furniture and fixture depreciation).

Direct and indirect job costs are usually combined and included as total job cost on your Company’s Work in Process Schedule.  Accurate identification of the cost type is important to assure percentage of completion and gross margin computations.  Consider working with your CPA to review your software’s General Ledger Chart of Accounts to confirm proper classification of all of your expense accounts.

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