Employee Labor: Measuring Costs & Profits with Excel
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Employee Labor: Measuring Costs & Profits with Excel & QuickBooks Diane C. O. Gilson Certified Public Accountant Certified QuickBooks® Pro Advisor © Info Plus Accounting, PC Ann Arbor, MI 48104 (734) 544-7620 web: InfoPlusAcct.com e-mail: Help@InfoPlusAcct.com Employee Labor: MEASURING COSTS & PROFITS USING QUICKBOOKS® & EXCEL OVERHEAD? OVER WHOSE HEAD? 1. What exactly is overhead? 2. What are some of the different kinds of overhead? 3. How does overhead “act” in relationship to our company income or other expenses? 4. Where does overhead “reside” in your Chart of Accounts? In your financial statements? 5. How can you see overhead %’s in your QuickBooks® reports? (company and jobs) 6. What debates rage over overhead? 7. Where does it “sit” in your job costing reports? 8. What’s the value in getting technical with our terms? COMPUTING & MONITORING COMPANY OVERHEAD ¾ Create “groups” (title & sub-accounts) for: 9 “Specialty compensation” groups, e.g., Sales staff Administrative support staff Owner 9 For each compensation group include Payroll Payroll taxes for payroll in this section (will require a journal entry) Various owner benefits Other costs of employment Labor-Costs-Profits.doc © Info Plus Accounting PC 734-544-7620 Employee Labor: MEASURING COSTS & PROFITS USING QUICKBOOKS® & EXCEL Create additional “groups” (title & sub-accounts) for: 9 9 9 9 General marketing & public relations Occupancy costs Office expenses General & Admin, e.g., Professional fees Admin vehicle costs Travel & entertainment ¾ Review percentages of income for each group. ¾ Compare to industry averages DETERMINING YOUR TRUE JOB COSTS: LABOR BURDEN CALCULATIONS ¾ The problem: Your job cost reports don’t reflect your true cost of labor. Why? ¾ 1. All payroll (direct, owner, sales, and admin) may currently be co-mingled into one account. 2. Reports may only show net payroll Many companies don’t use the payroll module in QB. Note that payroll module can be used in “free” mode. 3. Even when reports show gross payroll many companies fail to assign any or all time to some job. 4. QB Preference re: assigning payroll taxes may not be turned on (if not, see QB Preferences to turn it on). Labor-Costs-Profits.doc © Info Plus Accounting PC 734-544-7620 Employee Labor: MEASURING COSTS & PROFITS USING QUICKBOOKS® & EXCEL Why? (continued) 5. Bookkeeper may not know how to compute actual labor burden for each employee 6. Bookkeeper may not know how to use QuickBooks® to automatically assign costs for labor burden ¾ ¾ Results are: ¾ 9 Understated employee costs on job-cost reports 9 Owner doesn’t understand true cost of labor and under-prices jobs 9 Owner doesn’t understand true cost of labor and allows employees to waste time and money To obtain the TRUE cost of labor on jobs,….. Class exercise – Imaginary employee,….. Choose-Supervisor or Worker? Does worker require supervision? Pay per hour # Holidays-paid days (annual) Vacation-paid days (annual) Sick & other pd days (annual) Training days (annual) Internal mtgs (hrs/week) Non-job prep/prob solving (hrs/week) Estimated O/T hours (annual) O/T multiple (e.g. 1.5) Desired gross profit % S Y $ # # # # # # # W N % % Workers’ Comp % Health/dental cost (gross per mo) (Less) Health/dental (co-pay per mo) Retirement benefits (% of pay) Union cost (per mo) Cell phone cost (per mo) Bonuses (annual) Licenses (annual) Training (annual) Mileage/Vehicle Allowance (annual) OR Vehicle provided? % $ $( ) % $ $ $ $ $ $ Y N Results Std $/prodn hr O/T $/prodn hr Blended $/prdn hr $/minute Labor-Costs-Profits.doc $ $ $ $ Weighted burden % QB burden % Desired gross profit % $ to charge per hour % % % $ © Info Plus Accounting PC 734-544-7620 Employee Labor: MEASURING COSTS & PROFITS USING QUICKBOOKS® & EXCEL WHAT TO CHARGE FOR EMPLOYEE LABOR – • Specific Employees? • Categories of Employees? THE COST OF LOST AND WASTED TIME Class Exercise,….. HOW TO USE THIS INFORMATION? Class Discussion,….. MARKUP AND GROSS PROFIT CHEAT SHEET PRICING CONSIDERATIONS For employees – what is a “reasonable” markup? For materials – what is a “reasonable” markup? For subcontractors – what is a “reasonable” markup? For other costs (e.g. permits, blueprints, trash removal) – what is a “reasonable” markup? How do you plan for contingencies? What major cost usually gets overlooked? What happens if you drop your markup for one area (e.g., materials, or “other costs”) to meet market demand? For service businesses: Should you charge a “base trip charge”? Should you compete on price? Labor-Costs-Profits.doc © Info Plus Accounting PC 734-544-7620 Employee Labor: MEASURING COSTS & PROFITS USING QUICKBOOKS® & EXCEL To Calculate Burden %’s for Each Employee – an Overview Background information: • Determine total of “common costs” such as tools & small equipment costs, laundry & uniforms, etc., and determine $ per direct labor employee. • Accumulate the cost of any production vehicles, machinery, computers, etc. used by direct labor employees and compute the amount to assign to specific employees. For each employee: • Determine number of production hours available for each employee (can vary widely depending on vacation, meetings, duties, etc.) • Determine total costs of having that employee on the job (includes a wide variety of costs) • Divide (b) by (a) to obtain hourly cost To have QuickBooks Compute and Allocate These Costs Automatically (Technique developed and copyrighted by Diane Gilson): ¾ 2. Compute the additional amount and % (above & beyond payroll and payroll taxes) that you want to add to each employee's cost for each job (see above). 3. Turn on the "Allocate payroll taxes to jobs" feature in QB Company Preferences. 4. Create a COGS account called "Labor burden allocation" to receive the additional amount that you want QB to assign. 5. Create an “Other tax” company-paid payroll item called “Dir Labor Burden Allocation” that links BOTH SIDES (expense and "liability" to that account). Be sure that the Payroll Item is set to INCLUDE all compensation-related Payroll Items and to NOT exclude or subtract deductions such as 401(k) withholdings and health insurance co-pays. 6. Enter this payroll item and the additional % that you want assigned as Labor Burden to each employee's "Other Taxes" screen. 7. QB will calculate the total Labor Burden for that paycheck and allocate that amount in the same proportion as the employee’s compensation. 8. The debits and credits will post to the same account, so the impact for the entire company is $0, but your job cost reports will reflect the additional Labor Burden in: • The Labor Burden account that you established, and in • The “Service Item” on detailed Item-based job cost reports. 9. You will need to do one monthly entry to move the amount of the total credits posted out of “no job” to the “NJS” job so that it reduces the NJS costs. 10. Remember to modify your Labor Burden percentages when underlying costs or benefits change. 11. Remember to adjust your Estimated Costs to reflect your new burdened labor rates or your Estimate vs. Actual reports will not be comparable. 12. It will take a full year to see how accurate your calculations are. NOTE: In a perfect world the labor burden allocation offset would “zero out” the costs that accumulate in the NJS job. If you get within 5% of the total NJS costs, you are doing well. If not, re-visit your calculations to see where you have gone astray. :- ) Labor-Costs-Profits.doc © Info Plus Accounting PC 734-544-7620 Contact information Diane C.O. Gilson, CPA Info Plus (+) AccountingSM, PC 2370 E. Stadium Blvd., #1020 Ann Arbor, MI 48104 E-mail: help@InfoPlusAcct.com Phone: 734-544-7620 Fax: 734-544-7617 Toll-free: 866-244-2228 Website: www.InfoPlusAcct.com BIOGRAPHY: Diane C.O. Gilson, CPA, CIA Diane Gilson created the CPA firm of Info Plus (+) AccountingSM in 1994 with the intent of providing current and future-oriented management accounting information to small to medium-sized business owners. Since the firm’s inception, Diane has worked exclusively in QuickBooks® —a powerful, flexible, multi-functional software accounting system currently used by 70-85% of small to medium-sized businesses in the United States. She is a Certified QuickBooks® Professional Advisor (through Intuit), a Certified QuickBooks® consultant (through both the Sleeter Group and ALS), earned her Intuit MasterBuilder Professional Advisor certification in 2002, and is a member of Intuit’s Developers’ Network. Although the firm has a number of clients in the service, technology, retail and other industries, 70%-80% of Info Plus Accounting’s clients are builders, developers, contractors, and remodelers. Diane, and her accounting staff have chosen to provide enhanced services for the construction industry because QuickBooks® is especially suited to the industry’s needs for understandable, useful job costing and profitability reports. Background and credentials Diane is a Certified Public Accountant, and earned her Certified Internal Auditor designation during her banking career. She brings more than thirty years of varied auditing, tax, computer accounting systems, budgeting, training, and management accounting experience to her QuickBooks consulting practice. Before founding Info Plus Accounting, she worked for a national Honor Society, and for a regional CPA firm. She then spent fourteen years in banking first as Internal Audit Manager, and then as Manager of Management Accounting Systems, where she established Bank-wide planning, goal setting, and budgeting processes, accountability reporting, and activity-based-cost (ABC) profitability measurement systems. In addition to her firm’s daily, one-to-one QuickBooks support work with clients throughout the U.S., the firm currently offers Internet-based “QuickBooks + Construction” webinars (seminars) for any construction company with high-speed Internet connection. Diane is also an NAHB University of Housing Instructor for their “Business Accounting and Job Cost” and “Financial Management” courses and has authored a series of articles for various NAHB publications (including Nations’ Building News Online) relating to small-business anti-fraud protection techniques as well as another series, “The QuickBooks® Challenge”. She is the creator of various Excel-based accounting support calculators & checklists, developer of AccountingPRO™, a robust QuickBooks Pro template (file) and support system created especially for builders, developers, and remodelers, and author of Accounting with QuickBooks Pro for Home Builders & Remodelers (published by BuilderBooks, a division of the National Association of Home Builders). Her techniques and products have also been featured in other industry publications as well as in Intuit’s QuickBooks® Pro Advisor Newsletter, Developer Network, and ProConnection Newsletters. Diane’s expertise and industry experience has earned her a variety of speaking engagements for various organizations including the Michigan Association of CPAs, CAP (Contractors’ Assistance Program), the (NARI) Remodel America (National) Show, the Dwyer Group, the Midwest Builders’ Shows, the Custom Builders Symposium, the National Remodelers’ Shows (six of the last 7 shows), the International Builders’ Show (six of the last 7 shows) and various other national, regional, and local construction shows and training seminars.
