Allocating Overhead by Job

There is more to running a business than just the costs on the job (I’m sure you’ve realized that by now!) Examples would be cell phones, uniforms, office expenses, salaries for non-field staff, marketing, equipment maintenance, wear and tear on vehicles and equipment (one day they will need to be replaced), insurance and more – all a part of the overhead to run your business. Your jobs have to generate enough revenue to not only cover the job, but your overhead AND still result in a profit. So, you need to keep those “extra” costs in mind when estimating jobs. Last time, we discussed allocating at the division level (which might get done monthly or quarterly). Today we’re focusing on the job level.

There are different methods for determining what percentages to use to cover overhead costs, so best to speak with your accountant or landscape consultant for their recommendations. If you use LMN (Landscape Management Network) software, they let you choose from one of three methods, and based on your decision, LMN shows you both percent and actual dollars, so you’ll have what you need to allocate in QuickBooks for any given job!  (You can find out more about LMN and overhead recovery here)

You can allocate overhead costs one of two ways:

  1. On an account level (you would view in a P & L for the job)
  2. At the Item level (which provides more detail) – you would view these in your Estimated vs Actual Details and Job Profit Profitability Detail reports

Profit and Loss for Job
Similar to Allocating by Division, you can use a journal entry to allocate the costs

  1. Create a Cost of Goods Account called Allocated Overhead
    1. Create a journal entry
      1. For a journal entry,
        1. Debit your Cost of Goods Accounts
        2. Credit your expense accounts
          1. The fastest way is to have just one expense account called Overhead Allocated
          2. The next fastest is if you have subtotals for specific accounts (e.g. Indirect Costs)
          3. Or, you can do at each individual account level.

allocating overhead

allocating overhead

Allocating for Job Profitability Detail and/or Estimated vs Actual

These two reports pull from the Items List NOT the Chart of Accounts.  Journal entries are out because you can’t use Items in journal entries.  Since you don’t want to double-expense your job costs, then you might like to use the Zero Dollar check trick.

  1. Create a bank account for job costing or allocating overhead (you don’t want these transactions mixed in with your “real” bank accounts. The balance on this job cost bank account is ALWAYS $0)
  2. Create Items for the type(s) of overhead you want to allocate – you can have as few as 1 (e.g. overhead) or you can break it out into categories if you prefer. g. overhead for equipment, labor, subs or….
    1. If you are using LMN, LMN will calculate your overhead recovery so you’ll have the actual numbers to use.
  3. The item can be an “other charge” or service item. Which type will depend on where you want to see these costs when reviewing your job cost reports; QuickBooks sorts first by Type of Item.
    1. Items need an account – I would suggest a Cost of Goods account so if you decide to run a P & L for the job, this can show up with your job costs, but up to you if you prefer to use expense.
  4. Write a check (the check total will be 0)
    1. Using the Items tab, enter the item(s) and costs you want to allocate
    2. Then using the expense tab,
      1. Select the appropriate account(s) (these are the ones your item(s) posted to)
    3. Negate the amount on the items so the net check is $0

allocating overhead

Figure 1: Journal entry for above check

allocating overhead

Here’s how the zero-dollar check affects your job cost reports.

allocating overhead

allocating overhead

allocating overhead

allocating overhead

Figure 2 Note that you aren’t double-expensing your overhead

Allocating overhead will help you see how well (or not) you are estimating so you can make any necessary adjustments going forward.

You can have the journal entries and checks memorized if you want. My recommendation would be either make the dollar amount $0 or $1 so you know you have to put in the actual numbers.  Otherwise you might forget and assume the memorized numbers are the ones you want!  Contact our office if you have questions, and if haven’t already, check out the LMN article and video to learn more about different methods for including overhead recovery in your estimate.

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