5 Understand Cost Code Structures

This chapter contains these topics:

5.1 Understanding Cost Code Structures

You use cost code structures to manage and organize the amounts, quantities, budgets, and other account information associated with your jobs. Cost codes establish the link between your projects, jobs, tasks, and their related accounts.

In addition, the cost code structure defines the various aspects of your jobs by allowing you to build in any meaning you choose. You can then view and report on your jobs based on the built-in meaning.

5.1.1 Planning Your Cost Code Structure

When you set up your cost code structures, you should consider the following:

  • Who will use the cost code information?

  • For what reporting and forecasting purposes will you use your cost code structure?

  • What is the most effective way to organize your cost code structure?

Different groups of people can have different purposes and requirements when using the same cost code structure for a job. For example, your cost code structure might be used by:

  • Engineers who are concerned primarily with the work being done at each phase of the job

  • Accountants who are concerned primarily with the costs incurred by each account in the job

  • Managers who are concerned with both the work being done and with the costs incurred by each account

An effective cost code structure accommodates the needs of each of the groups that uses it.

When you create your cost codes, you can imbed codes within them for whatever structuring and reporting purposes you need. For example, you can imbed codes defining the who, what, when, where, and so on, for each aspect of a job.

For example, you could structure the eight characters of the cost code based on the following criteria:

  • The first three characters represent a specific work item within the job.

  • The second three characters represent a specific type of task within the work items.

  • The last two characters represent the physical location of the work being done.

When you set up your cost code structures and create the embedded codes you will use, you should consider your reporting and forecasting needs. The Job Cost system provides you with the ability to organize and report on your cost code information in a variety of ways. The more thoughtfully you plan out the design of your cost code structure, the more meaningful the reporting and reviewing options you can have.

For example, you might use your cost code structure to forecast the final costs associated with certain related tasks within a job. You might also use your cost code structure to generate draw reports on accounts that are eligible to be reimbursed based on the terms of a construction loan or line of credit. You should set up your cost code structure in such a way that you can easily identify and organize your account information based on these different needs.

In addition, you should set up your cost code structure to reflect your overall business needs. For example, your cost code structure should establish a link between your projects, jobs, and tasks in such a way that you can easily recognize their relationships. To accomplish this, you could organize your cost code structure to create a hierarchy from the overall project level down to individual jobs and accounts.

5.1.2 Components of the Cost Code Structure

The cost code structure is composed of three parts.

Component Description
Job number The job number represents the specific job to which the cost code and cost type are related. In addition, the job number determines the link between jobs and the projects to which they belong.
Cost code The cost code is an eight-character field that you can use to organize your cost code structure to accommodate different people, reporting purposes, and business needs. You can structure your cost codes in any way, including:

  • Hierarchically by level of detail for each account. For example, an account with a level of detail of 6 is subordinate to an account with a level of detail of 5.

  • Correlating to a task or part of a job, such as earthwork, paving, or landscaping.

  • Correlating to user defined codes. This ensures the consistency of your codes across different jobs. It also allows you to view and report on your cost code structure on the basis of the user defined codes.

You can imbed meaning in your cost code to define the who, what, where, and so on, associated with an account. For example, the first two characters can be set up to represent the type of job, such as electrical, plumbing, and so on. The remaining characters can then be used to define other relevant details.

You can define category codes for the specific character sequences you use in your cost code structures. You can then generate reports, forecast costs, and so on, based on any of the category codes you specify.
Cost type The cost type is used to further define the costs associated with the accounts in your cost code structure. It corresponds to a specific type of account, such as materials or labor costs.

5.1.3 The Cost Code Structure/General Accounting Relationship

The Job Cost cost code structure resides within the General Accounting system. The systems are linked in the following ways:

  • Both systems share common database tables related to account information.

  • The account structure and account levels of detail for a job are directly related in each system.

  • Budget amounts and quantities related to a job are stored in a separate ledger in the General Accounting system. Budget ledger types can be user defined.

The account structures for the Job Cost and the General Accounting systems are shown below.

System Account Structure
Job Cost Job Number . Cost Code . Cost Type
General Accounting Business Unit . Object Account . Subsidiary

The account structures are related as follows:

  • Job number = business unit

  • Cost code = subsidiary

  • Cost type = object account

The cost code identifies a specific task within the job. The cost type identifies specific costs within the activity, such as labor or materials.

5.1.4 Header and Detail Accounts

You can view Job Cost information summarized down to varying levels of detail by creating header accounts and detail accounts within your cost code structure. A header account is an account into which corresponding detail accounts can be summarized.

A Job Cost account that has only a job number and a cost code without a cost type is a cost code header. An account that is defined down to a specific cost type is a detail account. You can use cost code headers to group related detail accounts. You can also define major cost code headers to group related cost code headers, depending on the level of detail.

5.1.5 Levels of Detail

You assign a level of detail to each account in the Job Cost system. This establishes a hierarchy of accounts related to the cost code structure you set up for your jobs. You can use the following levels of detail.

Level Description
Level 1 Reserved for the company in the Job Cost system and the General Accounting system.
Level 2 Reserved for jobs in the Job Cost system and business units in the General Accounting system.
Levels 3 through 7 Reserved for cost code headers in the Job Cost system and object accounts and subsidiaries in the General Accounting system.
Levels 8 and 9 Reserved for cost codes and cost types in the Job Cost system. You should use these levels only for job cost detail.

Note:

If you cannot reserve levels of detail 8 and 9 for the Job Cost system, you should try to reserve level 9 for job cost detail. However, if you must use through level of detail 9 in your General Accounting system, you should not do any financial reporting at a level of detail with job costs coded to it.

The following graphic compares the levels of detail for the Job Cost system and the General Accounting system.

Figure 5-1 Level of Details for General Accounting and Job Cost Systems

Description of Figure 5-1 follows
Description of ''Figure 5-1 Level of Details for General Accounting and Job Cost Systems''

5.1.5.1 Example: Cost Code Structure

Assume you are contracted to build a large regional airport. The airport is your project, and each subproject within it, such as the construction of the main terminal building, the automated baggage system, the airport access road, and so on, is a separate job. You must set up a cost code structure for the accounts related to each of the jobs.

For example, the main terminal building job can be divided into the following work items, each of which can be broken down into various levels of tasks:

  • Site work

  • Electrical

  • Concrete

The illustration below displays the work related to the site-work work item.

You determine the imbedded structure you will use for your cost codes, and then assign your job number, cost codes, and cost types.

The following tables illustrate the numbers you assign.

Job Number

Job Job Number
Main Terminal Building 5001

Cost Codes

Work Item and Tasks Cost Code Level of Detail
Site Work 02000 3
Clearing and Grading 02200 4
Sewer Work 02600 4
Paving and Surfacing 02800 4

Cost Types

Specific Account Cost Type Level of Detail
Labor 1340 8
Regular labor 1341 9
Premium labor 1342 9
Burden labor 1343 9
Materials 1350 8
Equipment 1355 8
Subcontracts 1360 8

You can then set up the following cost code structure for the site-work work item.

Account Number Description LOD
5000 Regional Airport Project 1
5001 Main Terminal Building 2
5001.02000 Site Work 3
5001.02200 Clearing and Grading 4
5001.02200.1355 Equipment 8
5001.02200.1360 Subcontracts 8
5001.02600 Sewer Work 4
5001.02600.1340 Labor 8
5001.02600.1341 Regular 9
5001.02600.1342 Premium 9
5001.02600.1343 Burden 9
5001.02600.1350 Materials 8
5001.02600.1355 Equipment 8
5001.02600.1360 Subcontracts 8
5001.02800 Paving and Surfacing 4
5001.02800.1340 Labor 8
5001.02800.1341 Regular 9
5001.02800.1342 Premium 9
5001.02800.1343 Burden 9
5001.02800.1350 Materials 8
5001.02800.1355 Equipment 8
5001.02800.1360 Subcontracts 8

Note:

In the cost code structure above, the indents in the account descriptions display the relative subordination resulting from the level of detail for each account.

5.1.6 Job Cost Ledger Types

The data used by the job cost system is stored in the Account Balances table (F0902) by ledger type. The ledgers in the Account Ledger table (F0911) can contain both amounts and quantities that support the information in the Account Balances table, including:

  • Budget information

  • Commitment information

  • Actual information

  • Field progress information

  • Forecasts and estimates

  • Projected final information

The Job Cost system uses the following user defined ledger types (system 09, type LT):

Ledger Types Description
AA and AU Actual amounts (AA) and actual units (AU).
JA and JU Job budgeted amounts (JA) and job budgeted units (JU).
PA and PU Committed amounts (PA) and committed units (PU). These are related to purchase orders and subcontracts.
HA and HU Projected final amounts (HA) and projected final units (HU).
FA and FU Field progress amounts (FA) and field progress units (FU). These are related to the difference between the job cost budget and the projected final values.
F% Percent of job complete.
IA and IU Budget change amounts (IA) and budget change units (IU). These are related to methods of computation R and A and are maintained by the system.
RA Remaining unit rate. This is related to method of computation U.

5.1.7 Cost Code Structure Database Tables

The Job Cost system shares the following tables with the General Accounting system.

Table Name Description
Job Master (F0006) Stores job master information
Account Master (F0901) Stores cost code structure account information
Account Balances (F0902) Stores account balance details related to the various ledgers associated with each account in your cost code structure
Account Ledger (F0911) Tracks revisions to account balance amounts and quantities by providing a detail audit trail of transactions