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Methodology

Job Costing & Margin Planner methodology

This planner reconciles estimated and actual job costs and calculates the future price needed to recover the actual job cost at an entered target margin.
Duc Nguyen X.By Duc Nguyen X.Ā· Founder, Margin101Last reviewed: View update historyMethodology

Educational only: Business decision support, not accounting, tax or legal advice.

Privacy: Calculations run locally; Margin101 does not receive your commercial inputs.

Update policy: Reviewed when formulas or official dependencies change.

Scope: Market-neutral small-business planning using your own assumptions.

1. Formulas and units

Estimated and actual labour
Lā‚‘ = hā‚‘ Ɨ r; Lā‚ = hā‚ Ɨ r

Where

hā‚‘, hā‚
estimated and actual labour hours (hours/job)Source: Business record
r
internal labour cost rate (currency units/hour)Source: Business record
Lā‚‘, Lā‚
estimated and actual labour cost (currency units/job)Source: Calculated output
Total job cost
C = L + M + S + T + O

Where

L, M, S, T, O
labour, materials, subcontractors, travel and overhead (currency units/job)Source: Business record
C
total job cost (currency units/job)Source: Calculated output
Job margin
Ī¼ = (Q āˆ’ Cā‚) Ć· Q

Where

Q
quoted price excluding indirect tax (currency units/job)Source: Business record
Cā‚‘, Cā‚
estimated and actual total cost (currency units/job)Source: Calculated output
Ī¼
actual job margin (decimal)Source: Calculated output
Signed cost variance
Ī”C = Cā‚ āˆ’ Cā‚‘

Where

Cā‚‘, Cā‚
estimated and actual total cost (currency units/job)Source: Calculated output
Ī”C
signed cost variance; positive is overrun, negative is underrun and zero is on estimate (currency units/job)Source: Calculated output
Largest overrun driver
Vįµ¢ = Aįµ¢ āˆ’ Eįµ¢; D = first(Vįµ¢ = max(Vįµ¢), Vįµ¢ > 0)

Where

Aįµ¢, Eįµ¢
actual and estimated cost for component i (currency units/job)Source: Calculated output
Vįµ¢
actual less estimated cost for component i (currency units/job)Source: Calculated output
D
component with the largest positive variance, or none when no variance is positive (component identifier)Source: Calculated output
Future price
P = Cā‚ Ć· (1 āˆ’ m)

Where

Cā‚‘, Cā‚
estimated and actual total cost (currency units/job)Source: Calculated output
m
future target margin (decimal)Source: User decision
P
future target price (currency units/job)Source: Calculated output

Money inputs and outputs use the currency selected in the scenario without changing the canonical methodology. Rates, margins, utilisation and buffers are entered as percentages and converted to decimal values for calculation.

2. Worked example

Input assumptions

A 20,000 currency unit quote estimated 16,000 currency units of cost, but actual cost was 19,000 currency units.

Calculation and outputs

Example

A 20,000 currency unit quote estimated 16,000 currency units of cost, but actual cost was 19,000 currency units.

Labour ā€” estimate / actual / delta
10,000.00 currency units / 12,000.00 currency units / 2,000.00 currency units
Materials ā€” estimate / actual / delta
3,000.00 currency units / 3,500.00 currency units / 500.00 currency units
Subcontractors ā€” estimate / actual / delta
1,000.00 currency units / 1,500.00 currency units / 500.00 currency units
Overhead ā€” estimate / actual / delta
2,000.00 currency units / 2,000.00 currency units / 0.00 currency units
Other costs (travel) ā€” estimate / actual / delta
0.00 currency units / 0.00 currency units / 0.00 currency units
Total job cost ā€” estimate / actual / delta
16,000.00 currency units / 19,000.00 currency units / 3,000.00 currency units
Actual profit and margin
1,000.00 currency units; 5%
Largest overrun driver
labour
Future target price
23,750.00 currency units

Actual profit is 1,000 currency units and margin 5%; a 20% target margin on 19,000 currency units cost requires 23,750 currency units ex indirect tax.

Interpretation

Use the estimate-versus-actual result to improve the next quote rather than trying to recover a completed-job variance.

3. Validation and boundary checks

  • Component costs reconcile exactly to total estimated and actual cost.
  • Signed cost variance is actual cost less estimated cost: positive is an overrun, negative is an underrun and zero is on estimate.
  • The future-price calculation recomputes to the entered target margin.

4. Assumptions and source classification

  • All amounts exclude indirect tax and use the same job-level allocation basis.
  • Labour cost per hour is an internal user-entered delivery cost, not a market rate.
  • The same labour cost per hour is used for estimated and actual labour, so labour variance reflects hours only.
  • Quoted and actual commercial values come from the user; outputs are calculated.

This planner has no current policy-data dependency. Its commercial assumptions are user supplied. Registered family-level regression suites exercise the shared business-logic engine and worked-result reconciliation.

5. Limitations

  • The model excludes payroll, awards, income tax, cash timing, debt collection, warranties and demand.
  • It is educational job-level decision support, not bookkeeping, tax, legal or accounting advice.

This is educational decision support, not tax, accounting, legal or financial advice. Check the treatment of your actual transactions under the rules that apply to your business and seek qualified advice where appropriate.

6. Update and evidence policy

Registered family-level suites test formula invariants and example reconciliation; the release ledger records that coverage without claiming a separate oracle for every line of public copy. There is no official threshold or benchmark to refresh for this planner. Commercial inputs remain user-supplied because they vary by business and contract.

Change history

  1. : Initial public release of the planner and methodology after pre-launch calculation, content, source and interaction review.

Related reading

Guides to interpret the decision and its assumptions.

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