Steps to Create a Financial Model
Financial modeling is not a perfect science. In fact, it would be fair to say that financial modeling is part art and part science. This is because the specific steps required to create a financial model cannot be chalked out. However, there is a broad framework which needs to be followed in order to create […]
The Impact of Tariffs on the Energy Sector
The American energy sector has really taken off in the past few years. The discovery of “fracking” or hydraulic fracturing has completely changed the dynamics of the oil and gas industry. The end result has been a historic boom in the oil and gas industry. For the first time in many decades, America has become […]
Revenue Bonds and the Cash Trap Mechanism
Infrastructure projects last for many years. As a result, different sources of funding are used at different points of time in the project. As mentioned in the previous articles, most of the time, bank loans are used during the construction phase of the project. However, at the same time, bonds are the preferred source of […]
What are Demergers: Its Pros and Cons
Mergers and acquisitions are often used by conglomerates to create value. However, in some cases, demergers have also been effectively used. While the workings of mergers and acquisitions are well known to many people, demerger is still considered somewhat of a mystery. In this article, we will have a closer look at what a demerger […]
Gender Gap in Pension Systems
The gender gap in pension systems around the world is a very real and pressing issue. Numerous studies have been conducted on this matter and almost all of them have concluded that the gender gap is a systematic problem that needs to be addressed by pension funds as well as by pension fund regulators across […]
The job begins with a quotation given to a client. For the client, all that matters in the quotation are the costs involved. However, for the contractor, quotation is almost a research document. Giving out quotations requires estimation. Contractors usually have fixed methodologies for estimating these costs. A study of past quotations can tell if the contractor has been making the estimations correctly or have they over or under priced certain jobs.
Sales order is document which signifies that the client has accepted the quotation. Work on a job can only be started only after the sales order has been received by the concerned department. Without the sales order, resources will not be allocated to this job.
A job cost sheet tracks the costs as and when they are incurred throughout the job. The costs are updated regularly as and when they are incurred. Out of these, labor and material costs are actual costs whereas overheads are estimates. The company may have to correct its estimates of overhead allocation later.
Material requisition forms help track where the material is being used. Since the material requisition form specifies the exact job for which material is being used, material costs can be accurately recorded. In the absence of material requisition form there will be immense confusion over which material was used for which job and what was the cost of that material.
Companies also keep a track of the freight charges that they have incurred for a specific job. Each freight ticket needs to be authorized with a job code and the costs must be added to the job cost sheet. In the absence of these tickets allocation of these costs will be a problem.
Labor tickets track the time that different laborers with different skill level have spent on the job. Based on this information, the labor cost can easily be allocated to different jobs.
Invoice is the document which signifies the completion of a job as requested by the client. When the invoice is accepted by the client, the contractor can consider the job complete. It is here that the contractors are legally allowed to recognize the revenues as well as the costs that were incurred in the job. Based on when the customer is paying, the cash account or the accounts receivable amount needs to be debited.
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