USA Controller

[Deanne]

Question regarding construction job costing:
In having to a cancel a subcontractor scheduled to work on a specific job site, we were charged for 4 hours as a minimum. Since that subcontractor never actually performed the work, would you charge the intended job for this (what I would call) cancellation fee or charge it to overhead/company expense?

 

[kirby]

That cost will not benefit future periods so it cannot be capitalized. Expense it.

 

[Deanne]

Thank you. However, I do not understand the relevancy regarding capitalization. The question was whether to charge the cost to the job, which would eventually be Cost of Sales expense offsetting the revenue from the job or to expense it as overhead???

 

[kirby]

I would expense as part of the job since it was related to the job and not a general overhead item.

 

[Fidget]

I can see arguments for including it in the job costing, and for expensing it as an overhead. So, you could expense it as an overhead because it's an incidental expense and not directly related to the cost of the job or, you could argue that if the job wasn't happening then neither would this expense be incurred and therefore it should be part of the total cost of the job.

Personally, I would expense it as an overhead because to include it in the job costing is not a true reflection of the cost of the job - i.e if you didn't have to cancel the subbie, then the job cost would've been cheaper. Besides, that way you have a better picture of the actual cost of jobs and of random expenditure in relation to them that in all likelihood, hasn't been budgeted for. Making that distinction is important because it lets you see where extra costs are being incurred, and what the value of them is which in turn, helps with any analysis on what these extra expenses are and why they're being incurred.

That said, given that it's only 4hrs in this case, if the value of that is immaterial, then it doesn't really matter which option you choose.

 

[Donald Chemski]

Charge it to the job, and like Fidget mentioned it's immaterial so probably won't make a big difference after all is said and done.