Tracking Costs (and Revenues) Directly Related to a Product or Service in QuickBooks

Knowing as accurately as possible those costs (resources) that are required to produce a product or a service can be very useful in making decisions on producing the product and service.  Are you charging enough for the product or service?  Can the cost be reduced?  Knowing accurately the costs and revenues related to the product or service will make the answers to these questions more correct.

Accounting systems, such as QuickBooks, usually offer various ways of tracking costs.  For example, QuickBooks has a good method of associating costs with jobs (customers) and tracks well cost of inventory sold.  However, although knowing costs associated with jobs is useful in making decisions related to the jobs (and customer), such costs are not equal to product and service costs.  Also, the cost of inventory sold is not the full cost associated with a product. 

Two sets of costs, job and product/service, are useful and should be used in making decisions, one about customers and the other about products and services.  The nature and need for decisions made about customers and about products/services are different.

In QuickBooks, using the class feature allows for efficient and effective tracking of most, if not all, costs, including general operating costs such as marketing and training, required to produce a product or deliver a service.  Using the class feature leaves the job cost feature free for job costing.  A class list can be set up containing each product and service category that generates revenues.  With such a class list, the appropriate revenue category can be quickly selected at the line item level on both the sales form and the payment form.    The key to this process is being able to track revenues and costs by line item on the sales and purchase forms.  This means that single invoices, sales receipts, bills, and checks allow for the recording of multiple revenues and costs by class selection.  This greatly accounts for the efficiently and effectiveness of this tracking process.

Then, the profit and loss by class report will show what should be truer profits made on each product and/or service category, leading to better pricing and cost control changes.