Categories, codes and the six cost natures
You will be able to: Use categories and codes to organise a breakdown; Name the six cost natures and map a cost to its nature; Explain why the breakdown and the natures are two different ways of slicing cost.
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You slice a project's cost in two directions. One direction is where it is spent: the item of work (the breakdown, with its codes). The other direction is what kind of cost it is: the nature. A good control system keeps both, because overruns have a place and a cause.
Categories and codes
The Category Master is your library of work categories. You build it once, for example Finishes, then Flooring, then Tiling, then the items. A category can go as deep as you need, with a warning above 6 levels and a limit of 12. Codes such as D1 and D1.1 are numbered for you. Each category has a type: a group (it has sub-categories) or an item (it takes cost and quantities), and each item can have a default cost nature. A project copies a branch with Copy into project and from then on no longer follows the master, so a change in the master never moves a running job.
The six cost natures
| Nature | What it covers | How cost reaches it |
|---|---|---|
| Material | Goods bought or taken from stock | Purchase invoices and stock issues to the item |
| Own labour | Your own staff | Timesheets and the monthly labour allocation |
| Machines | Your own plant and equipment | Charge-out, fuel and parts, or depreciation allocation |
| Subcontract | Work done by a subcontractor | Subcontract bills (certificates) |
| Third-party manpower | Workers supplied by an agency | Agency bills matched to approved timesheets |
| Other | Everything else, including commercial adders | Service purchases, petty cash, other journals |
The ledger accounts that receive the cost are the project cost accounts the product installs (materials, labour, machines, subcontract, third-party manpower and others) and are mapped to the natures. You do not choose the nature by typing it on each journal; it follows from the account and the kind of document.
Walk it through
- Draw a three-level category tree for finishes, with at least six items.
- For each item, write the main cost nature.
- In the demo, open the Category Master and add a category with its Arabic name, then see the code that was given.
Public demo company, sign in as admin / demoAdmin123. Data refreshes nightly.
- Two slices: where (item of work) and what kind (nature).
- The six natures are material, own labour, machines, subcontract, third-party manpower and other.
- Copying a category into a project detaches it from the master.
Check yourself
2 questions on this lesson. Not timed, not the exam, and you can try again. Score 60% or more, and read the lesson, to complete it.