Financial reports help businesses see how they're doing and make better decisions. In this series, each article will explain a specific report, covering what it is, why a CPA needs it, how the numbers are calculated, and a simple example to show how it works. Whether it's about tracking income, managing costs, or checking how well your team is working, these articles will give you the basics to make sense of these important reports.
Hours Tracked by Service Item
What’s in this Report?
Does include:
Archived and deleted Service Items
Archived, inactive, and deleted clients
Does not include:
Archived and deleted Time Entries
📊 What is an Hours Tracked by Service Item Report?
An Hours Tracked by Service Item Report is a financial document that details the number of hours spent on each specific service or product offered by a business. This report provides a breakdown of the time allocated to various service items or projects, allowing businesses to track how much labor is dedicated to each service and evaluate its efficiency and profitability.
👨🏻💼 Why Would a CPA Need It?
A CPA would need this report for several important reasons:
Cost Allocation: The report helps in allocating labor costs to different service items. This is crucial for understanding the true cost of providing each service and ensuring accurate cost tracking and financial reporting.
Pricing and Profitability Analysis: By analyzing hours tracked by service item, the CPA can assess the profitability of each service. If a service consumes a lot of labor hours but generates minimal revenue, it may indicate a need to adjust pricing or improve efficiency.
Resource Management: The report provides insights into how resources are being utilized across different services. This helps in managing workloads and adjusting resource allocation to optimize efficiency.
Budgeting and Forecasting: The CPA can use historical data from the report to forecast future labor requirements and create more accurate budgets for each service item.
Billing Accuracy: For businesses that charge clients based on the time spent on a service, this report ensures that hours billed align with the actual time spent, helping to prevent billing discrepancies.
Performance Monitoring: The report can be used to monitor the performance of different service lines, track progress, and identify areas where improvements can be made.
🔢 How is the Math Calculated for This Report?
The math behind an Hours Tracked by Service Item Report involves several key steps:
Tracking Hours:
Hours are recorded for each service item using time-tracking tools or timesheets. Each entry is associated with a specific service or product.
Summing Hours by Service Item:
Total hours worked on each service item are calculated by summing the hours recorded for that service over a specific period.
For example, if a company provides consulting and training services, hours worked on each service are summed separately.
Calculating Labor Costs:
Labor costs for each service item are calculated by multiplying the total hours worked by the hourly rate of the employees or contractors.
Labor Cost = Total Hours Worked × Hourly Rate
Comparing to Estimates/Budgets:
The actual hours tracked can be compared to the estimated or budgeted hours for each service item to assess whether the service is being delivered within the expected time frame.
✏️ Example Calculation:
Let’s assume a company provides two services and tracks the following hours:
Consulting Service:
Hours Worked: 40 hours
Hourly Rate: $120 per hour
Training Service:
Hours Worked: 30 hours
Hourly Rate: $150 per hour
Calculations:
Consulting Service:
Total Hours Worked = 40 hours
Labor Cost = 40 hours × $120/hour = $4,800
Training Service:
Total Hours Worked = 30 hours
Labor Cost = 30 hours × $150/hour = $4,500
The report would show that 40 hours were worked on the Consulting Service, costing $4,800, and 30 hours were worked on the Training Service, costing $4,500. This breakdown allows the CPA to analyze the cost and efficiency of each service item, ensuring accurate financial management and strategic decision-making.