If you have more than one job going ,what is the best way to deal with overhead? Can you spread out the cost of overhead among the different jobs? Proportionally according to the $$ size of the job?
dave
If you have more than one job going ,what is the best way to deal with overhead? Can you spread out the cost of overhead among the different jobs? Proportionally according to the $$ size of the job?
dave
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Replies
Dave there is actually a lot of discussion here on this topic so you might want to dig a little deeper through some of the older discussions in this folder. But to more immediately address your question I think there are really three schools of thought on how you can distribute or allocate Overhead.
I'm going to ignore that third school and the only reason I really brought it up was to illustrate that a lot of contractors have no real method to their madness in regard to recovering their costs of doing business.
You wrote asking the question should overhead be distributed "Proportionally according to the $$ size of the job?" which is school of thinking #2 and I'm not going to talk about that either now because there is a problem with that school of thinking that I've written about already (The Potential Problem Using a Volume Based Markup).
I think Overhead should be allocated or distributed based on your company's Capacity which is measured gauged according to how many available production hours you and your crew have available in year to work. This is the school of thinking that David Gerstel writes about in his book Running a Successful Construction Company in Chapter 5 on pgs 167 through 168 and Ellen rohr writes about in her book How Much Should I Charge?: Pricing Basics for Making Money Doing What You Love and my PILAO Excel Spreadsheet works right along with the methodology they are writing about. You may also want to read the JLC article Allocating Overhead to Labor Makes Financial Sense by Irv Chasen too.
What then happens is you then distribute Overhead costs proportionality based on how many Company Hours a particular project is expected to consumes.
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Thanks Jerrald. I read all that stuff. I guess I'll go back and read it again. Your advice is really helpful.
Dave