Best Practices for Estimating Applied Labor and Overhead Rates
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Learn how to successfully estimate overhead rates and labor costs while identifying cost pools.Accounting regulations require an allocation of costs to construction projects. Often contractors are not sure what costs are to be allocated to jobs. This information will explain in depth how to separate all the relevant construction costs you incur and how to allocate these separate costs as overhead to construction projects. The material will walk through the key cost identification steps in this process and will show you a methodology to use on how to allocate those costs to specific projects. Learn how to identify cost pools to consider for the allocation and discuss various cost pools you can use to allocate as overhead to your projects. This material will walk through a couple of case studies to show you the impact of improper and proper cost allocation as you look to improve the potential profitability on your jobs. This information will provide a clear understanding of the specific costs to allocate to jobs, how those costs can be organized by pools and a methodology you can utilize to improve profitability on all your jobs.
AuthorsTheran J. Welsh, CPA, SVA Certified Public Accountants
Let's Identify the Costs to Be Considered
• What Are Direct Costs?
• What Are Indirect Costs?
• What Are General and Administrative Costs?
What Options Do We Have for Allocating Costs?
• Why Is an Accurate Budget Important?
- Analyzes the Relationships Between the Statements - Balance Sheet and P&L
- Financial Integrity Is Key
- It Is the Report Card
- Allows You to Fight Your Cost Structure
• How Do We Identify Cost Pools?
- Operating Costs
- Materials Handling
• Where Are the Challenges?
- How Do We Apply Profit to Jobs?
- Understanding Pricing Models
- Understanding Cost Structure
- The Dual Overhead Recovery Method
• Real World Calculations
• Applying Profit to a Job
• Summary Work Sheet With Case Studies