I am the Office Manager for a small and relatively new engineering firm. We are trying to get a firm handle on our financial metrics including our overhead rate. I know the formula to determine that but I don't know whether hours on a job that are over budget, or those we deliberately write off on projects with hourly based fees are included in direct or indirect labor. Any clarification would be greatly appreciated. Thanks!
Can someone please tell me if 'written down' or over budget hours are included in direct labor or indirect labor?
Answers
It all depends on whether you want a true managerial picture or financial.
The best way to get both is have an account(s) that are for mark-down's for hours are a separate line item. Also, if you are looking at a per-project basis, you'll be able to see over budgeted hours, and total hours marked-down (as well as dollars).
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Thank you for the response, but I am not sure I follow. Basically I want to know whether the cost of hours that go over project budget should be considered part of overhead. I am guessing yes, but none of the material I've read addresses this specific issue. Thanks again.
That's a different question than the one you asked.
overhead includes all fixed and variable expenses, and salary & wages (including taxes, health care, etc plus overtime) are part of overhead.
However, you could tag overhead as part of the variable overhead expenses. But if you know that there is always x hours of overtime, then it really isn't variable anymore, is it?