Elio:
I understand your comment about separating the conversation about the calculation of overhead in estimating from the same subject as it relates to accounting and job cost reporting. I do not believe these two conversations are that easy to separate, nor are they as distinct as some may think.
If estimators provide takeoff, estimates and ultimately the proposals (or bids) to your customers, and that Proposal is accepted by the customer and subsequently awarded as a Contract, the information from the estimate becomes the basis of the Base Contract Cost Budget. In other words, if estimators include different overhead items from the rest of the inclusions by the rest of the team and they are not communicating the components of that overhead calculation, how will Project Managers, Contract Administrators, and Accounting understand where to post actual costs, burden and overhead once the work begins.
For example, if estimators labor burden includes vacation, holiday, sick pay, and employers share of healthcare expenses, but accounting is charging these same items to General and Administrative Expenses, the original base contract cost budget is skewed and distorted. The same could be said for Equipment Charges. If estimators calculate total Equipment Cost which includes Depreciation, Amortization, Interest, and Personal Property Tax, and Accounting Charges these same items to General and Administrative Expenses, or the other expenses below EBITDA, the estimators Base Contract Cost Budget could be far from accurate.
I wrote a Blog Article for my largest customer (Corecon Technologies) recently that may be worth your consideration:
Should Company Overhead Expenses be included in Job Cost Reports?
| Corecon |
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| Should Company Overhead Expenses be included in Job Cost Reports? |
| Contract Costs usually include direct costs such as materials, labor, equipment, and subcontract costs incurred and are directly related to the installation and preparation of materials and services incorporated into the final construction product. Direct Contract Costs are accumulated and are charged to operations as the related revenue from contracts is recognized. |
| View this on Corecon > |
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I hope these comments helped in some way.
Thank you,
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David Holler
Construction Software Consultant and Trainer
Savage MD
dholler@softwarepro.construction------------------------------
Original Message:
Sent: 03-06-2018 07:54
From: Elio Zerbini
Subject: Indirect Job Costs
Rather than ask what indirect costs to allocate to Job Cost for accounting, the real question to answer is what indirect costs do you include in your Estimate when bidding/negotiating a job. There is no sense in going through an Accounting exercise if the estimate and costs are based on a different philosophy. That opens a whole different discussion on Estimating.
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Elio Zerbini
Chief Financial Officer
Turbull-Wahlert Construction Co., Inc.
Cincinnati OH
(513) 731-7300
Original Message:
Sent: 03-05-2018 09:25
From: Peter Gauger
Subject: Indirect Job Costs
So, I've been in the construction industry two years now, but I am still struggling what should or shouldn't be charged to jobs. All our direct costs go directly to jobs. However, we seem to have a high SG&A amount compared to others. Is there a standard of what costs get allocated to jobs? I think I've seen in this forum where some companies basically allocate all there SG&A. How do we determine what should and what shouldn't? I understand the basic concept but what are the factors to consider? Thank you!
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Peter Gauger BS Accounting
Accounting Manager
TL Services, Inc.
Van Buren AR
(479) 474-7222
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