Dec 02, 2013
Since this post is right after Thanksgiving with the title Fully Loaded I’m sure many of you are still stuffed from all of the good food I trust you had over Thanksgiving, and hoping this isn’t about food! No worries, it’s about something much more exciting… cost accounting!
Recently, I was working with one of my clients who we recently updated his costing rates for allocation of overhead. He is thrilled to have accurate numbers again. We updated his rates a few years back, but unfortunately, he did not have all the help he required to keep things functioning the way we had intended. We are now getting him back on track which is an exciting thing for all of us! The other day he called me asking about a fully loaded rate. He said for his quoting he wants to make sure he is including his general and administrative (G&A) expenses also.
I explained him that there are a few different ways we could make sure we are covering all of his costs, not just the overhead and direct expenses for quoting. One such way would be to look at each cost and create a fully-loaded rate in the same systematic process used to determine the original allocation rates. This would be more precise and would only be used in quoting purposes not cost recovery purposes. For his intentions though I do not feel this is worth the extra effort.
Another way is to just look at the G&A expenses in total and compare that to the total machine hours to formulate a percentage to use in quoting. This of course is not as precise, but it is effective and for his purposes I think is the best option. However, we would need to consider updating the percentages if the production changes dramatically since more production would have more hours to spread over the costs.
Have you used any different methods for allocating G&A for a fully loaded rate? If so what have you used and was it effective and efficient for you?
It is important to consider all of the costs of running your business when quoting on jobs, if you are not recovering all of your costs you will not stay in business very long. I’m excited how far this client has come in going from hardly understanding why we would even need to do costing, to now wanting to make sure he has a fully loaded rate!
Categories: Cost Accounting