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Managing General

Overhead CostsGROUP 2:

CASTILLO, CHARISSE A. MARTIN, MARC

MAGBOO, JEMMER M. RAMIREZ, JAMES

LACEBAL, JUAN III

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Knowledege

Budget

SUCCESS

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What is General Overhead?

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Overhead costs that cannotbe charged to a specificconstruction project or

charged to the equipmentsection of the income

statement

HTTP://WWW.CSUN.EDU/~GHE59995/MSE300/CHAPTER%2009%20-

%20MANAGING%20GENERAL%20OVERHEAD%20COSTS.PPT

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Reasons:

Projection of cash needs

Projection of profits

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General overhead requires!

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DAILY VIGILANCE

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What to Include?Employee Wages and Salaries

Employee Benefits

Employee Retirement

Employee Recruiting

Employee Training

Employee Taxes

Insurance

Interest Expense

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What to Include?Janitorial and Cleaning

Legal and Professional Services

Meals and Entertainment

Office Supplies

Office Purchase

Office Rent

Office Utilities

Postage & Delivery

http://www.csun.edu/~ghe59995/MSE300/Chapter%2009%20-%20Managing%20General%20Overhead%20Costs.ppt

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What to Include?Publications and Subscriptions

Repairs and Maintenance

Taxes and Licenses

Telephone

Travel

Unallocated Labor

Unallocated Materials

Miscellaneous

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Estimating General OverheadLacebal, Juan III T.

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Based upon historical costs

Adjusted for inflation

Adjusted for change in businesspractice Company growth New markets

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Example: Determine the annual

budget for office utilities. Utilitycosts are expected to increase by5% per year due to inflation.

Solution: The total cost of utilitiesfor the past twelve months was

$1745.59. Increasing this by 5%we get $1833. For budgetarypurposes we round this to $1850

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References:

Construction Accounting & Financial Management, 3/e

Steven Peterson

Chapter 9 Construction Accounting & Financial Management

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Vary in linear

Change in direct proportion to the level of

production.

Total variable cost increase when moreunits are produced and decreases

when less units are produced.

Variable cost is constant if expressed on aper unit basis.

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Example:

Total Variable Cost $10,000 $20,000 $30,000 Units Produced 5,000 10,000 15,000

Variable Cost per Unit $2.00 $2.00 $2.00

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Example:

A company has two salaried employeesworking as estimators, the cost of theseemployees is fixed over the volume ofwork that can be won by the employers.

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Example:

If a company currently has two officeemployees and rents office space that canaccommodate three employees. the costof office rent is fixed unless the volume ofwork increases such that the companyneeds to hire two or more office

employees. office rent is fixed over therange of the revenues that may besupported by three or less officeemployees.

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Example:

Total Fixed Cost $30,000 $30,000 $30,000

Units Produced 5,000 10,000 15,000

Fixed Cost per Unit $6.00 $3.00 $2.00

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(semi-variable costs)

Contain both a variable costcomponent and a fixed costcomponent

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Example:

if a company paid estimators a basesalary plus a bonus based on the volumeof work won, the cost of the estimators isa mixed cost. The salary is a fixed cost,whereas the bonus is a variable cost.

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http://accountingexplained.com/managerial/cost-behavior/

http://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting

%20Chapter%204.htm

Construction Accounting & FinancialManagement, 3/e (Steve Peterson)

http://accountingexplained.com/managerial/cost-behavior/http://accountingexplained.com/managerial/cost-behavior/http://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://classes.bus.oregonstate.edu/spring-07/ba422/Management%20Accounting%20Chapter%204.htmhttp://accountingexplained.com/managerial/cost-behavior/http://accountingexplained.com/managerial/cost-behavior/http://accountingexplained.com/managerial/cost-behavior/http://accountingexplained.com/managerial/cost-behavior/http://accountingexplained.com/managerial/cost-behavior/

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Construction Accounting & Financial Management, 3/e

(Steven Peterson), Chapter 9 Construction Accounting

& Financial Management

SAMPLE OF A GENERAL

OVERHEAD BUDGET

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EXAMPLE 9-3

Prepare a general overhead budget for a company given the following.

The companys revenues are shown below.

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SSS Rate:10.40% ofMonthly

SalaryCredit.

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Rate at2.5% ofthe basic

monthlysalary

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