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Indirect Labor Woes

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by wtdriscoll

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I am an IT Manager for a engineering consulting firm that focuses on all the employees (engineers) being billable per hour. The company has less that 200 employees and a small IT staff. We caculate Overhead and compare to direct labor. Admin (6 people) and IT (3) consist mainly of the indirect labor. New management wants to focus on controlling this. Since we are providing support services for the network/hardware/software for 7 branch offices, how can we focus on differentiating our overhead time? They are not too concerned about what we do, it is all about numbers.. Has anyone experienced this?

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by dc_guy

The principles of cost accounting dictate that any cost that can be broken out and assigned to a project, department, or cost center, is so broken out. What remains are the costs that defy all attempts to apply the principles of cost accounting, and they become overhead.

It sounds like that decision hasn't been made yet. Can you or can you not find a rational way to charge indirect labor to each of the seven branch offices? If you can't, well then you just can't, and you have to apportion it by strict simple arithmetic as overhead.

by wtdriscoll

Thanks for writing back. The company does not break down offices or divisions into profit centers. They just want to try to charge any hour to a project (client). But IT performs all internal support only. I have read about using spreadsheets to justify the support expense. In reality, if Overhead is a big issue to them, they could easily just outsource all IT support and these 2 people out of 140 are not effecting overhead anymore.

I am looking for ways to address this to be prepared for what the new management brings to the table. The one issue that I am working on now is addressing with the Project Managers to allocate fees to the clients involved in project setup and CAD development, but these are very small aspects and overall would be less than 15% of the total hours spent by that one tech, since most is all automated in their setup.

I was just looking for people that have had this presented to them and what they are doing to accommodate such requests.

Thanks

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