A comprehensive guide to determining overhead costs for construction and industrial assembly companies…
How to Calculate Overhead Costs in a Construction Company
Time needed: 4 minutes.
How to Calculate Overhead Costs in a Construction and industrial assembly Companies.
This publication examines the overhead costs of construction and industrial assembly companies, which provide services for the execution of:
-New industrial projects.
-Modification and/or expansion of existing industrial facilities.
-Inspection services, etc.
Overheads are indirect costs that remain constant regardless of the company’s production levels.
These costs include:
- All salaries of technical, administrative, and maintenance staff (not construction projects)
This includes indirect company hours in engineering, budgeting, quality control, purchasing, sales, administration, accounting, finance, legal, cleaning, security, etc. departments.
- Movable and immovable property expenses (not construction projects)
movable and immovable property expenses (not construction projects)
These expenses cover the acquisition and depreciation of movable and immovable property, the maintenance of such property, the rental of buildings, etc.
- Office expenses (not construction projects)
Expenses for the purchase of supplies, travel, marketing, banking services, telephone bills, electricity, gas, water, Internet expenses, postal fees, etc.
- Tax, insurance, and financial expenses (not construction projects)
Taxes: It comprises taxes that are paid even without works.
Insurance: Includes property insurance, a guarantee of maintenance of the proposal, car insurance for members and shareholders, etc.
Financial expenses: Financial expenses are defined as the costs a company incurs for the use of capital made available to it by third parties..
First, based on the 4 items listed above, we can make a complete list of our general expenses.
Then we add up each expense or its proportional part during a certain period.
The resulting total is our company’s overhead for that period.
To get the overhead percentage, we divide the above total by the total sales for that period and multiply by 100.
The equation is:
[Total overhead in a period / Total sales in the same period]*100 = Percentage overhead rate
This percentage is what the estimator uses to allocate the overhead charges to the new budgets.
Just for reference: My company’s overhead always ranged from 15% to 10% of sales.
Overhead costs are kept reasonably low when common sense is applied.
Uncontrolled overhead can drive a company out of business.
It is necessary to reduce overhead costs to what is strictly necessary.
For example, it is not advisable for a company to risk investing in a large office in the most expensive sector of the city from the beginning of its activities without a sales contract in sight.
It is advisable at the beginning of any business to be prudent with overheads until revenues justify a larger investment.
Some companies take the risk of reducing the amount allocated to overhead in a budget in order to present a more competitive offer.
Read the next publication Calculate Insurance Cost.