Fixed Overhead basically includes those funds that would be required to operate a business as if there was no work on the books. It’s what keeps the doors open.
Fixed Overhead costs are those regularly recurring expenses which are constant and do not normally fluctuate with the business volume or the number of production employees employed. They can be the Overhead Costs incurred in support of the manufacturing process that can not be directly allocated to specific items, and do not vary with production changes as do direct material and labor costs.
Generally speaking Fixed Overhead categories for Builders, Remodelers, and Trade Contractors fall into the following categories:
- Marketing
- Advertising
- Sales Expenses
- Office Expenses
- Office Staff Salary and/or Wages (and their associated Burden costs such as Workers Comp, FICA, Medicare, Stae & Federal Unemployment, and employee benefits)
- Rent
- Job Supervision (Many contractors choose to define and estimate Job Supervision as a Direct Job Cost.)
- Capital Equipment
- Information Technology
- Insurance, General Liability, and other specialty insurance. (Worker’s Compensation for field labor is defined and figured as part of the Variable Overhead labor Costs)
- Professional Fees (i.e General accounting, tax prep, attorney, and other consultants)
- Local & Regional Business Taxes
- Return On Investment & Interest Costs
- Contingency and Operating Reserve Capital Account
- Bad Debt
- Owners Compensation
- and Net Profit (although many contractors choose to consider Net Profit separately from Fixed Overhead.)
(see also Variable Overhead)
Other Definitions
Fixed Overhead – Overhead costs incurred in support of the manufacturing process that can not be directly allocated to specific items, and do not vary with production changes as do direct material and labor costs. (Bridgefield Group ERP/Supply chain Glossary)
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