Burden Costing (6.0 and 6.1)

Yahoo Archive
1
Brychan,
Thanks for your reply.
The more I think about it, the more reasonable it seems.
I think the mistake in my thinking was in trying to recover direct costs via
the overhead/burden.
Thanks for helping me clarify my thinking!
Richard

-----Original Message-----
From: vantage@yahoogroups.com [mailto:vantage@yahoogroups.com]On Behalf
Of brychanwilliams
Sent: 23 February 2006 13:01
To: vantage@yahoogroups.com
Subject: [Vantage] Re: Burden Costing (6.0 and 6.1)


Richard,

I believe this to be correct but I hope I understood your question
correctly. The overhead should reflect the workcenter operation
time.

The labour rate should reflect direct labour costs. Those costs
would reflect the wages of the people carrying out work. E.g. 0.15
hours

The overhead rate should reflect costs directly associated with
workcenter only. E.g. 0.05 hours. This would include energy etc. But
it could include supervision.

E.g.

Four work centers = £50.00 per hour of which supervision is £10 per
hour.

Using the example below all three workcenters are doing the same job
with the labour rate of £5.00 per hour.

The supervisor is cover all three workcenters.

The labour costs would be (0.05 * 3 * 4 * £5) = £3.00

The overhead would be (0.05 * 4 * £50) = £10

The supervision wages element of the overhead would be (0.05 * 4 *
£10) = £2

This is my understanding.



--- In vantage@yahoogroups.com, "Richard Bailey" <rbailey@...> wrote:
>
> A query for all manufacturing/job costing gurus out there.
>
> As I understand it, the Operation crew size increases the Labour
time of an
> operation. For example, an operation is rated at 20 pieces per
hour (i.e.
> 0.05 hrs per piece). If the crew size is defined as 3 on the
operation then
> the calculated labour time extends to 0.15 hrs. So far so good and
the
> standard labour cost is calculated as (0.15 hrs * operation labour
rate).
> The problem we have is that our overhead/burden is set as 150% of
labour,
> but the standard calculates the overhead/burden cost irrespective
of crew
> size (i.e 0.05 hrs * overhead %, not 0.15 hours * overhead %).
> Surely part of overhead recovery is based on wages etc within the
> workcentre. I can't see why the labour would extend by crew size
but not the
> overhead.
>
> Any ideas, theories, statements of practice welcomed
>
> Regards,
> Richard
>
> Richard Bailey
> Dudley Industries
> Mailto: rbailey@...
> Tel: +44(0)1253 738311
> Mob: +44(0)7836 550360
> Fax: +44(0)870 7628173
>







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2
A query for all manufacturing/job costing gurus out there.

As I understand it, the Operation crew size increases the Labour time of an
operation. For example, an operation is rated at 20 pieces per hour (i.e.
0.05 hrs per piece). If the crew size is defined as 3 on the operation then
the calculated labour time extends to 0.15 hrs. So far so good and the
standard labour cost is calculated as (0.15 hrs * operation labour rate).
The problem we have is that our overhead/burden is set as 150% of labour,
but the standard calculates the overhead/burden cost irrespective of crew
size (i.e 0.05 hrs * overhead %, not 0.15 hours * overhead %).
Surely part of overhead recovery is based on wages etc within the
workcentre. I can't see why the labour would extend by crew size but not the
overhead.

Any ideas, theories, statements of practice welcomed

Regards,
Richard

Richard Bailey
Dudley Industries
Mailto: rbailey@...
Tel: +44(0)1253 738311
Mob: +44(0)7836 550360
Fax: +44(0)870 7628173
3
Richard,

I believe this to be correct but I hope I understood your question
correctly. The overhead should reflect the workcenter operation
time.

The labour rate should reflect direct labour costs. Those costs
would reflect the wages of the people carrying out work. E.g. 0.15
hours

The overhead rate should reflect costs directly associated with
workcenter only. E.g. 0.05 hours. This would include energy etc. But
it could include supervision.

E.g.

Four work centers = £50.00 per hour of which supervision is £10 per
hour.

Using the example below all three workcenters are doing the same job
with the labour rate of £5.00 per hour.

The supervisor is cover all three workcenters.

The labour costs would be (0.05 * 3 * 4 * £5) = £3.00

The overhead would be (0.05 * 4 * £50) = £10

The supervision wages element of the overhead would be (0.05 * 4 *
£10) = £2

This is my understanding.



--- In vantage@yahoogroups.com, "Richard Bailey" <rbailey@...> wrote:
>
> A query for all manufacturing/job costing gurus out there.
>
> As I understand it, the Operation crew size increases the Labour
time of an
> operation. For example, an operation is rated at 20 pieces per
hour (i.e.
> 0.05 hrs per piece). If the crew size is defined as 3 on the
operation then
> the calculated labour time extends to 0.15 hrs. So far so good and
the
> standard labour cost is calculated as (0.15 hrs * operation labour
rate).
> The problem we have is that our overhead/burden is set as 150% of
labour,
> but the standard calculates the overhead/burden cost irrespective
of crew
> size (i.e 0.05 hrs * overhead %, not 0.15 hours * overhead %).
> Surely part of overhead recovery is based on wages etc within the
> workcentre. I can't see why the labour would extend by crew size
but not the
> overhead.
>
> Any ideas, theories, statements of practice welcomed
>
> Regards,
> Richard
>
> Richard Bailey
> Dudley Industries
> Mailto: rbailey@...
> Tel: +44(0)1253 738311
> Mob: +44(0)7836 550360
> Fax: +44(0)870 7628173
>