An Exercise

Direct Cost

Indirect Expenses

Productivity

Adjustments

This model will use service departments as the example.

Full-time employee

Worked the complete year

Work year based on 2080 hours (52 weeks x 40)

Base Pay

Social Security- Emp. Contribution

Contribution 6.2% or .062

Cap at $127,000.00 (2017)

Medicare-No Cap 1.45 % or .0145

Federal Unemployment

6% of 1st $7000.00, NTE $42.00

State Unemployment (Florida)

2.7% of 1st $7000.00

$216.00 Annual/2080 hours

Indiv. Cost/ hr Cumulative

$ 22.00 $ 22.00

1.36 23.36

0.32 23.68

0.02 23.70

0.10 23.80

Insurance (Married) Emp. Portion

Health $262.00 x 12 months/2080

Dental $ 48.00 x 12 months/2080

Life $ 0 x 12 months/2080

AD&D $ 0 x 12 months/2080

Optical $ 0 x 12 months/2080

Disability-Long term 0 x 12/2080

Workman’s Comp (Your state rate)

$ 1.79 per $100 Earnings

1.79% per $ 1.00 equal

Uniforms $216.00/2080

Indiv. Cost/hr Cumulative

$ 1.51 $ 25.32

$ 0.28 $ 25.60

$ 0 $ 25.60

$ 0 $ 25.60

$ 0 $ 25.60

$ 0 $ 25.60

$ 0.39 $ 25.99

$ 0.10 $ 26.09

Hand Tools per Tech Annually

$ 400.00/2080

Personal Use of Company Vehicle

Vehicle to and from work

12 miles each way, total 24 miles

0.50 per mile, $ 12.00/day

260 work days x 12 = $3120.00/yr

$ 3210/2080 hours

Profit Sharing/Pension (6%)

$ 22.00 x 6%

Indiv. Cost/hr Cumulative

$ 0.19 $ 26.29

$ 1.50 $ 27.79

$ 1.32 $ 29.11

Bonus, i.e. Christmas, Performance

$ 880.00/2080 (two weeks)

Absorption of OT(hrs paid not billed)

2 hrs/week, or 104 hrs/yr

Equals 156 hrs ST

Equals $ 11.00 extra cost/hr

Non billable = $1716.00/2080

Interest Free Loans 0/2080

Indiv. Cost/hr Cumulative

$ 0.42 $ 29.11

$ 0.83 $ 30.35

$ 0.00 $ 30.35

Vacation Pay

10 days= 80 hrs x 28.85/2080

($ 30.35 – 1.50 Truck use)

Holiday Pay/Personal/Sick Days

8 days= 64 hrs x 28.85/2080

($ 30.35 – 1.50 Truck use)

Total Direct Cost Before Productivity Adjustment

Indiv. Cost/hr Cumulative

$ 1.11 $ 31.46

$ 0.89 $ 32.35

_____________________________

$ 32.35

$ Amount % Accountability $Amt w/ Adjustment

Salaries 674,661.00 35 236,131.00

Payroll Tax 125,487.00 35 43,920.00

Depreciation 24,066.00 65 15,642.00

Maint & Repair 76,074.00 70 53,251.00

Rent 42,805.00 30 12,841.00

Vehicle Lease 0.00 0 0.00

General Ins. 91,085.00 70 63,759.00

Employee Ins. 0.00 0 0.00

Officer Life Ins. 10,380.00 35 3,633.00

Gas & Oil 129,476.00 75 97,107.00

Utilities 11,121.00 30 3,336.00

Office Sup. 28,508.00 35 9,997.00

$ Amount % Accountability $Amt w/ Adjustment

Telephone 56,859.00 75 42,644.00

Training/Cert 4,425.00 90 3,982.00

Acct/Legal 14,483.00 50 7,241.00

WH Exp 11,660.00 50 5,830.00

Emp. Travel 3,798.00 80 3,038.00

Licenses 3,869.00 50 1,935.00

Contributions 2,150.00 25 537.00

Adv & Promo 6,785.00 20 1,357.00

Dues/Subscript 1,590.00 20 318.00

Profit Sharing 29,264.00 35 10,242.00

(Other than Direct Labor)

$ Amount % Accountability $Amt w/ Adjustment

Total 1,348,546.00 -- 616,728.00

___________________________________________________________

Adjusted Indirect Expenses $ 616, 728.00

Total Indirect Expenses $ 1,348,546.00

Service Indirect Expenses : 46%

Actual Annual Hours Paid (Average) Payroll Records

Hours

Straight Time 1882

Overtime 342 OT = 513 ST 2395

Vacation 10 days = 80 2315

Holiday 6 days = 48 2267

Sick/Personal 2 days = 16 2251

Hours

Bill Out Adjustments

3 hours a week average

Call Backs

Warranty – Non Billable

Adjustments demanded by customer

Bad Debt – Service Related

Goodwill

3 hours/week x 52 = 156 2095

Hours

Non Productive Shop time, Educational,

and Safety classes

1 hour/day or 5 hours/week

Classroom

Cleaning Facility

Inventory Control

Coffee/BS Breaks

5 hr/week x 52 weeks = 260 hours 1835

Added Billing Hours

1 hour for every 8 hours billed

1835/8 = 229.38 2064.38

Total Productive Hours 2064.38

Productivity vs. Payroll 2064.38 / 2395

Productivity Efficiency 86%

RE: Productivity and Indirect Expense

Total Labor/Hr cost before productivity adjustment $ 32.35

Multiply by paid hours X 2395

Total Annual Direct Cost per Service Tech $ 77,480.84

BUT ONLY IF 2064.38 HOURS ARE PRODUCTIVE

Direct Cost per productive hour

$ 77,480.84/2064.38 = $ 37.53

Accountability of Indirect Overhead

Total Indirect Expenses $ 1,348,546.00

X % Related to Service Technician X 46%

Total Service Technician Indirect Overhead $ 616,727.65

Divided by total number of service techs / 16

Per Technician Indirect Overhead $ 38,545.48

Divided by the total number of productive hours / 2064.38

Cost per productive hour $ 18.67

True Cost Per Productive Hour Per Service Technician

A. Total Direct Cost Before Productivity Adjustment $ 32.35

B. Adjusted Direct Cost Per Productive Hour $ 37.53

C. Accountability of Indirect Overhead $ 18.67

True Cost (Equal B plus C) $ 56.20

Calculation Worksheet

1. Determine the hourly wage you will pay the employee. $ 22.00

2. Convert the hourly wage into an annual salary $ 45,760.00

3. Add benefits (FICA, Medicare, etc.) $ 12,480.00

4. Add vehicle cost if the employee will be driving a

company vehicle. $ 20,800.00

5. Determine the gross margin (GM) of the department

the employee will work in. 45%

6. Enter the data into the following formula:

Sales Required = Total (2,3,4)/ 1 minus the GM

Sales Required = $ 80,288/1-.45)

Sales Required = $ 80,288/.55 = $ 145,978.00/YR

Copyright 2013 HVACR Business Magazine Materials by Ruth King