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Home My WebLink About10 Budget Overheads Agenda Item # 10 4 1 1 i` y , �� If' il/ PF Public Utility District Staff Report To: Board of Directors From: Mary Chapman,Administrative Services Manager Date: October 14,2005 Subject: Discussion of the calculation of budget overheads Overheads: As part of the monthly accounting process certain costs are accumulated in clearing accounts and at the end of the month they are spread to all open work orders,operating, maintenance and administrative accounts. Those costs include payroll overhead, inventory overhead, transportation overhead, administrative overhead and construction overhead. A brief description of each overhead is listed below: Payroll overhead is made up of all of the budgeted employee benefit programs which include indirect labor (vacation, sick leave, holiday pay) and employee benefits (medical, dental, vision, long term disability, life insurance, pension, state compensation, FICA and Fed Med). These costs are spread on all direct labor charges. Transportation overhead is made up of all of the costs incurred to run the vehicle fleet. These costs include gasoline, oil, tires,filters, repair labor and materials, interest on vehicle debt, insurance and vehicle depreciation expense. These costs are spread on all direct labor where vehicles are driven and used on the job. Inventory overhead is made up of all of the casts to run the warehouse including purchasing, receiving, storing, transporting and tracking inventory materials. These costs are spread on all material issued out of the warehouse. We also charge a percentage on the material that the District has had to purchase, receive, store, transport and track for billable jobs where the material was not run through the inventory system. Administrative overhead is a very small overhead which is made up of some of the common supplies used by the inside and outside staff. Rather than trying to allocate these small items to individual work orders,operating, maintenance and administrative accounts we spread them through an overhead percentage. These costs are spread based on all direct labor charges. Construction overhead is made up of a portion of the engineers' time, the planners' time, the GIS coordinator's time, the mapper's time and all of the work order accounting staff time. When the engineers, planners, GIS coordinator and the mapper are working on a specific work order, they charge their time directly to that work order. The staff spends a lot of miscellaneous time during the day managing the various projects that the crews are constructing or inspecting. These costs were not being recovered or capitalized until we added this overhead several years ago. The work order accounting staff spends a majority of their time 0 Page 1 processing work orders from opening the work order to the final closing. If we did not have any new construction,we would not need work order clerks. A portion of these costs are charged to work orders through a construction overhead. The part that is not recovered is charged to operating and maintenance expenses. The allocation is based on labor charged to work orders. I have attached the various appendices from the 2005 budget for you to review. We will go over them during the workshop and I will answer any questions that you have. • Page 2 APPENDIX III LABOR OVERHEAD VALUE OF BENEFITS Medical insurance $973,370 Dental insurance 94,080 Vision insurance 16,000 Prescription reimbursement 2,000 Hospital deductible 2,000 Well baby care 2,500 Long term disability 33,943 Life insurance 45,897 Longevity 15,050 FICA 277,713 Fed Med 66,740 State compensation 297,202 Pension 959,876 Value of non-productive labor 622,604 (vacation, sick leave, holiday) TOTAL VALUE OF BENEFITS $3,408,975 PRODUCTIVE LABOR Recommended labor(Appendix li) $4,602,787 Less value of non-productive labor (622,604) TOTAL PRODUCTIVE LABOR $3,980,183 PAYROLL OVERHEAD 85.65% (Value of benefits/productive labor) BENEFITS AS A PERCENT OF TOTAL LABOR AND BENEFITS 46% 52 APPENDIX IV TRANSPORTATION OVERHEAD This appendix assumes that the cost of operating, maintaining and replacing District vehicles and equipment will be recognized as an overhead charged against direct labor that uses the vehicles. TRANSPORTATION& EQUIPMENT EXPENSE Vehicle operation, repair, fuels & misc expenses $298,044 Interest expense (vehicle debt service) 26,409 Insurance 50,490 Replacement(depreciation expense) 192,500 TOTAL TRANSPORTATION EXPENSE $567,443 DIRECT LABOR EXPENSE General Manager $47,493 Administrative Services 81,361 Support Services 47,424 Electric Operations 1,125,663 Power Supply 17,443 Water Operations 951,476 TOTAL DIRECT LABOR EXPENSE $2,270,860 TRANSPORTAT►ONIEQUIPMENT OVERHEAD ($524,545 DIVIDED BY$2,079,628) 24.99% 53 APPEND V INVENTORY OVERHEAD PURCHASINGMAREHOUSING Labor $73,701 Accounts Payable 17,197 Overhead: Labor 63,125 Transportation 5,065 Administrative 1,231 Warehouse Operations: Utilities & Building Maintenance 13,510 Miscellaneous (insurance) 4,500 TOTAL COST $178,329 ESTIMATED INVENTORY ISSUES Support Services $15,000 Electric Operations 348,392 Water Operations 272,150 TOTAL ESTIMATED ISSUES $635,542 INVENTORY OVERHEAD 28.06% 54 APPENDIX V1 ADMINISTRATIVE OVERHEAD COMMON SUPPLY COSTS: Purchasing/Warehousing of Common Supplies Labor $8,189 Accounts Payable 1,911 Overhead: Labor 7,013 Transportation 563 Administrative 137 Warehousing Operating Costs Utilities & Building Maintenance 1,501 Miscellaneous (insurance) 500 Subtotal $19,814 Common Supplies Outside staff supplies $15,000 Inside staff supplies 12,500 Joint department supplies 5,000 Subtotal $32,500 TOTAL COMMON SUPPLY COSTS $52,314 TOTAL PRODUCTIVE LABOR $3,980,183 ADMINISTRATIVE OVERHEAD 1.31% 55 APPENDIX VII CONSTRUCTION OVERHEAD Step 1 General direction and general construction costs from budget., Electric Operations $166,888 Water Operations 66,784 GIS&Mapping 48,096 Total $281,768 Step 2 Determine capitalized labor as a percent of total labor., Capitalized Labor = $786,967 = 31.19% Total Electric& Water Labor $2,523,330 Step 3 Determine construction overhead to be capitalized., Total General direction&construction costs $281,768 % of labor to be capitalized 31.19% General direction&construction costs to capitalize $87,877 Construction accounting costs to capitalize 186,966 $274,843 Step 4 Calculate construction overhead to be applied to capital improvements: Capital Overhead = $274,843 = 34.92% Capital Labor $786,967 CONSTRUCTION OVERHEAD= 34.92% 56