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Home My WebLink About#8 Overhead Allocation Rates Agenda Item # 8 Pubhc Utility District BUDGET To: Board of Directors From: Bob Mescher Date: November 04, 2009 Subject: Discussion Regarding Budget Overhead Allocation Rates 1. WHY THIS MATTER IS BEFORE THE BOARD This item continues the preparation process of the FY10 and FY11 budget. 2. HISTORY Overhead allocation rates are a means to allocate indirect expenses to specific work orders and departmental operating expenses. Direct expense items can easily be attributed to a specific job, function, work order, etc. Examples of direct expenses are a foreman's pay, inventory items, and outside contractors providing services for a specific project. Indirect expenses ("overhead") are impossible or impractical to attribute to a specific job, function, work order, etc. Examples of indirect expenses are liability insurance, vehicle insurance, vehicle repairs, fuel, building maintenance, general office supplies. "Metrics" are related factors of direct expenses that can be multiplied by the overhead allocation rates to allocate overhead to the same accounts as the direct expenses. Examples of drivers are direct expense payroll dollars, direct expense payroll hours, and inventory issue dollars. These overhead allocation rates are no indication of efficiency or inefficiency. They are strictly a factor used to allocate indirect expenses. Also, there is no industry standard for overhead allocation rates. Since overhead rates are used in billable work orders and are also an integral part of the budget, these rates have traditionally been adopted along with the District's budget. 3. NEW INFORMATION Attached are the budget appendices that show the calculation of overhead rates. The rates are as follows: Overhead Rate Metric FY09 FYI FYI Labor Payroll Dollars 85.45% 85.91% 89.82% Transportation Payroll Hours $ 10.28 $ 10.97 $ 11.25 Inventory Inventory Issues 23.64% 24.73% 25.81% Administration Payroll Dollars 1.04% 2.79% 2.81% Construction JPayroll Dollars 125.75% 124.93% 125.71% 4. FISCAL IMPACT There is no fiscal impact associated with this workshop. 5. RECOMMENDATION Receive this report and provide comments to staff. 4 ' _ Mary Chapman Michael D. Holley Administrative Services Manager General Manager j APPENDIX III 2010 LABOR OVERHEAD VALUE OF BENEFITS i i Medical/Dental insurance $1,357,162 Vision insurance 30,900 Long term disability 28,840 Life insurance 41,796 Longevity 20,480 FICA 348,926 Fed Med 88,337 Worker's compensation insurance 218,234 Pension 1,350,513 GASB 45 OPEB cost 140,000 Value of non-productive labor 865,317 ` (vacation, sick leave, holiday) f TOTAL VALUE OF BENEFITS $4,490,504 t I PRODUCTIVE LABOR Recommended labor(Appendix ll) $6,092,174 Less value of non-productive labor (865,317) i TOTAL PRODUCTIVE LABOR $5,226,857 PAYROLL OVERHEAD 85.91 (Value of benefits/productive labor) BENEFITS AS A PERCENT OF TOTAL LABOR AND BENEFITS 46% 50 i APPENDIX //I 2011 LABOR OVERHEAD I VALUE OF BENEFITS E Medical/Dental insurance $1,491,983 Vision insurance 31,827 Long term disability 29,821 Life insurance 43,250 Longevity 22,690 FICA 358,209 Fed Med 91,457 Worker's compensation insurance 239,550 Pension 1,477,069 GASB 45 OPEB cost 140,000 Value of non-productive labor 916,359 (vacation, sick leave, holiday) TOTAL VALUE OF BENEFITS $4,842,215 PRODUCTIVE LABOR Recommended labor (Appendix 11) $6,307,408 Less value of non-productive labor (916,359) TOTAL PRODUCTIVE LABOR $5,391,050 PAYROLL OVERHEAD 89.82% (Value of benefits/productive labor) BENEFITS AS A PERCENT OF TOTAL LABOR AND BENEFITS 47% 51 I APPENDIX IV 2010 TRANSPORTATION OVERHEAD i 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 $527,479 Interest expense (vehicle debt service) 1,956 Insurance 38,444 Replacement (depreciation expense) 240,118 i TOTAL TRANSPORTATION EXPENSE $807,997 DIRECT LABOR HOURS General Manager 2,832 Administrative Services 3,427 Conservation 458 Electric Operations 29,861 Water Operations 35,218 Power Supply 1,830 i f TOTAL DIRECT LABOR HOURS 73,626 i I TRANSPORTATION/EQUIPMENT OVERHEAD PER HOUR COST f ($807,997 DIVIDED BY 73,626) $10.97 i 52 APPENDIX IV 2011 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 $544,413 Interest expense (vehicle debt service) 0 Insurance 39,117 Replacement (depreciation expense) 240,118 TOTAL TRANSPORTATION EXPENSE $823,648 DIRECT LABOR HOURS General Manager 2,832 Administrative Services 3,387 Conservation 458 Electric Operations 29,701 Water Operations 35,034 Power Supply 1,830 TOTAL DIRECT LABOR HOURS 73,242 TRANSPORTATION/EQUIPMENT OVERHEAD PER HOUR COST ($823,648 DIVIDED BY 73,242) $11.25 53 I APPENDIX V 2010 INVENTORY OVERHEAD PURCHASINGMMAREHOUSING Labor $50,942 Accounts Payable 2,505 Overhead: Labor 43,764 Administrative 1,421 Warehouse Operations: Utilities & Building Maintenance 11,923 Miscellaneous (insurance) 2,500 e TOTAL COST $113,055 4 i ESTIMATED INVENTORY ISSUES I I Electric Operations 422,096 Water Operations 35,000 TOTAL ESTIMATED ISSUES $457,096 INVENTORY OVERHEAD 24.73% 54 APPENDIX V 2011 INVENTORY OVERHEAD PURCHASINGMAREHOUSING Labor $52,336 ° Accounts Payable 2,549 Overhead: Labor 47,009 Administrative 1,314 Warehouse Operations: E Utilities & Building Maintenance 12,366 Miscellaneous (insurance) 2,544 TOTAL COST $118,118 ESTIMATED INVENTORY ISSUES Electric Operations 422,096 Water Operations 35,613 TOTAL ESTIMATED ISSUES $457,709 INVENTORY OVERHEAD 25.81 55 APPENDIX VI 2010 ADMINISTRATIVE OVERHEAD COMMON SUPPLY COSTS: Purchasing/Warehousing of Common Supplies Labor $50,942 Accounts Payable 2,505 Overhead: Labor 43,764 Administrative 1,421 i Warehousing Operating Costs Utilities & Building Maintenance 11,923 Miscellaneous (insurance) 2,500 Subtotal $113,055 Common Supplies Outside staff supplies $10,000 Inside staff supplies 13,000 Joint department supplies 10,000 Subtotal $33,000 TOTAL COMMON SUPPLY COSTS $146,055 TOTAL PRODUCTIVE LABOR $5,226,857 ADMINISTRATIVE OVERHEAD 2.79% 56 APPENDIX Vl 2011 ADMINISTRATIVE OVERHEAD COMMON SUPPLY COSTS: Purchasing/Warehousing of Common Supplies Labor $52,336 Accounts Payable 2,549 Overhead: Labor 47,009 Administrative 1,314 Warehousing Operating Costs Utilities & Building Maintenance 12,366 Miscellaneous (insurance) 2,544 Subtotal $118,118 Common Supplies Outside staff supplies $10,175 Inside staff supplies 13,228 Joint department supplies 10,175 Subtotal $33,578 TOTAL COMMON SUPPLY COSTS $151,696 TOTAL PRODUCTIVE LABOR $5,391,050 ADMINISTRATIVE OVERHEAD 2.81 57 f APPENDIX Vll 2010 CONSTRUCTION OVERHEAD Step 1 General direction and general construction costs from budget: Electric Operations $77,852 Water Operations 71,871 G1S& Mapping 25,595 Total $175,318 Step 2 Determine capitalized labor as a percent of total labor: Capitalized Labor = $835,788 = 25.71 Total Electric& Water Labor $3,250,597 Step 3 Determine construction overhead to be capitalized: Total General direction &construction costs $175,318 of labor to be capitalized 25,71 General direction & construction costs to capitalize $45,077 Construction accounting costs to capitalize 163,248 $208,325 Step 4 Calculate construction overhead to be applied to capital improvements: Capital Overhead = $208,325 = 24.93% Capital Labor $835,788 CONSTRUCTION OVERHEAD= 24.93% 58 APPENDIX VII 2011 CONSTRUCTION OVERHEAD Step 1 General direction and general construction costs from budget: Electric Operations $78,834 Water Operations 75,187 GIS & Mapping 25,959 Total $179,980 Step 2 Determine capitalized labor as a percent of total labor: (E I Capitalized Labor = $815,393 = 24.47% Total Electric& Water Labor $3,332,034 Step 3 Determine construction overhead to be capitalized: Total General direction & construction costs $179,980 of labor to be capitalized 24.47% General direction & construction costs to capitalize $44,044 Construction accounting costs to capitalize 165,561 $209,605 Step 4 Calculate construction overhead to be applied to capital improvements: Capital Overhead = $209,605 = 25.71 Capital Labor $815,393 CONSTRUCTION OVERHEAD= 25.71 59