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?What is the most appropriate way to distribute general expenses


?What is the best basis for distributing indirect expenses to projects


In contracting companies, there are several types of expenses, for example: operating expenses, production expenses and operating expenses. These are all direct expenses in the sense that they are allocated to specific projects

While there are expenses that we can not allocate to a specific project or cost centers are to be charged to the General Administration under the name of public and administrative expenses and are indirect expenses, for example (salaries of administrators and accountants in management - rent office - electricity expenses - Internet fees - interest loans - fees (and subscriptions .. Etc


There is more than one way of allocating General expenses to projects

Distribution according to the percentage of each project of direct operations expenses

This method distributes expenses based on the proportion of each project of the total expenses and the objective is the distribution of indirect expenses with fair bases between the projects, we in our view that the volume of expenses indicates the size of the service provided by the administration of the project and thus carries a larger example of this project expenses estimated at $ 100,000 There are three projects A, B, C and the value of general and administrative expenses is $ 60,000

Project
Operating Exp
Percentage
Administrative Exp

A

20,000

20%

12,000

B

30,000

30%

18,000

C

30,000

50%

30,000

Total

100,000


60,000



Distribution according to the percentage of revenue generated for each project

In this way, general and administrative expenses are distributed according to the amount of revenue on the basis that the revenue represents the volume of work and the effort presented to the cost center of the administration

Administrative Exp

Revenue

Project

24,000

20,000

A

0

0

B

36,000

30,000

C

60,000

50,000

Total


However, the disadvantages of this method 

are that the revenue entitlement in some projects is recorded only at the end of the project or the execution of the works. In such cases, Project B is not loaded with any expenses, knowing that the project has already been implemented


Distribute according to working hours on each project

In this way, general and administrative expenses are distributed according to the total working hours of each project. Work hours are calculated according to the working hours of the workers at the site or the working hours of the equipment

Administrative Exp

working hours

Project

20,000

400

A

25,000

500

B

15,000

300

C

60,000

1200

Total

 

But in this way disadvantages

if we take the working hours of the labor is the scale there are projects dependent on the employment of larger and projects depend on the equipment of the first class and was based on the actual working hours on the site there are projects were disbursed before the start of work from the establishment and creation of the site for work


The best way to distribute public or public and administrative expenses from our point of view is

Distribution according to the percentage of each project expense because all information is available and the percentage of operations expenses is known as the reverse of revenues and working hours