Cost-plus pricing

Overhead costing is a business tool for the offer price determination.

In the trades and industry several different products are produced. A simple breakdown of the total costs to the cost objects (total cost / cost carriers) would lead to an inaccurate result. Therefore, we divided the total costs and overhead costs. But this is part of the Cost Accounting ( KAR ). The total overhead costs and the calculation of overhead surcharge rates are determined through a cost allocation sheet.

The overhead calculation is divided into single-stage and multi-stage overhead calculation. Further, in the overhead calculation in the summary order costing, in the single-stage and differentiating overhead costing, in the multi-level, differentiated.

• 2.1 Two-stage - order costing 2.1.1 Scheme with material and production overheads
• 2.1.2 Scheme with hourly rate

Single-stage overhead calculation

All costs incurred overhead costs are allocated using an overhead rate set the corresponding direct costs. One chooses a single cost base, which affects the overhead costs the most. This overhead rate is quantitatively determined (eg material or labor or manufacturing).

However, the single-stage overhead calculation can also be of value (eg depreciation of a machine) can be defined. However, it is necessary to know the number of machine hours or the amount of depreciation per unit of calculation object.

The single-stage overhead costing is also known as a summary. The single-stage overhead calculation is performed essentially only of small businesses and does not require cost center accounting. It is only justifiable if incurred in an operation overheads only to a small extent.

Single-stage overhead calculation on material

The overhead calculation with an overhead rate on material shown in the following scheme.

Single-stage overhead calculation on manufacturing

An example of the single-stage overhead calculation, which is based on the production costs. This calculation calculation, which greatly simplified, is often used for hourly rates.

Overhead calculation and machine hours

A simple example shows the integration of annual working hours and machine hours in the one-step calculation scheme. In the production department of a company inflatables are manufactured. The manufacture of a boat be imputed unit costs in the amount of 1000 monetary units (GE). For the manufacture of a boat 5 machine hours are required. In addition, fall per year manufacturing overhead costs of GE 50000, the (1600 h) the preparation of the boats should be attributed on the basis of machine hours per year. As a surcharge rate is obtained:

To determine the proportionate share of total costs per boat, multiply the overhead rate by the number of machine hours that are necessary for the production of a boat:

Multistage overhead calculation

Multistage surcharge calculation schemes integrate surcharges on materials, production, management and distribution, and can be further expanded.

Two-stage - order costing

The two-stage overhead calculation takes into account two overhead rates, the increases in material and labor costs. This form of overhead calculation is common in smaller production-oriented enterprises, the production costs are often integrated on hourly rates.

Scheme with material and production overheads

Scheme with hourly rate

Three-stage overhead calculation

The three-stage overhead calculation takes into account three overhead rates, the increases in material, manufacturing and administration and sales. The overhead rates for administrative and distribution are summarized for reasons of simplicity in small and medium-sized enterprises to a set.

Advanced multi-level overhead calculation

Overhead calculation schemes can be expanded and consider other costs and overhead rates, which are derived from the respective operating billing sheets.

All surcharges are calculated on hundred, so for example, the respective direct costs the base ( 100%) for the calculation of the surcharges. Here are the exception discounts like discount, agent's commission and discount: The discount rate refers to the target sale price, not the cash price. The reason for this lies in the fact that the customer discounts and rebates each subtracted from the invoice amount and the size before it does not know. Should be noted that in calculations of the discount should be calculated only on the material costs. ( Production costs are wage labor and should not therefore to discount! )

This overhead calculation refers to the manufacture of products in the commercial can be found analogously retail pricing.

Disadvantages of overhead calculation

• Simple, standardized products are too expensive ( ie little jobs ), special designs sold at low (ie, more orders, but loss ).
• If single and small series change in a product, the cost reduction for the series turns out to be low.
• Greatly simplified calculation method ( Weight cost calculation ) lead to incorrect cost-cutting measures.
• The falsification of the influences the quantity, size, complexity and novelty shapes the " mentality " of the sale (sales instead of profit ).