Do you know the difference between Cost of Goods (Variable Costs, Direct Costs) and Overhead (Fixed
Costs)? Assuming that you do, is your Chart of Accounts set up to clearly delineate between these two cate-
gories? AND why is this important?
The importance of knowing what constitutes Overhead and Cost of Goods is critical to accurately calculate
your pricing or estimating to consistently be profitable. Overhead is an operational expense not directly bill-
able to the job. So how do you “charge” for the Overhead? Failing to recover the full costs of your Overhead
in your estimating or pricing, will more than likely make your business, product or job unprofitable, when the
final numbers are applied.
As this discussion continues, you will find that to determine and apply Overhead, you will also need to have
an understanding of other intertwined items; Chart of Accounts, Labor Burden, and Break-even. This paper
will tackle each of these as they affect the application of Overhead. But first, define the difference between
Cost of Good and Overhead, to gain a clear understanding of each.
Click the link to view / download this white paper: Overhead – Related to Estimating and Pricing