What's Your
Daily Overhead?
by Jonathan Blaney
The most common method of job
pricing uses a fixed mark-up on direct
costs. A fixed percentage is added to
the direct costs to cover overhead and
profit. This is the technique Paul
Hentzen discusses in his article
"Mark-up Basics," in NEB's January
1988 issue. While Hentzen has shown
an annual profit for twenty-five years,
this does not necessarily mean that his
technique will work for everyone.
Reliance on past results as a predictor
of future events is risky at best.
Indiscriminate use of averages can be
disastrous leading to cross-product
subsidies and distorted job costs. I
strongly recommend another method.
First, it is important to recognize
that costs must be apportioned over
the periods