Burden Rate

[LGrant]

Is it correct to divide the sum of the manufactoring cost (Machines, tools, energy, etc.) by the total hours of all the workers? Or do you divide by the total hours of just one worker?

 

[MfgProcessEng]

What are you trying to set the burden rate to? Is it to a facility or to a work center (specific machine)?

 

[tegefe]

In my experience most large manufacturing facilities use between 35-40% of the labor rate for each emloyee involved in the study. Most studies are in cost centers or value streams.

 

[IRstuff]

Depends on what you are trying to do.

A typical exercise would allocate the manufacturing burden across all the manufacturing labor, but, you can allocate it across all the workers, since that would allow you to spread the engineering burdens across all the workers as well and thereby come up with a lower engineering rate.

TTFN

 

[PSE]

As there are many ways of calculating or estimating burden, I would recommend starting by talking with the accounting group to see how they calculate/record it for reporting/expensing purposes. In that way, you have a management recognized value to work from.

Regards,

 

[OceanaRadio]

Burden rate for a machine or a division would use all the direct labor costs excluding G&A for that machine or Division. While engineers probably taught accountants how and why life-cycle and other total cost principles were needed..in today's industry there is no way "an engineer" can be familiar with the company's total cost structure to enable him/her to make informed decisons about activity based costing. In a perfect world, the engineer would provide the basis for all activity costing and the accontants would then add layers as appropriate. Today, Enron-accounting procedures require the obfuscation of all practicality and direct linkage to a cost or profit center. We can thank our tax code and foreign competition for worsening the problem that started with simple dishonesty.

Jack Painter
Being audited is a lot more fun than auditing