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(CDR-2192) Different Allocation Methods for Indirect Costs

Primary Author: William C. Schwartzkopf
Co-Author(s): Cory R. Milburn, PSP

Audience Focus: Basic
Application Type: Practice
Venue: 2016 AACE International Annual Meeting, Toronto, ON, Canada

Abstract: A common methodology used to allocate indirect costs on a project, which has been extended, is to allocate based on time, usually in the form of cost per day. A time based allocation may not be the most appropriate methodology because the driving factor for some costs, particularly costs such as equipment, small tools, supervision, and expendable items, is direct labor cost or direct labor hours. A more appropriate method to allocate those indirect costs is as either a percentage using a labor cost as the driver or as a cost per direct labor hour with labor hours being the driver. This paper compares the results of using a cost allocation base of direct labor hours to other allocation methods such as actual cost compared to adjusted, cost per day, and period based costs.