What’s the difference between Overhead and G&A?
Tuesday, April 24, 2007
Submitted by Paul Baumann Jr. of PDS Business Systems and Services
Overhead and G&A (General and Administrative) are
two of the most loosely used terms in government contract accounting. Every one
uses them…few really know what they are.
Let’s start with what is the same. Both are indirect
costs. That is, they are costs that you incur in the course of running your
company that you cannot easily (directly) charge to a particular contract. For
example, rent, office supplies, accounting, management, etc.
difference is that G&A refers to that portion of your indirect costs that
apply to your whole operation; whereas overhead applies to a portion of your
operation. Examples of overhead are: engineering overhead, labor overhead or
manufacturing overhead, material handling, sub contract management. All apply
to a specific function or cost within the organization.
Overhead pools are selected based on the nature of the
operation. Generally you select different overheads if the costs associated
with different parts of your operation are different. For example, if your
projects entail a combination of in house labor and sub contract labor you might
notice that your in house labor entails indirect costs (benefits, payroll taxes,
leave, etc) that do not apply to your sub contracts. On the other hand, you
might notice that there is a cost for management of the sub contracts that is
not present for in house labor. In this case you might want to set up in house
labor overhead and sub contract management overhead pools. Meanwhile you collect
those costs that apply across the board (accounting, business development, etc)
into a common G&A pool.
get the cost of a job or a department in your company you take the sum of the
direct costs (those you charge directly to the job) and a fair share allocation
of indirect costs. Using our example above, your labor costs for a job would be
the sum of direct labor (salaries you pay) plus a fair share of labor overhead
plus a fair share of G&A. Meanwhile, your sub contract cost for a job would
be the sum of the sub contract cost, plus a fair share of sub contract handling