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What’s the difference between Overhead and G&A?

Tuesday, April 24, 2007   (0 Comments)
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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.

The 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.

To 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 and G&A.


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