How Overhead Allocation Impacts Project Budgets
Accurately allocating overhead helps ensure that each project’s budget reflects its true cost, including both direct and indirect expenses. Failure to allocate overhead properly can result in inaccurate cost estimations and skewed profitability calculations. Proper overhead allocation helps businesses maintain financial control and ensures that project pricing covers all operating expenses.Best Practices for Overhead Allocation
Construction companies should use a consistent method for overhead allocation, such as dividing costs based on labour hours, project size, or revenue generated. Regularly reviewing overhead costs and ensuring they are allocated proportionately across projects is critical to maintaining accurate project financials.Related Terms: Indirect Costs, Cost Allocation, Budget Management