USA Overhead Cost Quick Question

[CaliCPA3]

Hello. My company is a service provider that has a group of union staff providing the core service (answering phones and emails), we don't have any COGS. My question is should their salaries and health benefits be excluding from overhead costs because it's directly tied to the revenue that we generate? Also, should the employer payroll taxes (Federal & state) associated with the union staff also be excluded?

Any response is greatly appreciated. Thanks.

 

[kirby]

Depends on the format of your income statement. But anyway since the core service depends on wages, then showing wages under "overhead" does not provide a true picture. An income statement that has the categories ; Revenue, Cost of Revenue, etc could have the wages show as Cost of Revenue and not overhead. Sounds like you need to discuss this with your auditors.

 

[Dave In Capital]

It sounds like the matching principle would apply to your question. To match revenues with expenses in your case, the direct salaries would be a cost of service. But, the benefits including employer portion of payroll taxes would be an indirect expense, which shouldn't be confused with overhead. Also, thank you for using union labor, as they are an indispensable component of advanced developed nation economies. That is at least the case from the Keynesian perspective, which is the default modeling for modern economic theory.

 

[LLCOOLES]

Hello. My company is a service provider that has a group of union staff providing the core service (answering phones and emails), we don't have any COGS. My question is should their salaries and health benefits be excluding from overhead costs because it's directly tied to the revenue that we generate? Also, should the employer payroll taxes (Federal & state) associated with the union staff also be excluded?

Any response is greatly appreciated. Thanks.

I would not consider the salaries overhead, because they are a direct cost of producing your service. I would consider the health benefits you provide as overhead because they do not directly contribute to generating revenue for your company. Overhead should also include your utilities i.e. electricity, heat, phone bill, etc., again, things that do not directly generate revenue for your business, but must be paid in order for your business to operate. I would also consider Federal and State taxes as being overhead. You as the employer are responsible for paying one half of the Social Security and Medicare tax. The other half is paid by the employee. This is another expense that does not contribute to earning revenue for you. If you don't include these costs in the prices your charge, you won't be earning enough money to cover all of your expenses, which could put you out of business soon.