Indirect Overhead

Indirect OH is comprised of a Facility Budget and a Support Services Budget.

Facility Budget — The Facility budget accounts for the annual costs associated with the factory as a whole, including insurance and utility costs (excluding the costs to run the machines). We estimate the facility budget amount apportioned to the workcenter based on the work center’s square footage. We use rental rates by region to estimate the cost of the facility.

Facility Budget = Annual Rent + Insurance + Utilities

Annual Rent = Square Footage of the Workcenter * (1 + Factor For
Non-Production Factory Space) * Annual Cost Per Sq Ft

Square Footage of the Workcenter = Machine Length * Machine Width * Allowance Factor

Insurance = Annual Rent * (Fire Factor + Loss Factor + Liability Factor)

Utilities = Annual Rent * (Electric Factor + Heat/Gas Factor + Water Factor)

Note: Factors are represented as a % of annual rent.

Support Services Budget — Support staff is modeled as a fixed overhead. We estimate support services for the workcenter based on applying a fraction of each support services to the workcenter (for example a quality worker covers 20 workcenters, therefore 5% of their salary is applied to a workcenter’s indirect overhead).

Support Services are the fully burdened salaries and expenses for the following groups.

• Quality Maintenance

• Planning & Purchasing

• Engineering

• Tool Crib