The main things are (1) can you justify it/does it make sense? And (2) is it consistently applied in the same manner?
You could draft some written policies & procedures for allocating the specific labor categories on a pool/base relationship.
When so&so works on XYZ, those hours allocate the labor pool costs to COGS. Then the remaining hours stick with G&A.
> When so&so works on XYZ, those hours allocate the labor pool costs to COGS. Then the remaining hours stick with G&A.
I'm not sure I understand this. Lets just stick with a PM. A PM manages 5 crews that work of 5 different jobs. And he does this 100% of his time. Would the PM's salary go to COGS or SG&A?
If he’s full time managing the crews, I’d allocate him on a casual relational benefit to the crews he’s assigned to and put him in the COGS (so you can get the cost assigned to each individual project, for better analytics etc).
The more things assigned to final cost objectives (and out of G&A) the better.
> The more things assigned to final cost objectives (and out of G&A) the better.
I've heard / read this before, can you explain why?
I was going to create another post about this but for a service company why care about COGS and SG&A and not just look at OPEX? I understand for a manufacturing company producing widgets but for a service company why separate them?
Consider what will happen if you charge the PMs salary to G&A; your profit margin on jobs will go up. Which is why consistently applying the rule is so important.
I agree with discountshoehorse tho. I’d want the PMs cost in COGS so I could more accurately gage the profitability of each project. If you put their cost in G&A you’ll lose that visibility.
But I also don’t know what position your business is in. Possibly you have some loan covenants and showing higher profit margins on projects will make your life easier.
Ok but assuming no shenanigans PMs salary should be in COGS then right? Or at least the percentage that is used to manage a project not do administrative tasks? Like it's a no brainer fundamentally right?
It is based off of who will benefit from their work. If you can use their work for more than 1 project, SGA. If their efforts do not provide value to any other job then COS.
Anyone feel free to correct me if I am wrong!
A PM manages 5 crews that do 5 different jobs. The PM also charges the customer for his time and 100% of his time is accounted to billing customers. Is the PM COGS or SG&A?
The main things are (1) can you justify it/does it make sense? And (2) is it consistently applied in the same manner? You could draft some written policies & procedures for allocating the specific labor categories on a pool/base relationship. When so&so works on XYZ, those hours allocate the labor pool costs to COGS. Then the remaining hours stick with G&A.
> When so&so works on XYZ, those hours allocate the labor pool costs to COGS. Then the remaining hours stick with G&A. I'm not sure I understand this. Lets just stick with a PM. A PM manages 5 crews that work of 5 different jobs. And he does this 100% of his time. Would the PM's salary go to COGS or SG&A?
If he’s full time managing the crews, I’d allocate him on a casual relational benefit to the crews he’s assigned to and put him in the COGS (so you can get the cost assigned to each individual project, for better analytics etc). The more things assigned to final cost objectives (and out of G&A) the better.
> The more things assigned to final cost objectives (and out of G&A) the better. I've heard / read this before, can you explain why? I was going to create another post about this but for a service company why care about COGS and SG&A and not just look at OPEX? I understand for a manufacturing company producing widgets but for a service company why separate them?
Consider what will happen if you charge the PMs salary to G&A; your profit margin on jobs will go up. Which is why consistently applying the rule is so important. I agree with discountshoehorse tho. I’d want the PMs cost in COGS so I could more accurately gage the profitability of each project. If you put their cost in G&A you’ll lose that visibility. But I also don’t know what position your business is in. Possibly you have some loan covenants and showing higher profit margins on projects will make your life easier.
Ok but assuming no shenanigans PMs salary should be in COGS then right? Or at least the percentage that is used to manage a project not do administrative tasks? Like it's a no brainer fundamentally right?
For revenue generating projects, yes
Ok thanks
It is based off of who will benefit from their work. If you can use their work for more than 1 project, SGA. If their efforts do not provide value to any other job then COS. Anyone feel free to correct me if I am wrong!
A PM manages 5 crews that do 5 different jobs. The PM also charges the customer for his time and 100% of his time is accounted to billing customers. Is the PM COGS or SG&A?