Discussion: View Thread

Indirect Accounts

  • 1.  Indirect Accounts

    Posted 01-29-2020 12:22
    We are considering doing away with indirect cost accounts and posting all costs either strictly to a job or a G&A account.  Are indirect accounts standard practice in the construction industry?  I come from a development background which is why I ask.  I appreciate your thoughts on the matter.

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    Janell Wilmers
    Senior Controller
    MFRG-ICON Construction
    Scottsdale AZ
    (480) 505-2980
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  • 2.  RE: Indirect Accounts

    Posted 01-31-2020 11:49
    Ask 10 contractors and you will get 10 different answers to the question of how they handle indirect costs. Short answer to your question is that indirect costs are common. My firm does have indirect costs that are not fully allocated to projects. One reason we do not allocate all indirect costs is that some of our contracts are cost plus fee contracts, and the contract dictates what is allowed to be billed, and exclude some indirect costs. Therefore if we allocated all of our indirects to projects, we would be allocating cost to jobs that we are not allowed to bill for and it could lead to confusion, like mis billing the client, or why are we not achieving our contract fee. Another reason we do not allocate all indirect costs is that by definition indirect costs are not specifically identifiable to a single project, therefore allocation would be based on an arbitrary basis. There is no single right answer for your question. One could just as easily make a case for allocating all indirect costs to projects.

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    David Miller CCIFP, CRIS, CTP
    Cfo / Treasurer
    Jokake Construction Services, Inc.
    Phoenix AZ
    (602) 224-4573
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  • 3.  RE: Indirect Accounts

    Posted 02-04-2020 23:43
    I think it is generally considered more ideal to direct cost every job cost if possible; indirect costs are the result of either the inability to determine an appropriate job for a cost or a poor cost/benefit analysis related to the effort required to directly cost a certain expense.  In our company, the only reason indirect costs exist is because it is either too time-consuming to have certain costs coded to a job at the point of entry into the accounting system or too difficult to track which jobs the costs should apply to as they are incurred.

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    Brandon Porter
    CFO
    Overley's Services
    Gilbert AZ
    (480) 650-5552
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  • 4.  RE: Indirect Accounts

    Posted 02-05-2020 10:34

    We use Direct for most and cost them to a job.  And our G&A are generally used for any expense that the business would have if you never had a job – items such as Rent, Utilities, Admin Labor, etc.

     

    Carrie Stone, Vice-President of Finance

     

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