TDC - Overhead Category
This category is a one time entry of a constant, updated annually, exported from your existing computer systems. Your existing method of calculation need only meet the TDC recommendations below. As with all labor categories, cost should be net cost (insurance, SSC, benefits, etc.), not just base salary.
The indirect expenses allocated in
your budgeting process and assigned to your resources or departments. You
typically include administration, facility, depreciation activity, and other
costs you cannot directly charge to your manufactured items. With predetermined
overhead rate, overhead costs are allocated to events as they occur. This helps
control overhead costs and measure profit.
As long as you use the other TDC metrics to calculate overhead, you can accurately determine your true fixed and variable overhead rates. Only considering production demands and labor in your day to day management decisions, is just as bad as using labor and fixed overhead rates. This method divides the total expenses by the direct labor total.
Even using such generalities as overhead cost proves to be many times the labor cost. For a large part TDC is a way to isolate potential reductions in overhead cost. Therefore to remain competitive and make smart daily decisions, one must be knowledgeable as to how your company overhead rates were derived, and if that rate covers the TDC metrics in their proper perspective.
When calculating downtime cost, we strongly encourage managers to use individual cost factors such as TDC labor categories, as opposed to a blind overhead rate.
References, to learn more...
Granted, procedures will need to be put in place and enforced to accurately track overhead associated with equipment down, but the savings will be well worth it. Although Activity-based costing (ABC), like TDC has the main advantage of its ability to provide more realistic product cost information for financial reporting purposes, use of TDC can lead to a better understanding of the strategic linkages existing between the various cost areas in the organization. It enables managers to have a holistic view of cost management.
With all these categories, it may appear to be too much to monitor and analyze. Click here to see why there is no need to sound the "Data Overload" alarm.