<p>Estimating overhead expenses by applying a coefficient to salaries can make sense in some circumstances.  In an organisation which is mainly office-based, overheads may consist mainly of the costs of office space, office running costs (electricity, cleaning, etc), computer equipment and support, and (depending on the local jurisdiction) payroll-related and property-related taxes. Using a fixed coefficient will always be an approximation to actual costs, but sometimes it can be a fairly good one, especially if the organisation has a fairly "flat" structure with most staff being on similar salaries and having similar office and computing needs.</p>

<p>In a manufacturing organisation with much capital equipment this approach would be inappropriate. </p>

CC BY-SA 4.0
2019-06-07T09:54:40.593Z
2019-06-07T09:54:40.593Z
Adam Bailey
<p>I'm doing a college assignment (creating a software product) in Computer Science and have been given a template for the part of the report about economics. At one moment it states the following:</p>

<p><code>To calculate overhead expenses we must multiply our overall salary by the coefficient of overhead expenses.</code></p>

<p>And later in the text it assumes that this coefficient is 1.2 without any context or explanation. This makes absolutely no sense to me. Am I missing something or is it wrong? If it is wrong, how am I supposed to calculate overhead expenses if every reasonable expense is already accounted for?</p>

<labor-economics>
How are you supposed to calculate overhead expenses?
Korbiwe
# How are you supposed to calculate overhead expenses?

(Asked by: username_0 on 2019-06-06)

I'm doing a college assignment (creating a software product) in Computer Science and have been given a template for the part of the report about economics. At one moment it states the following:

`To calculate overhead expenses we must multiply our overall salary by the coefficient of overhead expenses.`

And later in the text it assumes that this coefficient is 1.2 without any context or explanation. This makes absolutely no sense to me. Am I missing something or is it wrong? If it is wrong, how am I supposed to calculate overhead expenses if every reasonable expense is already accounted for?

**Tags:** labor-economics


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## 1 answers

### Answer by username_1 on 2019-06-07. Score: 1

Estimating overhead expenses by applying a coefficient to salaries can make sense in some circumstances. In an organisation which is mainly office-based, overheads may consist mainly of the costs of office space, office running costs (electricity, cleaning, etc), computer equipment and support, and (depending on the local jurisdiction) payroll-related and property-related taxes. Using a fixed coefficient will always be an approximation to actual costs, but sometimes it can be a fairly good one, especially if the organisation has a fairly "flat" structure with most staff being on similar salaries and having similar office and computing needs.

In a manufacturing organisation with much capital equipment this approach would be inappropriate.


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