In Business: What’s Your Daily Overhead?

What’s Your Daily Overhead? by Jonathan Blaney The most common method of job pricing uses a fixed mark-up on direct costs. A fixed percentage is added to the direct costs to cover overhead and profit. This is the technique Paul Hentzen discusses in his article “Mark-up Basics,” in NEB’s January 1988 issue. While Hentzen has shown an annual profit for twenty-five years, this does not necessarily mean that his technique will work for everyone. Reliance on past results as a predictor of future events is risky at best. Indiscriminate use of averages can be disastrous leading to cross-product subsidies and distorted job costs. I strongly recommend another method. First, it is important to recognize that costs must be apportioned over the periods