Construction G&A

I don't believe G&A expenses should be allocated to construction jobs. They are not part of the construction costs since they represent the entire enterprise.

Wayne Brasch

Wayne, I agree with you, but for cost accounting you would want to allocate the G&A to the various jobs. Maybe that was what the OP was thinking.

How, then, should you allocate G&A to the job?

Wayne Brasch

Just as one would (or perhaps with some variation) for one's other overhead, no? If the G&A in question are necessary for construction job (as a whole) to be completed, then this seems as if it should be treated as overhead. I guess the theory behind this is that one must incur G&A expenses in order to do the job, so they get put in the actual overhead account. I really need to brush up on my cost accounting though, so I could be wrong.

Heh, I probably shouldn't have written this. This seems wrong now that I re-read it. I need to re-take cost accounting it appears.

That's just the thing. I don't think G&A can properly be treated as overhead.

Wayne Brasch

On Fri, 15 Jul 2005 08:54:56 -0400, in alt.accounting "Wayne Brasch" wrote in :

Short GAAP answer: You don't.

Agreed. It is an overhead from the POV of the company, it just isn't the production overhead that goes into a job cost.

One thing to remember is that _Cost Accounting_ is _not_ GAAP, though you may develop some job/construction costs/COGS using a cost accounting methodology.

As I understand it, construction pretty well follows the same method that manufacturing uses in assigning costs to either manufacturing or construction overhead or G&A. Where companies have problems (i.e. dislike the GAAP standards) is when they are the general contractor for a building they are keeping. From their POV they end up understating the value of the building compared to if they had purchased it. Of course they don't complain that they aren't expected to pay taxes on the profit of being their own general contractor.

Hours, total direct cost, sales value, what ever is reasonable and allows you to recover your total cost of building the project. G&A allocation is how they builder knows he has recovered his costs from the owner.

When I used to audit Federal contracts and negotiate overhead allocation rates I found that most accountants, thoroughly schooled in GAAP, had one heck of a time with the cost allocation rules. It is a very specialized area.

On Fri, 15 Jul 2005 16:56:02 GMT, in alt.accounting Ron Todd wrote in :

As you note, that isn't GAAP, which was the original question. Under GAAP, G&A ia a cost of the business, not of the project.

David, I agree with you. GAAP does not allow allocation of G&A as overhead or anything else except G&A-a general cost of doing business. Construction costs are direct materials, direct, labor, and overhead. That overhead consists of all construction costs that are not direct labor or direct materials.

Wayne Brasch