Rate Development
dual-overhead method · FY2026Two recovery rates per division — a low one on materials & subcontracts, a high one on labor — because labor drives most overhead. Derived from the annual budget; recalculate quarterly on a rolling 12-month budget. The single-rate column is the crude markup, shown for contrast.
| Division | M&S / Labor | X factor | Rate on M&S | Rate on Labor | Single-rate |
|---|---|---|---|---|---|
| Gas Turbine Overhaul | 0.75 | 2.30 | 12.19% | 28.00% | 20.55% |
| Steam Turbine Overhaul | 0.98 | 2.45 | 11.78% | 28.83% | 19.81% |
| Field Service | 0.32 | 2.02 | 15.34% | 30.95% | 26.15% |
| IC&E | 2.92 | 3.73 | 9.40% | 35.09% | 15.63% |
| Consolidated | 0.82 | 2.34 | 12.39% | 29.03% | 20.85% |
The four knobs (consolidated, FY2026)
Backlogset in operations
Gross profit$18,500,000
Overhead$12,200,000
Target profit$7,300,000
How the rates are built
- M&S / Labor ratio from the budgeted P&L.
- X = e^(2.1 − 1.5·0.8^M&S/L) — weights overhead toward labor.
- Rate on M&S = Overhead / (X·Labor + M&S).
- Rate on Labor = X · that rate. Apply both in Job Pricing.
Rates recover overhead only (no profit). Add profit at the job level. Recalculate quarterly or when volume/overhead shifts materially.