[hydej]

Our standard template for business quotes assumes a fixed overhead rate/unit so as the volume increase so does the total FOH. Question, should this be capped off at the budget amount for FOH and a per unit rate reduction after the volume is reached to cover the FOH?

Thanks,

[codyman144]

You still want your quote to any customer to include some estimate or allowance for overhead expenses. Well are you using this info directly to quote a price or just for estimating cost that the bid will be based on? If your just using internal estimates and you exceed your overhead costs on a per unit basis on the original estimates you need to adjust the estimates to spread the total overhead over the total number of units you now think will be produced in the year. The same way you should continually adjust your total over head expense estimates based on the actual data (expenses) you receive.

Does this help you? Let me know if you want me to elaborate on the subject.

[hydej]

OK, the quotes I am working do include FOH, but for 10 different volume scenarios from 4million to 77million. The rate per unit of .21 is staying the same for all volume scenarios which just increases your FOH in total $amount. I am asking if your total FOH budget is 4mil/year and at vol 3 you reached that amount (.21 * 20.5mil units = 4.3mil). For vol scenarios 4-10, wouldn't you reduce the per unit FOH rate down from .21 to whatever you need it to be to reach the 4mil/year?

thanks for your help...

[codyman144]

Yes if you are considering different scenarios then I would adjust the FOH rate down of each scenario based on volume.

You have to be careful here as you are unitizing fixed costs. This is a useful analysis but there is a danger if you do not think of it the right way. Always keep in mind that:

((Unit Price – Variable costs)*number of units sold)-fixed cost = profit

But I am sure you already know this. :)