Typical List of Overhead Expenses in a Construction Business

Overhead expenses, combined with direct material and direct labor expenses, form the three components to the cost of any product or service that a small business might offer. While construction companies do not usually produce their products in a factory, these companies still incur the same three types of cost as they complete construction projects. Your overhead costs represent any cost of manufacturing that is not a traceable materials or labor cost. By understanding typical overhead expenses in a construction business, you can make sure that you account for the overhead costs at your construction company appropriately.

One of the largest overhead expenses for construction businesses is indirect labor. Indirect labor costs consist of wages and benefits paid to workers who are not directly involved in construction of specific jobs but are still involved in manufacturing the company's main products. For a small construction business, these costs usually relate to job supervisors and construction management. In addition, maintenance and clean-up workers that travel from job site to job site might also be considered to be indirect labor costs.

Construction materials that are used to complete jobs but are not easily traceable are known as indirect materials. Common indirect materials used in construction include nails, staples, adhesives, lubricants and welding supplies. While some of these items can be able to be traced to individuals jobs and accounted for on an individualized basis, it usually isn't cost effective to do so. For example, while a company could theoretically account for every screw used to construct a mobile home, the time and money spent to do so would outweigh any benefit.

Small construction companies also incur common fixed manufacturing overhead costs. These are costs related to manufacturing that do not vary with the level of the company's output. Fixed manufacturing costs may include: tool rental, depreciation on construction equipment, insurance premiums, licensing fees and safety equipment. Small-business owners should realized that because these costs are fixed, when they are analyzed on a per-unit basis, the meaning of these costs becomes distorted. For example, if a company pays $1,000 per month in insurance and completes four projects during the month, the cost per job is $250. However, if the company completes only two projects, the cost per job is $500. In the latter case, even though at first glance it could appear so, the insurance did not get more expensive.

Variable overhead costs are overhead costs that vary in proportion to the amount of production. For a small construction company, variable overhead mostly relates to hourly indirect labor costs, supplies and utilities. Common variable overhead utilities costs include electricity, gas and telecommunications expenses. In addition, construction companies that demolish existing structures or deal with hazardous wastes may incur significant variable overhead costs in the form of disposal fees and environmental remediation costs.