The Multiple Overhead Recovery System (MORS) will automatically calculate how much of your Overhead will be recovered from Labor, based on the percentages you set to recover from Equipment, Materials and Subcontractors.
In the example below, we will be working with a company with the following Budget and OH Markups:
*NOTE: your markup percentages may not add up to 100% because the recovery is based on the percentage markup on your total spend on Labor, Equipment, Material and Subcontractors in proportion to your total Overhead spend.
How the Labor markup is calculated is as follows:
Calculating the $ recovered from your Equipment, Materials and Subs, is done by multiplying the total spend of each area by their respective % Markup, and then summing the totals together. Based on our example of 25% markup for Equipment, 10% markup for Materials, and 5% markup for Subs, the total $ recovered will look like this:
- EQUIPMENT = $150,000 x 25% = $37,500
- MATERIALS = $200,000 x 10% = $20,000
- SUBCONTRACTING = $20,000 x 5% = $1,000
- TOTAL RECOVERED = $58,500
Once the Total Recovered dollars have been calculated for Equip/Materials/Subs, the remaining dollars will be recovered via your Labor Markup. How the Labor Markup is calculated below:
Since these values are based off of your 'forecasted' Sales and Costs (Labor, Materials, Equipment, Subs, Other, Overhead), it must be noted that any Overhead Recovery method is contingent on your actual figures being on par with your Budget.