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About distributing based on hours

This method allows you to calculate direct personnel expense (DPE) and overhead costs based on direct labor hours from your Expense and Other Income accounts for a more precise calculation than the fixed-percentages method.

Because hours vary over time, Ajera temporarily uses fixed percentages to represent DPE and overhead costs on project reports.

Ajera replaces the fixed-percentage amounts with the hours-based amounts when you distribute DPE/overhead costs.

DPE

When you distribute DPE based on hours, Ajera performs the following calculations.

Calculating DPE percent

For each project transaction that occurs during the date range specified in the Distribute DPE/Overhead window, it:

Divides the hours for the transaction by the total number of hours for all direct labor transactions in the date range, based on transaction date.

This determines the percentage of the total hours for which the transaction is responsible.

Multiplies this percent by the total cost of all general ledger entries in the date range for accounts with project distribution of DPE selected.

This determines the DPE cost for the transaction.

Divides the DPE cost by the cost of the project transaction.

This determines the DPE percent of the transaction.

For example, if the hours of one project transaction is 2, and the hours of all the transactions is 10, the transaction is responsible for this percentage of the total time:

2 / 10 = 20%

If the DPE cost for all the general ledger entries is $75, then the DPE cost for the one transaction is:

20% x $75 = $15

The DPE percent of the $60 transaction cost is:

$15 / $60 = 25%

Calculating project cost with DPE

The DPE amount added to your project labor cost is calculated as follows:

(Cost Amount x DPE Percent) + Cost Amount

For example, if the cost amount is $60 and DPE percent is 25%, then:

($60 x 25%) + $60 = $75

Overhead

When you distribute overhead based on hours, Ajera performs similar calculations.

Calculating overhead percent

For each project transaction that occurs during the date range specified in the Distribute DPE/Overhead window, it:

Divides the hours of the transaction by the total hours of all direct labor transactions in the date range, based on transaction date.

This determines the percentage of the total hours for which the transaction is responsible.

Multiplies this percent by the total cost of all general ledger entries in the date range for accounts with project distribution of Overhead selected.

This determines the overhead cost for the transaction.

Divides the overhead cost by the cost of the project transaction.

This determines the overhead percent of the transaction.

For example, if the hours of one project transaction is 2, and the hours of all the transactions is 10, the transaction is responsible for this percentage of the total cost:

2 / 10 = 20%

If the overhead cost for all the general ledger entries is $350, then the overhead cost for the one transaction is:

20% x $350 = $70

The overhead percent for the $60 transaction is:

$70 / $60 = 116.67%

Calculating project cost with overhead

The overhead amount added to your project labor cost is calculated as follows:

(Cost Amount x Overhead Percent) + Cost Amount

For example, if the cost is $60 and overhead percent is 116.67%, then:

($60 x 116.67%) + $60 = $130

Calculating burdened cost

Burdened project cost is calculated as follows:

Cost Amount + DPE Amount + Project Cost with Overhead

For example, if the cost amount is $60, the DPE amount is $15, and the project cost with overhead is $130, then burdened project cost is:

$60+ $15 + $130 = $205