job cost

Construction Overhead Allocation: Direct Cost, Labor Hours, Contract Value, and Why the Choice Affects Every Job's Profitability

Overhead allocation is the process of spreading indirect costs — office rent, executive salaries, general insurance, accounting — across projects. The method chosen (percentage of direct cost, labor hours, contract value, activity-based) dramatically affects how each project's profitability looks. A project that appears profitable under one allocation method can appear unprofitable under another. For contractors, choosing the right method and applying it consistently is the difference between meaningful project-level performance analysis and misleading numbers.