PCM Equations Flashcards
Utilization Rate
AKA
Chargeable Ratio
total direct labor hours / total labor hours
OR
billed hours / total hours worked
Overhead Rate
total indirect expense / total direct labor cost
(includes indirect labor)
OR
total overhead costs / direct labor cost
(office expense + indirect labor)
Direct Labor Cost
employee salary x utilization rate
Indirect Labor Cost
employee salary x inverse of utilization rate
OR
employee salary - direct labor
Net Service Revenue
Gross Fee - Consultant Fee
GF- $450
CF-$100
450-100= 350 NSR = $350
Profit
Net Service Revenue - Direct Expense - Overhead
Break Even Multiplier
(Direct Labor + Overhead) / Direct Labor
OH-$220
DL-100
(100+220) / 100
320/100 = 3.2
Break Even Multiplier is 3.2
Overhead Multiplier
Overhead / Direct Labor
OH-$220
DL-$100
220/100 = 2.2
Overhead Multiplier is 2.2
Effective Multiplier
Net Service Revenue / Direct Labor
NSR-$350
DL-$100
350 /100 = 3.5
Effective Multiplier 3.5
OR
total revenue / direct labor cost
(DLC x 3)
Revenue Factor
one of the best measurements of a firm’s productivity, is calculated by multiplying the direct labor multiplier from a firm’s achieved hourly rates by the utilization rate based on payroll dollars
Return on Overhead
Using ROO (return on overhead) can provide a measurement of accountability for an office. Return on overhead is calculated by dividing the profits contributed by a branch office by the amount of overhead expense incurred at that office.
