3 Estimating and Bidding In a small project that lasted 6 mo

3. Estimating and Bidding In a small project that lasted 6 months, the Item Description Cost following list of indirect costs were 1 Total cost of permits incurred. Classify each item as a project 2 Crane r overhead or a general overhead. Also, classify each item as fixed or variable, then 4 Cost of project utilities$1,200 formulate an equation of the total indirect 5 Mobilization cost cost in the form of Y = a X + b, and explain | 7 Site preparation for work $3,800 the parameters of the equation. $4,500 $17,000 $14,000 ental 3 Office secretary 6 Batch plant on site $8,300 $12,000

Solution

* fixed overhead cost is the cost which accrues in relation to the passage of time and which within certain limits tends to be unaffected by fluctuations in the level of activity.

In the question fixed overheads are :

- office secretary

- crane rental

- batch plant on site

- cost of project utilities

* variable overhead is a cost which tends to follow the level of activity. Here the variable costs include :

- total cost of permits

- mobilisation cost

- site preparation for work

* By using the equation, y=ax + b, we can split the costs into fixed and variable.

Y = dependant variable (total cost)

X = independent variable (output)

a = variable cost per unit

b = fixed cost

Here , 60800 = 16600 x + 45000