I'm doing a college assignment (creating a software product) in Computer Science and have been given a template for the part of the report about economics. At one moment it states the following:

To calculate overhead expenses we must multiply our overall salary by the coefficient of overhead expenses.

And later in the text it assumes that this coefficient is 1.2 without any context or explanation. This makes absolutely no sense to me. Am I missing something or is it wrong? If it is wrong, how am I supposed to calculate overhead expenses if every reasonable expense is already accounted for?


Estimating overhead expenses by applying a coefficient to salaries can make sense in some circumstances. In an organisation which is mainly office-based, overheads may consist mainly of the costs of office space, office running costs (electricity, cleaning, etc), computer equipment and support, and (depending on the local jurisdiction) payroll-related and property-related taxes. Using a fixed coefficient will always be an approximation to actual costs, but sometimes it can be a fairly good one, especially if the organisation has a fairly "flat" structure with most staff being on similar salaries and having similar office and computing needs.

In a manufacturing organisation with much capital equipment this approach would be inappropriate.


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