Question

What is the burden rate? What is the direct rate? What are the most common burden rates? What does it mean when a burden rate is empirical? Provide the full burden rate for a labor resource at an hourly rate of 43.25 given a Direct labor overhead rate of 80%, general and Administrative Rate of 15%, Profit Rate of 25%, and a Fee rate of 3%? What is the multiplying Factor? Make sure you define all terms and provide all calculation

Answer 1

The direct rate is the rate that shows a resource’s costs per unit, for example labor cost of $10/hour, while the burden rate is the indirect rate associated to the use of that resource. The burden rate represents all associated costs needed to make certain resource available, and is used to define what the total project cost is going to be. It’s said to be empirical or compounded rate because it is based on observation rather than the theory; it is determined doing step by step calculations to determine total cost of the project. The most common burden rates are:

· Direct Labor Overhead (DLO), which includes payroll taxes, worker comps, benefits, inventory-manufacturing, and facilities costs, etc.

· General and Administrative (G&A), which includes overhead associated to line management and infrastructure

· Profit

· Fee in terms of incentive fee, which typically goes one half to the company and the other half to the employees’ bonuses; the customer is the one who decides on the fees, and this decision is usually stated in the contract.

Burden Rates
Type	Rate	Total	Legend
Labor	$43.25	$43.25	$43.25 is Direct Labor Rate
DLO(Direct Labor Overhead)	80%	$77.85	Total Labor X DLO Rate + Total Labor
G&A(General and Administrative)	15%	$89.53	Total DLO X G&A Rate + Total DLO
Profit	25%	$111.91	Total G&A X Profit Rate + Total G&A
Fee	3%	$115.27	Total Profit X Fee Rate + Total Profit

To calculate Fully Burdened Rate, we first need to define what is the direct cost for the labor, and what are the rates of Direct Labor Overhead (DLO), General and Administrative (G&A), Profit and Fee. After we have all this information we can proceed to calculations. We determine Total Direct Labor Overhead by multiplying Direct Labor by DLO rate and adding Total Labor; next we determine Total General and Administrative overhead by multiplying Total DLO by G&A rate and adding Total DLO; profit we calculate by multiplying Total G&A by Profit rate and adding Total G&A; and lastly, we calculate the fee by multiplying Total Profit by Fee rate and adding Total Profit. Doing all these calculations, we are able to determine the fully burdened rate, which is $115.27.