How Do You Calculate Burden Rate?

[wjohn13]

The company I work for uses JobBoss2. We don't use the system to calculate pricing for parts, but instead use an offline excel sheet we have developed over the years. If I enter a new part in the system using all the factors I have on my excel sheet, JobBoss will give me a sell price within a couple of pennies of what excel calculates it to be. This is great, but what I am looking for from JobBoss is to give me the cost per part. The system uses only a couple of things to do this. It uses an Hourly Burden Rate and an Average Hourly Labor Rate. The Labor rate is easy enough to come up with, but the Buren Rate is the one I am struggling with. How do you calculate what your total Burden is? Once I have that number, we can figure out how to turn it in to an hourly number. I am just curious what other shops do to figure this out. Any input anyone can offer would be greatly appreciated. Our shop is decent size with about 43 cnc machines running two shifts if that info helps.

 

[Booze Daily]

If you sent the shop home for a month what would it cost to keep the doors open? Rent/mortgage, payroll, utilities, indirect labor…. That stuff .

 

[Freedommachine]

Ok, I'll ask... What is a Burden rate and how is it used? Is everyone doing this?

 

[Stirling]

The company I work for uses JobBoss2. We don't use the system to calculate pricing for parts, but instead use an offline excel sheet we have developed over the years. If I enter a new part in the system using all the factors I have on my excel sheet, JobBoss will give me a sell price within a couple of pennies of what excel calculates it to be. This is great, but what I am looking for from JobBoss is to give me the cost per part. The system uses only a couple of things to do this. It uses an Hourly Burden Rate and an Average Hourly Labor Rate. The Labor rate is easy enough to come up with, but the Buren Rate is the one I am struggling with. How do you calculate what your total Burden is? Once I have that number, we can figure out how to turn it in to an hourly number. I am just curious what other shops do to figure this out. Any input anyone can offer would be greatly appreciated. Our shop is decent size with about 43 cnc machines running two shifts if that info helps.

43 machines and no set/known burden rate? Or does upper management know it amd could help out.
Someone must know what the monthly bills are before wages and consumables

 

[Booze Daily]

Ok, I'll ask... What is a Burden rate and how is it used? Is everyone doing this?

Yes you do it whether you know it or not. What’s your shop rate? What’s your personal pay rate?

In a nutshell, the difference is the burden rate

Some shops break it down by machine. Bridgeport rate is cheaper than Swiss rate or 5 axis rate, etc.

 

[Freedommachine]

So, per job; shop rate - operator rate = burden rate? That's interesting.

You mentioned "cost to keep shop open" - I assume all of those preplanned expenses factor into some sort of baseline burden rate applied to all machines then?

 

[Booze Daily]

Yeah. Burden is everything you have to pay each month even if you don’t run any machines.
Rent/mortgage, utilities, medical, uniforms, machine payments, payroll for indirect labor (office staff, QC guy, etc), 1/12 of business insurance, etc.

As a one man shop I think in terms of “break even”. I have to ship $8K/month to break even. That’s $50/hr for every hour I spend in the building whether I’m making parts or quoting, cleaning, on the phone, etc

 

[Ox]

I think Freedom is fishing?


--------------

Think Snow Eh!
Ox

 

[CarbideCarGuy]

Yeah. Burden is everything you have to pay each month even if you don’t run any machines.
Rent/mortgage, utilities, medical, uniforms, machine payments, payroll for indirect labor (office staff, QC guy, etc), 1/12 of business insurance, etc.

As a one man shop I think in terms of “break even”. I have to ship $8K/month to break even. That’s $50/hr for every hour I spend in the building whether I’m making parts or quoting, cleaning, on the phone, etc

Is the electricity bill part of burden rate? Because if the machines are not running, then far less electricity is being used.
Is operating rate different from burden rate? Asking for a friend.

 

[Ox]

Burdon is on top:





Erick Burdon:

Beast of Burdon:

---------------------

Hope this helps top Clear up any Uncertainties!
Ox

 

[CarbideCarGuy]

Burdon is on top:
View attachment 396631
Erick Burdon:

Beast of Burdon:

---------------------
Hope this helps top Clear up any Uncertainties!
Ox

Thank goodness you posted that. It all makes sense now. The donkey put it into perspective, the rest was just a bonus. I wish there was a thumbs down reaction so I can thumbs down everyone's responses but this one.

 

[Ox]

Glad that I could be of service (!) except .. those aint donkeys....


Also - the calculation issue that you asked - using the first pic as an example, the equazsion would be:

1 yak + 1 yak = 2 yaks

So, your answer for problem #1 is "2".
"2" being the rate required to cover all of the burdon.

So, for the case in your shop, you would add everything together that goes on top of the yaks.
Then figger out how many yaks it takes to carry that load.

And as you have asked, yes, the yaks will need more feed and water when working hard, but will still require a maintenance diet in the off time as well. No free rides this side of the grave.




------------------

Think Snow Eh!
Ox

 

[Gearclash]

If you sent the shop home for a month what would it cost to keep the doors open? Rent/mortgage, payroll, utilities, indirect labor…. That stuff .

Known as “fixed costs” in business class. Costs that have to paid paid even with zero production. Mortgage on the shop building would be an example. “Variable costs” are expenses that vary directly with production output. Say your finished product is made of 6061 bar stock. That would be a variable cost.

 

[cmsi_kpg333]

Burden aka "Indirect Overhead" = Revenue - COGS - Direct Overhead.

How are you calculating Direct Labor? If you are just utilizing their standard pay rate you are missing $$. You should use a Fully Burdened Labor rate. You have PTO, Health Insurance (if you pay for it), payroll taxes, over time (if applicable), 401k match, etc. I promise you all of that added up can turn $25 an hour to $35 an hour. Then your COGS is off $10 for every hour thus skewing your Gross Profit numbers.

Direct Overhead can be anything tied direct to a machine. It is still part of the manufacturing process. Machine payments, electricity machine uses, floor space of rent costs, a supervisors payroll tied to a specific department, maintenance costs, consumables for the machine, etc.

We use Proshop ERP and the software literally calculates our Direct and Indirect Overhead for us. The system does not miss a penny. So we know every month what our Direct Overhead per Hour rate was and Indirect Rate per hour. And yes that number can vary month to month.

So on the estimating side we are highly accurate.

 

[ontariocanuck]

JobBoss will give me a sell price within a couple of pennies of what excel calculates it to be.

The Burden is already in your JobBoss. Sounds like you don't have the level of clearance to see what your burden is.

 

[CarbideBob]

 

[machinistrrt]

I think Freedom is fishing?


Freedom is a township nearby me. It's on the map.

 

[machinistrrt]

So on the estimating side we are highly accurate.

Maybe so. But I bet your banker has a sharper pencil.

 

[wjohn13]

The Burden is already in your JobBoss. Sounds like you don't have the level of clearance to see what your burden is.

I'm the only one with 100% access to all levels in JobBoss. The system does not generate the Burden Rate, you have to input it. I am just not sure ours is being calculated properly, so this is the reason I am asking. I feel is should be fairly easy to come up with by using the actual numbers from our financials, but I don't have that access. I appreciate all the input my question has received. it gives me something to take to my boss so we can work on this together.

 

[wjohn13]

So, per job; shop rate - operator rate = burden rate? That's interesting.

You mentioned "cost to keep shop open" - I assume all of those preplanned expenses factor into some sort of baseline burden rate applied to all machines then?

Your shop rate has your profit in it, so you would have to: Shop Rate-Profit %-Operator Rate should equal your burden. Does that make sense?