017-095 - Charging For Internal Labour

To ensure an adequate calculation of the profit or loss of operating a particular business department, its important that all of the costs relative to the operation of a particular department/section are recorded as expenses for the department/section that has utilised the services and that the department/service which has supplied those services receives a credit for having supplied those services.

This concept leads to the principle of charging for internal labour.

For example, if a business has established a Maintenance Section, which is available to attend to general routine maintenance in other departments/sections of the business, then its recommended that a separate cost centre for "Maintenance Section" be established and that cost centre should then charge the other departments/sections for the services e.g. internal labour that has been rendered to those other departments/sections.

This paper analyses that concept, under the following headings:

• Maintenance Profit Centre
• Cost Allocation
• Labour Classification
• Maintenance Employee Productivity
• Labour Oncosts (and this includes a full review of the oncosts that would be charged to maintenance type employees)
• Calculation Of Internal Charge Out Rate
• Charging For Internal Work
• Key Performance Indications To Be Monitored

and includes a Worksheet For The Calculation Of Internal Charge Out Rates to be used in businesses.