Overhead Costs
Authors
Carroll spent a chapter in justifying the activities that are classified as overhead in traditional cost accounting terminology. In activity based costing there are called as support functions. They are activities essential for the production and servicing the product and the customer.
Carroll argued that dollars go up when you improve productivity of direct labor as well as indirect labor. A firm spends more for production control, engineering, supervision, instruction or training, and industrial engineering to realize economies in manufacturing cost.
Carroll questions, "Why deliberately raise the overhead?"
He answers, well it's good business. The good part is that it will pay for itself.
But we need to emphasize that it will not pay for itself unless every proposal made by these staff specialists passes an engineering economic evaluation. Every engineer needs to be trained in engineering economic evaluation and they in the first instance have to make only those proposals that promise an economic profit to the company.
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Analysis of Overhead
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