Abstract
ONE of the most difficult tasks for a business management, whether the concern be large or small, is the adequate control of overhead costs. The usual classification of overhead expenses into salaries, rent, rates and taxes, legal expenses or the like is quite inadequate, because responsibilities cannot be tied up with the expenditure on these items, and generally there is no method of measuring the value obtained from the expenditure. In a valuable and thought-provoking report entitled "The Control of Overheads“(Mansfield House, 376 Strand, W.C.2. 5s.), prepared by a committee of the Management Research Groups, the subject is examined with the aim of securing effective control through localization of responsibility. To secure this, the report recommends the division of all overhead expenditure into a series of functions or services, each of which would be in charge of one person, thus permitting the fixation of responsibility. In order to assess the value of the work done by each section of the organization, its cost must be related to the volume of the work done and to the value or quality of that work; and for this purpose various ratios or 'yard sticks' are suggested in the report. The essential requirement is that responsibility for functional costs should be invested in persons, and to ensure that personnel shall cover each of the functions, it is most desirable that an organization chart should be constructed. Budgetary control is an excellent method of reviewing expenses in advance and making comparisons immediately results are available. Costs, however, may be rendered useless as a means of measuring efficiency because of plant working under capacity owing to insufficiency of orders. The report, therefore, recommends that the costs be 'purified' of the cost of idle plant by the abstracting and debiting of all such expenses to a non-productive account, which is carried straight on the trading account.
Article PDF
Rights and permissions
About this article
Cite this article
Overhead Costs in Business Management. Nature 140, 354 (1937). https://doi.org/10.1038/140354a0
Issue Date:
DOI: https://doi.org/10.1038/140354a0