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Evaluating Suppliers’ Overhead Allocations
Author(s) -
Landeros Robert,
Reck Robert F.,
Griggs Frank T.
Publication year - 1994
Publication title -
international journal of purchasing and materials management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.75
H-Index - 92
eISSN - 1745-493X
pISSN - 1055-6001
DOI - 10.1111/j.1745-493x.1994.tb00188.x
Subject(s) - production (economics) , overhead (engineering) , indirect costs , computer science , cost allocation , mechanism (biology) , operations research , risk analysis (engineering) , operations management , business , industrial organization , environmental economics , microeconomics , economics , engineering , accounting , operating system , philosophy , epistemology
The practice of relying solely on a supplier's direct labor as the basis for allocating indirect costs may be questionable in many cases, as suppliers continue to automate their production systems. In this article, regression analysis is presented as a technique for evaluating the appropriateness of the indirect cost allocation mechanism used by suppliers. Detailed information about a supplier's production activities is used to systematically evaluate the indirect cost drivers, allocation rates, and their appropriateness. This analytical tool can also be used to provide information for the construction of a new indirect cost allocation mechanism for counterproposals.