Overhead Control Implications of Activity Costing

Accounting for overhead control is an area in need of improvment. With overhead costs rising as a proportion of manufacturing activity, with better educated businesspeople, and with computational power readily available to maintain data on a more disaggregated basis and to perform statistical analyses, better reporting is now likely to be cost beneficial and may make the difference between profitable and unprofitable operations. The continuance of the traditional standard cost approach to overhead analysis in the certified managment accountant (CMA) and certified public accountant (CPA) examinations, in textbooks and classrooms, and in accounting reports of manufacturers is a waste of time. For homogeneous data, regression and other analyses should be used to identify the underlying cost drives. For less homogeneous data, sampling may be used to establish the underlying causes for differences from cost expectations. Whenever activity-based costing is appropriate for product cost determination, the same drivers should be equally relevant for cost control applications.