Understanding Overheads – Their Management and Control Available to Purchase

A key success factor for any organisation is the effective management and control of its overhead resources and costs. Direct costs usually receive close management scrutiny – especially labour costs, which typically account for only 10 per cent of total costs, compared with 40 per cent attributable to overhead costs. Similarly, capital expenditure proposals are closely scrutinised, with detailed evaluation of costs/benefits. Indirect costs, however,are often seen as inflexible and unchangeable, largely because budget information fails to reveal necessary information about them which would enable managers to decide on priorities. But by using the technique of zero‐based budgeting, overheads can be analysed and understood – thus their costs can be controlled. The methodology and implementation of zero‐based budgeting is described and its success in a UK motor‐industry company is illustrated.