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Textron Inc. Message Board

  • ggekko1243 ggekko1243 Mar 5, 2013 1:01 PM Flag

    "Green Eyeshades" and Overhead Allocations ...

    Just a little "thought-piece" re the recent Time article on medical costs ... remember the $800 hammer and $700 toilet seat cover issues with defense contracts in the early '80's? ... I did FP&A work with Avco's defense units then and discovered little old accountants with 5-foot long taped-together ledger-paper spreadsheets doing o/h allocations by hand ... they allocated using rates ("we've always used these") applied to bills of materials ... they blindly accepted whatever they calculated and input them to computerized standard costing models ... what they missed was any "sanity-test" ... they were vastly overloading items that everyone knows like disposible tools and underloading items that no one in public knows like titanium blades, discs and vanes ... even if "editorial license" is needed, keep the hammers cost reasonable and offset with a higher cost for a blade ... NO ONE will notice ... needless to say we made changes ...
    I bet the same is true with medical supplies and devices ... someone should have reallocated cost away from $70 gauze pads to MRI components ... sure, overall margins will be scutinized and there certainly is abuse to be addressed but why exacerbate it with $20 tylenols??

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