Overhead Allocation and Incentives for Cost Minimization in Defense Procurement

by William Rogerson


Download eBook for Free

FormatFile SizeNotes
PDF file 4.6 MB

Use Adobe Acrobat Reader version 10 or higher for the best experience.


Purchase Print Copy

 FormatList Price Price
Add to Cart Paperback118 pages $15.00 $12.00 20% Web Discount

Firms directly charge only a small fraction of their costs and allocate the rest across products in proportion to direct labor use. Such a practice creates a problem for defense procurement. This report concludes that firms' current overhead allocation methods create incentives for firms to systematically overuse direct labor on contracts where they believe that price will be fairly responsive to accounting costs and to underuse direct labor on contracts where they believe that price will be fairly unresponsive to those costs.

This report is part of the RAND Corporation Report series. The report was a product of the RAND Corporation from 1948 to 1993 that represented the principal publication documenting and transmitting RAND's major research findings and final research.

This document and trademark(s) contained herein are protected by law. This representation of RAND intellectual property is provided for noncommercial use only. Unauthorized posting of this publication online is prohibited; linking directly to this product page is encouraged. Permission is required from RAND to reproduce, or reuse in another form, any of its research documents for commercial purposes. For information on reprint and reuse permissions, please visit www.rand.org/pubs/permissions.

The RAND Corporation is a nonprofit institution that helps improve policy and decisionmaking through research and analysis. RAND's publications do not necessarily reflect the opinions of its research clients and sponsors.