This memo is in reference with the different costing principles being followed in the allocation of overhead and costing of the government and general contracts. While there is no wrong in following cost plus basis to determine the price for the government contract, there seems to be a major variation in how overheads are allocated. Since we follow traditional method of cost allocation, I have observed that there is a major variation in the overhead allocation which puts extra pressure on our profil margins and what we quote. Wrong costing and consequently wrong pricing can have unreversing effects like loss of market share, non-renewal of contracts because of lower price of competetitors among others. As a Management Accountant, I suggest you to review the overhead allocation sheet attached with this memo. I would also advise to switch to ABC method of overhead allocation.
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