CORPORATIONS ARE REQUIRED BY GENERALLY accepted accounting principles to allocate (mathematically distribute or apportion) their overhead expenses to individual profit centers when they prepare information for the Internal Revenue Service (absorption accounting in LIFO/FIFO calculations), the Securities and Exchange Commission, and certain industry-specific regulatory authorities. There are numerous criteria that may be used as the basis for this calculation, including revenue, direct cost, units produced, direct labor dollars or hours, and square footage consumed. It is presumed, incorrectly, that the methodology that must be used for regulatory compliance is also appropriate for intelligent management decision making. Nothing could be farther from the truth.

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