- 91 -
sold (which may or may not be in the period such overhead is
incurred). See id. at 293.
Professor Belkaoui states that the central issue affecting
income determination is whether fixed manufacturing costs are
product or period costs. Id. at 299. He concludes: “From the
theoretical point of view, both methods [direct costing and
absorption] appear to be internally consistent. * * * From the
practical point of view as well, both methods have merit. Thus,
there is no absolute answer to whether a cost is a product or a
period cost.” Id. at 305.
For financial accounting purposes, the treatment of overhead
starts with the recognition that overhead costs are indirect and,
thus, in need of allocation, and it proceeds from there to
allocate such expenses pursuant to various standards, practices,
and judgments, in order to serve management’s (and other’s) needs
for information (including income determination). See Kohler’s
Dictionary for Accountants 366–370 (Cooper & Ijiri eds., 6th ed.
1983).
Overhead presents no different challenge for Federal income
tax purposes. It is, thus, paradoxical that the majority’s
approach should be that all inquiry ends once it is determined
that an overhead cost is only indirectly related to the purchase
of a capital asset.
Page: Previous 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 100 NextLast modified: May 25, 2011