For some time, Automotive News has claimed that General Motors and Ford Motor Co. make most of their profits from trucks and truck offshoots. I have no doubt that that is true as far as their cost systems produce the figures.
But because of direct experience with GM and related experience with suppliers, I suggest that since GM and Ford are in big trouble and are apparently making big managerial decisions and changes, it might be an excellent time to review all nondirect cost allocation practices.
Nothing will save a manufacturer with poor, untimely products, but I suggest that nondirect (generally material and labor excepted) cost allocation can determine prices and product promotion.
Many elements of burden are incurred more directly by specific products than are so allocated to them, ergo the most profitable product mix is not promoted.
The brilliant economist Ludwig Von Mises said: "Attempts to establish cost accounts on an impartial basis are doomed to failure. Calculating costs is a mental tool of action, the purposive design to make the best of the available means for an improvement of future conditions. It is necessarily volitional, not factual."
Today, the nondirect costs must be monumental because of ever-increasing automation. Therefore, their allocation should be re-examined constantly in order always to approach the unattainable true cost.