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The New Zealand Railways Magazine, Volume 6, Issue 5 (November 2, 1931)

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“My impressions from the very loose way in which the term ‘overhead’ is used by all and sundry, is that there are many people who know very little about it. Indeed, I feel that the subject of ‘overhead expenses’ might be discussed to advantage for the information of both the public and our own staff, because it is a most misunderstood subject,” says Mr. E. T. Spidy, who proceeds thus to discuss the question.

The popular impression of “overhead” would appear to be that it represents all Foremen, Head Office, Clerks and capital expenses, and any idea that wages of Workshop men form a substantial part of overhead expense, is usually not to be found at all. This popular impression is by no means correct, and it is to remove it that I give the details and figures for the current year, for our four main Workshops at Otahuhu, Hutt, Addington and Hillside. These figures are the averages to date (that is for six four-weekly periods), and the amounts shown against each overhead expense item are the percentages of the total expense of the Workshops.

This is the only way to get a true perspective of the position, because, included in the overhead expenses are items for labour and material, and these are also included in the total expenses.

Administration Expense: Percentage of total expense.
Includes salaries of all supervisors at the Workshops, salaries of clerical staff, office expenses for cleaning, lighting, stationery, telephones and sundries 4.92
Depreciation, Insurance and Interest: Charges to this item are our financial expenses in connection with the capital outlay for all buildings, machinery and equipment, and is the only item in the list in which there are no salaries or wages included. In other words this is the “rent” 9.44
Apprentices: This covers the expense of leave on pay, sick pay, lodging allowances, and attendance at instruction classes, and constitutes wages only .51
Repairs and Maintenance of Buildings: This item includes all expenses in connection with the maintenance of buildings (including painting), tracks, sewers, etc. .45
Power House Expenses: This covers the expense of attendance and repairs to air compressors, hydraulic plant, electrical generators and equipment in the Power House .19
Maintenance of Plant: This item includes repairs to overhead cranes, furnaces, machinery and belting, the maintenance and replacement of dies, jigs, fixtures, etc; repairs to all portable, pneumatic and electric tools, the supply and maintenance of small hand tools, such as files, chisels, etc.; the maintenance and repair of electric motors and switch gear; maintenance page 14 of electric light equipment; maintenance of tools used on machines; repairs to shop boilers; the maintenance expense of all shop pipe lines for air, gas, oil, steam, water and hydraulic systems 3.91
Shop Expenses: Includes the cost of coal and coke, cutting compounds, cleaning and sweeping the shops, cleaning machines, the purchase of gas, electric current, fuel oil, lubricating oil, water, the cost of issuing tools, jigs and blue prints, the making and altering of foundry patterns, repairs to electric truck skips, the cost of working the shop boilers and operating all overhead travelling cranes 5.46
Yard Expenses: Includes the cost of operating steam cranes, shunting locomotives, electric trucks, mobile cranes and electric traversers, also the cost of repairs to the same, shunters' wages, and charges for engines hired for shunting. The expense of cleaning the yard and roadways also is included in this item .48
General Expenses: This item includes holiday pay for all men in Division II., the cost of watching shops, Departmental expense of men absent at military camps, workers' compensation expense, ambulance expense, and miscellaneous small expenses 3.03
Total 28.39%

From the foregoing it will be noted that the percentage of overhead to the total expense is 28.39 per cent. It may be further noted that, with the exception of the first two items, which cover supervision expense, clerical expense, and fixed charges for the plant and buildings, all the other items include wages of men in Division II. These wages of the men charged to overhead expense are either for doing work which is as essential to the output of the Workshops as is the work that is charged direct to output, or else they are the cost to the Department of privileges, concessions and working conditions that have been granted from time to time.

In viewing the overhead expense subdivisions aforementioned, the percentages of wages of Division II. employees in each of these subdivisions are:—

Apprentice expense 100 per cent.
Building maintenance 61 “ ”
Power House expense 79 “ ”
Maintenance of plant 62 “ ”
Shop expense 26 “ ”
Yard expense 75 “ ”
General expense 53 “ ”

Now, having detailed what our overhead expense, consists of, and what it amounts to, the question of how this expense is to be distributed over the output of the Workshops may be considered. This can be done in a number of different ways, according to the requirements of the management.

In some Workshops it is prorated on to the output on the basis of the number of labour-hours that are charged direct to the output. Another method is to distribute the “overhead” on the basis of the value of material charged direct to the output. Still another method is to charge it proportionately to the combined value of labour and material charged direct to the output. Other methods are to distribute on the basis of the whole factory output as a unit; or by separate departments in the Workshops; or by production centres in departments of the Workshops; or even by machine-hour or man-hour production units.

I merely mention these methods, which are in use in different industries, to show that various methods are employed. One hears “overhead expense” talked of as page 15 amounting to anything from 20 per cent, to 275 per cent., which means absolutely nothing to anyone unless he knows the basis on which the statement is made, and understands what is included in the figures quoted.

I have personally been employed in a factory where the overhead was 275 per cent.—a very successful concern too—and yet this would seem an astounding figure, giving a popular impression of great inefficiency, whereas actually, it was nothing of the sort. Ratios such as these simply depend on the number of items not charged direct to the work, and so long as it is possible to check overhead expenses by some definite means, it is not a matter of moment whether it is charged “direct” or to “overhead.”

The method employed in our Workshops is a direct labour and departmental combination, designed to make each department of the Shop carry its own proportion of the total overhead expenses. The proportion carried by each individual department thus varies according to the number of men employed therein, the size of the Shop, the amount of machinery and equipment, and the cost of same.

In our Shops all detailed items referred to, and many others as well, have a separate
Recent Additions To The Rolling Stock On The N.Z.R. Above: One of the splendidly appointed sleeping cars built in the Department's Workshops for service on the North Island Main Trunk Line. Below: S.K.F. Roller-bearing bogies, as fitted to the above and other units of the new trains recently commissioned for this important express service.

Recent Additions To The Rolling Stock On The N.Z.R.
Above: One of the splendidly appointed sleeping cars built in the Department's Workshops for service on the North Island Main Trunk Line. Below: S.K.F. Roller-bearing bogies, as fitted to the above and other units of the new trains recently commissioned for this important express service.

order number, and these order numbers total several hundreds. They are checked up in relation to the total output individually, and by this means we get all the figures necessary for our purpose, with a minimum of clerical work.