A model for estimating aerospace industry contractor overhead costs

A series of parametric models is presented for estimating total corporate overhead and major categories of overhead cost for weapon system contracts. The models relate overhead costs each year to direct costs and to prior year overhead and direct costs. All costs are normalized to constant fiscal year 1974 dollars.

While some anomalies were noted for individual cost elements of the data base, the regression trends across the ten firms examined appeared logically consistent and were all statistically significant.

Total overhead costs were found to be 62% variable with respect to direct labor dollars and 46% variable with respect to direct labor plus materials. The variability of individual cost categories ranged from 33% variable for Land and Buildings to 144% variable for Employment (personnel hiring and transfer). A key finding of the analysis was that no category of overhead could be classified as a fixed cost. All vary to some extent with the level of direct costs.

Example applications of the total overhead cost model are included.