Common cost in twentieth century italian business economic thinking

The common cost is, without doubt, the type of cost that generated the most attention in business economic studies, and which caused constant concern, with no easy solution, to management and controller. Common cost in business economics has been thoroughly analysed, generating fruitful doctrinal discussions. The goal of this work is to study in depth the commonness-of-costs concept from a historical/doctrinal standpoint, by noting the different opinions of some among the scholars of the twentieth century, so as to achieve a suitable definition of common cost. The research is centred on a period of time which is positioned over two periods (Amaduzzi, 2004) 1) the training period and the first affirmation of Business Economics and of the organisation of its various branches of study (1920-1950) and 2) the period of affirmation and consolidation of the Business Economics, its evolution and development, with a widening of the field of investigation and the advent of specialisation (1950 to the present time). With regard to the methods of organising the historical research, i.e. the choice between a “horizontal history” or a “vertical history”, the analysis of the issue of overheads has made it necessary to adopt a horizontal storyline in that the objective was to delineate the doctrinal orientations of some academics who, from the first half of the 20th century, have contributed to the definition of the current concept of overhead costs. Consequently the object of the research was analysed in the framework of its evolutionary path, but with an awareness of the recent positions of some contemporary business economists. The first aspect being addressed is the terminology aspect, a difficult matter in itself. It has been approached in several writings, aimed at offering a suitable explanation of the distinction between common cost and special cost. After a summary comparison between the different definitions offered by several of the past century’s authors, the analysis focuses on the main critical aspects concerning the attribution of the common cost. The essential criterion was to look for the “service underlying” the cost, which would be used as the logical/technical base of allocation. Such approach was linked to the functionality principle, based on which the costs are attributed to the subject of calculation in proportion to the contribution provided therewith for its achievement. However, this principle, moreover criticized by a number of respected scholars, finds its limits in the specific aspect of the common costs’ existence: in such cases, searching for the allocation bases that are based on functionality logic could entail insurmountable difficulties, thus requiring turning instead to alternative criteria. In the early seventies cost-analysis methods were harshly criticised on account of the high arbitrariness factor of the traditional common costs allocation methods, given the increase of such costs, both in absolute terms and in reference to overall costs, and also given their change in nature, as well as the direct workforce cutback with reference to total costs. These elements, arising from the deep changes in the organisation and management framework, have substantially increased the importance of the cost commonness issue. Given such revolutionary changes in terms of manufacturing and corporate management, many scholars have embraced the Activity-based costing (ABC) analysis and system as the most suitable answer to the new expectations. The cost calculation approach has changed after introducing the ABC: it is the activities that generate cost, not the products. The activities thus represent the fundamental subject of cost. The adoption of these methods ultimately represents, therefore, an essential tool available to management, by whose means the volume of overhead expenses can be managed cost efficiently, consequently promoting well-balanced and long-lasting company growth.