28 VALUATION, DEPRECIATION AND THE RATE-BASE 
Overhead Expenses. — Certain expenditures in connection 
with the development and operation of any revenue-producing 
property are usually classed as overhead expenses. Econo- 
mists and engineers are not all agreed as to just what part of 
the cost of construction or operation should be classed as over- 
head. Ordinarily the cost of management is treated as the 
overhead. When work is done by contract, the amount paid 
to the contractor is the cost. An analysis of cost to the con- 
tractor when compared with what he has received may show a 
profit but this is no part of the overhead expense. The com- 
pensation of the general manager, on the other hand, and of 
the engineer and legal staff and the expense of the general 
office should be treated as overhead — so, too, interest during 
construction, taxes and insurance. Whether or not they are 
taken into account in making valuations for the purpose of 
establishing a “ rate-base ”” (it being no concern of the public 
how the funds for establishing an enterprise are raised), the 
commissions to brokers who sell bonds are a real item of ex- 
pense to the owner and will be classed by him either among 
the overhead expense or as a promotion expense. 
Promotion Expense. — The term ‘promotion expense” is 
used to designate certain expenditures, which cannot well be 
included in the “ overhead ” nor yet in the legitimate cost of 
establishing the business. To this class of expenditures belong 
a variety of expenditures usually incurred prior to the perma- 
nent organization of the business enterprise and may include 
commissions to real-estate agents, and the various expenditures 
that have been incurred apart from actual cost in acquiring 
the properties forming the nucleus of the enterprise. Adver- 
tising and discounts and commissions to bond brokers may also 
be at times properly classed as promotion expense. The cost 
of bringing together the various fundamental properties into 
one holding, representing the result of the promoter’s activities, 
except to the extent that the cost of promotion work appears 
in enhanced value, is generally accepted as being covered by 
the item ‘ promotion expense.”