What very frequently happens is that a Department having 
once ascertained what its total overhead expenses are in respect 
of particular groups of stores expresses such expenses in the 
form of a percentage on the value of the goods and thereafter 
adds that percentage when supplying goods on repayment either 
lo outside customers or to other Exchequer Departments. The 
percentages are in practice revised at very infrequent intervals. 
[s it to the interest of the taxpayer that these percentages, which 
are intended to bring out the full cost of the articles or services 
supplied, should be charged by one Exchequer Department to 
another ? 
Suppose Department A happens to require particular goods 
at some station or place at which such goods are habitually 
obtained by Department B for its own purposes. It is clear that 
the goods required by Department A ought to be obtained by 
that method which is the cheaper when account is taken both 
of the price paid and of the incidental expenses incurred in the 
purchase. If Department A has obtained a tender from an 
outside contractor at 43s. a ton, whereas Department B has 
mentioned 46s. a ton for the same goods supplied from its stores, 
Department A may be tempted to regard the outside offer as 
more favourable, particularly if it underestimates its own ex- 
penses. But the fact may very well be that Department B’s 
price represents, say, 40s. paid for the goods plus overheads 
of 15 per cent. The overhead charge may have been properly 
calculated, but what it represents at best is the average overhead 
charge on all the similar goods purchased by Department B for 
its own use or for supply to other Departments or customers. 
It is not necessarily true at all that Department B would incur 
an overhead charge of as much as 6s. a ton on the particular 
additional consignment required by Department A. In deter- 
mining the choice of the source of supply, what ought to be con- 
sidered is the differential or extra cost to Department B of 
meeting Department A’s requirements; and the existence of 
the percentage charge may lead to a decision which is not in 
‘he taxpayer's interest. 
These considerations suggest the question : Will not the right 
solution be found in the principle of applying the differential 
or extra cost? But before this question can be answered there 
are some important points which must be taken into account. 
In the first place, while a percentage addition is something 
concrete, known and easily applied, the differential cost varies 
with every transaction and would frequently be difficult to ascer- 
bain. Tt would clearly be impossible in practice and pedantic 
to apply the differential cost principle to every trifling trans- 
action which took place. Further, it cannot be assumed that 
additional work can always be taken on by any Department 
without some addition sooner or later to the expense of that 
Department. A Department may for some time execute orders 
for another Department without any proportionate increase in