CHAPTER VI
DISTRIBUTION OF EXPENSE
ONE underlying idea appears in all the methods of ex-
pense distribution or apportionment that are com-
monly employed. It is this : Expense, as has been re-
peatedly pointed out, does not naturally connect itself
with individual jobs or individual units of product. It
gathers like one general cloud over the whole business, but
not in distinct wreaths around each transaction. Material
and direct labor, however, do, from the beginning, identify
themselves with individual operations or individual units
of product. You can almost see each job, as it goes through,
attach to itself successive items of material and of work.
You can see each man and each machine putting material
and work together, in visible and measurable quantities,
until each piece of product is completed. Now, the under-
lying idea of all methods of expense distribution or appor-
tionment is to use some one or more of these visible, tangible,
measurable elements as a gauge, and to pro-rate the ex-
pense allotment by it. That is, they burden each job or
each unit of product in proportion to the material that
goes into it, or the wages paid for it, or the time spent
working on it, or the use it makes of the machines and
other facilities in the factory. This gives us five cardinal
methods of expense distribution : By material, by percentage
on wages, by man hours, by machine rates, and by produc-
tion factors. We will take up their operation and their
characteristics successively.
Distribution of expense by material
Distribution of expense by material is a method of
limited applicability. Its usefulness is confined to com-
paratively simple industries such as metallurgical or
structural-material works, where the product is nearly or
quite uniform. In a brick yard, or a blast-furnace plant,
or a gas works or perhaps in a pipe foundry or other
establishments of like character, it may work as well as
any other plan, simply because there is no need of distribu-
tion, properly speaking, but only of equal sub-division.
Indeed, if the product of a plant is absolutely homogeneous
all just alike it makes no difference whether you ap-
portion expense by count or weight or measure or flat cost
you can not get wrong as between one unit and another.
An expense rate per ton or per thousand is quite sufficient
for purposes of estimating or for comparison between one
period and another. But when the product is not all alike,
the introduction of material into expense-distribution calcula-
tions only confuses and distorts results. In the remaining
methods, therefore, we shall hear no more of material or
value of material.
percentage-on-wages method
The percentage-on-wages method of apportioning factory
expense is probably the most generally used. As a start-
ing point in this method, we take the total for a given time
(say a month or a year) first of the wages of the productive
labor during that period, and second of the factory expense
during the same period, and we find what is the percentage
relation of the expense to these wages paid to productive
labor. Suppose we find that the total factory expense is
60 per cent of the direct labor payroll; then we load every
job done during the period with 60 cents additional for
each dollar of direct wages that is expended upon it. If
we find, for instance, that a certain small steam pump is
shown by the job ticket to have cost $50 for material and
$100 for labor, we add 60 per cent of $100, or another
$60, for the factory burden, and obtain as the shop cost of
the product $50 plus $100 plus $60 equals $210.
If our output is all substantially of the one general class,
and if the various machines, tools, or pieces of apparatus
in our manufacturing plant are not very different one from
another as to expense of operation, and if our wages are
fairly uniform as between one operative and another, the
results obtained by this method will be quite accurate. But
if we have a great difference in equipment, having some
very smr/ll machines taking little room and power, and
cheaply operated, and some very large machines taking up
a great deal of room and power, and involving large ex-
pense for operation and wages; if we have passing through
the shop some very heavy work and some very small and
light work; if some of our labor is highly paid and some is
very cheap this method may lead to very inaccurate re-
sults. A job of fitting, taking 50 cents worth of a man's
time on a little bench lathe, tucked away in an otherwise
useless corner, would be burdened just .the same as a job
taking 50 cents worth of a man's time on a huge costly
boring mill, occupying the whole end of a building; for the
percentage-on-wages method recognizes only the one visible
factor of money paid for human labor and ignores differences
in the extent to which different items of product make use
of mechanical equipment. As a large proportion of the
expense burden arises from the cost of installing and re-
pairing machinery, and moving product to and from the
machines, we can not arrive at true results by a method of
averaging that allows no weight to this particular factor.
man-hour plan
The third method is the man-hour plan. It varies from
the preceding system in that the distribution is made pro-
portionate to the time worked on each job instead of to the
money paid for that time. At the first glance this might
seem like the same thing, but on further consideration it
will become evident that there are important differences.
For example, suppose we take a job away from a $3-a-day
man, and give it experimentally to a good clever $i.5<>a-
day helper who completes it in the same number of hours
that his predecessor did. Under the man-hour plan it will
still carry the same expense burden as it did before, be-
cause it takes the same time. This is a correct result, for
the mere change of operative has not changed in any way
the demand which the work makes upon the general organi-
zation and facilities of the plant; has not changed in any
way the amount of expense it creates, and hence should not
change the expense apportioned to it. But under the per-
centage-on-wages plan, as we saw a few moments ago, the
expense burden distributed to this job would have been
cut in half by the mere fact that the man who did it was a
$1.50 man instead of a $3 man. Suppose, on the other hand,
the $1.50 man proves clumsy and inexpert, and takes twice as
long as the $3 man did to finish the job. Under the man-
hour plan the job would be burdened twice as heavily for
expense as it ought to be, since it has been twice as long
occupying floor space, occupying space on the machines, tak-
ing the attention of foreman and timekeepers to look after
the bungling job. Under the percentage-on-wages method,
as we saw, this slow job, done by the cheap man, clogging
up the shop and delaying the progress of other work, would
be charged with just the same expense burden as the job
done in half the time by the competent man, because the
total wages were the same in both cases.
In some particulars, therefore, the man-hour plan is more
correct than the percentage-on-wages plan, but when we
look a little further we find that, like the percentage-on-
wages plan, it takes no cognizance of the machine element.
All jobs taking two hours are burdened the same, whether
the two hours' time is on a valve-seat grinder or on the
largest engine-bed planer in the shop.
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