14. Advantages and defects.—Viewed simply as a means of equalizing interest and depreciation, the simple machine rate may justify its use in some in stances; but as ordinarily used as a means of dis tributing the total expense, it is greatly inferior to the averaging methods already discussed, so far as accu racy is concerned. It will at once be recognized that the allocation of all expenses by machine rate necessi tates considerable preparatory work. In a large fac tory composed of a number of buildings, each building containing machines and processes similar in size and kind, an intelligent allocation of many expenses could be made to each department, and these departmental expenses could easily be distributed by machine rate if certain other difficulties, to be discussed later, could be properly dealt with. For in such a case the de partmental expense could be accurately allocated to the building as a whole, and each machine, theoreti cally, should share equally in this burden. Such con ditions are, however, rather rare and it is difficult, if not impossible, in most cases, to secure these condi tions by rearrangement of the equipment. In a small factory, where there are few tools of each size and kind, and where the processes are varied, a con siderable difficulty may arise in justly allocating the expense chargeable to each utility. But even in fac tories of this type it is possible to make a fairly con sistent allocation of a large portion of the burden.
It should be noted that, altho a large part of the expense naturally gathers around machines and proc esses, there are other expenses that do not naturally so attach themselves. Thus, general labor and super vision, crane service, transportation service and similar expenses, are not so clearly assignable by machine rate and may need some form of special determina tion. But all of the above objections can be more closely met than can the inherent defects of the aver aging methods. As will be shown, it is possible, even in complex cases, to work out a machine rate that will be obviously more intelligent than any averaging method. Whether in any particular case it will be expedient, and whether it will pay to do so, will, of course, depend on the immediate circumstances. There is, however, one fundamental defect of the simple machine rate which destroys its accuracy un less special precautions are taken.
It will be remembered that the hourly rate is estab lished by estimating either upon the basis of past ex perience or upon that of the probable number of hours the machine or process will be in operation dur ing the period considered. Obviously, the accuracy of the hourly rate will depend on how closely the actual operating time of each machine corresponds with the estimated time. Should a machine be in operation more than its estimated time, as might occur in overtime work, due to a hurry job, an overcharge of expense is made. On the other hand, should the machine fail to operate the full estimated number of hours because of lack of work or a breakdown, an un dercharge of expense will be made. It may happen, of course, that these two errors will balance each other, but in general they will not, and there is no defi nite way of knowing just what the error When the volume of work is decreasing, the large machines become idle first; this may lead to a serious under charge which cannot be detected until it appears in the general accounts, too late, perhaps, to remedy the difficulty. Furthermore, it is not possible, as a rule,
to estimate in advance just how long any machine will be in operation, even when the records of past per formances are available. It is not always possible to wait until the end of the month to find out how long each tool has been used; so that, in general, the esti mate of the operating time of any tool or machine must be approximate. The simple machine rate as outlined depends, therefore, for its accuracy on the constancy of all factors, a condition which seldom, if ever, occurs.
Notwithstanding these serious defects, which elimi nate the simple machine rate frorii most of the modern systems, this method possesses one characteristic which is possessed by no other system and which has not only been the means of keeping it alive, but which also promises to make it more important in the fu ture. The machine rate does take into account the difference in the cost of work done on machines of dif ferent sizes and by different processes. Some of the relations which it establishes between the machine or process and the work done, are fairly permanent and do not vary with the volume of business transacted. For this reason it probably forms a better basis for a cost system than any other plan.
15. Supplementary rate.—Numerous expedients have been proposed to make the machine rate more effective. Space will not permit a discussion of all the propositions; in fact, most of them are not im portant enough to merit much discussion. The latest and, in all respects, the most comprehensive ef fort to adapt the machine rate to modern conditions is that of Mr. A. Hamilton Church. Mr. Church has endeavored to make the machine rate more service able by the use of a so-called supplementary rate, the operation of which will now be briefly described. All expenses which can be so allocated are apportioned to machines and processes proportionally. These allo cated expense items are charged off by a machine rate, as already described. A record is kept of all such expense so distributed and at the end of the month, or whatever other period has been selected, the total sum of this distributed expense is subtracted from the total shop expense which has accrued during the period. The difference so obtained is, of course, the expense which remains to be distributed; it represents the expense which has not been distributed by machine rate, owing to idleness of the machines, plus all other general shop expenses which cannot be allocated to machines or processes. If all machines and processes have been in operation the exact time used in esti mating the machine rate, the undistributed expense will, obviously, consist entirely of general shop ex penses. Whatever the content of this residual ex pense, it is either charged off by one of the averaging methods that have been described over the jobs that have gone thru during the period, or it is distributed as a percentage on the expense already apportioned to those jobs by the machine rate.