An analysis of all labor expended in a given time, arranged according to the kinds of labor employed, does not, in general, give as intelligent a view of what has occurred as an analysis arranged to show the re sults of the several activities or functions of the busi ness. There does not seem to be any reason why the manufacturer should not know the unit cost of his power, no matter whether he buys it or produces it himself.
It will be seen, therefore, that the general idea of classifying and distributing the expense according to the functions or activities of the business is decidedly different from that which lumps all expenses together and distributes them uniformly over the entire prod uct. The first classifies all expenses that apply to each activity or service of the business in such a way that this service and its efficiency, or inefficiency, stand clearly revealed. The second and older method throws into one lump all expense of a given kind, without regard to the service rendered, and at best gives nothing more than comparative totals which may or may not be useful. This may be made clearer by considering the problem a little more concretely.
4. Production discussing the concrete case of an actual factory Mr. Church classifies the pro duct-ion factors, or services rendered to production centers, as follows: a. Land-building factor. d. Heating factor.
b. Power factor. e. Organization factor.
c. Lighting factor. f. Supervision factor. g. Stores-transportation factor.
These are general factors that serve production cen ters in varying degree, according to their needs, and they are, in general, the most difficult to allocate. In addition, each center will have certain expense fac tors which are peculiar to itself, and which arise out of the character of the production center and the work therein performed. These include such items as interest, depreciation, repairs, supplies and all other expenses which obviously are entirely of a local character, and which belong strictly to the production center concerned, beaiing no relation to any other machine or process. It remains to consider the prac tical distribution of these several factors to the vari ous centers. This feature of the plan is here dis cussed in order to bring out clearly the general principles involved and to show the difficulties to be encountered.
The first step in arranging this system is to lay off the factory into production centers. These centers may include no tools at all, or they may include only one tool, as in the case of the large machines, or they may contain several, as in cases where a number of tools exactly alike are grouped together. The entire factory must be mapped out in this manner in order that all equipment may be accounted for.
5. Land-building factor.—The first factor to be considered would probably be the land-building factor, and the first item under this heading would natur ally be the rental of the ground on which the building stands, or the equivalent interest on the investment in the land, if it is owned by the proprietor. To this would be added the rental of the buildings (or the equivalent interest if they are owned outright), and the taxes, insurance, repairs and depreciation on them. The total of these charges divided by the total productive floor area would give the charge per unit of floor area which must be made against each pro duction center.
In making such computations it may be necessary to take into account the use to which different floor areas are put. Thus, space in a high building used for erection purposes, and served by an overhead traveling crane, will be more valuable than the floor space of an adjoining building where three or four floors are used. This difference can be compensated for by charging a higher rate for the floor space in the high-roofed shop in computing the unit space charge as outlined above, and also in computing the total space charge for the high-roofed shop.
In some cases the buildings cover only a small part of the land, the remainder being used for storage or other useful purposes directly connected with the business; or part of the grounds may be used in an ornamental way for lawns and parks. Again, the ground may be held under still different conditions. Part may be owned outright, part may be mort gaged, or part may be leased. Obviously, no defi nite rule can be laid down that will cover all cases, so each must be handled according to the conditions existing. In all cases, however, the land-building factor may be measured in terms of floor area.