This problem is a difficult one in factories produc ing lines of goods that have a large range in size, where competition is carried on with other factories each one of which produces only a small part of the range. Other things being equal, a factory pro ducing a full line of electric motors ranging from one quarter horsepower to 5,000 horsepower would have difficulty in competing with a company producing motors from one-quarter horsepower to ten horse power, unless special care were taken to prevent the larger costs due to the larger product from being un justly charged against the smaller product that does not require the larger equipment for its production. To differentiate such charges is, however, often a difficult matter, but the difficulty can be lessened by careful departmentization which will bring parts of like kind and equal size under the same depart mental organization.
5. Clerical and selling expenses.—These problems and difficulties are common to office and shop alike. Clerical work is, in general, difficult of exact alloca tion, particularly where the product is varied and complex. It may, and usually does, involve more expense to do the clerical work connected with mak ing a small, complicated machine than it does to take care of the clerical work connected with a much larger and costlier product. This is particularly true where costs are required in detail, since, in that case, the number of production orders may be very great for the small, complex machine as compared with the large, simple machine. For the same reasons, the cost of superintending the production of the small machine and of collecting the labor and material costs may be excessive as compared with the case of the large machine.
What is true of the factory office is obviously true also of the general office and the sales office, the ex penses of these last departments being particularly vague, so far as allocation to any one job is concerned. The cost, for instance, of doing the business connected with selling standard product, which is well-estab lished in the market and practically sells itself, is much less in proportion than that involved in selling special sizes or types or in disposing of product for which a field must be created. Yet, practically, it is often difficult to segregate these expenses. This is markedly true of the work of the salesman, who fre quently labors in vain, or whose reward comes in the form of sales for which the "missionary" work was performed a long time in advance.
6. Two purposes of expense. distribution.—Aside
from the general characteristics of expense which have just been discussed, each item of expense has special characteristics that must be considered in connection with its distribution against production. Certain expenses, such as fuel, oil and certain kinds of indirect labor, are clearly chargeable against manufacturing expense, while other items are just as clearly chargeable against general expense or sell ing expense. In segregating and classifying expense it should be remembered that the object in view is two-fold: ( a) To allocate each item as fairly and as accur ately as is possible or desirable.
(b) To record and summarize each class of ex pense in such detail as will make possible its analysis and clearly show its content. " The first requirement involves a consideration of methods of distributing expense, which will be dis' cussed in Chapter XIII ; while the second require ment governs the detail in which any item of expense shall be collected and recorded. This last require ment will now be considered briefly.
7. Classifying expense factors.—As noted fn Sec tion 8, Chapter III, a clear-cut distinction should be made, if possible, between manufacturing expense and general expense. This is necessary, if for no other reason than to fix responsibility for such expenditures.
The manufacturing superintendent should be held strictly responsible for the expenses that are a legiti mate part of production, and for those expenses only. The general manager should assume responsibility for the general expenses which are incurred by the man aging and accounting branches of the business. In small enterprises the sales expenses are often included in the general expense, but usually it is considered bet ter to collect the sales expenses separately, so as to be able to hold the sales manager responsible for his own expenditures. When this responsibility has been de termined, however, there is no gain in keeping these expenses separated, and for convenience they are generally merged and distributed against the product as one expense.
It is not always possible to make an absolute division of expense between these two classes, because the organizations of industrial enterprises differ so widely. Thus the president may also be the sales manager, and the duties of other officials may in clude supervision of the manufacturing and general activities of the business. However, even in such cases a proportional division of their salaries can al ways be made that will be equitable to all concerned.