OTHER FEATURES OF EXPENSE DISTRIBUTION 1. Variation of expense with volume of work.—It is a fundamental principle in all the methods of dis tributing expense that have been discussed, that the total manufacturing expense should be kept con stantly distributed in the costs as fast as it accrues. The only exception to this principle that has been noted, is in the case of heavy periodic expenses like taxes, heavy repair expenses, or purchases of large quantities of supplies, like coal, for example, where such periodic expenses are distributed over the entire year by means of suspense accounts (see Section 3, Chapter X) . If the amount of these periodic ex penses that is thus distributed is considered as belong ing to the week or month to which it is assigned, the general principle noted in the foregoing treatment holds strictly true for all of the methods discussed.
It appears, therefore, that where this procedure is followed, the cost of production of any given article will vary as the volume of business passing thru the factory changes, since expenses. do not vary propor tionally with the volume of production (see Section 2, Chapter X). A considerable increase can be made in the volume without necessitating much, if any, addi tion to many expense items; while, on the other hand, a considerable decrease may occur in the volume of work without lessening many of the expenses, and, in fact, before it is possible to reduce them to any great extent. Therefore, where all expense is distributed as it accrues, a rise in the volume of product results in a decrease in manufacturing costs; while a decrease in the volume results in an increase in cost. The phe nomenon is only too familiar to all who have had ex perience in factory supervision.
2. Illogical increase in a factory is running at normal capacity, and care has been ex ercised to allocate the burden to each article, in pro portion to the use that has been made of the facilities of the shop in producing it, the comparative- costs of all articles should be fair and logical. If the output is increased, and all costs of production decreased, no line of production can suffer thereby. But should the volume decrease, the case is different. Suppose, for instance, that the volume decreases so that all the large tools are idle and the lines of product on which they are normally used are no longer produced. Un
der all of the methods of expense distribution that have been discussed, the expense incident to these large tools when idle is distributed against lines of product that make no use of these machines. This is true even in the pioductioncenter and supplemen tary-rate method, the supplementary rate being in troduced for the very purpose of collecting expenses due to idleness and distributing them over the product in process.
Logically, it would seem that any product should bear only the expense incident to its fabrication. Thus, if a manufacturer owned several factories sit uated in different towns, he would not think of dis tributing the expense incident to a factory that hap pened to be idle against the costs of production in the factories that were operating. There would seem to be no reason for doing so, even if the factories were situated in the same yard and were operated under the same superintendent. By similar reasoning, in a factory consisting of several independent continuous processes, it would not appear to be logical to charge the expense incident to an equipment that was idle against those that were operating. In factories of the intermittent type, operating on mixed work involving a large variety of sizes, such clear-cut distinctions as those noted in the foregoing examples are usually not possible, since it is difficult, in such plants, to segre gate work and equipment into classes. It will be noted that the production-center method aims to allo cate all expenses to each machine and process in such a way as to make it possible to charge every piece of work in proportion to the use it makes of the man ufacturing facilities. So far as this allocation is con cerned, the production-center method is in accord with logical expense distribution; but the supplementary rate is not logical, in so far as it distributes expenses belonging to one class of work against the cost of another class. The defense of such a procedure, of course, lies in the assumed necessity of distributing all expense as fast as it accrues. It is held by some accountants and cost experts that this necessity does not exist, and that such complete distribution may often be bad cost accounting, since, when the volume of work is small, this procedure may make the cost of the product that is in process so high as to make selling prohibitive.