ABSTRACT

I have followed the discussion between Mr. Gantt and Mr. Church with much interest, because the subjects of production and cost constitute my own business and I have looked upon Mr. Church as a master. Taking the four points in Mr. Gantt’s letter, on page 385, in their order:

As to the principle being only partly true, it seems to me that the principle as laid down by Mr. Gantt is absolutely true, but I think Mr. Church did well to point out the danger of assuming that the segregation of expense should be upon a percentage basis, which Mr. Gantt’s statement of the principle might seem (to some) to imply. Mr. Church points out very clearly that, if the means of separating the portion of expense belonging to the production from that chargeable to lost opportunity to produce be not a reliable means, the results may be dangerously misleading.

As to the difficulty of finding the proper burden, Mr. Church again calls attention to some features which, like thorns, guard against a too hasty grasp of an attractive principle. A case in recent practice illustrates this: In a sheet-metal industry several men (riveters) were replaced by a small electric welder. Shortly after the latter was installed, a director of the company made the criticism that the new tool was often idle. A hasty calculation showed him that, while the welder was earning 200 per cent., compared with hand riveting, the capacity of the rest of the shop would have to be more than doubled to put this small tool in balance. Under such circumstances, it seems hard to convince the “business man” that more than 50 per cent, of the overhead charge on this tool should be kept out of costs and charged directly as (part of) loss due to idle, capacity; yet this is not only what the theory calls for, but in actual accounting procedure it is the more practical thing to do, as the “business man” soon realizes if he will but take the trouble to study the matter in actual practice rather than in theory. And I agree with Mr. Gantt that “in actual practice the difficulties appear to vanish quite rapidly”—that is, after the problems of installation have been squarely met and overcome.

As to the disinclination of manufacturers to keep the “unused burden” out of costs, I can agree with my master because, as a manufacturer, I took this view when making my first installation of the production-factor method. But after this practical experience with it and further study and practice in a variety of industries, my mind has settled to a strong conviction that it is wrong in principle and absurd in practice to add to the true cost of doing a thing the wholly misleading cost of not doing that thing or any other thing.

As to the proverbial friction between engineer and accountant, perhaps the less said the better.