About one-half the amount paid for labor goes to the men who run the machine tools, and the other half is paid to workmen who do the other work, such as handwork, assembling, transporting, etc. Therefore, the cost of machining is either one-sixth or one-eighth of the total cost.
On top of the net cost of the product there should be a profit. If it is not there, the sooner something happens the better. If it is there, then it is proportioned to the volume of the output. Therefore, both the size of the output and the labor cost should be kept in mind.
The size of the profit per unit of output is not generally known to the mechanical departments. But even if it is not known, there is no reason for their being uninformed as to the importance of large output for cost of the plant.
Largest Profit Per Dollar Invested.
One of the most satisfactory policies of management is that which tends toward getting the best return or profit per dollar of investment.
We shall not refer to the quality of the product, the design, or any other elements which affect the good name and standing of the business, for it goes without saying that no business can be maintained where these are disregarded. The point to be brought out here is that, These thing being equal, the best scheme of management for profit is one that puts the capital where it will do the most good.
The above statement is one with which all will agree, but strangely enough there has been a tendency to tie up capital in ways that actually throttle the output of the entire business.
Furthermore, this is frequently done by increasing the portion of the investment that is irrevocably tied to the existing product, thus not only reducing the earning power of each dollar invested, but also increasing the hazard by tying the capital to the present product, which soon may be unsuited to the market demand.
One of the most common errors in this respect is the one that regards the reduction of the labor cost as the paramount consideration.
Reduction in labor cost has been the war-cry. The pay-roll has been talked about so much that it has seemed to become the whole thing. A man who declares that the labor cost per piece is not the most important element is at once branded as an advocate of old- fashioned methods.