(a) It is easy to see that the elements which go to make up the expense of operating a factory──foremen, sub─foremen, supervision, shop clerks, toolkeepers and grinders, helpers, the up─keep of tools and machines, lighting, etc.──are all closely related and largely dependent upon the number of men employed. Reduce the number employed and it will be seen at once that some of the above mentioned items of expense can be cut; less supervision is required and the wear and tear on tools and machinery is also reduced. It is difficult to see wherein any difference in cost of the material used would of itself cause any increase or decrease in the factory expense or even be influenced by it. It is quite contingent on the labor. (b) That the cost of the material is not a reliable basis for calculating expense can be quite satisfactorily demonstrated. If the cost of an article is, say, labor $25.00, material $50.00, with expense to be figured at 50% on material, or $25.00, it is seen at once that the manufacturing cost would be: Labor $25.00 Material 50.00 Expense 25.00 ──────── Cost $100.00 Suppose this article were duplicated under the same identical conditions and cost, using only this time material that cost $60.00. It is a fair proposition that the total cost would be but $10.00 more than in the first instance, or $110.00. But if the percentage is added on the material as before, it is found that the expense this time is $30.00, which would make the cost appear thus: Labor $25.00 Material 60.00 Expense 30.00 ──────── Cost $115.00 It is now noted that the cost figures $15.00 more than in the first instance, while we are quite ready to admit it should be but $10.00, the only difference being in the cost of the material. =6. Conclusions.= Having established the fact that the expense is a legitimate charge to the cost of production, we are now quite safe in laying down for our foundation the proposition that expense is contingent on, and should be figured from, the direct labor value of the cost price. METHODS OF DISTRIBUTION