of the major philosophical changes is the conversion of the costing base from the variables of materials, labor, and volume to the constant of time and time use of capital facilities in each operation. By allocating all indirect expenses to time use of facilities, indirect and general and administrative expense can be fully absorbed and the correct share of these costs can be precisely assigned to each product, past and operation independently from production volume. The Use RateThe use rate is a rental charge for the use of things. It is a vehicle for the collection and application of all period, indirect, burden, overhead and general and administrative costs into the product or operation on a level-by-level, operation by operation, time use of facility basis. Unused facility expense and overhead is not charged to the product. Some principles that the use rate includes that is extremely important is the following:Price s independent of costPrice is set by the market and competitionCost is a function of design and management skillProfit is the difference between price and cost and is the scoreboard of successTime is the only reliable element and it should be the basis for defining and managing all other aspects of the operationCost should be allocated based upon the time use of facilities plus material costs at every operation and level of production.The flow of material and product is the flow of moneyLevel by level control of the material and product flow through a process assures management of the control of the enterprise.All production costs must flow into the value of inventory (raw, WIP, finished goods) al all levelsAll production revenue comes from the disposal of inventoryOverhead absorption variances, which result from capacity utilization variances or profit variances and not product, cost variances or manufacturing performance cost variances.The cost system, manufacturing management system and material management system shou...
