Current research in cutting tool technology i9 based on absorption costing; within this paper however, this is shown to be an incorrect technique to use. When variable costing, together with DCF, is correctly used, the traditional assumptions which typically result in a 15 minute tool life are found to be erroneous, with the optimum cutting conditions being markedly different from those recommended within existing literature. It is also demonstrated that by. using a correct financial methodology, the viability -of advance processes such as CNC and FMS are improved because the cutting conditions for such machines should differ greatly from those for inexpensive machine tools.