. . S » ^V o *0* ,v* •o^ .«*' ,0 .0 ^ -0 s 1 t> ^r^ ,0 vO C> ^ 0^ ft* , " ° * <*,, «* "fU A^ v / #||*X / 4&-X * -^ife- - JC^* A* ^ . .0^ *4> ^, •** o Uniform Association Cost Methods for the National Bureau of Metal and Spring Bed Manufacturers Compiled by CHICAGO OFFICE of MILLER, FRANKLIN AND STEVENSON BUSINESS ECONOMISTS New York, U. S. A. 1911 Uniform Association Cost Methods FOR THE National Bureau of Metal and Spring Bed Manufacturers COST COMMITTEE H. N. DAVIS, Chairman F. A. POWERS, Vice-Chairman E. J. BARCALO, Ex Officio FRANK E. HALL C. G. BARLEY F. W. ADAMS JOHN TROUNSTINE COMPILED BY CHICAGO OFFICE OF MILLER, FRANKLIN AND STEVENSON u BUSINESS ECONOMISTS NEW YORK. U. S. A. 1911 Copyright, 1911 by National Bureau of Metal and Spring Bed Manufacturers ^ A, J ^ ©CU2926ftO Uniform Association Cost Methods FOR THE National Bureau of Metal and Spring Bed Manufacturers I. PREFACE II. UNIFORM COST OUTLINE III. MATERIAL IV. LABOR V. EXPENSE VI. FOUNDRY COST VII. PAINT COST VIII. FINAL COST IX. ACCOUNTING X. ESTIMATE COST METHODS XI. ECONOMIC DATA XII. CENTRAL BUREAU COMPARISONS XIII. CONCLUSION Index of Forms NAME 1 COST OUTLINE CHART 2 PRICE AND QUOTATION CARD 3 STOCK CARD 4 MATERIAL RECORD 5 TIME TICKET 6 PAYROLL 7 PAYROLL ANALYSIS 8 FIXED CHARGE DISTRIBUTION 8A POWER EXPENSE ANALYSIS 8B OFFICE EXPENSE ANALYSIS 8C GENERAL FACTORY EXPENSE ANALYSIS 8D PAINT DEPARTMENT EXPENSE ANALYSIS 8E ALL WIRE EXPENSE ANALYSIS 8F SELLING EXPENSE ANALYSIS 9 FOUNDRY REPORT 10 FOUNDRY COST SHEET 11 PAINT COST SHEET 12 OPERATION COST RECORD 13A - B. .MATERIAL COST SHEETS 14A - B. .LABOR AND FINAL COST SHEETS 15 VOUCHER RECORD 16 BALANCED STATEMENT Preface Upon presentation of this report on uniform cost methods with reference to the manufacture of metal and spring beds, it is advisable in recommending adoption and use to preface the body of the report with a brief statement of the character of the subject matter, how obtained and how best studied. Throughout the report each section is presented as a part of a treatise, deciding an issue or issues after careful research and thought, and presenting final recommendations as tersely as is consistent with clarity. Little or no expression is given on the value of the scheme or schemes, except perhaps to emphasize the importance of one or another section over others. The fact that the bureau has gone so far with this idea and the individual members have put themselves to expense and trouble seems to make the whole matter important in this organization. To make clear any obscure points and to bring out the value of the methods herein presented with respect to effi- ciency of management there will be presented on the second day of the meeting a statement by the firm compiling this report, this statement to become a part of the record of the meeting. Recommendations throughout are based on a careful study of the full scope of the business in the organization. The selection of the plants for basic study were by your Board of Directors and Cost Committee to secure representation as to line of goods made, size and location of factory and devel- opment of cost work. NATIONAL BUREAU OF METAL Of the total membership, 64 came under the work on this report. Of these 21 were surveyed and 1 1 called upon, making a total of 32 firms whose methods of business have affected in some way the final decisions. Uniform procedures were followed in the basic surveys and cursory visits, but as infor- mation asked was not available or not secured in all plants, a greater or less number of answers are given to different sec- tions. The basic surveys were divided as follows: Three Iron and Spring; Three Iron only; Seven mixed; Two Mattress chiefly; Two Brass only; Four Spring only; making a total of 2 1 . The remaining eleven visited were divided in about the same proportion. Definite information on 25 was secured as to method of figuring costs divided as follows: 17 estimating costs; 16 twice each year, and one once each month. Of the total, four are figuring on the basis of the reasoning given in this report, 13 not. Eight firms are figuring from running costs. Of these, 5 have complete stock rooms, 10 partial stock and 10 no stock; about equally divided between the use or non-use of material requisitions. Only those firms regularly figuring costs have effective, supervised time recording. Only three of those visited keep a detailed, accurate record of expense distribution similar to the methods shown. The widest variation of practice is shown in the distribu- tion of expense, both manufacturing and selling. Since the two sections of expense should be distributed differently, an analysis is given of the practice in each. In a total of 25 factories, only five distribute on productive labor, and one on productive hours, methods recommended herein. Three com- AND SPRING BED MANUFACTURERS bine manufacturing and selling expense; two distributing on productive labor, one on productive hours. Two firms dis- tribute both manufacturing and selling on a total labor figure. That includes much non-productive. Eight put manufac- turing expense on labor and material. Three combine making and selling expense on labor and material, and one figures an arbitrary percentage for manufacturing expense without any check of actual performance. One figures on material only, another on sales price only. This analysis shows 10 methods. Information from 27 companies shows the following methods on selling expense distribution; eight to sales price; four to factory cost; three to productive labor; two to produc- tive hours; one to total labor; seven to material and labor; one of which is on an arbitrary percentage; one on material only; and one on the number of beds sold, showing 10 different methods. Of these firms only 10 are separating selling from making expense. From this study, methods have been recommended not on the majority either in number or volume of business, but on the best reasoning and methods found. Almost all stages of cost development were found in the survey, so that every method recommended is working practically in some factory. The report first discusses the basic principles of the uni- form cost methods, with a brief statement of the reasoning back of the recommendations with an explanation of the construction of the cost. Suggestions for simple schemes for handling material, labor, expense, subsidiary and final costs then follow with accounting and estimate cost methods in line with the uniform procedure. Comparisons of economic data secured is given, followed by a suggestion of the possibility of comparing data through the Central Bureau. NATIONAL BUREAU OF METAL In studying this report, and careful study is suggested, it should be regarded as a cost treatise to apply to the entire industry in the confines of this Bureau with the definite ob- jects uniformity, flexibility, and an installation with a maxi- mum economy of operation in any plant in the industry. This study will show that recommendation is made that efficient records be kept on material, labor and expense in as much detail as is desired by the particular firm. While this may mean a slight increase in effort in some plants, in no case will the addition of clerical labor preclude the advisability of installing the methods, even if only the economic need in the industry is considered and leaving aside the possibility of increase in efficiency in the individual plant. It must be realized throughout that no particular factory is in mind, and therefore the methods and forms suggested have been gener- alized and idealized. In application to the individual plant, study will need be given of local conditions to give the maxi- mum economy of operation with the most complete final re- sults. Figures given on the forms are all taken from various plants studied, and should not be used in any factory, since the components in many cases are from several sources. Figures on detail of paint and foundry costs are not given owing to lack of such information. The dissertation here following is a brief treatise deciding on general methods applicable to your industry based on a careful study of your conditions and needs as shown in repre- sentative factories in your organization. Only careful, broad- minded study will show the full value of the report and its method of applying to the individual plant. AND SPRING BED MANUFACTURERS Uniform Cost Outline In devising and recommending methods applicable to this industry, two necessities have been constantly present: First, need of showing the manager of each individual plant in a simple, effective way, an analysis of his business comparatively and statistically bringing out defective or strong points in his operations, so presented that repair or replacement can be made, and finally the trend or drift of his whole enterprise Second, Economic demand, that prices on like beds and springs be comparable in the market, this creating the second- ary demand that those prices be based on a uniform structure ; artificial means to be later applied to secure comparable prices, the underlying uniform scheme being used to give assurance to the several members comparing that the comparisons are fair. The first necessity makes few restrictions in the outlined scheme; in this case the reasoning being applied to individual cases. The second produces recommendations and methods that will, perhaps, run counter to individual practices and ideas. First was analyzed the reason for being in the manufac- turing business, particularly the bed industry. Whatever the ethical or moral reasons may be, the main end is net profit on your activities and return on your capital, the total of the two equalling gross profit. Since capital is given a return in market of its own and can be kept occupied with a minimum of effort, the return on it is expected whatever the enterprise 10 NATIONAL BUREAU OF METAL you are engaged in. Therefore, as later shown, this item is a charge against the article cost, the only end is net profit for your risk of being in, and activity in the bed industry. The article price to your customer has no relation to the article cost except that your capital demands a definite return and the monies paid out for material, labor and miscellaneous expenses have to be met. By stern economic law these the price must include. Whatever above the total of these items depends on your own valuation of the risk of your business and of your ability. Chart form M F S 1 , shows on the right the total sales price or receipts, made of the component parts, material, labor, factory expense, sales expense and profit. The problem is really an analysis of the income and outgo. The first is easy of solution since there is no difficulty of tracing receipts to particular articles or lines, a matter of general ledger ac- counting. In solving the second problem, cost accounting was developed based on analysis of charges by means of general ledger accounts. This solution was not satisfactory since ledger work is accumulative and not comparative. This has developed the science of cost statistics which are combined with a part of the old cost accounting methods. The solution of this problem is given by an analysis of the sections. Material, productive or direct is easily cared for, since it is tangible and evident. It includes only that directly appli- cable to an article. In some cases material evident on the finished article cannot be correctly apportioned and will need go into expense. On account of the simplicity of this section, you are in general securing accurate figures. Later under that chapter two classes of errors are discussed, one the improper AND SPRING BED MANUFACTURERS M F S MANUFACTURERS Becessary to gdd for final succefl = of any "Business, lOfo or over _ _tp sjues p_riQ£ Eq«ai-T©t8-i-B3ru*Bdi*ures Salesmen's Salaries and Expenses, Advertising, Dis count, Rebate, all Delivery Charges; additional to factory Cost about 15 '/» a on -Productive Labor, Repairs, Replacements Insurance, Rent, Taxes, Supervision, Power, Heat, Share of Office Expense, Miscellaneous, Inward Cartage and Freight Add as Percent of Labor about 40 $ Productive Labor only. Add cost for this and expense items _by_rjegartrneritB Productive Material that enters directly into the making of the product, plus waste, cartage ana Freight. 12 NATIONAL BUREAU OF METAL pricing through lack of definite information; the other, not taking into account wastage. Charges for delivery and cartage go into material cost. To secure accurate material costs, accurate specifications are necessary, to be checked up with actual practice several times each year. Pricing for inventory should be at the pur- chase or market price, whichever is lower; for estimating, the purchase or market price whichever is higher. Material enters the sales price at cost. On it there is no profit since the customer is not buying rod, tubing, castings and enamel in the raw state but an article fashioned from these into integral whole. If at any stage of manufacture, a section or part has a value in open market, a profit is thereby accrued at that point, although it is not always advisable to there show it. Profit has no relation to the value of raw material. Labor, productive or direct, is that which is chargeable directly to the making of an article. To secure this presents a clerical problem combined with a careful distinction in applying in the borderland between direct and indirect. Many times it is necessary to throw labor into the indirect sections to avoid excessive clerical cost. The feature that emphasizes this problem is, that on day work the cost is sub- ject to wide fluctuation, and since it is on this section of cost that much profit is made, differences may make cost exceed price. It is, therefore, essential to keep records of labor, compiling the information for use in finding fluctuations, and in such a way that the distribution is accurately made. Expense contains all expenditures not classed under ma- terial or direct labor. This section presents a detailed problem AND SPRING BED MANUFACTURERS 1 3 in dissecting, distributing and applying. All expense can be broadly classed under manufacturing, selling and general administrative. To do this it is necessary to regard the factory as making and delivering to one sales agent or jobber who bears all distributing expense. A certain portion of the general administrative would fall to manufacturing. Then analyze the expenses of the sales agent including his proper share of general administrative cost. Both classes can be further dissected, distributed, and applied in accord with the reason for existence. Factory expense includes rental on buildings and equipment or depreciation; repairs and upkeep; and interest on invest- ment; supervision whether general or departmental; power and supplies. All these exist to give a place for the workers to handle material to the best advantage, aided by equipment, supervision, power and supplies to produce the finished article. Every element exists to give place for or aid labor; every ele- ment varies in a definite though different ratio with labor. Factory expense, eliminating raw material storage, has no bearing on material cost. It bears no relation to sales price. It should, therefore, be distributed on direct labor and applied to article cost in accordance with direct labor put into that article. Since your industry covers a wide variety of articles in any one factory, demanding a variety of equipment and different investment, it is essential that the factory burden be depart- mentalized, this division being as fine as desired by the oper- ator. A percentage on productive labor will distribute fairly accurately with minimum clerical difficulty; expense cost per productive hour or per machine activity hour being refine- ments toward greater accuracy. 14 NATIONAL BUREAU OF METAL Sales expense includes the cost of securing the article de- sired by the buyer at the price he has or is willing to give and placing the article in the buyer's hands and securing the money from him. It includes the cost of supervising or administra- tive, designing, exhibiting, advertising, salesmen's salaries and expenses, delivering and collecting. The gathering of this expense is a simple accounting problem. Sales expense distribution is a problem without a good solution. Much of this expense has a direct bearing on the profit made, the best illustration is the payment of low com- missions to salesmen on "leaders" or low profit lines, higher commissions on good profit lines. The best theoretical solu- tion is distribution to profit on articles as closely as charges can be made. This is impractical from a clerical standpoint. The next item affecting profits is factory cost. It is advisable to distribute sales expenses as a percentage to this cost. This method is possible only where accurate dependable costs are secured and costs of each month's shipments are figured. Since this last is a detail many of you do not desire, sales price known and easily compared in gross should be used. Further discussion of cost methods in the report is merely an elaboration of methods, of checking and properly presenting these elements under the reasoning that in the finished article material has no cost to add to itself except cartage, storage and wastage; direct labor is added with the expense of its own maintenance and place to work to the material value; sales expense is added to total making cost, and the difference be- tween this total and sales price equals net profit. Throughout, it must be understood that part of the profit is due to the making, part to the distributing, but none to the raw material. AND SPRING BED MANUFACTURERS 15 OS 2 Article Casters Date Name Address list Dis. Net Tenns Remarks 3/2 3 Conway & Co Buffalo L2.00 52£ lODa J.B.York Co New York L3.00 62-^0 ^0 » 1 Back of Card to be printed as below: ORDERS Date Order No. Name Qty- Price Date Del'd Inv. No Remarks z- 16 NATIONAL BUREAU OF METAL (6" X 8" Card) Back of Card to be printed as Delow 3took Reoord Stock Record Stock Record Date Ord.lb Issd Red Balan. Date Ord.Ho lead Rod Balanoe Date Ord.IJoIsed P.cd Balan AND SPRING BED MANUFACTURERS 17 IK F S 4 MATERIAL RECORD / Department : ALL WIRE January February E \ Quantity Price Amount Quanti ty Price Amount c Piles Soap Waste TOTALS 2 4 Lbs. 10 8 lb 12 ! 30 \ 7 10 18 NATIONAL BUREAU OF METAL Material Productive Material is that which is chargeable directly to the manufactured article. Except for paint, material costs or estimates where figured, are now fairly accurate. Pricing of material is not universally well cared for, neither is issue and use to show wastage. For cost purposes it is advisable that a price and quotation record for each purchased article be kept, as per form M F S 2, whereon is entered each new price or quotation. The former gives the figures for cost records, making certain that the high as well as the low will be taken into account. Except on articles that fluctuate widely in cost average prices should be used; for these articles, prices by lots are advisable. Receiving of material should be recorded accurately. Storerooms afford the best check on use of material, and requisition for issue can be used. Where there are no store- rooms, monthly or quarterly department inventory reports will serve the purpose of securing average percentage of waste. Since the store-room scheme is almost universally possible or used, a store record card, form M F S 3, is suggested; this can be used for purchased stock, manufactured parts or finished product. Orders placed are entered, and issues and receipts give the balance on hand. To secure an inventory monthly or quarterly, the quanti- ties used can be posted from the requisitions or inventory reports. By pricing the usage for the period, the balance of the stock can be secured. Where requisitions are used for all stock, this record is easy to maintain by filing the requisition AND SPRING BED MANUFACTURERS 19 slips until the end of the month or period by classes of ma- terial. As soon as material record form M F S 4, is posted, requisitions can be filed to order or bed number. Where department reports are used, an average waste will need be figured or estimated by comparing actual output with usage as shown from reports. Requisitions on all material will charge the losses direct to the order or type of bed. Paint and foundry material costs will be discussed under separate heads. A separate set of material record sheets, M F S 4, can be run to secure detail of supplies used, by departments. 20 NATIONAL BUREAU OF METAL Labor The labor element of cost, usually considered the easiest to obtain, is not accurately distributed in many plants of your industry. It is quite customary to secure an average department cost by dividing the total pay roll of the department by the total production going through, not taking into account the opera- tions. This gives an average cost, not fully satisfactory. It is very essential that the time-keeping be watched closely and reports on labor be obtained in such a manner that an analysis of the situation may be easily obtained. For good cost pur- poses it is necessary: To gather labor time of each man by operations To make sure that this time is complete and accurately given, and That the total labor distributed to cost will check up with the total pay roll. Shown is a suggested form of time ticket, M F S 5, which may be used as an individual time card. This form makes it possible to arrive at the total operation cost per part, also by means of these time cards being made out in advance it is possible to lay out production by men or machines. With this plan the workman's time cards are made out in advance with man's number, job number and operation; time of starting is checked when work is started, finished time at close of operation, repeating the cycle for each new job, stating the time allowance for finishing the operation wherever possi- ble. All time cards are started anew at the beginning of each AND SPRING BED MANUFACTURERS 21 M F S 5 Dept.Nc DAILY "R T^mjp WORK loyee Order Ho. TICKET Write Kinds of Work here: Bending Description of Material Work Started Weight or Pieces Piecework Price Time Weight Waste Date Hour iour Min. 3/29 7AM 300 .02 2 Work Conroleted Descrip. of Fin. Work- Bed Ends Total Tota: Total Total Day Hour 3/29 9AM Foreman 22 NATIONAL BUREAU OF METAL payroll period, so that the time taken by each man for each week may be checked against his clock time. It is very necessary that the individual time cards of each man be checked. In plants or departments where there is piece work the tag system of keeping track of the amount of work turned out is useful, a tag with several coupons being made out for each piece and attached, a coupon torn off as the piece is passed from one operation to another. This general scheme is pretty thoroughly understood by the majority of manufacturers and needs no further discussion. After the time cards are used for payroll purposes they may be filed by operations or kinds of beds, and labor cost figured whenever desired. A cost payroll form similar to M F S 6, is the best method of tabulating and checking up labor with costs. It accom- plished the following results: Shows each department. Shows for regular payroll purposes the amount each man is to receive. From it can be drawn each week statement of of day work and piece work where a high per- centage of piece work is desired. Gives the amount of productive and non-pro- ductive labor, the names of the non-productive workers, this being an important item in low- ering operating expenses. Brings out weekly the labor cost totals for each class of goods under as fine a distinction as it is desired to make. Absolutely proves out the distribution of all labor against costs showing you that every item has been accounted for. AND SPRING BED MANUFACTURERS 23 24 NATIONAL BUREAU OF METAL This last point is particularly important as it determines the difference between an adequate or inadequate cost scheme. Many have neglected this one point in rinding costs. This form of payroll no doubt will take a little more time than most of the methods in use in your industry. However, it brings out an analysis of the situation that is worth many times over the small additional cost involved, giving as it does a positive record of comparison. A payroll analysis can be used in connection with the pay- roll, as shown in form M F S 7. This is a valuable record for every manager. It is the key of the labor conditions in the factory. Properly understood, it gives a true picture of the labor conditions each month. Besides the form shown, there should be a recapitulation of the total labor of all de- partments carried out under the same headings as shown. AND SPRING BED MANUFACTURERS 25 M P S 7 PAY ROLL AHALYSIS < Department: Institution January January February February E ^ t c 1911 1913 1911 1912 DUMBER OF EMPLOYEES: All Productive All lion-Productive Part Productive Total flumber AVERAGE DAILY PAY ROLL: Produotive Non-Pro duotive Total per Day PIECE WORK RECORD: Month Total Productive Pay Month Total Pieoe Work Pay f> Piece Work to Prod. Pay HOB- PRODUCTIVE RECORD: Month Total Pay Roll Month Total Non-Prod. Pay f» Don- Prod, to Total Pay $ 4 1 3 $ $ - °-Ii « ■» a CO ■5 3 2 ' 8 ^s . g g g 8 g £ gf 8 g g g ° g g § g> H ■* " ^ g g ir u « I 1 g g g g g 8 g £^ g g g ; 8 g § §J § - g H m i- g £? g g g g £ g o c 8 g ° g g 1 § s , c > gi ■* - PERIOD TOTAL PROD. LABOR - MONTH 7 Ml fa-5 - PERIOD fo EXPENSE TO PROD. LABOR-MONTH 18.6 i> -PERIOD | AND SPRING BED MANUFACTURERS 35 bed. There is, unfortunately, no absolute way of loading on expense which will withstand all arguments, but experience seems to prove that expense apportioned on a productive labor basis in your industry will give the most equitable results. CHEAP BED Material Labor .92 .92 .23 .23 1.15 1.15 Expense at 30% Material and Labor at 140% . 33 on labor . 32 Total Cost 1.48 1.47 2 INCH BED Material Labor 3.88 3.88 .47 .47 4.35 4.35 Expense at 30% Material and Labor at 140% 1 . 39 pro. Labor . 66 5.64 5.01 We advise handling the machine-shop as a separate shop similar to the power department, charging directly to any de- partment the work done for same, plus its proportion of mach- ine shop over-head expense. A distinction must be made be- tween the labor on repairs and that chargeable to new work. Costs should be kept of the new work such as machines and chills, to go into the equipment accounts. The repair labor would be absorbed by the various productive departments as an expense item. 36 NATIONAL BUREAU OF METAL A productive department expense is arrived at on form M F S 8D both for department and in total. First are the controllable items such as labor and supplies; these latter in detail. Then follow the repair charges and amounts charged to standing order numbers; then the fixed expense items. The total expense for the department is then obtained and expressed as a percentage to the productive labor in the department. To this is added the general percentage and M F S 8-D E X P E N 5E ANALYSIS / January February E \ PAINTING DEPARTMENT t \ 1911 1912 1911 1912 c\ Foreman $ 65 00 $ $ Bon-Productive Labor 8 20 / (Detail of Same) / Repairs ■ J Machinery 1 55 / Buildings 2 10 \ Tanks ■5- 70 \ Etc / SUPPLIES: 11 10 I Waste 75 Etc 1 FIXED EXPENSES: f Insurance 38 90 1 Taxes 19 40. \ Depreciation 48 42 \ Rent 7 93 \ Power TOTAL EXPENSE - MONTE 70 00 ) 278 85 / - PERIOD \ TOTAL PROD. LABOR - MONTH 212 24 \ - PERIOD \ $ EXP. TO PROD. LAB. -MONTH 131.6$ -PERIOD j f> GEH'L EXP. TO PROD. L. -MO. 18.6J& J -PER. / fo TOTAL EXP-.TO PROD.L.-MO. 149-2J5 \ -PER. i ^ Sample for all Pre duct ive Dc parti nen te AND SPRING BED MANUFACTURERS 37 both shown by period to date. At the end of the year, the thirteenth month back would be dropped giving year to date percentage for cost purposes. Forms M F S 8D and 8E show the detail of paint depart- ment and "all wire" department expense. Similar sheets should be figured for each productive department, following the same methods and with much the same headings. All labor in the foundry except supervisional and repairing would be regarded productive for purposes of distributing the general expense. 8-E E X •'? EN3E ANALYST'S ( AIL WIRE" DEPARTMENT January February E \ -t \ c ! 1911 1912 1911- 1912 Foreman Hon- Prod. Labor (In Detail) Repairs (In Detail) Supplies (In Detail) Fixed Charges: Insurance TaxeB Depreciation Rent Power E t c TOTAL EXPENSE - MONTH - PERIOD PRODUCTIVE LABOR - MONTH - PERIOD $ EXPENSE TO PROD. LAB. -MO. -PEE <% GENL. EXP. TO PROD. L. -MO. -PEP fi TOT. EXP. TO PROD. LAB. -MO. -PER. I 72 69' ;>9 7 -70 55 70 11 224 00 37 22 10 82 50 84 74 00 $ $ $ > ■ 590 Ii09 96. 18. 115. 59 70 4# ) 38 NATIONAL BUREAU OF METAL Selling Expense Selling expense should be brought out independently of factory expense. There are two good ways to apply it to article cost: One on factory cost, applicable when an indus- try has dependable costs; the other is on selling price, when the price is largely predetermined as in your industry. Selling expense analysis sheet, Form M F S 8F, takes into account all items that are chargeable to selling expense, including its proportion of the office expense. In case of a varied line it is an advantage to make a division of selling expense to the various lines. This can easily be done by separation of the accounts. To recapitulate: All expense must be included and the total of the distribution must be compared with the books where all expenditures are accounted for. It is not sufficient to bring out the expense in total, but it should be*apportioned to the various departments. Factory expense should be distributed f on productive labor. Selling expense should be distributed on factory cost as soon as secured. AND SPRING BED MANUFACTURERS 39 MPS 8-P EXPENSE ANALYSIS \ January FebruaryE SELLING EXPENSE 1911 1912 J 1911 1 1912 Share of Office Expense $1 =568 20 $ Y~ Commies ions 271 10 Discounts and Rebates 129 75 Salesmen's Salaries 422 SO Salesmen's Expense 379 70 Advertising 122 50 Legal - Collections 7 10 Shipping Department Expense 43 50 Labor Delivery (Teams) Entertainment 19 ,'0 Losses TOTAL EXPENSE - MONTH 12 00 2 975 65 - PERIOD OUTPUT COST - MONTH 20 000 00 - PERIOD % EXPENSE TO COST - MONTH ; 4.5 $ - PERIOD 40 NATIONAL BUREAU OF METAL Foundry Costs Starting with the foundry in the iron bed work, a report similar to M F S 9, should be turned in each day showing total amount of scrap, pig iron, stone and expense material used, and amount of time of cupola tenders and workmen. This should show also the amount in pounds of good iron poured which may be obtained from the number of different kinds of beds poured times the pounds of iron on each, the quantity on each bed being checked up whenever the chills are changed. On foundry cost sheet, Form M F S 10, the daily reports are recapitulated. Many refinements are possible and have been evolved in various foundries. Detail of labor is given much closer, also a more scientific showing of material used. The method recommended is to charge all material, labor and expense in foundry plus share of general expense against the total pounds of good iron produced. AND SPRING BED MANUFACTURERS 41 F U B DRY REPORT Material L a b r Coke Pig Iron Scrap J Returns Stone Operation Time .Amount 1 100 500 Cupola 10 $ 3 00 2 Tender 10 2 00 3 Pouring 60 12 00 4 Framing 75 13 00 5 Chipping 20 3 00 6 7 8 E t c Total Total 33 00 B e d 8 11 a d e Lbs. Total lbs. Total Bo. Kind Per Bed Good Iron Ho. Kind Per Bed Good Iron ! Recapitulate )n 20 706 3 60 Total Labor $ 33 00 30 701 5 150 Expense 43 50 50 £ 810 6 500 Material Total 70 00 146 50 t c Total Good Iron 12,500 12,500 Cost per Lb. .0172 42 NATIONAL BUREAU OF METAL AND SPRING BED MANUFACTURERS 43 Paint Costs Absolute paint cost is very hard to obtain and the best that can be done is a close approximation. The method advised is to determine the relative quantity used on the various kinds of beds, as many are doing at the present time, but going further and checking up the quantity of enamel used. To determine the amount per bed, it would be well to start with a definite quantity in the tank, dip a certain number of beds, refill the tank to the original point; and if possible, make this operation continuous over a day and a half or two days, if there are sufficient beds of a kind to do so. This will not only give you the loss in drippage, but also for evaporation. After this factor for each bed is obtained, it should be checked up by taking the total number of beds dipped for a period or a month, times their individual factor to compare with the amount of paint material used. If any marked discrepancy should show up, instead of appor- tioning the discrepancy to all of the beds, it would be much safer to run additional tests. It will then be a comparatively easy matter to obtain efficiency reports on painting which will allow you to make definite comparisons between the different kinds of paint. In arriving at the material cost for paint, many of you have determined by special runs the amount of paint you consider necessary to charge against the particular bed. However, in doing so, there are several items of waste that we believe were not thoroughly determined, evaporation, and that entailed in cleaning up the tank. These would only show up at the end 44 NATIONAL BUREAU OF METAL of a period, depending on how often the tanks were cleaned. Also, there is a loss of paint on the inside of the legs of the iron beds which some of you have not taken into account. It is known definitely from some of the methods used in obtaining paint cost that this item of waste has been neglected. The labor cost on painting could be expressed in direct ratio to the number of bed ends dipped. From observation it takes practically the same length of time regardless of the size. This knowledge would be the basis for the distribution of the expense of the department. The dry kiln expense could be distributed either on the number turned out similar to the labor, or on the relative amount of space the different kinds of beds occupy in the kilns, times the time kept in. It would seem better to bring out these various items of cost periodically and by items because of the wide difference in relative cost of labor material and kiln expense. Form M F S 1 1 , will give you an idea of how this cost sheet would look. After the costs have been running for a period of time and should demonstrate little variation, it may be necessary to figure out the final cost at the end of each month. Even should the costs not be carried out monthly, it would be wise to check the costs as to amount of material put in, against the co-efficient determined for each kind of bed. Your enamel is an expensive raw material, and a very small percentage of waste amounts to a good many dollars for the year and, there- fore, should be watched carefully. Another thing to be taken into consideration is the quality of enamel used. Many of you will find upon trial that it is not always the cheapest in price that proves to be the cheapest material in the end. Records run as given will enable you to determine the question of quality to your satisfaction. AND SPRING BED MANUFACTURERS 45 Lacquering costs would best be obtained by charging both labor and material to the different classes of beds, the catalogue number showing the class, allowing you to arrive at the number of beds of each kind turned out in a month, together with the three items of labor, material and expense charged against each. 46 NATIONAL BUREAU OF METAL Final Costs Final records of costs based on the elements as given before can depend on the desires of the manager and the needs of the situation both as to detail and frequency of figuring. This effect on the part of your association is to aid its members to secure actual costs as against estimated or guess costs. There- fore, in gathering the final elements it is essential that every detail be considered. Three general methods can be followed, by order or lot passing through, by operation classification and by article classification. Most of you are familiar with the first. Each lot going through has a definite order or lot number, this number show- ing on all time tickets and material requisitions. To secure all but foundry and paint costs which are shown separately after checking with controlling records, time tickets and requisitions are filed to order number. Upon completion of order, both are posted direct to final cost sheet. The only change in the sheets later to be made is the additional heading in each column of "Order No.," the totals by departments or operations being posted, grand total being divided by number finished. The second and, from an operating standpoint, more satis- factory method is handled by classifying operations in each department by difference in labor difficulty as well as difference in character. For instance, bending a certain size of tubing will be the same almost regardless of style of bed. By so classifying; the cost work will be much simplified, and a record AND SPRING BED MANUFACTURERS 47 such as Form M F S 12, will give the basic operation costs. Information on this record can be compiled monthly or for any period, by totaling and entering all time tickets for period covered, dividing total time and amount by output of period. Record of pieces per hour gives a very definite record of effici- ency; cost per 100 or per piece to be used on final cost sheet. h U CD CD (d -P Ph co aj ^ O •P ■p >> CD O O u O O -P n O H o o O "3 CO r-H 'H m O M Oh! CO Ph S3 •3 Ph w o 3 a> CD U O fH P CD CD O ■H Ph H pH Eh Ph W o H o a o M ■P 3 H EH M o o 5 «< EH H K w Ph o ■a H O ^ CO > W P -1 CO ^1 fl OJ ■H Oh Ph 2 3 H O *J o E< «* a o o 1 ■H 0) u ■P r-t co o i °> a Vl -H o CD -f 3 Ph P. tH &< O -a) 48 NATIONAL BUREAU OF METAL A refinement of this method can be made by regarding only the difference in labor difficulty of operations in any depart- ment, disregarding differences in character of operation. Under the operation classification scheme it is advisable to secure a department report of goods finished. Some of you are using the third method with good results. This scheme briefly is to file all requisitions and time tickets under the bed or article number, and figure up a cost at the end of any desired period from the articles made during the period. The only danger is in too great a simplification giving blanket department costs. The main differences are that the order cost scheme can be made absolutely accurate from an accounting standpoint; the operation classification somewhat simpler than the first gives the running detail of operations for factory executive use; the last method is simple from the clerical standpoint but sacri- fices some accuracy, and loses the detailed analysis. In figuring spring bed costs most of you are using piece work prices for labor costs despite a certain part of this work is constantly on day work. Securing a record and check on labor eliminates this loss. A spring cost is shown figured on Form M F S 13A and 14A. These forms are drawn for either order or classification meth- ods. If an operation record like form M F S 1 2 is used, the detail under labor cost will be much simpler. In this cost such items as japanning and trucking are figured in the de- partment over-head. The material sheet form M F S 13A can be once or twice each year, the labor monthly if desired. Form M F S 1 3B and 1 4B show iron bed cost figured in much the same manner. These forms are merely suggestions, in every case the forms should be designed to compare the detail from lot to lot, or from period to period. AND SPRING BED MANUFACTURERS 49 MPS 13-A FINAL MATERIAL COST SHEET Specifica t i n e Size: . 120-C Cat. No. 78 A rticle: ate Springs 2/23 Sides L Fabric Coil Color Blue D Net Weight Cost No 561 Finish Ship. " Remarks : Packing Single Lbs. Quantity Length Size Matdrial or Measure Price Amount WOOD : Rails, End Side Corner Blocks End Caps Braces IRON : Angle Iron Rod Tubing Castings Bolts Rivets Wire Hooks Slats Ferrules 01 Fahri c Material #12 Coil Springs 13 i 1.91 25 Acme Helecal " # 7 Frame Wire 4 I 1.76 08 Acme f M Acme Crimp Wire 2 2.11 04 Strands Wire 2 i 2.11 05 t H Border Wire PAINT MATERIAL Japan Enamel PACKING MATER IAL- Lumber Nails Waste , # 5 TOTAL MATERIAL 02 02 47 50 NATIONAL BUREAU OF METAL M F S 1J- I FIHA1 MATERIAL COST SHEET Speoificat io n s trtiele Iron Bed Size: 4. '6" Cat. Ho. 329 Color White Date 3/23 Height Head 58" Height Foot 40" Pillars :Jumber 529 Pilling Remarks Vases Brass Net Weight 75 Lbs. Gross Wt. 81 " Packed Lbs. Quantity Length Size Material or Measure Price Amount Angle Iron 20 I.50 30 3/a Iron Rod 9 2.00 18 2 34 1 Ll6 Iron Tubing ) 17 1.25 18 2 50 " Iron Tubing ) : 2.10 21 2 61 " Iron Tubing ) Chill Castings 27 1.00 27 Malleable Castings Sorewa Bolts Knobs Brase Rod Husks Spindles Ends 4 1 i/£ Caps Vases Springs .005 02 1 Set Casters Paoking Material: Pads Twine Paint Enamel Set 4 Oz. .06 06 06 Q4 15 TOTAL MATERIAL 1 47 AND SPRING BED MANUFACTURERS 51 M F S 14- A pi Hal labor cost shze: Art icle-. Date Cost Mo, Remarks : Springs 2/25 jbl_ Order Number, Period Q-ian ti ty Juant ity I Price Aid oun 1 1 ^ ° s t Each • e 8 t e a a , WOOD DEPARTMENT. Rip and Cut Boring Dressing Sanding Sawing Assembling Total Expense ALL WIRE DEPARTMENT Weaving Stretching Assembling Stra ightening Carting Bending Crimping Kao tt ing Total Expense IRON DEPARTMENT Punching Drilling Total Expense PACKING AHD SHIPPING TOTAL LABOR TOTAL EXPEB3E (/o on Labor gath- ered by Depts . ) TOTAL MATERIAL TOT&L FACTORY COST Selling Expense Total Cost Sales Price Profit -jo Profit or Loss 09 015 02 205 29 47 16 125 15. 02 3 52 NATIONAL BUREAU OF METAL PINAL LABOR COST SE3ETS Article: Iron Beds Date 3/23 Cost Ho. 529 Order Number Quantity Re \ a P p „ \ y e a t < Pp-ri or) H e B a Quantity Price Amount Cost Each " dl "g FOUNDRY ; bulling $ 01 Straightening Bending 01 Chipping 03 Assembling 155 Total Expense PAIHT DEPARTMENT: Prime 035 Dipping Ob Finishing 04 Hand Work Total Expense TOOD DEPARTMENT Boring Drilling Punching Total iixponse PACKING AND SHIP. DEPT Packing 12 TOTAL LABOR a6 Total Expense 64 Total Material TOTAL FACTORY COST 1 47 2 57 Selling Expense TOTAL COST 36 2 S3 Sales Prioe PROFIT % Profit or Lose 3 25 32 10 $ AND SPRING BED MANUFACTURERS 53 Accounting Modern accounting shows in a scientific manner the physi- cal and financial condition of the business — its resources and obligations; it enables the proprietors to compare intelligently and analyze the earnings and expenses; it points out the weak- nesses and unprofitable departments; it suggests proper reme- dies for improvements and equitably distributes the adminis- trative and burden charges, giving in a simple and concise manner a comprehensive statement of the entire business. Scientific accounting sets up and analyzes in natural sequence the transactions of a business, so that they shall converge in a logical and comprehensive statement periodically showing the actual results of operation. Annual profit and loss statements deal with facts, the majority of which are months old. They show conditions which would never have continued if the proprietor had only known of them when they first occurred. Too frequently they show in a final analysis only the worth at the beginning of the period and the worth at the close of the business, the difference being the gain or loss for the period. It is therefore recommended that if the cost scheme is carried out as herein outlined, a full statement of the business be secured monthly or quarterly. The material record sheet, Form M F S 4, gives the outgo or credits to material accounts and charges to manufacturing. The distribution of payroll to different classes of work gives the credits to payroll and charges to manufacturing. There remains only the disbursements for expense and material. Voucher record Form M F S 15, will give a simple method of caring for this feature of the accounting. Each invoice is here 54 NATIONAL BUREAU OF METAL AND SPRING BED MANUFACTURERS 55 entered, the total being credited to Accounts Payable, the detail charged to the various material or expense accounts. All disbursements run through this record. With costs on finished product secured and the distribution of all disbursements accurately cared for in the general ac- counts, it is possible to draw off from the general ledger a statement such as Form M F S 16. Quick assets and quick liabilities you are all familiar with. Balances of material on hand are secured by starting with inventory, charging totals each period from voucher record and crediting with use of material record. "Work in Process" can be secured by charging with material, labor and expense used, and crediting with cost of goods shipped. "Permanent Investments" are shown at purchase value. Under general profit and loss "General Expense Undivided" represents un- used expense, the difference between actual and pro-rated expense. Interest and Discount are carried where nominal sums are borrowed, with charges of current interest and credits of discounts on purchases. Profits on lines of goods are figured by charging at cost the shipments for month and crediting with sales. Interest, Reserve and Depreciation are perhaps the only unfamiliar accounts. The former is credited with the interest on investment which is used each month in expense analysis. Depreciation is credited with the figure charged each month in the expense analysis. This may be divided into three accounts for buildings, machinery and equipment. This method leaves buildings and equipment at purchase value. Sales of machinery will be deducted from the asset account, the difference between purchased value and sales value being cared for from the proper depreciation account. This statement will be the final analysis of your business and a test of your costs and accounting. 56 NATIONAL BUREAU OF METAL MPS 16 F I H A LSTATEMEBT ' January February E t Dr. Cr. Dr. Cr. QUICK ASSETS: $ $ 1 $ Cash 750 00 Bank 9 550 00 Petty Cash 50 00 Botes Receivable 1 000 00 Accounts Heceivable 49 500 00 Personal Accounts 1 500 00 MATERIAL OH HABD : Iron Bed Department 4 456 50 Spring Bed Department 1 937 40 Mattress Department 9 600 00 Couch Department E t 1 970 00 c WORK IB PROGRESS: Iron Bed 7 573 40 Spring Bed 5 760 40 Mattress 9 000 00 Couches 790 00 PERMABEHT IBYESTMEBTS: Real Estate 75 000 00 Buildings 29 900 00 Machinery ) Equipment ) 42 000 00 General Profit or loss General Expense Undivided 3 143 40 Interest and Discount 360 97 Income on Investments 1 370 70 PROFIT BY HUES OF GOODS: Iron Beds 1 030 50 Spring Beds 720 75 Mattress 6 370 12 Couches 110 00 QUICK LIABILITIES : Accounts Payable 15 000 00 Botes Payable 500 00 Advanoe Payments 55 00 Personal Accounts 377 00 Dividends PERMABEHT LIABILITIES Capital Stock 200 000 00 Surplus 14 518 00 ! Interest Reserve 1 290 00 Depreciation Reserve B A L A H C E 9 500 00 250 8A2 07 250 842 07 J AND SPRING BED MANUFACTURERS 57 Estimate Cost Methods There has been outlined the basic methods of a uniform cost scheme with running records. The elements that can be used by those who desire to get started on the right path are here presented following lines of the general scheme. The three elements are material, labor and expense. First is ad- vised definite specifications for each particular bed or spring manufactured that the cost be revised or verified at least twice a year. To arrive at material cost, you would do much the same as many of you are doing at the present time, take the actual material per bed, — but you should go farther, and by experi- ment determine the percentage of waste that occurs on the various materials. The percentage of waste is now in many cases added arbitrarily. It is just as unsatisfactory to use a too high percentage as a too low. Labor estimates could be made on each article revised as follows: Instead of figuring up labor cost once a month all labor can be distributed in a payroll similar to the one shown against each class of product made, at the same time keeping a record of the total quantity of articles turned out on a sep- arate production record. At the end of three or six months the average cost per article could be obtained and applied on a cost sheet and compared with estimates. Expense should be determined by means of an expense analysis, for this is one of the vital points where the majority differ. It will be possible for even the smallest factories to get out an expense analysis with probably not more than part of a 58 NATIONAL BURE AU OF METAL day's time per month on the part of the bookkeeper. This general plan would require the keeping up of the expense analysis, the running of distribution payroll and production records for the month on each kind of bed or spring turned out by departments. The distribution of labor can be made to a number, or standing order number, which would cover the principal operations. It would be advisable in a cost of this kind to combine many operations. One of the dangers of an estimating plan, and the fault found in a number of factories is that when an estimate comes out several hundred dollars off at the end of a year, it is loaded into the cost for the coming year without due regard to its proper place. The statement made by a number that they come pretty close at the end of the year sounds good, but it is very doubtful if all of the costs figured on the basis represented show true conditions, in fact, the tabulations of costs that have been made bear out this statement. An estimated cost is a prophecy of future conditions based on past experience. It will always be necessary to estimate for future business and on new lines. For all those who take up the methods outlined in the report, it is suggested that the cost forms be used for both material and labor estimate. In figuring on a new bed a new cost sheet can be opened and the detail listed in the first column. This will afford comparison of running costs with estimates. AND SPRING BED MANUFACTURERS 59 Economic Data To bring out the value of comparisons and the need of uni- form cost methods, economic data on various matters in the business has been compiled; in analyzing these figures it is to be remembered that the information was given to individuals outside the bed industry, bounden by contract not to violate confidences, and is, therefore, more likely to be of true worth. In this compilation of these figures no firm names were dis- closed to members of the bed industry. This data was compiled from figures either actually taken from the books or given from records. In general, the repre- sentative average is used rather than the mathematical, since knowledge of conditions in most cases made possible the elimination of expenses. Twenty-four answers on pricing of material for, Inventory 12 Purchase Price 8 Market Price 4 Least Price Estimate 1 3 Purchase Price 1 1 Market Price Seventeen answers on percentage inventory to annual sales, One 30; four 25; one 24; one 22; one 20; three 16; one 15; one 14; one 10; Representative average, 20% Sixteen answers on percentage material cost to sales, Iron Springs Mixed Brass Total High 65% 52% 65% 65% 65% Low 50 38 47 55 38 Avge. 56 47 55.3 60 54.5 60 NATIONAL BUREAU OF METAL Twenty-four answers percent piece work or gain sharing methods to total payroll, High 90% Low 12% Average 47% Sixteen answers percent non productive payroll to total, High 45% Low 10% Average 27% Twenty answers, Dollars sales per employes. Iron Bed Iron Bed Springs and Spring only only High $2,930.00 $2410.00 $2510.00 Low 1,860.00 2280.00 1820.00 Avge. 2,547.00 2325.00 Mattress 1999.00 Mixed Principally Brass Total High $3000.00 $3700.00 $3800. $3800. Low 2200.00 3300.00 1800. Avge. 2588.00 3500.00 3800. Not Comparable Selling terms, 16 answers, from high to low; One 60-2%, 60 to 90; two-2%-30;one 60-5 %-10; three 60-2%- 10; one 30-5%-20; one 30-5%-10; seven 30-2 %-10. Percentage of profit secured to Sales, 18 answers; One 27%; one 25%; one 20%; one 14%; two 12%; five 10%; two 7%; two 6%; one 4.5%; two admit a loss. Percentage of earnings secured to capital stock, 1 4 answers ; One 32%; three 25%; one 24%; one 22%; one 13.2%; one 1 1.5%; one 11%; one 7%; two 6%; one 3%; one no earn- ings. AND SPRING BED MANUFACTURERS 61 Dollars sales to one dollar invested, 15 answers; Iron Springs Mixed Total High 6.90 6.80 4.85 6.90 Low 2.10 1.85 1.38 1.38 Average 3.87 4.65 3.01 3.72 Percent of current liabilities to current assets, 16 answers; Iron Springs Mixed Total High 65% 67.5% 83% 83% Low 33 25 14.5 14.5 Avge. 47 44 55 48 Percentage of surplus to capital stock for 12 answers, runs from 100% to 10%; average about 25%. 62 NATIONAL BUREAU OF METAL Central Bureau Comparisons As an association, the benefit to be derived from a universal installation of this scheme is through comparison of figures from various members, these figures being on the same thing. Since the method of securing the figures is the same, some value can be secured through comparison. If members do not care to disclose their identities, the Central Bureau affords an easy means for exchange. The reasons for comparison are, to First — Make market prices reflect costs Second — Make the business in the association more efficient and substantial To secure the first, comparison of costs, estimate sheets will be necessary together with comment on tabulation of costs by a central authority. That this comparison might be of true value, uniform specifications must be followed as far as possible and comparison made between competing of the same general style, size, weight and finish. This comparison leads to the second reason, but there is also possible comparisons of economic data on the whole business much more accurate than given in this report and therefore of greater value. AND SPRING BED MANUFACTURERS 63 Conclusions In concluding it is strongly urged that the greatest number possible avail themselves of the methods outlined. The in- dustry is in an economic condition that needs change based on an analysis of these conditions. From the survey it is possible to say that there are few really efficient plants in the organiza- tion, the main reason for inefficiency being lack of the knowl- edge of conditions. The acceptance and use of these methods will bring individual gain through betterment of general and local conditions. A dozen special forms are shown and one standard ruled book which can be used for all of the analysis. Many of these will be simplified or eliminated in some factories. To get the full benefit of the complete scheme, a cost clerk should be appointed to be responsible; this clerk to be picked from the stock rooms or factory rather than the office. The clerical force for the number of hands employed will be ap- proximately as follows, depending on the details desired: 40 - 90, one man 90 - 200, one man and assistant 200 - 350, one man and two assistants If the installation of the methods does not return considera- ble profit on the cost of upkeep, the application and use are not understood, and it is recommended that you confer with manufacturers who are making successful use of cost methods. JUL 20 1911 One copy del. to Cat. Div. vuv 20 \9l* >0* aV "£v . .^ / *'^X < 'MM?~ %>/ 41& +< ,0* £*' 4 °^ A APR