ffi 1 S if | 5 ill i ~ c 5 g> S<= p tt |1 a! *< w i i K a Si P a 5* 1 * O co ET O t_ n f Ml O PI o a. B Q d a S, a r o IB CO S o aS o X o I n *? i a. * B! a 01 v\ - * 1 * o > [.! 2. M O m 3 CO (or period of renewal) Renewed to RENEWALS: (Request and report < Reauested on Postage enclosed S Insured for S H II C 1 9 s a a t I B 3 C (L 3 i n - ^ < -^ - c B- c 2 1 o J- ! s - Hard copy BORROWING LIBRARY RECO Estimated Cost of: Microfilm NOT SENT BECAUSE: Non circulating | Copying not permitted P RESTRICTIONS: W^r Mn ui r c M r Q B i a a j - H f [ j, REPORTS: Checked by SENT BY: Library rate INTERLIBRARY LOAN R According to the A.L.A. Interlibrary L u 3 a> <i> rj a LJ 1 1 B O f> ^ i fe ^ 9 M s S.C e n w 0^ i H NICHOLSON ON Factory Organization and Costs By J. LEE NICHOLSON Certified Public Accountant and Factory Cost Specialist KOHL TECHNICAL PUBLISHING CO. NEW YORK 1909 1) COPYRIGHTED, 1909 BY J. LEE NICHOLSON ENTERED AT STATIONERS HALL, LONDON, 1909 M3 cop, PREFACE THIS work is intended primarily as a handbook for manufacturers who are interested in modern methods of Organization and Systems, for Accountants and Cost Specialists as a book of reference, and also as a textbook on cost accounting for the student. Furthermore, it is the author s purpose to outline and explain all the best known methods of Factory Organization that relate to Cost Finding in such a manner as to enable the manufac turer to compare these methods with those in use in his own plant, in order that he may see more clearly the defects in his organization and how to remedy them. It is the hope of the author that the Public Accountant, Systematizer, and Cost Clerk will find this work to be of value as a reference in planning, devising, or changing a factory system. CONTENTS CHAPTER I ORGANIZATION AND COST FINDING PAGE Value of Experience and Theory Combined Some Objections to Cost Systems and Re plies Value of Modern Methods Illustrated by Charles M. Schwab Effect of Cost Systems, on Organization Independent of Cost Findings Value of Costs to Sales Depart ment System Necessary Due to Growth of Business Value of System to Management Changes in Manufacturing Necessitate Changes in System Leaks in Business Located by Proper Organization Comparison between a Well-organized Factory and One Conducted on an Unsystematic Basis "Too Much System," "Too Much Red Tape" Right and Wrong Use of Forms Different Factory Conditions in the Same Lines of Manufacturing The Reason Overhead Expense Outline Showing how this Book will Benefit All Manufacturers Defects in Method of Determining Annual Profit, Value of Monthly Financial Statements W T here Does Profit End, and Loss Begin? The Answer 1 CHAPTER II WAGE SYSTEMS General Relation to Costs Plans Treated Day Rate Piece Work Differential Rate Premium Bonus Profit Sharing and Stock Distribution Choice of a Method Two or More Methods May Be Used Selection of Plan Important Introduction of Wage Systems May Introduce a New Profession Co-operation of Employer and Employee Individuality of Workmen. DAY RATE Necessary in Certain Class of Work Method of Beginning of Disadvantages of No Incentive "Soldiering" No Uniform Cost per Article Waiting Time Amount of Loss Resulting from Five Minutes Lost Time per Day for a Year of from One to One Hundred Workmen Loss Shown of 600 Workmen Losing an Hour Each. PIECE WORK: Method of Great Care Required in Fixing Rate Cutting Rate After Being Set Dissatisfaction of Workmen Necessity of a Fair Rate and the Effect on Produc tion Saving in Cost of Production Illustrated Inspection How to Fix Rates. DIFFERENTIAL RATE PLAN: Method of Relation to Piece Work Effect on Workmen Result to Employer Schedule Showing Results Differentiating between Good and Poor Workmen Quality of Work an Integral Feature Advantages of. PREMIUM PLAN: Comparison with Piece Work Method of Less Opposition to Introduc tion Illustration of Working Schedule of Different Plans Showing Result of Each. BONUS PLAN: Method of Close Relation to Premium Fixing the Rate Summary of Advantages of Premium and Bonus Plans. PROFIT SHARING AND STOCK DISTRIBUTING: Method of Usually Unsatisfactory A New Method of Distribution of Profits "Human Element" in Installing any of the Plans. 10 vi CONTENTS CHAPTER III ANALYSIS OF COST ACCOUNTING PAGE Lack of Knowledge of the Subject Actual Costs Selling and Administrative Expenses not Included in Factory Costs Partial Costs Central Idea or Principle Elements of Costs Material Labor Expense Analysis of Each Diagram Illustrating All Stages of Costs Operating Department Explained Operating Departments of Tex tile, Stove and Machine Shop Industries Incorrect Principles in Distributing Over head Charges Recording Costs by Operating Department Some Important Elements of Indirect Charges Interest on Investment Depreciation 28 CHAPTER IV DISTRIBUTION OF INDIRECT EXPENSES Application of The Blanket Method The Most Inaccurate of All Methods No One Method Suitable to All Plants Outline of Methods and How Used. DIRECT LABOR COST Its Simplicity Principle Involved Method of Illustration of Method Incorrect when Applied to a Plant as a Whole More Accurate when Used Departmentally. DIRECT LABOR HOURS Difference between this Method and Direct Labor Cost Method Explained by Illustration Showing Comparison with First Method Where Incorrect Conditions where Applicable. DIRECT LABOR AND MATERIAL Where it can be Used Usually Inaccurate. OLD MACHINE RATE Method of Where it Breaks Down Only Condition where it can be Used. NEW MACHINE RATE What Constitutes the Best Method Basic Principles of Method of Arriving at Rate. FIXED MACHINE RATE Principle of Method of Using Rate Supplementary Rate Difference between Fixed and New Machine Rate Where it is Unsatisfactory. NEW PAY RATE Method and Principle of How it is Obtained Saving of Time in Using. 38 CHAPTER V GENERAL INTRODUCTION TO FORMS AND SYSTEMS Principles Used in Forms and Systems Course to be Followed in Study. ESTIMATED COST SYSTEMS Method of Principles Involved When a Stock System should be Installed What Action should be Taken when Results Show Inaccurate Estimates. ACTUAL COST SYSTEMS Importance of Conditions Governing Introduction Stock Sys tems Forms Used in All Systems 58 CHAPTER VI GENERAL INTRODUCTION TO DESIGNS AND EXPLANATIONS Designs Used in Actual Operation Conditions under Which Used How to Select Forms Errors in Designing Forms Necessity of a Form General in Design Size Explana tion of Broken Line Knowledge of Principles of Cost Necessary Where both Manu facturer and the Accountant Are at Fault 64 CONTENTS vii PAGE Three Different Designs Explanations concerning Use ...... 67 CHAPTER VIII PURCHASE ORDERS Four Different Designs Explanations concerning Use 70 CHAPTER IX REPORT OF MATERIAL RECEIVED Seven Different Designs Explanations showing Conditions under Which All are Used Im portance of Using a Form of this Character 74 CHAPTER X STOCK RECORD RAW MATERIAL Nine Different Forms Conditions under Which to Use in Quantity Only, or Value and Quantity How Interlocked with Other Records Value to Purchasing Agent Proof of Value of the Form 82 CHAPTER XI PRODUCTION* ORDER Sixteen Kinds of Production Orders Illustrated General Use Duplicates Conditions under Which they are Used Relation to Costs 91 CHAPTER XII BILL OF MATERIAL. REPORT OF MATERIAL DELIVERED Six Different Forms of Material Requisitions Two Separate Designs of Bills of Material, and Four of Reports of Material Delivered Use of Forms and Conditions under Which they are Used Relation of Bill of Material to Material Requisition 104 CHAPTER XIII TIME TICKETS Twenty-eight Different Forms Illustrated, including Clock and Time Stamp-tickets How Used Day Work Piece Work Time Clock Use in Cost Systems Differential Rate . 110 viii CONTENTS CHAPTER XIV PAGE PAY ROLLS AND DISTRIBUTION SHEETS Fourteen Forms, showing Nature of Pay Rolls Distribution of Labor Relation to Dis tribution of Overhead Charges and Cost Records 122 CHAPTER XV PRODUCTION REPORT Fourteen Forms, representing Different Conditions Value Use in Connection with Other Records and Costs Use as a Cost Record 132 CHAPTER XVI STOCK RECORDS FINISHED PRODUCT Six Forms, Different in Design, showing Inventory Orders Received Cancelled Orders Unfilled Orders Sales Profits Where Information is Obtained The Effect of the Unit Profit System on the Earnings of an Enterprise 144 CHAPTER XVII COST RECORDS Twenty-one Forms for Recording Costs Use in Special Orders Contracts Machine Costs Conditions under Which they are Designed and Used Relation to Distribution of Indirect Expenses Estimated Cost Forms Power Cost and Distribution . . . . 148 CHAPTER XVIII DEFECTIVE WORK REPORTS Two Forms, showing Use Value Disposition of Defective Work 165 CHAPTER XIX STATEMENT OF FACTORY EXPENDITURES Four Different Designs representing Factory Operations Showing Plant as a Whole Departmental Expenditures: Material, Labor, and Indirect Inventory Purchases Material Delivered to Factory Departmental Expenses Method of Distribution of Indirect Classification and Costs 167 CONTEXTS ix CHAPTER XX OPERATING LEDGER PAGE Three Designs, showing how Factory Charges are Recapitulated Relation to Voucher Account Numbers Proof with General Ledger Analysis of Charges by Month or Year Relation to Purchase Journal .................. 171 CHAPTER XXI BILLING SYSTEM SALES CREDIT CERTIFICATE One Form of Sales Sheet and One of Credit Certificate Shown General Use of the Forms and Their Relation to Costs ...................... 175 CHAPTER XXII REGISTER OF SALES AND COSTS Ten Forms Different in Design Classifying Costs and Sales on These Records Postings to the Ledger .......................... 178 CHAPTER XXIII ACCOUNTS PAYABLE VOUCHER Two Different Designs, explaining Use and illustrating Connection with the Register of Accounts Payable and Operating Ledger ................ 182 CHAPTER XXIV REGISTER OF ACCOUNTS PAYABLE, OR PURCHASE JOURNAL Four Forms Illustrated Use Explanation of Postings ............. 186 CHAPTER XXV CHECK VOUCHERS Two Distinct Forms Explanation of How Used ............ , . . 191 CHAPTER XXVI CASH SYSTEM Register of Receipts and Disbursements (2 forms) Report of Expenditures (1 form) Cash Voucher (1 form) Pay Envelope (1 form) Distribution of Money for Pay Roll (2 forms) Explanations Referring to General Use Deposit of Currency Petty Cash Funds Bank Columns ..................... 193 x CONTENTS CHAPTER XXVII GENERAL FORMS PAGE Classification of Accounts Customers Ledger showing Profit or Loss on Sales (1 form) Customers Record Card (1 form) Customers Record of Pattern Costs (2 forms) Statement of Private Ledger (1 form) General Ledger Controlling Accounts Consign ment Accounts Factory Accounts Assets Liabilities Reserve Funds Surplus Administrative Expenses Depreciation Selling Expenses Method of Keeping Ac counts according to Classification Classification of Accounts in Detail New Form of Private Ledger Profit on Customer 200 CHAPTER XXVIII DRAWINGS, PATTERNS, AND EQUIPMENT RECORDS Plant Cards (4 forms) Tools Records (2 forms) Pattern Record (1 form) Drawing Record (1 form) Estimating Records (2 forms) Contract and Price Records (3 forms) Inventory Repair and Maintenance Cost Tool Room Estimates Section Cost Use of Price Cards Value to Purchasing Agent 209 CHAPTER XXIX INVENTORY OF MATERIAL FORMS Five Different Designs, showing Use in Relation to Stock Systems 217 CHAPTER XXX SALES REPORTS AND ANALYSIS Salesmen s Reports (1 form) Salesmen s Costs (1 form) Sales and Selling Costs (1 form) Orders and Sales (1 form) Salesmen s Record, showing Sales by Territor} r , Costs, Selling Expenses and Profits Classification Cost of Orders Sales and Selling Costs 221 CHAPTER XXXI MONTHLY REPORT RELATIVE TO FINANCIAL STATUS AND EARNINGS Production and Costs (1 form) Statement of Profit and Loss (2 forms) Comparative Statement of Profit and Loss (1 form) Comparative Balance Sheet (2 forms) Classifi cation of Financial Statements Monthly Earnings 225 CHAPTER XXXII ESTIMATED COST SYSTEM BASED ON AN ANNUAL VERIFICATION OF MATERIAL, LABOR, AND INDIRECT EXPENSES Simplest Condition Proof at Inventory Periods Bookkeeping Forms not Affected Beginning Inventory Schedule of Estimated Costs Sales Analysis Complete Plan of Verification 232 CONTEXTS xi CHAPTER XXXIII ESTIMATED COST SYSTEM BASED OX AN ANNUAL VERIFICATION OF DEPARTMENTAL CHARGES FOR MATERIAL, LABOR, AND INDIRECT EXPENSES PAGE Dividing the Elements of Estimated Costs Conditions under Which the Best Results are Obtained Inventory Record Schedule of Estimated Costs Sales Analysis Purchase Journal Pay Roll Complete Explanation of Plan Relation to Ledger and Postings Gross Profit Explained 237 CHAPTER XXXIV ESTIMATED COST SYSTEM BASED ON A MONTHLY OR ANNUAL VERIFICATION OF ESTIMATED COST OF CLASS OF PRODUCT ACCORDING TO DEPARTMENTAL MATERIAL, LABOR, AND INDIRECT EXPENSES Principles Method Different Elements Inventory Schedule of Estimated Cost by Class of Product Analysis of Cost by Classification Use of Purchase Journal Material Requisition Summary of Material Time Reports Pay Roll Plan of Verification, Showing Inventory Charges for Labor and Material by Department Estimated Cost of Sales by Classification Accounting Features in the Ledger Statement of Profit and Loss and how Arrived at Monthly on Estimated Cost Basis, and Yearly on Inventory- Inventory Closing Treatment of Selling and Administrative Expenses Balance Sheet 244 CHAPTER XXXV DEPARTMENTAL COST SYSTEMS, SHOWING COSTS AND PROFITS AT INVENTORY PERIODS Nature of System N r o Extra Clerk Hire Required Organization Value of a Production Order Its Use as a Cost Record Bill of Material -for Schedule of Material Cost and How Used The Relation of Day and Piece Work Plan to this System How the Pay Roll is Analyzed Nature and Use of the Production Report The Use of a Register of Accounts Payable and How it should be Kept Register of Sales showing Classifica tion by Departments Departmental Accounts Handling of Raw Material Classi fication of Accounts and How Charged and Credited Profit and Loss Inventory . . 256 CHAPTER XXXVI SPECIAL ORDER SYSTEM ACCORDING TO THE PRODUCTIVE LABOR METHOD OF COST FINDING Conditions Governing the Application of Principles Involved Stock System Outlined General Outline of Systems Method of Ordering Material Reporting Material Re ceived Order on Factory to Manufacturer Dejivery of Material from Stock to Factory Time Reporting Pay Roll Finished Stock Factory Expenditures Billing System Returned Goods and Allowance Sales and Cost Cash Receipts and Ex penditures xii CONTENTS CHAPTER XXXVII SPECIAL ORDER SYSTEM ACCORDING TO THE PROCESS OR MACHINE COST METHOD OF COST FINDING PAGE Conditions Governing Use Basic Principles Involved Distribution of Power Costs Machine Costs per Hour Distribution of Indirect Treatment of Depreciation, Repairs, Insurance Interest on Investment Floor Space and Machine Charges Application of Machine Rate to Orders Use of Material Requisitions and Time Reports Pay Roll- Process Cost Records Accuracy and Simplicity Combined Preparation of Profit and Loss Statements and Balance Sheet . 291 CHAPTER XXXVIII PRODUCT SYSTEM ACCORDING TO THE PRODUCTIVE LABOR METHOD OF COST FINDING General Outline Various Functions of Material Requisitions Material Delivered Com bination Day and Piece Work Analysis of Pay Roll by Department Division of Pay Roll when the Month Ends in the Middle of the Week Standard Cost Sheet; Illustration of Use Illustration of Indirect on the Cost Sheet Relation of Cost Sheet to Finished Product Detailed Production Report Stock Record for Finished Product showing Orders Received, Unfilled Orders, Sales, Costs, and Profits Method of Handling Defective Work Analysis of Factory Expenditures The Use of the Operating Ledger Distinction between Factory and Sales Department A Plan to Make Each Responsible The Purpose of the Factory Account "according to this Plan" The Relation of Each Department to the Management The General Ledger Accounts Billing System Analysis of Sales and Costs Description of Accounts Payable Voucher Ledger Postings from Register of Accounts Payable Check Voucher Verification of the Inventory from Day to Day The Profits between the Factory and Sales Department as a Separate Factor The Preparation of Profit and Loss Statements and Balance Sheets 306 CHAPTER XXXIX PRODUCT SYSTEM ACCORDING TO THE PROCESS OR MACHINE COST METHOD OF COST FINDING Conditions under Which to Use General Outline of Method Sundry Forms Used Time System Use of Cost Sheet Check Voucher 334 MECHANICAL OFFICE APPLIANCES CHAPTER XL INTRODUCTION Purpose of this Subject in the Work How Appliances are Explained General Advan tageProper Conditions under Which to Use 345 CONTENTS xiii CHAPTER XLI CALCULATING AND COMPUTING MACHINES PAGE Sixteen Machines Mentioned, of Which Six are Illustrated by Cuts 349 CHAPTER XLII ADDING AND LISTING MACHINES TYPEWRITING MACHINES WITH MECHANICAL DEVICE ATTACHMENTS Seven Machines Mentioned and Six Illustrated by Cuts 356 CHAPTER XLIII MULTIGRAPHS AND MIMEOGRAPHS Five Different Machines and Four Illustrated by Cuts 365 CHAPTER XLIV ADDRESSING MACHINES Four Machines Mentioned and Illustrated by Six Cuts . CHAPTER XLV TIME CLOCKS Eight Devices Mentioned and Eight Cuts Shown . CHAPTER XLVI TIME STAMPS Six Different Makes Illustrated by Ten Cuts CHAPTER XLVII WAGE TABLES-CHECK STAMPS-THE " PHONOGRAPH "-COUNTING MACHINES O(~| A Four Different Devices Illustrated by Six Cuts CHAPTER XLVIII FILING AND LOOSE-LEAF DEVICES 399 Fifteen Cuts Illustrating Various Devices . FACTORY ORGANIZATION AND COSTS CHAPTER I ORGANIZATION AND COST FINDING Value of Experience and Theory Combined Some Objections to Cost Systems and Replies- Value of Modern Methods Illustrated by Charles M. Schwab Effect of Cost Systems on Or ganization Independent of Cost Findings Value of Costs to Sales Department System Neces sary Due to Growth of Business Value of System to Management Changes in Manufactur ing Necessitate Changes in System Leaks in Business Located by Proper Organization- Comparison between a Well-organized Factory and One Conducted on an Unsystematic Basis-"Too Much System," Too Much Red Tape" Right and Wrong Use of Forms Dif ferent Factory Conditions in the Same Lines of Manufacturing The Reason Overhead Ex penseOutline Showing how this Book will Benefit All Manufacturers Defects in Method of Determining Annual Profit, Value of Monthly Financial Statements Where Does Profit End, and Loss Begin? The Answer. "ORDER is the first law of the universe." It is not the intention of the author to treat at length of the value of this subject, as many lectures, pamphlets, and booklets have been issued, and widely distributed, pointing out in a very comprehensive manner the importance and necessity of systematic organization. The author assumes that every manufac turer appreciates, to some extent at least, the necessity and importance of both organization and cost finding. In fact, no manufacturer would undertake the manufacture of any article without ascertaining something in regard to the cost, by either estimates or otherwise. While experience is considered the great teacher and is probably the most valuable factor in conducting a manufacturing business, yet a theoretical training in the underlying principles of organization constitutes the foundation-stone upon which experience may build, and gives a vantage ground not possible to the man who depends on experience alone. It furnishes a key by which he may interpret facts and conditions as they arise. It provides a scheme and outline to which particular events are referred, for explanation and "correlation." The subject of factory organization has been sadly neglected, and has not kept pace with the invention of modern methods and machines. The majority of manu facturers are still using old ideas, which have had their day, and are no longer effective, in any sense, in the present, conditions of manufacture. Of all the ele- ORGANIZATION AND COSTS ments that enter in the proper organization of a factory cost finding in its modern sense is perhaps the most essential. One of the objections raised against cost systems is that after incurring con siderable expense incident to the inauguration of such a system, some manufac turers, in certain instances, have discontinued the use of the system after a com paratively short period. There can be but two explanations given in such a case. The first one is, that the management did not comprehend the system and its underlying principles. The second reason is, that the system was defective in design, and the underlying principles were either not basic, or else wrongly ap plied. Defects of this character in a system usually involve such an amount of clerical labor as to make the system, to a great extent, impracticable. They are traceable to two principal causes, one of which is that the one designing the system attempts to figure out a plan of cost finding purely from a bookkeeping standpoint, without any reference to, or knowledge of, factory conditions govern ing the manufacture of the product. The other cause is due to the fact that those in the immediate charge of the enterprise are unfamiliar with accounting and the preparation of statistics, and are unable for this reason to see at the outset the impractical features contained in the system. In other instances, a half-hearted effort is made to inaugurate a system, and the slightest resistance eliminates the desire of the manufacturer to continue his plans along these lines, merely because a few difficulties are encountered during the first few days or weeks. In all the author s experience in dealing with manufacturers, the statement has never been made that accurate methods of cost finding were not an advantage. On the contrary, there has been a complete assent as to the necessity of more accurate costs, the only practical objection ever raised against such systems being, that the expense incident to changing from the present method to the more advanced ideas was too great. It is true that some lines of manufacture require a more elaborate system of cost finding than others, necessitating more clerical labor than where this is not the case, but even in such instances the manu facturer cannot afford to be without a proper system, since the greater the detail the greater the necessity for such a system. Cost what it may, the value of an efficient system is manifest. The introduction of a modern method of cost finding is as important as the introduction of modern machinery. Mr. Charles M. Schwab, in his sketch of the business career of Andrew Car negie, in the Engineering Magazine for June, 1901, states, after pointing out various experimental stages of the business, "During this transition Mr. Carnegie has frequently been called upon to make large expendi tures for new appliances, to replace those which had been but recently adopted, and he has done ORGANIZATION AND COST FINDING 3 this cheerfully, for with him the best is good enough only until something which promises a better and cheaper product is offered. He has willingly allowed the profits of the business to be taken year after year for experiment and improvement, whilst our friends across the water, content with the crude, anachronic system of by-gone times, took the dividends and kept the even tenor of their way. The corollary of this reduced to figures shows that the United States in 1899 produced 39.25 per cent., Germany and Luxembourg 23.20 per cent., Great Britain 18.44 per cent., and the Carnegie Works 10 per cent, of the steel output of the whole world, the Carnegie production being equal to more than one-half of the aggregate output of all the works of Great Britain." A cost system is often looked upon as a means of obtaining the cost of pro duction only. This is a wrong impression, as the information obtained is ex tremely valuable in other ways. In addition to being a means of ascertaining the cost of production, it also furnishes the necessary data, incident to reducing the cost, either by eliminating certain unnecessary expenses, or increasing the pro duction of various departments where inefficiency as indicated by the system is shown. Information of this character also constitutes the basis for the inaugurat ing of more modern machines in lieu of antiquated equipment, or for the installa tion of machines and added equipment necessary to increase the capacity of certain departments, so as to effect a working balance between the various oper ating departments, and make the production of the factory equal in all depart ments. This will be the means of preventing a great deal of lost time in the factory, which is one of the principal losses in any business. In addition to all this, it is extremely valuable as a guide to the selling de partment. The author has frequently been asked this question by manufacturers: "Suppose I obtain the true cost of every article I manufacture, and find that the cost of producing certain articles cannot be decreased, what good would the cost system be to me?" Assuming that the first statement is correct, and that after making every effort with this end in view it is definitely determined that the cost of the article cannot be reduced materially, the advantage to the sales department in such an instance would be invaluable. It is a well-known fact that certain articles, on account of competition and other conditions, have to be sold either at cost or at an actual loss. Even so, who can question the value of definite knowledge of the cost of the article to the sales department? With this information representing actual facts, it would be possible to push the sales of the articles where it is known that an actual profit will be made, whereas if the article must be sold at cost or at an actual loss, naturally the sales department will sell as few of such articles as possible. In some establishments the salesmen are paid a percentage on certain articles sold according to the amount of profit derived from the sale of such articles; and where articles are sold at an actual loss no commission at all is paid to the salesmen. The rate of percentage may be regulated according to the proportion of profit derived from the sale of the 4 FACTORY ORGANIZATION AND COSTS article, and in cases where there is no profit, then either a very small commission is paid or none at all. A factory cost system is the result of not being able to obtain this information in any other manner. Take a line of manufacturing which in its early days started with, say, a half-dozen men, with the owner of the business as foreman, superintendent, salesman and executive. The owner, in this instance, would work side by side with his employees a sufficient number of hours each day to enable him to keep in close touch with all the workings of his business, and the eye and brain could absorb all the details without the aid of such a system. Now let us assume that this business grows, and more workmen are employed. The owner hires a foreman, and devotes practically his entire time to the selling and administrative branches of the business. The result is that he loses the knowl edge of details in connection with his factory, and now receives this information through his foreman, second hand. The business further advances; more fore men are required to attend to the supervision of the various departments of the factory, and a superintendent is secured to supervise all of those various depart ments and the foremen. The details of the factory have multiplied, step by step, and now the owner can observe the workings of his business only in their general aspect. Thus it is, that the necessity for the introduction of a cost system at this point is made manifest in order to supply the manufacturer with the information requisite to the operation of an increased business, and to take the place of the personal touch he formerly had with its details in the early days of his operations, but now beyond his personal supervision. The manufacturer who does not keep constantly in mind that the informa tion furnished by a cost system provides him with the means of reducing the cost of production in any of its details, is losing the principal element of its value. The man with the proper organization and system, furnishing him with the knowledge of details incident to the operation of his business, is in a position to shape the policy of the enterprise in a definite manner, and in a way that is entirely out of the question for those who drift along from day to day and year in and year out with the only hope in view that somehow things may come out all right in the end. Those who are now carrying on operations sufficiently well to yield fairly good dividends on the capital invested, are often disposed to let well enough alone. This is a great mistake, as in almost any plant there are leaks that a proper system and organization would at once bring to light, and the elimination of these leaks very often results in making the dividends formerly regarded as satisfactory look rather small. ORGANIZATION AND COST FINDING 5 There is another element that should be considered, and that is the changes in the conditions of manufacturing, and the product manufactured. The author has frequently noticed many instances in plants where the system in use was impractical and entirely inadequate owing to new conditions of manufacture. It frequently happens that one particular article or line of product will be manu factured where the processes are all the same, and then later the business will be changed to the extent that new articles will be added, necessitating different methods of operating and, in certain cases, different equipment, all of which alters the entire conditions of manufacturing. Consequently, under these cir cumstances, a system that was apparently suitable to the former conditions is entirely impractical under the changed conditions. And yet in most cases the same system is used, whereas it should be changed materially in order to obtain accurate results. No well-informed manufacturer will question the statement that there are leaks and weak spots in every establishment, regardless of the length of time the business has been established. It will also be admitted, that without a systematic organization, it is impossible to ascertain the extent of these leaks, where they occur, and the cause. That such leaks in manufacturing, due to various causes, interfere with the efficiency of the factory and are a direct hindrance to the growth of the establishment, will be admitted by any one conversant with the operation of a factory on systematic lines. An effort should be made by every manufacturer to determine exactly where these leaks and weak spots exist, and endeavor to remove the cause, regardless of any cost within reason. As long as these conditions exist, a competitor, operating under more favorable conditions with a better organization and system, can, and will, undersell and slowly but surely gain the trade of the less fortunate operator, or rather less progressive, until the foundation-stone of a once paying and promising business is undermined and possibly ruined. There is only one way to eliminate such defects, and that is by a systematic method of obtaining the information in a complete and absolute manner, showing just where these defects exist, and an accurate cost system and proper factory organization are the only means by which this can be accomplished. It must be kept in mind that these leaks mean actual losses which, on the other hand, mean smaller profits. In certain lines of manufacturing, competition is so keen that the difference of a fraction of a cent in the cost of a single operation is of great importance, and may mean fail ure. Consequently, guesswork in such instances is dangerous, and in any case poor policy. The well organized and systematized factory will completely outclass duction the factory conducted on an unsystematic basis, resulting eventually in 6 FACTORY ORGANIZATION AND COSTS securing the trade. The management of a factory without such a system will be in the position of struggling with problems that have been solved by competi tors who have availed themselves of the information necessary in a definite and absolute manner. The expression is common: "Too much system! too much red tape!" and in every case of this character that has come under the author s observation, it has been more a matter of forms used than principles. The mistake is often made, in connection with systematizing, to include special forms for reporting this or that information, with the idea of showing the workings of the plant, but without basing these forms on any particular principles, and without providing any means for a general plan of uniting the various units of the system. Natu rally, no results of any practical value can be obtained; and under these condi tions where a great number of forms are used, the term "red tape" may be ap plied. But, such methods should not be confounded with a properly designed system. The number of forms and the kind of designs constitute only a secondary part of the essential features of any well devised factory system. The main features to be considered are the various divisions of cost and the underlying principles applying to the same. After this is thoroughly understood, the kind of forms to be used in the system should be considered, and the peculiar rulings of the forms to be used will not be so difficult to devise. The correct principles of cost accounting, generally speaking, are the same in every class of manufacturing, but the method of application differs according to factory conditions. The spe cial features and peculiar rulings of the forms should conform to the conditions existing in each plant. It is well to consider various kinds of forms, however, in connection with devising a system, as valuable information can be gathered from the examination of such forms in connection with the devising of new ones. To have a great variety of forms at hand, all different in ruling and design but all used for the same purpose, will naturally be of benefit to any one in devising forms to be used for a similar purpose. For the same reason that the knowledge of how another man conducts his business, would be of assistance in conducting a similar busi ness. It must be kept in mind, however, that it is not practical to borrow a system, so to speak, from some other plant, even in the same line of business, as it is not likely that a ready-made system will apply to two different concerns manufacturing the same articles, due to the fact that the business is conducted differently, and the system must conform to the business, not the business to the system. The individuality of every business man is shown in the manner in which he conducts his business. This is why factory conditions are materially ORGANIZATION AND COST FINDING 7 different in two factories of the same kind. The author calls to mind one in stance where he visited fifteen plants with the object in view of devising a uniform cost system for all of these plants, which were in the same line of business. After a careful examination of each, it was found that the conditions of manufacturing and selling were so different as to make it necessary to alter the general plan in several respects, to suit each and every one of these plants. Almost every writer on cost accounting makes the statement that the element which gives the most real worry to the manufacturer in the finding of accurate costs, is the distribution of manufacturing expenses, sometimes called overhead charges, and in other instances, indirect expense or burden. The author has visited several hundred manufacturing plants in the United States, representing almost every class of manufacturing, and in not one of the plants, excepting those where actual cost systems were installed, were the indirect charges properly understood or accurately distributed over the manufactured product. When it is considered that the indirect charges figure from 50 per cent, to 250 per cent, of the direct labor, according to the class of product, it brings to mind the fact that in many instances these indirect charges and their application to the distribution over the articles manufactured constitute the most important phase of cost finding. There are various methods of distributing the indirect charges, and the author has outlined several of these methods in this work. It is the author s desire, through the medium of this volume, to benefit every manufacturer, no matter what plan or system he may be using. In order to meet this requirement, several methods of cost finding have been outlined, begin ning with a method for verifying the most crude, imperfect method of estimating costs, which could not be called, in any sense of the word, a cost system, and indicating how such methods can be verified and the accuracy of the estimates determined. From this point, these methods advance step by step, until a most complete system of cost finding is illustrated, which is the only SAFE method to use. Most of the methods in vogue to-day represent in result the crudest kind of a guess, and are unreliable for the purpose of reducing costs. On the other hand, accurate costs have accomplished as much as new inventions have during the past few years in the way of reducing the cost of production. The value of the systematization of factories is measured by the difference between what is done and what can be done. Personal bias and prejudice have prevented the inaugu ration of modern methods and machinery, which would have cast a light on the facts in such a way as to eliminate the feeling itself, had these methods been inaugurated before this prejudice had worked to such an extent as to destroy the business. 8 FACTORY ORGANIZATION AND COSTS Most writers on cost accounting have outlined special methods that apply only to some particular kind of business, and the manufacturer in reading the various methods, without understanding the underlying principles of cost keep ing, is liable to see in them only a maze of methods and system, all of which looks mysterious and very rarely gives him any intelligent idea of how to apply the method or system along these lines to his own business. It is the prime and central idea of the author to outline the principles that compose cost accounting, and to illustrate these principles in different factory systems which may be recognized by every manufacturer, so that this mysterious subject of cost accounting will be made plain, and thus enable him to see clearly how the principles of cost can be applied to his own business. Ingenuity and good judgment are the real forces of systematizers, and the system introduced by the manufacturer which is the most successful, is made so, not by adopting the rules, routine, and records of some plan of others, but by using them to obtain ideas in applying the principles to his own business. It must be recognized that it is absolutely necessary to have certain funda mental information as to factory workings, if the executive is to intelligently control these operations. The plan that provides for gathering this information in the most simple and direct manner is where ingenuity and good judgment, coupled with conservativeness, are shown. In the majority of enterprises to-day, the profits and losses are only known at the end of the regular fiscal period, when an inventory is taken and the books closed; and even then the result is not necessarily correct, inasmuch as the accuracy depends entirely upon the correctness of the inventory, which there is no means of checking or verifying in the ordinary systems. The result, what ever it may be, appears in the books of accounts for the entire period in one amount, and admits of no verification due to the principle involved. There are two important questions that relate to this: first, are the results apparently satisfactory; second, are they a disappointment, and a surprise? Let us take up the first question, by asking one. Should a result in gross which is apparently satisfactory be accepted without question? A careful analysis of this will result in the answer, No. There is absolutely nothing in the profits shown in this man ner to indicate whether the results should not have been considerably more. There may be many articles made at a loss, with the result that the articles upon which there is a good margin of profit, would be paying the losses resulting from the sale of the other class of products. In taking up the second question, the first query that arises naturally would be: What am I going to do about it? There is only one way to correct the fault, and that is to locate it; and if the mass of detail that enters into the production of any plant is buried, owing to a ORGANIZATION AND COST FINDING 9 lack of records dealing with the component parts of the product during the period of six to twelve months before results are obtained, this would indicate that some action is necessary in providing a plan that will admit of locating or determining the cause. Perhaps the most important factor in connection with system and organiza tion, and that stands out more clearly to the author than any other, is that one which enables a business man to have laid before him a monthly profit and loss statement outlined to show how the result is reached by a proper classification of his product. Compare for a moment the difference between such a statement and the one given at the end of a year without any more information than the bare result. With the statement at the end of the year, nothing can be done to change the result of the preceding period, and only an investigation can be made which may or may not result in anything of a definite character bearing on the operations of the new year. With an analyzed statement showing the result of the month, with all of the facts admitting of verification, it becomes possible to exhibit mis takes and losses. Furthermore, where the results are on the wrong side it is show r n in the first month, instead of waiting, as in the old plan, for twelve months to elapse before ascertaining what the result may be. The executive may have the information at hand in this instance to enable him to weed out the faults, and thereby gain eleven months of profit resulting from these changes, which otherwise would be lost. It is said, by some writer, that system is "The triumph of mind over matter," and that to work systematically is to work successfully. Mr. Chas. U. Carpenter, a well-known writer for the Engineering Magazine, on " Organization and Management," and manager of a large manufacturing industry, makes the following statement which it would be well for every manu facturer to ponder over: " Where does profit end and loss begin? The all important question for every manufacturer to ask himself is: Do I know positively at what figure my profit ends, and my losses begin on each one of my products? The commercial success of a business often depends upon the answer and that answer is found in the solution of the problem of cost finding." CHAPTER II WAGE SYSTEMS General Relation to Costs Plans Treated Day Rate Piece Work Differential Rate Premium- Bonus Profit Sharing and Stock Distribution Choice of a Method Two or More Methods May Be Used Selection of Plan Important Introduction of Wage Systems May Introduce a New Profession Co-operation of Employer and Employee Individuality of Workmen. DAY RATE Necessary in Certain Class of Work Method of Beginning of Disadvantages of No Incentive "Soldiering" No Uniform Cost per Article Waiting Time Amount of Loss Resulting from Five Minutes Lost Time per Day for a Year of from One to One Hundred Workmen Loss Shown of 600 Workmen Losing an Hour Each. PIECE WORK: Method of Great Care Required in Fixing Rate Cutting Rate After Being Set Dissatisfaction of Workmen Necessity of a Fair Rate and the Effect on Production Saving in Cost of Production Illustrated Inspection How to Fix Rates. DIFFERENTIAL RATE PLAN: Method of Relation to Piece Work Effect on Workmen Result to Employer Schedule Showing Results Differentiating between Good and Poor Workmen- Quality of Work an Integral Feature Advantages of. PREMIUM PLAN: Comparison with Piece Work Method of Less Opposition to Introduction- Illustration of Working Schedule of Different Plans Showing Result of Each. BONUS PLAN: Method of Close Relation to Premium Fixing the Rate Summary of Advan tages of Premium and Bonus Plans. PROFIT SHARING AND STOCK DISTRIBUTING: Method of Usually Unsatisfactory A New Method of Distribution of Profits "Human Element" in Installing any of the Plans. IN the manufacture of an article, the question of primary importance, and the one upon which all other calculations are based, relates to the cost of produc tion. This cost may be separated by analysis into various divisions, depending on how much detail is wanted in the classification. Of these divisions, the labor cost may be picked as being the most important, the most variable, and, in many cases, the largest in amount. In general, the labor cost increases proportionately to the complexity of the article manufactured. The whole drift of modern manu facturing is towards the decrease of production costs, a tendency easily explained by the ever-increasing keenness of competition alone, not to speak of other factors. In adapting his business to this tendency, it is likely that the manufacturer will meet with conditions which preclude the exercise of effective economy, along many of the lines of production cost. Being thus limited, he must frequently look to the cost of labor as being that division where he can accomplish the most substantial results, when he is confronted with the necessity of cutting down the expense of preparing an article for the market. Even when this necessity is not WAGE SYSTEMS 11 felt so keenly, it goes without saying that no manufacturer should think of neglect ing this phase of production costs. It means increased business, more profit on investment, and greater advantage over competitors in the same field. There are two ways only open to the employer who would decrease the labor cost of production. He must either make a direct cut in the wages of the men, or he must find a method by which he can increase their output. The former way is sure to bring dissatisfaction and poorer work on the part of the employees, if it does not result in an actual tie-up by a strike. To accomplish the latter, and at the same time avoid the effects of the former, requires good judgment and generally, a change in the wages or in the system of paying them. In any case, it behooves the employer to study carefully the different methods of wage pay ment, with an eye towards selecting the one that promises the best results in the particular circumstances of his business. It is the purpose of this chapter to present and analyze the different methods of paying wages, commonly recognized in the economics of the subject. These methods or plans are designated as: (1) Day Rate. (2) Piecework. (3) Differential Rate. (4) Premium. (5) Bonus. (6) Profit Sharing. (7) Stock Distributing. Each plan is subject to more or less modification, and often there is a com bination of the features of two, such as the Premium and Bonus Plans. The Premium Plan may be said, in this light, to be a combination of Day Ra*;e and Piece Work. It may be said at the outset, that there is no one method described which can be recommended off-hand as the best. Not one of the seven plans named but has characteristics that make it peculiarly suited, or adaptable, to certain condi tions. Conversely, there is not one of the seven that would not be distinctly out of place, if not quite impossible, under other circumstances. Because of this feature, it would be quite beside the question to place particu lar emphasis upon any particular plan, but rather, it is the author s purpose to describe and set down the distinguishing features of each, and indicate the general conditions which would govern the selection of any one of them. Further than this, it is hardly possible to go into a general treatment of the principles underlying the methods and their application. 12 FACTORY ORGANIZATION AND COSTS When it comes to the actual choice of a wage system in a manufacturing plant, everything depends on the particular circumstances in which the plant is situated. The nature of the product, as well as of the processes it undergoes, the general labor conditions of the vicinity, and any one of several other features, may exercise a determinative influence over such a choice. More likely than the adoption of any single method is the choice of two or more, where one is applied to one part of the plant and the other to another part. This is very common in practice, and often three or more methods are used simultaneously in the same establishment, with a practical maximum of benefit to all concerned. It is no easy matter to make the best selection in actual practice. Besides an understanding of all the different methods and their individual characteristics to begin with, there is required a thorough knowledge and analysis of local condi tions, coupled with a wide knowledge of the experience of others in the same field. It is not at all improbable that this feature will differentiate a new occu pation, the peculiar business of which will be to adapt a wage system to particular factories. It offers great possibilities to men of broad experience and analytical minds, skilled in the science of cost finding. In any case, the subject is one with which every employer should be familiar, just as far as possible. It is an essential part of the general knowledge required in establishing and conducting a manufacturing industry of the present day. Nor should the study of wages be limited to the men who manage or employ labor. No one would be likely to deny that the great body of workmen would co-operate better with the employer if there were a better understanding on their part of the relation between production and wages as one part of the cost of production. The author firmly believes that this co-operation and confidence between employer and employee is becoming more and more necessary as time goes on. Without it, the absence of a mutual understanding is sure to result in lose to everybody concerned. From this point of view, then, we may say that the pur pose of discussing wage systems is primarily to establish a better relation between the employer and employee, and thus in the end accomplish what is for the bene fit of each, a decrease in the cost of production per article on the one hand, and a more satisfactory arrangement in the matter of pay on the other. This last includes opportunity for the workman. Every man should be allowed to work out his own individuality, always considering, of course, that he is one of a group and must act in harmony with the others. The question is how best to encourage and reward efforts on the part of men to accomplish more and better results. The discussion and understanding of the methods of paying WAGE SYSTEMS 13 wages, is all the more important now because of the widespread unrest and dis satisfaction with existing conditions. Men feel that they are not getting the "square deal," that they receive no reward for extra efforts and skill; and they are right in part, for there is no question but that relative individual production of workmen has not received the attention it deserves. The solution of the questions between workman and employer, which are attracting so much attention at present, lies largely in the discovery and appli cation of a system of paying wages that will appeal to both parties as being essentially just, and adapted to the ever-varying conditions of our modern manu facturing world. The following discussion of the principal wage plans is written with this in mind. DAY RATE It is fitting that the first method treated of, should be the one that has been most common in the past and that is most in use to-day, viz., the Day Rate. There are many forms of labor where it is practically impossible to install any other method of paying wages. These instances embrace some of the highest forms of labor, but for the most part the statement applies to those men whose duties are a matter of routine, and do not result directly in the production of any article or commodity. On the other hand, it will be shown clearly that many and insuperable dis advantages are connected with the system as a whole when it is applied to many of the forms of direct productive labor. Not that it does not have a place in paying direct labor, but, rather, its scope has been extended far beyond the limitations within which it works with good results. As a method of paying wages, the Day Rate groups several workmen in a body and pays each one a certain sum for a certain number of hours work, this amount depending partly on the skill called for, partly on the locality in which the plant is placed, and partly on the labor conditions existing at the time. The system and circumstances surrounding it are so familiar to everybody interested that any further description would be superfluous. Its beginning goes far back to the time when labor was unclassified beyond the threefold division into apprentices, journeymen, and master workmen. It has come down to our time principally because it is the simplest of all ways and carries with it the momentum of centuries of use. In spite of the fact that there is not an authority who now advocates it, except for clerical positions and workers who are under immediate supervision, it is undoubtedly the most common in use One of the most astonishing things in this age of progress is the di: resistance encountered in gradually superseding this system by one that is more 14 FACTORY ORGANIZATION AND COSTS just to all concerned, and more effective in accomplishing the ends that both employers and employees are looking for. This attitude towards day wages, in the productive divisions of factories, is justified when its influence on the workmen and the amount of product they turn out is examined. It removes very largely the incentive that makes a man do his best work, at his best speed. Unless a workman is actuated by the hopes of promotion, which is an exceptional case, or by the fear of losing his job, he has no motive before him to stir him up to his best endeavor. The good and honest workman receives the same wages as the man who "soldiers" away his time at the next bench. The result of all this is to place a premium upon a dead level of work that must be maintained if the man is going to hold his job. It is for his benefit to work slowly and make the order last longer, thus to receive a maximum wage for a minimum of work. Of course, this is true only in certain limits, and there are exceptional cases; but the fact remains that this is the whole tendency at the time rate of payment. The workman has little or nothing to gain by putting his heart in his work and really exerting himself. The result of this condition is shown not only in the quantity of work turned out but in the quality also. Defective work usually carries no penalty with it, until it becomes so common as to cause dismissal. It is no wonder that so few improvements in work or in processes originate in the departments of a factory where the men are paid by the day. " Lack of incentive" again is the phrase that explains the condition of general apathy that is to be observed on the part of the men towards their work. In going through shops and factories throughout the country for years, the author has, almost without a single exception, been able to point out the men who were working by the day from those who were working under some other plan. There is an entirely distinctive atmosphere about their work. One feature that is often quoted in favor of the day or hour rate, is that it insures a constant labor cost, and one that is comparatively simple to apply. This overlooks entirely the fact that this uniform labor cost is nowhere near a uniform cost per article made. The wages remain even, while the product varies from day to day and still more, as we have seen, between workman and workman. The question now naturally arises as to the conditions that make the Day Rate desirable or necessary. Since the wages are based on time purely, they obviously are suitable to instances where the work is a pure function of time. Examples of this are firemen, engineers, inspectors, watchmen, bookkeepers, etc., etc., whose work cannot be measured in articles produced. Practically, there is no other way of paying this class of men, nor is any other way specially desira- WAGE SYSTEMS 15 ble, as all that is needed to obtain a fair day s work in return for the wages paid is efficient supervision. There is another class of labor, also, for which no rate other than a time rate can be easily determined. Repair men, inventors, and men who are planning and constructing special machines are examples of this class. A brief considera tion of the nature of their duties will easily show why any other rate than a time rate is practically impossible, except in special cases. While these men may be rated as a class, it is clear that as regards numbers they comprise but a small per cent, of the actual number of workmen in the aver age manufacturing plant. For the most part, special arrangements must be made with each man, based, as a rule, on the time rate. To one unacquainted with the conditions of our large factories, it would seem impossible that so much time can be, and is, frittered away "soldiering." Where the Day Rate is in effect, not many workmen are accustomed to give notice that they are nearly out of work, but rather they wait until it is actually exhausted, after which follows a waiting spell for new work to be brought. But even if this is largely eliminated by efficient supervision there are numerous other ways by which a workman loses time, and which he would take care of if there was any thing to be gained by so doing. It is almost incredible how much value such lost time can amount to in a large factory in the course of a year. The accompanying table shows what five min utes a day, on an average, lost by each employee amounts to in one year, nine hours being taken as a day s work; the rate per day is given in the left-hand column : Rate of Wages. Loss by 1 Employee. By 10. By 20. By 25. By 35. By 40. By 50. By 100. $1.00 per day. 1 25 $2.90 3.62 $29.00 36.20 $58.00 72.40 $72.50 90.50 $101.50 126.70 $116.00 144.80 $145.00 181.00 $290.00 362.00 1 50 4.35 43.50 87.00 108.75 152.25 174.00 217.50 435.00 2.00 5.80 58.00 116.00 145.00 203.00 232.00 290.00 580.00 9 jo 7 25 72.50 145.00 181.25 253.75 290.00 362.50 725.00 3.00 8.69 86.90 173.80 217.25 304 15 347.60 434.50 869.00 Now five minutes a day is an insignificant estimate of the time actually wasted in a day by men working by the time rate. Tests have repeatedly shown that an hour a day is not an unusual amount of time to be lost by slow work and needles: interruptions, while the introduction of the Piece Work or Premium Plans has opened the eyes of many a manager to the fact that an hour a day loss is a small estimate when compared with what the men might do if they wished. 16 FACTORY ORGANIZATION AND COSTS Consider what this loss amounts to in a year. Suppose a factory to employ 600 men for 300 working days a year. In the course of a year the loss in time would aggregate 180,000 hours that is, 18,000 days work that the factory does not get, and for which it pays wages. Taking 20 cents as a moderate amount per hour, the actual loss in wages paid out would be $36,000. These figures are startling, but they do not over state the case in many factories of this size. PIECE WORK To avoid the obvious disadvantages of the day-rate form of wages, several different schemes have been proposed, one of which, the straight Piece Work plan, we shall now consider. On the face of it, this plan seems to be just what is needed. The employer, after making what he considers a fair estimate, sets a certain price on the production of. an article, and tells the workman to go ahead and turn out what he can; he will be paid for what he does. This looks so fair that it is with considerable surprise that the investigator learns that this method of paying wages has in many cases been accompanied by so much friction and dissatisfaction that conditions have been made little better, if at all, by its intro duction. He also learns by reading the literature of the subject that many managers and authorities on costs are on record against this method as compared with others. The question at once arises concerning the cause of this. The answer lies largely in the lack of preparation for, and the methods used in intro ducing it. To understand this, we may sketch an imaginary case which will be sufficiently near the facts. An employer having decided to introduce the Piece Work system in a part or the whole of his plant, first sets out to find what allowance he should make on each piece of work. He and his assistants watch the men and their work for some time beforehand. Then he makes what he considers a fair allow ance for increased production that is due to follow with the new way of working, and waits for results. The rate of production soon shows enormous gains, and instead of the low per cent, he allowed in discounting the new rates, he finds that production has increased 50 per cent., 60 per cent., or even doubled itself in some cases. As a result, the men who are earning, let us say, $2.75 per day, are soon earning $4.00 or more in the same time. By this time the employer is liable to consider that his employees have cheated him in the beginning and are now receiving altogether too much wages as a result of it; so he proceeds to cut the rate per piece, and the trouble with his workmen begins. They, on their part, soon discover that they are between two fires: if they produce too little, their wages are small ; and if they produce too much they WAGE SYSTEMS 17 receive a cut, after which they must continue to work harder and receive no more pay than they did formerly. The natural result of this is an agreement between the workmen of a class to limit their production to a certain amount which they consider safe. At this point the Piece Work system has broken down and failed to give the desired result for which it was introduced. In studying the above instance, two lines of action are seen to come in con flict. The employer is working for the largest possible results for a given wage scale, and the men, naturally, are working to receive the maximum wages for their time. The former part of this statement is seen to be true as soon as the employer shows uneasiness over the large wages earned by his men per day. Ultimately he must have had in his mind that the wages would rise not much higher than before, or at least not in the same proportion as the production in creased. So he fails to see where he gains anything by his change of methods. The workmen, in time, consider that they have been trapped by the cut in the piece rate, and are correspondingly bitter over the situation. It would seem that the first necessary precaution is to set such a rate that, barring unusual business depression or some equally untoward event, it can be maintained fixed and unchanging. As long as the men fear a cut for too much production, they will never produce to their full capacity. Once they have accepted a rate and have confidence that it will remain as it is, regardless of what they may earn by it, they will feel free to do their level best, and the goal, maximum production, is at hand. All this shifts the responsibility back a step further namely, to the rate determined per article. And right here is the crux of the whole matter. In the example given, it is evident that there was ignorance of just what the men could do. This is the basis of the trouble in nine cases out of ten. This ignorance and the resultant cutting of rates, has aroused such antagonism, and has spread abroad such a bad reputation for the Piece Work plan, that now, when steps are taken to introduce the system in a factory, it is fought tooth and nail by men and foremen alike. The men regard it as an entering wedge for reduced wages, or as a means of obtaining a greater amount of work for the same wages, foremen, in some cases supported by the men, oppose it through sheer inertia. Many of them dislike new things, and prefer not to have their daily hal work inquired into and disarranged by new methods. To return to this main point, it was determined that the success of Work plan depends, fundamentally, on a proper piece rate, and that one maintained without cuts. How to fix this rate, is a rather serious and di question. The employer should approach it in a spirit of willing** more than the ordinary day rate in effect for increased production. Just as 18 FACTORY ORGANIZATION AND COSTS as he bases his calculations on having the workmen earn about so much a day regardless of their production, just so long the Piece Work system will not be a success. Some authorities are on record as saying that no piece rate can be maintained and that cuts are necessary, forced either by a false rate at the beginning, or by the industrial situation that arises later. This is looking at it from the wrong point of view again. If a manufacturer can afford to pay a certain amount for the manufacture of an article now, he can surely afford to pay the same amount per article when more are produced per day. And this by so much the more, because the indirect expenses vary comparatively little for the same time, and are thus divided up over a larger number of articles produced. Let us illustrate by supposing a manufacturer to be paying $3.00 a day to workmen who are turning out on the average ten articles per day. Allowing 50 per cent, of the direct labor charge for overhead expenses and $1.50 for mate rial cost of the ten articles, the total cost is then ($3.00 + $1.50 + $1.50) - 10 = $.60, of which the direct labor cost is $3.00 - 10, or 30 cents. Now let us say that he allows the men the full 30 cents per article, an allowance no employer would ever make, by the way, and see what the expense is when the men increase their product 50 per cent. that is, to 15 articles per day. The material will now cost $2.25, and the overhead cost may increase 15 per cent, of what it was, that is, to $1.75. The cost is now ($4.50 + $2.25 + $1.725) -15 = $.56i Thus a very conservative estimate shows a gain of 3^ cents to the article, with 50 per cent, greater production. An allowance of 25 cents labor cost per article would be much nearer the actual facts in such a case, in which instance the above process would show 51^ cents net cost, or a gain of 8|- cents with 50 per cent, greater production. The point of all this is, that if the manufacturer has been able to make profits in the first case, he can surely make more in the second, despite the fact that the workmen are earning wages that look large in proportion to the old day rate. To the objection that such a method leads to over-production or lack of balance in certain departments, it is only to be replied that this can be cured by dropping inferior workmen, or transferring men from one part of the shop to another. However, the general effect would be to increase sales, since now the manufac turer is in a position to put his goods on the market at a cheaper price and under sell competitors. There is one feature of piece work the importance of which must not be over looked or underestimated. Where workmen are hurrying to complete the largest amount of work possible, it is necessary to have an inspecting corps whose duty it is to pass on the work submitted. Otherwise the defective work due to haste WAGE SYSTEMS 19 would become a formidable factor in the profit and loss calculations. The pres ence of inspectors and the knowledge that any work rejected is to be a total loss for the workman who turned it in, is an effective guard against careless and too hasty work. It acts as a regulator on the energy of the shop and when properly used acts to combine the two most desired ends, rapidity of work and carefulness in its performance. In establishing the Piece Work plan, there must be careful study and tests, as to what shall or can be expected. Any error of estimate is sure to be followed by friction. In one case the men can not earn enough; in the other they earn so much that a cut follows. No one method of fixing this rate can be recommended for all cases. There is a general agreement on one point, however, that it is especially unsafe for the manager, inexperienced in the change of systems, to make his estimates for piece work from the records of what the men have done under the time rate system- Every time the production increases far beyond any expectation, jumps of 40, 50, and 60 per cent, are not at all uncommon, and where the employee has a chance to exercise ingenuity in shortening processes, production often passes beyond the 100 per cent, increase mark. When it has been decided to introduce piece work in a factory where there are no exact records kept of the work of the men, the first step necessary is to make such records from carefully observed tests. In doing this, it is essential that no knowledge of the purpose leaks out. If a man knows he is being watched and timed with an eye to forming a rate for piece work, he can easily manage to extend the time of the operations, and this in such a way as to deceive any but the most skilled of observers. Any rate based on such records is obviously false, and will lead to the difficulties spoken of before. Probably the best and most accurate way is to divide the handling of an article into simple operations, and fix a rate on each one separately. Then the sum of these rates, plus a small percentage added for unavoidable delays, will determine the rate to be placed on the article as a whole. This is not particu larly difficult and does away with the guess element. It is especially necessary to go through some such analysis where the operations are complex and include considerable handling of the material. Where the most of the process is automatic and by machinery, the actual operative cost of the production of the machine may be found, which is not such a difficult operation as it may seem to the novice. The discussion of that feature is to be found in Chapter IV, on the New Machine Rate. If the product is a small article entirely machine made, the practical way is to consult past records if available. 20 FACTORY ORGANIZATION AND COSTS The difficulty of rate fixing on any article, large or small, does not appear so formidable if there is a system of cost finding installed in the factory. In this case the analysis of the different operations has already been made, and the data for rate fixing are at hand directly from the reports that come in day by day. There is no class of standard productive work where the difficulties are prohibi tive of establishing one of the accepted wage plans, if the work of getting data is undertaken in the right way. Experience has proved that the Premium System, or some form of piece work, can be applied to industries of great complexity where all sorts of articles, large and small, are being manufactured. DIFFERENTIAL RATE PLAN Another plan, allied to the Piece Work system and based on the same principle of paying for the product turned out, has found many enthusiastic supporters. This is what is called the Differential Rate plan. It is the piece-work method of payment modified by an application of time rate to the work. It offers for the same work a high price for quick time and perfect work, and low pay for slow time and imperfect work. It may be best understood by illustration. Suppose that a workman receives 27 cents per piece, and in a day of 10 hours averages 8 pieces. The employer tells him that as long as he continues to produce 8 pieces every 10 hours, that rate will continue; but if he will finish 10 pieces perfectly in the same time, he will pay him 29 cents per piece, and if he succeeds in making 11 perfect pieces he will receive 30 cents per piece. On the other hand, if by reason of slow or imperfect work he is credited with only seven pieces, his wages will drop to 25 cents per piece. It does not take much imagination to picture that workman extending himself to produce just as much as possible, and at the same time taking great care to see that his work is perfect; for with one piece imperfect and thrown out, his whole scale is lowered and his hurry has been all in vain. Turning to the employer s side, let us see how he is affected by the different cases stated above. The cost of material may be set down as 10 cents an article, and the overhead cost, as distributed over the number of articles manufactured per day, as $1.50, when that number is 8. This overhead cost will increase a certain amount with the increased output. Let this be 1-15 or 6 per cent, for an increase of 25 per cent. This makes the overhead cost for 10 articles $1.60. Using this as a base, at a like rate, the overhead cost for 11 articles would be approximately $1.64. It is fair to assume that the 7-piece item was due to im perfect work which would not influence the indirect expense. Then, the follow ing table represents the cost of each article to the manufacturer and the different wages of the workman. WAGE SYSTEMS 21 No. of Pieces. Price per Piece. Labor Cost. Cost of Material. Overhead Cost. Total Cost. Cost per Piece. 7 8 10 .25 .27 .29 $1.75 2.16 2.90 $ .70 .80 1.00 $1.50 1.50 1.60 $3.95 4.46 5.50 .564 .55f .55 11 .30 3.30 1.10 1.64 6.04 .54H It will be noticed at once, in studying this table, that apparently the work man gets the lion s share of the profit resulting from this arrangement. The author chose a liberal rate of increase, in conjunction with a very moderate over head cost, for the purpose of showing that even with these factors against him, the employer still decreases the cost price per piece as production increases. If the above overhead cost had been $1.00 more, as might easily be the case, the difference to him in the cost per piece would have been much more noticeable, being 70|, 68 J, 65 and 64 cents respectively. One commendable feature apparent in this plan of paying wages, is that the poor workman gets poor pay, and the good workman good pay. It differentiates the grades of employees far more effectively than the straight piece work. It is clear, too, that the shop really pays a higher price for the labor of the slow or slovenly workman than for the quick and accurate one, despite the difference in the scale of piece work. We see that a manufacturer can afford to pay a higher rate of wages more labor cost to the article if the shop will respond by turning out a proportionately greater amount of product. The effect of volume on the cost of production explains the whole matter. It acts to distribute the indirect expenses over a larger output, and so lessen the actual cost. From what has just been said, it is easy to form a general rule concerning the introduction of the Differential Rate plan. In a factory or plant where the indi rect expenses are very large relatively, it is almost sure to pay; where they are relatively small, the advantage is more doubtful, and it is quite likely that some other method could be introduced with better results and greater profits. No wage system ever devised is, or could be, applicable to all plants. The best that can be done is to lay down certain lines or rules as a guide to point towards general direction in which the proper plan may be discovered. Thus we see that relatively large, indirect expenses demand a particularly large productive capac ity to balance the cost. Any system that will act to encourage this even at a sacrifice of labor cost, is the system needed. And since the Rate plan is perhaps the most radical standard plan ever devised with t view, it seems particularly suited to such circumstances. The fact that this system takes account of the quality of the work as 22 FACTORY ORGANIZATION AND COSTS tegral feature in determining the rate, suggests the importance of the inspecting department as a part of the system. Without careful men, then, who do their work thoroughly and make all articles submitted measure up to the standard, there is danger that what ought to be one of the best features may end as a seri ous handicap to the manufacturer. With reference to determining the rates, all the remarks made on that subject in the discussion of straight piece work apply here, and some of them with added significance. The employer is now dealing with an exaggerated form of piece work, and any error or mis judgment will surely react with double force. Summing up the advantages of the Differential Rate plan, we may say that : 1. Wages are raised at the same time that cost is somewhat lowered. It thus promotes better feeling between employer and employee, without a loss on the part of either. 2. It improves and holds uniform the quality of work by means of the super vision employed. 3. It succeeds in obtaining the practical maximum of production per unit time. 4. It automatically sifts out the lazy and incompetent, and raises the whole standard of workmanship in a plant. The principal disadvantage connected with it, lies in the danger of making ill-judged rates at its introduction. The utmost skill and judgment are necessary to the employer who would use it. It also calls for a well organized supervising corps, the actual increase of cost for this depending entirely on local conditions, the nature of the shop, and the then present organization established there. PREMIUM PLAN One of the most successful plans in practice is known as the Premium Plan. It differs from piece work methods by basing the wages primarily on a time rate instead of product, and then paying extra rates for time saved in the operations. It resembles piece work in that it presupposes fixing a time rate on the process of manufacturing single articles, or in the separate steps in such processes. The fact that it guarantees a minimum wage at least, places it in a more favorable light before employees, and often results in less opposition on their part to its introduction. Besides this minimum wage, it provides for an increase for increased effort and skill. To illustrate, suppose that a workman averages a certain amount of work in a day of 10 hours, receiving 28 cents an hour. The premium arrange ment provides that if he accomplishes the same work in 9 hours he is to be paid 23 9x28 cents, or $2.52 plus a certain sum for the hour saved, say 14 cents; and then there is still the hour to work and earn more. If he saves two hours, he receives 8 x 28 cents, or $2.24 plus 2 x 14 cents, or $2.52 for the eight hours work. Now even if he earns no further premium in the remaining two hours, his wages will be $2.24 plus 2 x .14 plus the wages for the remaining two hours at 28 cents per hour, or $.56, making a total of $3.08 for ten hours work, instead of the regu lar pay of $2.80. Evidently, by thus cutting the time of production two hours, he has saved the factory 56 cents, which profit is then divided half and half, or in some other proportion agreed upon beforehand. But the employer s profit does not stop with this 28 cents on the product itself. All that has been said before relative to spreading the overhead cost over an increased output applies here, and his profit is 28 cents plus whatever is saved in indirect expense per unit article. So it may be truthfully said of the Premium Plan that both wages and profits go up, and everybody concerned gains thereby. The advocates of the Premium Plan claim, also, that it is the most equitable of any plan yet proposed. Given a certain productive increase in a factory, and under the Day Rate plan, the employer receives all the benefit, while, on the other hand, under Piece Work, all or nearly all the gain goes to the workmen, the em ployer saving only in the indirect expense. Under this plan the profit is divided more evenly, each side receiving a gain somewhat proportionate to its interests involved. This can best be analyzed by an arrangement in tabular form. Sup pose a factory under the Day Rate system, where the men produce 8 articles in a day of 10 hours at 30 cents per hour. We are to analyze the costs as the pro duction increases 25 per cent., or to 10 articles, per day under the stimulus of a new wage system. It is fair to assume that under the Piece Work plan, the rate would be 32 cents per piece, and under the Differential Rate plan, 32 cents each for 8 pieces and 34 cents each for 10 pieces. Likewise with the Premium Plan; let the pay be 28 cents per hour, with a premium of 14 cents for each hour saved. It must be noticed that if the workman produces at first 8 articles per day and then 10, he completes his former production in 8 hours and thus saves 2 hours in 8. As the supposition is that his increased rate is constant, this means that his gain in a day of 10 hours is 2 hours, or 25 per cent., which agrees with his general rate of increase as it should. We may assume the cost of material to be 12^ cents per article, and the overhead cost to remain constant at $1.50 per day for a production of 8 articles and increasing 1-15 or 6 per cent, for an increase of 25 per cent, in production. The increased production is not given for the Day Rate system, as in the first place the increase would not take place, and, in the second, whatever increase there might be would all go towards the employer s profit. The results obtained under the bonus system are incorporated in this 24 table for future reference. The rate is taken as 28 cents per hour at a production of 8 articles a day, and 32 cents per hour at 10 articles per day. System. No. of Arti cles. Rate of Payment. Labor Cost. Men s Gain per Day. Cost of Material. Over head Cost Total Cost. Cost per Article. Reduc tion in Cost per Article. Reduc tion in Cost for 100 Articles. Day Rate. . 8 .30 per hour $3.00 $1.00 $1.50 $5.50 .6875 Piece Work. ( 8 (10 .32 per piece .32 per piece 2.56 3.20 .64 1.00 1.25 1.50 1.60 5.06 6.05 .6325 .605 .0275 $2.75 Differential 1 8 .32 per piece 2.56 1.00 1.50 5.06 .6325 Rate. . 1 10 .34 per piece 3.40 .84 1.25 1.60 6.25 .625 .0075 .75 ( 8 .28 per hour 2.80 1.00 1.50 5.30 .6625 Premium.. . H .14 additional for each hour V3.15 .35 1.25 1.60 6.00 .60 .0625 6.25 ( / saved ) Bonus \ 8 (10 .28 per hour .32 per hour 2.80 3.20 .40 1.00 1.25 1.50 1.60 5.30 6.05 .6625 .605 .0575 5.75 It is instructive as well as interesting to change the figures in the above and see the effect on the different items involved. The effect of distributing the indirect expense over a greater production is again strongly emphasized. If the items in the column "Overhead Cost" be increased, the cost per article increases in a much slower ratio where the production is 10 articles than where it is only 8; also the gain on the cost per article increases with the increased overhead cost in every instance. It also exhibits, by changing the items in the " Rate of Payment" column, the limits within which the labor cost may be changed without resulting in an actual increase in the cost per article. Naturally, in a table similarly ar ranged, taking the data from actual experience in a factory, there would be con siderable change in the several items, but it can be confidently asserted that the table, with its results, is relatively true. It then follows that the advocates of the Premium Plan have a very good basis for the claim that by this way the profits accruing from increased production are more equitably divided between the employer and the labor employed. BONUS PLAN The Bonus Plan, for encouraging greater effort and skill by means of a sliding scale of wages, is a branch of the Premium Plan and is related to it much in the same way that the Differential Rate is related to straight Piece Work. It is based on the same principle of increasing the pay as the time to do a definite amount of work is shortened, but instead of being calculated directly from the time saved, it takes the form of an increase in the hourly wages for the time 25 actually spent, the rate itself depending on the per cent, of time gained. Thus, referring to the foregoing table, we see that the workman received 28 cents an hour for producing 8 articles in 10 hours, but that this was increased to 32 cents an hour when he raised his production to 10 articles in the same time. Funda mentally, however, the principle is the same as in the Premium Plan, and what ever remarks apply to one plan apply also to the other. They are usually dis cussed together, and some writers make no distinction between them, calling the general system by one name or the other, and sometimes both alternately. In introducing the Premium or Bonus System, the same caution must be ob served as with the piece work systems. It is essential for the factory owner to be quite sure of the speed which can be attained beforehand, or else he may fall into the same error as he who started out with too high a piece rate. There is this modification, however, that even if an error is made on the side of too high a scale, it is a less costly mistake than in piece work. This is clear from the anal ysis, which shows that the employer is not working on so narrow a margin, and that the effects of such an error would be more evenly divided. One principle stands out clearly in establishing the Premium or Bonus System which relates to the Premium Rate. Where there is a good deal of handling of material and very little machine work, it is well to make the rate fairly low since there will doubtless be a large per cent, increase from the greater effort placed where it has the most effect. But if the process is mostly machine work, it will call for a much greater application of skill and labor, to effect a large increase, and in this case one can afford to place a higher premium rate to call forth this skill. At best, the increase will be comparatively small in contrast to the more purely manual operations. There has been considerable difference of opinion as to where the liberality in these methods is to be shown, in the Premium Rate, or in the time rate. The settlement of this question seems to depend mostly on the local conditions in which it is tried. In general, remembering that the increase is going to be beyond expectations, it would seem that liberality with the time rate, coupled with a smaller Premium Rate, would better safeguard the employer against error. If the Premium Rate is at first too small, it can easily be raised, but if it be started too high, it cannot be lowered without coming into conflict with the whole body of employees, which must end disastrously. However, where the conditions are such that it will call for relatively high skill, and much use of brains to effect a comparatively small increase of output, it appears to be the best policy to put the emphasis on the Premium Rate directly. Summing up the principal points concerning the Premium and Bonus may be said: 26 FACTORY ORGANIZATION AND COSTS (1) In common with piece work, the employee s reward is immediate as com pared with other schemes, such as profit sharing and stock distributing. When the psychology of the average shop workman is considered, this impresses one as being no trivial point in its favor. (2) The workman is not confronted with a penalty for not hurrying, beyond the loss of the "bonus" and discharge when he is clearly unfit for his place. The guarantee of a minimum wage renders the installation of the Premium System much easier, as it does not arouse such intense antagonism on the part of the men. In this sense it offers a good transition to the straight Piece Work plan, if that is the goal in view, and all the more because it furnishes accurate and dependable experience in correct rate fixing for the latter step. (3) It gives an excellent incentive for exertion if it is understood that the rate is a fixed one and will not be cut when the employee is producing his utmost. (4) The management does not suffer much loss, if, by chance, there is an over- estimation in favor of the employee. Thus it is much less dangerous to experi ment with than piece work. (5) It provides for a more equitable division of profits between employer and employee. PROFIT SHARING AND STOCK DISTRIBUTING Two other plans looking to increased production and better relations with the labor element of a plant are the Profit Sharing and Stock Distributing schemes. Neither has been tried except in isolated instances, and neither is likely to prove of much value unless introduced under peculiar circumstances much different from those found in the average large factory of to-day. The former provides that the workmen shall share in a certain percentage of the profits of the shop as a whole. It is essentially unjust, first, because it pos sesses the same fault as the Day Rate plan, in that it does not discriminate between good and poor workmen. Again, the profits or losses of a factory generally de pend a great deal on factors clearly outside of the workingman s scope, such as the efficiency of the selling force, business shrewdness in taking contracts, etc. If these result in gains, the workingman has no particularly just claim on the profits thereby derived; and, on the other hand, if these policies result in loss, he would be the first to remonstrate against having to help stand losses for which he was not responsible. In any case, the rewards are too far removed in the future to have any effective value in inciting a keen interest in increasing the production. There is only one practical way of handling a Profit Sharing plan in a manufac turing industry, and that only applies in certain cases. This plan consists of setting 27 a price on every article manufactured. The factory is then charged with only such expenditures as relate directly to its production, and over which the factory man agement has supervision. Credit is then given to the factory at these scheduled prices for all articles produced whether they are sold or not. At the end of the year, or when an actual inventory is taken, the factory account in the ledger will show the factory profit, and will represent the saving or difference between the actual cost and schedule prices. The saving, according to this plan, is distrib uted among the foremen of the various departments and in some instances among the employees as well, according to the rate of pay for each. A penalty, of course, is provided for poor attendance, and other penalties of various kinds may be incorporated in the plan according to the conditions under which the plan is operated. Stock distributing is more likely to be successful in very small shops where there are not so many intermediaries between owner and factory hands. In large factories it is hardly practicable, largely for the same reasons that were given relative to profit sharing. This chapter on wage systems would hardly be complete without some com ment on the "human element" in installing them. There is no department in all business life that so illustrates the saying, "What s one man s meat, is another man s poison." It is hardly too much to say that more depends on the method of installation and the handling of the men, than on the merits of the system that is adopted. To be able to handle a large body of workmen, the manager must understand fully, and, broadly speaking, should be in sympathy with the point of view from which his men look at the wage question. Far more is accom plished by tact and judgment in such cases than by any other one element. Es pecially is this true to-day, when so many of these schemes have gone down to ruin because of a lack of these qualities. Fully 80 per cent, of the distrust and opposition to a Premium or Piece Work system is the result of failures due to lack of preparation and want of good clear common sense in the methods used during and following the installation. The systems outlined above are all right, on the whole, some being more adaptable to particular conditions than others. The step that remains is to disarm the suspicion of the employees as a class, and to convince them of good faith by meeting them half-way in this most vexatious of problems, the adoption of a proper wage plan to bring about incre; ductive activity. CHAPTER III ANALYSIS OF COST ACCOUNTING Lack of Knowledge of the Subject Actual Costs Selling and Administrative Expenses not In cluded in Factory Costs Partial Costs Central Idea or Principle Elements of Costs Material Labor Expense Analysis of Each Diagram Illustrating All Stages of Costs Operating Department Explained Operating Departments of Textile, Stove and Machine Shop Industries Incorrect Principles in Distributing Overhead Charges Recording Costs by Operating Department Some Important Elements of Indirect Charges Interest on In vestment Depreciation. ALTHOUGH the importance and desirability of accurate methods of ascertain ing the cost of production is generally conceded, and while much attention has been devoted to this subject, and large sums of money expended annually in perfecting cost keeping records, there is a general lack of knowledge in many instances of the principles involved; and the problem now in hand is to present an analysis of the elements that go to make cost, and to indicate the lines along which methods must be devised to gather and classify the facts that are used in its actual determination. The accuracy and effectiveness with which this is done rests on, (1) the principles involved, and (2) the methods used. Actual cost records, to be complete, must deal with the raw material as it enters the factory; then with all stages of operating to which it is subject; and, lastly, with the general expenditures relative to such operations until it is shipped out of the factory as a finished product. They must show primarily the final cost of production from the very beginning to where the product is turned over to the selling department. Right here, must be made a vital distinction in the science of factory costs. The selling expenses are frequently added as a part of the cost of goods, whereas, no matter how large or small such expenses may be, they add nothing to the value of the manufactured product. Commercially speaking, the Sales De partment is of the greatest importance, and the expense connected therewith is an important factor in determining the price at which an article can be marketed with profit. But this bears little or no relation to the cost of production, as such, and in a discussion of factory costs must be set aside as being distinct and outside the sphere of investigation. Factory cost ends with the completion of the product. Again, the records should show the several divisions of the final cost, which may be designated as partial costs. These include the cost of the different ele ments of production, and also of the different stages or processes through which the product passes. The partial costs compose a very important function of the ANALYSIS OF COST ACCOUNTING 29 science of cost finding, since it is principally by a study of the parts separately that information is derived which may lead to lowering the cost of production as a whole. Under this head, also, is included the indirect expenses, the most com plex and difficult feature to deal with in the whole field. The records should show a full classification of these expenses for the equitable distribution of the whole. The chief reason, perhaps, of dissatisfaction with most of the methods used in obtaining costs, is that the method does not embrace the correct principles, or what might be called "a central idea or base," upon which to work. The results very often consist of merely scattered information with no method in use of gath ering this information together, and putting it into such tangible shape as to be of practical value. A cost system, with all its arrangements for collecting infor mation, may be likened to a machine composed of many parts, where every part has its proper place and must be fitted correctly with the rest, in order that the machine may perform its functions. A single part left out or misplaced will interfere with its working efficiency, if it does not render the machine useless. So it is with a system of costs. The first thing, therefore, is to understand the central idea or principle involved, and then to devise the forms for gathering and assembling the information from the factory under one head, "Final Costs," which would then represent the complete machine. The former part of this is comparatively easy, as the principles are neither complex nor difficult. It is the application of those principles that demands a high grade of intelligence to admin ister, in order to avoid confusion and useless labor. It is not practicable to alter the conditions of a plant to suit any system, but the system must be modified and adapted to the circumstances peculiar to each individual factory. ELEMENTS OF COST The elements that comprise the cost in all manufacturing enterprises are made up of three principal divisions: (1) Material. (2) Labor. (3) Indirect Expense. These divisions may then be sub-divided as follows: ( Direct Material < T ,. ( Indirect. ( Direct. Labor < T ,. , ( Indirect. Indirect Expense. , Direct material is that element of material that enters into the product itsell 30 FACTORY ORGANIZATION AND COSTS and can be charged accurately to the article. Indirect material consists of such material as factory supplies used in the processes, but which do not enter into the product itself. These cannot be charged directly to any one article, but must be distributed over the number of articles affected by their use. Similarly, direct labor is limited to that labor which is actually expended on producing the article manufactured. All forms of labor, such as repairing, hand ling, supervising, etc., that are not engaged directly on the article itself, are desig nated as indirect labor. As in the case of indirect material, the expense of this non-productive labor is distributed over that part of the production that is indi rectly affected by it. Indirect expense, together with indirect material and indirect labor, compose the last element of Cost, which is sometimes called "Burden" and sometimes "Overhead "; and this large element of cost must be distributed accurately, by some known ratio, over the production^ if correct costs are to be obtained. Indirect expenses, as a whole, consist of: (1) the indirect labor; (2) indirect material in the way of supplies; and (3) indirect expense, such as light, heat, power, and maintenance, insurance, taxes, interest, rent, depreciation, and, in short, any expense that does not enter into the product itself. These are divisi ble into two general classes, one of which can be apportioned to certain products or parts of products because they are incurred in a particular department of the factory. The other class consists of such expenses as are incurred for the benefit of the entire plant, and must be distributed over all departments on an equitable basis. If the Selling and Administrative expenses are added to the Factory cost, the cost of marketing the article will be obtained and, if the profit is added to this, the result will be the actual Selling Price. This relation between the different elements of expense to a manufacturer may be illustrated by a simple diagram, which, in the light of what has been said, is self-explanatory. Labor, 50 Material, 25 Indirect Expense, 50 Prime Cost, 75 Selling and Administrative Expenses, 25 Final Factory Cost, 125 Profit, 25 Total Cost to Sell, 150 Selling Price, 175 ANALYSIS OF COST ACCOUNTING 31 The cost of direct material is a matter of market price at the time of purchase, and by a simple calculation from the amount of product manufactured out of a certain supply of raw material, this part of the prime cost is usually easily deter mined. Nor is the direct labor cost very difficult to calculate. In fact, in piece work, it is given directly on the product without further calculation, unless there is required the addition of the cost of several parts or processes to find the cost of the whole. But in the majority of cases it is quite a different matter with the more indefinite element, indirect expense; and when it is considered that it will run from 50 to 250 per cent, of the direct labor, according to the conditions of manufacture, it can be readily understood that too great care cannot be used in the determination and distribution of this division of factory cost. The first step towards making the proper distribution of indirect expense, is to classify into various divisions the items that comprise it, after the manner mentioned previously. As a rule, this classification will vary in the application to different factories. Now, since the distribution must be added to the direct labor and material, there must be a suitable classification of these elements also, in order that the theory may be carried out. The next step is to divide the factory into a number of operating departments, according to the processes of manufacture. These operating departments, of course, will vary materially, according to the class of manufacturing and the nature of the product manufactured. It should be the aim, in making these divisions, to limit each department to as simple and uniform operations as possi ble. Where the processes in the same department differ in any appreciable de gree, the same difficulty arises that existed before the classification was made, and to avoid which it was undertaken at all. The following are given as illustra tions of what the operating departments might be in three different branches of manufacturing. In certain kinds of textile mills, the operating departments would be:- Sorting Carding Dyeing Scouring Spinning Boarding Carbonizing Knitting Finishing Drying Rib Knitting Box Picking Seaming Packing Likewise in a certain class of stove manufactories there would be:- Pattern Core Foundry (which may be divided into two departments, as (a) and (b) moulding. 32 FACTORY ORGANIZATION AND COSTS Cleaning Nickeling Mounting (Assembling) Polishing Tin Shop In a machine shop, the departments may sometimes be divided into: Foundry Pattern Lathe Tool Polishing Woodworking Paint Planer Assembling It is evident that the cost of any article in any one department can be ob tained by the addition of four distinct elements of cost in that department viz: (1) Direct Material; (2) Direct Labor; (3) Department Indirect Expense, i. e. the expenses that may be charged to that particular department; and, (4) Gen eral Indirect Expense, i. e. its share of the general indirect expenses of the plant, that cannot be charged against a department but must be distributed pro rata over the several departments. The usual method of adding a certain percentage upon every article manufac tured to cover all indirect cost is wrong in principle. The indirect cost is not the same for each class of articles, unless the factory limits itself to manufactur ing a single uniform product. And even here, the manufacturer cannot tell the true cost of a certain process to which the product is subject unless the indirect expenses are distributed over the several departments as outlined above. Some departments have more indirect expenses than others. For instance, the number and salary of foremen may be greater in one department than in another, or one department may require extra floor space, etc. And, in the same manner, such items as indirect labor, power, and supplies vary considerably in different depart ments. Again, not all articles pass through all the departments or the same depart ments, and the charge for indirect expenses varies accordingly. To illustrate this, let us suppose that there are five operating departments in a certain factory. While one class of product may pass through all five of these departments, an other may pass through only three. It is evident that by charging a fixed per centage for indirect expenses on all articles, that the product which passes through only three departments is being charged the same percentage as the product which passes through all five. In other words, the indirect expenses of the two departments through which this product does not pass is being charged against its cost, the same as if it had. From this, it can be clearly seen that unless the indirect expense is applied, first, to the department in which it occurs, and, after this, by the departmental distribution of the general indirect expenses of the whole plant, the accurate cost cannot be known. Otherwise some articles will be charged with more and some with less expenses than they should be. ANALYSIS OF COST ACCOUNTING 33 - Costs should therefore be recorded into each operating department under the general headings mentioned previously viz: (1) direct material; (2) direct labor; (3) indirect expense applying to each department; and (4) that portion of the general indirect expense that is pro-rated over each department. Form No. 15a, Chapter XIX, will show the manner in which the department charges are classified and arranged in shape suitable for application. At the head of the vertical col umns are placed the names of the several departments, while the different items of expense are listed at the left of the sheet. The account of general operating expenses, covering the indirect expenses of the plant at large, is shown in the lower section of the Statement, and the distribution of the same is recorded at the right. The per cent., or rate of distribution, determines the actual amount for each department. The items found in this distribution blank are seen again in the upper form, each placed in the proper department on the line designated as General Operating Expenses. Before taking up in detail the subject of the distribution of indirect expenses, it would be well to review a few of the items that comprise such expenses. The light, heat, and power of a plant are usually distributed from one or two centres, and, in order to get at the approximate cost for the running of each department, it is necessary to arrive at some ratio with which each department is to be charged. Once the ratio is obtained, the expenditures relating to this particular phase of indirect expense may be divided among the different depart ments. It should be noted, however, that this ratio cannot be determined on a long-time period, as there are very often considerable intervals when some of the machines of a department are not running, and this would make a difference in the actual distribution. Interest on investment in a plant is very rarely included in the cost of manu facture, but should be in all cases. The money that is invested might be drawing interest elsewhere, without demanding the personal attention involved in running a plant. For example, if a manufacturer received a $5,000 dividend on a factory representing $100,000 capital, he is receiving practically nothing more than the interest which he might obtain with infinitely less risk and labor. In this in stance, taking account of the salary he might earn elsewhere without risk to his capital, his plant is actually running at a loss. There are two principal ways in which interest enters as an expense, the interest on the amount of capital invested, represented by the plant equip ment; and, secondly, where all or any part of a plant is owned subject to mort gages or notes, the interest in this case practically taking the place of rent, an being just as much a part of the expense to be distributed over the cost of pr duction as rent would be. The necessity of a proper distribution of this expense 34 FACTORY ORGANIZATION AND COSTS departmentally can readily be understood, when the fact is considered that no two operating departments have equipment of the same value. One department may contain very expensive machines, while those in another department may be inexpensive. Thus the ratio of distribution of interest expense should be based on the then present value of the equipment in the different departments. The next element of indirect expense viz: depreciation, is the most complex and difficult to estimate. Not that the principles involved are inexact or hard to understand, but the actual rate of depreciation depends on so many different and variable factors that it is out of the question to set better than an approxi mate figure, which appears to the judgment as being the nearest approach to the real conditions possible. It is only necessary to mention a few of the factors to appreciate the difficulty of arriving at any definite results in figures. Some of the more important factors are: (a) Nature and construction of buildings and equipment, together with their conditions. (b) Deterioration of plant in general and of machinery in particular, due to wear and tear. (c) Amount spent for maintenance in the way of repairs and renewals. (d) The invention of new methods or new machines which may or may not entirely replace the old ones. (e) Permanency of business, and likelihood of increase or decrease in the same. Considering that each one of these items is complex in itself and subject to many conditions, and that there are very many other factors besides, such as increase in value of site of plant, amortization, interest, peculiar uses of machines, property leased or owned, rate of production, idleness of plant, etc., etc., all of which enter into the problem, it is little wonder that manufacturers hesitate about going into the details of this subject. Depreciation, as a term, may be defined as loss in value. This loss may be due to age, use, or a combination of these two with several contributory causes. Thus, in a factory, the amount of depreciation is the measure of loss in invested capital. The manufacturer who calculates his profits without taking into con sideration this important feature is obtaining figures that misrepresent the con ditions. The plant has lost in value during the process of production, and this loss of value is just as much a part of the cost of production as wages or any other similar element. In applying depreciation to the product, the same general principles hold good as in other forms of indirect expenses. As far as possible the depreciation that occurs in one department should be charged to the articles passing through that 35 department, the remaining depreciation to be pro-rated over the whole plant in the same ratio as the other general operating expenses. Jt is obvious that no machine can depreciate in value more than the original cost plus the amount spent in repairs and renewal of parts. Therefore, we may say that the purpose of setting aside a depreciation item of expense is to distribute the cost of a machine over the product it turns out, through a period of time estimated as the average life of that machine. And the same is true of depreciation as written off on the buildings and property of the plant as a whole. It is not within the scope of this book to present a detailed analysis of the factors of depreciation or to write at length on the technique of their actual eval uation. The latter requires the presence of an expert on the premises of each individual plant, and both could furnish material for a good-sized volume. Any one that is interested in such an analysis is referred to books that are written with that especially in view, the best of which is probably the " Depreciation of Factories/ a standard work of authority by Ewing Matheson. There is, however, one factor mentioned in the list the relation of which to depreciation needs to be noted more particularly. This is item (c), referring to the amount spent for maintenance in the way of repairs and renewals. It is clear that whatever is spent in counteracting the results of age and use tends to lessen the amount of depreciation. Theoretically, if a factory were kept up to its origi nal conditions by repairs and renewals, this cost would exactly counterbalance the depreciation. However, this is quite impossible in practical operation. Re pairs are made in spots, while the remaining parts are allowed to drift along, usually without affecting the efficiency of the plant to any appreciable extent. In some cases the renewal of parts may increase the value of a machine to a point beyond its original cost, as where the ordinary cast-iron parts are replaced by steel. This extra expense should not be considered as a counterbalance to depre ciation, but more as an additional investment of capital. Just where the line between these two aspects is to be drawn must be determined by the particular circumstances. With reference to the relation between maintenance and depreciation, the following quotation is given from Mr. Matheson s book, before mentioned: "The question of depreciation cannot be separated from that of maintenance, and in theory one may be said to balance the other. In practice it is only in certain cases that this can be acted on. In any particular building, machine, or appurtenance, decay or wear of some sort must take place in the course of time; and repairs, in order to compensate fully for the decline in value, must take the form of renewal. This being the case, the absolute replacement of some portion of the plant every year may thus maintain an average aggregate value. In only two kinds or classes of plant, however, can such an exact balancing of loss by repairs and renewals be ventured on; one, where the plant wears out so quickly as to need replacement at short intervals, affording constant 36 FACTORY ORGANIZATION AND COSTS proof, by the mere continuance of working, that not only the earning power of the factory is main tained, but also the capital value; and in a second class, that of undertakings so large and perma nent as to afford a wide annual average of deterioration and renewal over the whole plant." The net result of this relation between maintenance and depreciation, as it usually appears in a cost system, is to make separate items of each, but to de crease the amount written off for depreciation by the amount spent for main tenance, thus arriving at a result equivalent to the gross depreciation. The usual method of calculating an average depreciation is to "write off" each year a certain per cent, of the value of the machine or the plant as a whole, thus providing for an actual decrease in value. For instance, if the life of a machine was estimated at 20 years, the rate of depreciation to cover the cost would be 5 per cent, a year, on that cost. Sometimes the rate is based on the net value left after previous depreciations, instead of the original cost, which results in more of a sliding scale of decreasing values. The rate of depreciation, in this case, would be set at a higher figure than in the former instance, and the greatest depreciation would appear in the first year. When this method is applied to a plant as a whole, it is known as the "blanket" method. This is a very simple way, practically applicable to very simple conditions; but it breaks down and gives results far from the truth in large and complex factories. For in such cases, the depreciation goes on at a very uneven rate in different parts of the plant, and the "blanket" method then fails to distribute this part of the "burden" equitably over the product. The results are still further from the truth when some departments are working to full capacity while others are in a state of semi-idleness. Theoretically, the most accurate plan would be to take a revaluation of all the property from time to time, in which case the difference between any two valuations would represent the depreciation during that period. Unfortunately, there are both the practical obstacles of the difficulty and labor of making such revaluations, and the theoretical consideration that such a revaluation must be estimated on a double base viz: the condition and earning power of the machine. Again, quoting from Mr. Matheson s book: "There are various methods of estimating the depreciation of a factory, and of recording alter ation in value, but it may be said in regard to any of them that the object in view is so to treat the nominal capital in the books of account that it shall always represent as nearly as possible the real value. Theoretically, the most effectual method of securing this would be, if it were feasible, to revalue everything at stated intervals, and to write off whatever loss such valuations might reveal without regard to any prescribed rate. By such a plan the deterioration due to a period of arduous working, or to any average or idle year, would be properly allotted. "Such a system, however, is not feasible, and is adopted only in factories where the trade and plant are of so simple or uniform a kind as to allow it without difficulty. In some factories there 37 are a few chief items of plant which are more important than the rest, and whose condition and value, therefore, need special consideration. The plan of valuing every year, instead of adopting a depreciation rate, though it is the more perfect if strictly carried out, has some disadvantages. The two leading considerations in such an appraisement are generally the condition of the machine or other appurtenance, and in its earning power. In both these respects there may be absolutely no sign of deterioration; a machine may appear, and for all practical purposes be, as good as new, and may show proof of it by actual earnings. Yet, none the less, its working life is shortening every year, and unless some provision is made for replacement, a severe loss will fall on the future. And if, with this in view, something is written off the value, though no alteration is apparent, then the plan of a depreciation rate is really adopted. Manufacturers who abstain in the ealier years of working from writing off depreciation, because they may see no signs of a lessened value, might find it difficult to obtain the full value from an assurance company in the case of destruction by fire; an independent examination will show a lower value than that standing on the books of account, while if an excessive depreciation has taken place the proper value is ascertained and restored." There is still another way of approaching the depreciation question, which is by the creation of a "Reserve fund." This takes the form of a fund set aside out of the profits, to provide for all repairs and renewals as they are needed. To cover the estimate of depreciation it should be equal to it in amount. This plan has the merit of providing for the depreciation of the plant without changing the figures of the original valuation on the books. The reserve, so set aside, adds nothing to the resources of the company; it is purely a method of providing for depreciation charges, before they actually eventuate in expenses for repairs. The charges themselves are assessed on the product and go to increase the cost of production as a true indirect expense. Where there is any question as to the rate of depreciation, ^t is the wiser course to choose the higher rate. It may be called a pessimistic view, but in case of error it is error on the right side; and any difference can easily be corrected when the time comes by simply restoring the value where it belongs. In the other case the books show a false valuation of the plant, on the wrong side- that is, over-valuation for which there is only one cure viz: recourse to the profit and loss account. Besides this, there is always the element of unforeseen contingencies which may happen at any time, and for which a high rate of depre ciation is the best and safest plan of self-insurance for the manufacturer. CHAPTER IV Application of The Blanket Method The Most Inaccurate of All Methods No One Method Suitable to All Plants Outline of Methods and How Used. DIRECT LABOR COST Its Simplicity Principle Involved Method of Illustration of Method Incorrect when Applied to a Plant as a Whole More Accurate when Used Departmentally. DIRECT LABOR HOURS Difference between this Method and Direct Labor Cost Method Ex plained by Illustration Showing Comparison with First Method Where Incorrect Condi tions where Applicable. DIRECT LABOR AND MATERIAL Where it can be Used Usually Inaccurate. OLD MACHINE RATE Method of Where it Breaks Down Only Condition where it can be Used. NEW MACHINE RATE What Constitutes the Best Method Basic Principles of Method of Arriv ing at Rate. FIXED MACHINE RATE Principle of Method of Using Rate Supplementary Rate Difference between Fixed and New Machine Rate Where it is Unsatisfactory. NEW PAY RATE Method and Principle of How it is Obtained Saving of Time in Using, IN the preceding discussion on the elements which comprise actual cost, it was shown that indirect expense, far from being a minor item, is quite on a par with material or labor cost, if not actually more important. It is unquestionably the most difficult to analyze and reduce to figures, and even with this accom plished the problem is only half completed. The question still remains, how to apply this expense to the manufactured product in such a way as to reveal the true cost of production of the separate articles, or classes of articles. Unless this is determined approximately near the real truth, the specific end or purpose of all the preliminary steps is still unrealized. Thus, the correct distribution of the indirect expenses becomes one of the essential links in the chain of process used in cost finding, without which no results can be depended on as accurate. From time to time various methods of effecting this distribution have been proposed, varying widely in theory and involving distinctly different processes in execution. They have been devised for the most part by men who were them selves interested in certain lines of manufacture, and who have arrived at them by a study of conditions in their own plant, or in factories of the same character. It is a perfectly natural result that there are now several methods recognized as standard, each one of which is suitable to certain conditions while being alto gether out of place when adopted apart from these conditions. It is an obvious corollary that no one method can be recommended for general use, be it ever so DISTRIBUTION OF INDIRECT EXPENSES 39 efficient in its own field. The conditions of manufacture and the nature of the indirect expenses incurred in the different manufacturing lines are entirely too diverse to encourage the hope that such a general method will ever be dis covered. When it comes to the point of actually choosing a method of distribution in a concrete instance, the manufacturer is generally confronted by such a variety of conditions and circumstances, apparently peculiar to his own plant, that he is prone to abandon the case and confess himself unable to cope with the situation. The complexity of the indirect expenses as a whole, and the difference in their character in different parts of the factory, are the two leading factors which induce this feeling of helplessness. It is to meet the latter difficulty that the plan of dividing the factory into departments \vas devised. Each department should be so formed that the ex penses connected with it may be grouped together and treated departmentally. This suggests the idea that different methods of distribution may be used in the same factory in different departments, which is actually done in some cases. More will be said on this feature of distribution after the different plans have been described. The difficulty arising from the complexity of indirect expenses as a whole, in connection with different classes of product, is not so easily disposed of. The manufacturer refuses to be burdened with a complex system of cost-finding, both by reason of expense and inconvenience. What he wants is a method, as simple as possible, which will give as accurate results as could be expected. Unfortu nately, where the conditions are complex, the method of dealing with them must also be more or less complex. There is always this conflict between the desire for simplicity on the one hand and accuracy on the other, which, in prac tical life, is generally settled by a compromise. In any particular case, the most practical method can be determined only by having a knowledge of all the methods in general use and the underlying princi ples of the same, together with an understanding of the conditions in a factory to which one method or another is particularly applicable. It is the aim of the following discussion to present the methods in such a way as to lead to this understanding. Before entering on the discussion of the standard methods, it might be well to examine one of the makeshifts commonly used for figuring and distributing indirect expenses. It is based on no principles of production whatever, and frequently includes the selling expenses of the business in addition to the factory indirect expenses proper. If a name could be given to it, it might be termed the "blanket" method. 40 FACTORY ORGANIZATION AND COSTS The total of the general expenses of every character, except labor and mate rial, is divided by the total of all sales at the end of the year, in order to ascertain the ratio that the general expenses bear to the volume of business: this is used as a basis for computing costs the following year. The total of the labor and material cost of each article is increased by the ratio thus determined, and this amount is set down as the true cost of the article. It will at once be perceived that the average results of one year are applied to the operation of the succeeding year, when very possibly entirely different conditions may prevail and when the volume of business may increase or decrease. It is also applied regardless of conditions or variations in any of the elements of cost. Furthermore, the ratio thus obtained is based on the selling price, whereas in the application it is frequently computed on the cost price as described above. This is decidedly poor arithmetic, to say the least, since the cost price and selling price are entirely different elements. Nor can the manufacturer escape this trouble by waiting until the article is sold and then computing the indirect expense on the sales price, as the new selling price may be different and the old ratio rendered valueless. That this method of calculating costs is in actual use shows to what extremes manufacturers will sometimes be led by the desire to obtain simplicity of method and to avoid trouble and expense in operation. It is difficult to believe any one could expect to obtain even approximately true costs by this plan. Returning to the consideration of the standard methods of distributing indi rect expenses, the reader is asked to keep clearly in mind the distinction between departmental distribution and distribution over the whole. The majority of manufacturers using any one of these methods apply, it in connection with the rate obtained, to the production of the entire plant, without reference to the varying conditions governing the manufacture of different classes of product. Much of the following description has been written in accordance with this general point of view, and many of the criticisms do not apply if the use of the method is limited to those departments where conditions are in harmony with its principle of operation. Seven methods of distributing indirect expenses are herewith outlined: No. 1. DIRECT LABOR COST Method of Distribution: Divide the total amount of indirect expenses by the total amount of direct labor, for the same period of time, to determine the rate to be used in the distri bution. DISTRIBUTION OF INDIRECT EXPENSES 41 No. 2. DIRECT LABOR HOURS Method of Distribution: Divide the total amount of indirect expenses by the total number of produc tive hours, for the same period of time, to determine the rate per hour to be used in the distribution. No. 3. DIRECT LABOR AND MATERIAL Method of Distribution: Divide the total amount of indirect expenses by the total cost of labor and material, for the same period of time, to determine the rate to be used in the distribution. No. 4. OLD MACHINE RATE Method of Distribution: Divide the total amount of indirect expenses of the entire plant by the total number of productive hours of the operating machines (only), to determine the average rate per machine hour to be used in the distribution. No. 5. NEW MACHINE RATE Method of Distribution: Divide the amount of departmental indirect expenses by the total number of operating hours, or other unit of measure, for the same period of time, to determine the rate to be used in the distribution. No. 6. FIXED MACHINE RATE Method of Distribution: Same as above, except that the method of arriving at the final machine cost rate is different. No. 7. NEW PAY RATE Method of Distribution: Divide the total amount of departmental indirect expenses by the total cost of direct labor for the same period of time, to determine the rate to be added to the regular individual pay rates of employees in making the distribution. No. 1. DIRECT LABOR COST By reason of its simplicity, this method of distributing indirect expenses is in more general use than any other. The principle upon which it is based is that the product increases in value according to the amount of labor added to it, and 42 FACTORY ORGANIZATION AND COSTS that the greater the amount of labor involved in the manufacture, the greater the expense required to supervise this labor and conduct the business. This, considered as a general principle, is true within the limits of its opera tion, but it is seriously questionable whether it covers the whole field. There are many other factors in production besides labor, and these are frequently of such prominence that they dominate or characterize the situation. This accounts for many of the faults and inaccuracies which arise in carrying out the theory by the plan ordinarily adopted. Admitting that the labor involved in the manu facture of a product regulates to a large extent the expense incurred, it is equally true that the principle should not be applied to concrete instances in a general or . .* inclusive way. The plan generally adopted in operating this method is, first, to ascertain the total cost of direct labor actually charged to the product. The total indirect expense for the same period is then divided by the total direct labor. The result shows the per cent, or rate which the indirect expenses bear to the total produc tive labor. The distribution is then made over the articles manufactured during the period embraced in the calculations, by multiplying the total labor charged to each article by the per cent, or rate of the indirect. In this way, it will be seen that each article will be charged with a portion of the indirect expense of the entire plant, according to the cost of labor expended in its manufacture. To illustrate, let us say that during a certain month the money spent for direct labor amounted to $8,000, and that for the same period the indirect expenses amounted to $5,000. Dividing the indirect expense by the direct labor, the result is 62^ per cent. ; that is, the indirect expenses amount to 62Jr per cent, of the direct labor of the entire plant. Thus, if the labor cost of an article is known to be $1.20, and the cost of the material 50 cents, the total factory cost of the article would be $0.50 plus $1.20 plus 62 per cent, of $1.20, making the total cost of the article $2.45. It is clear on the face of it that if the percentage is added to the cost of every article, all this indirect expense, amounting to $5,000, will necessarily be dis tributed among the articles manufactured and included in the cost. The question remains, however, Is the distribution accurate? In other words, can an average rate be applied to all articles alike and results be obtained that will be correct for individual articles? The answer depends largely on conditions. Let us assume that there are several departments in a factory which differ among themselves in process and equipment. It is almost certain that there are indirect expenses peculiar to some of these departments and which bear no rela tion to any of the other departments. Let us further assume that the product manufactured embraces a number of articles, some of which pass through all DISTRIBUTION OF INDIRECT EXPENSES 43 departments and others through certain departments only. It is quite clear that, if the per cent, of indirect expense is ascertained in each of these depart ments separately, some would show a considerably larger rate than others. Con sequently, if an average rate is used for the entire plant, instead of a separate rate for each department, some articles will be charged with an excessive amount, while others will not receive their due share of the indirect expenses actually incurred in their manufacture. As can be seen, this method, as generally used, makes no allowance for differ ences in departmental conditions, and where these differences actually exist, a portion of the extra cost in certain departments is shifted to the product manu factured in departments where the expenses are smaller in amount, and possibly different in character; all of which means that an average rate for an entire plant can be used in distributing indirect expenses only where the conditions are ex tremely simple. That is, the product must.be limited to a small variety of articles, and the time and labor cost expended on each must be relatively the same in all departments. Another element which is neglected in the plan as described is the difference in the wages paid to skilled and unskilled workmen. It is not necessary that the wages be proportional to the true indirect expenses. The product turned out by a $2.00 a day workman sometimes incurs just as much indirect expense as that in the hands of a man who receives $3.00 or $3.50 a day, the time expended being the same in each case. That the latter article should be charged with 50 per cent, or more indirect expense than the former is, of course, wrong; but this is a possi ble occurrence when the plan is applied over too many units of production. An exaggerated form of this inequality of charges comes to notice when a low- priced workman is placed at an expensive machine, and a high-priced workman at a cheap machine. Here the product of the cheap machine is ridiculously over charged, and the product of the expensive machine proportionately undercharged, owing to the fact that the plan of distribution is based on the cost of labor and uses an average rate. Suppose a manufacturer finds that he cannot meet competition on certain articles without reducing the cost of their manufacture, or else paying a loss out of the profit derived from the production and sale of other articles. If he accepts the results of this method as a definite statement of costs, and believes his costs to be accurate, he is confronted with a problem which, from the information obtainable, seems impossible of solution from a practical standpoint. It might be supposed that the proper thing to do is to lower the labor cost by cutting wages or hiring cheaper workmen, for by so doing he not only saves the difference in wages, but the cost of these articles will be burdened with a smaller part of the 44 FACTORY ORGANIZATION AND COSTS indirect expenses. But it would be absurd to act on such a suggestion, since lowering the wages of the men has not the slightest influence on the true indirect expenses, and the hiring of cheaper workmen would, in all probability, only serve to make them greater at the very point where they would be shown to have decreased. It is distinctly apparent that there must be something vitally wrong with such a system of figuring costs. As before stated, the trouble lies in the average rate, which makes it necessary to overcharge some articles and undercharge others. Any factory using an average rate based on wages is obtaining results inaccurate in proportion to (1) the inequality of conditions relating to wages, (2) the dif ferences existing in the equipment and the fixed charges relating to it, and (3) the differences in the time expended on different articles of the same class. If a system based on wages is to be used, to distribute the indirect expenses equitably the wages must represent the true conditions of production, and must be proportionate to the true cost. But this occurs only where the labor is prac tically uniform throughout as to product and wages and time of operation. In rare instances the cost of labor might vary in the different parts of a factory in proportion to the other elements of cost, and, if such were the case, an average rate would give sufficiently accurate results, any slight error being compensated for by the simplicity and saving of time inherent in the method itself. While it has been shown that accurate results can be obtained in but few cases where an average rate of distribution over the plant as a whole is used, it must be kept in mind that if this method of distribution is calculated depart- mentally, the objections that have been so strongly emphasized very often disap pear, and the results would be all that could be desired. This departmental plan of distribution is used in one of the systems explained in Chapter XXXVIII. No. 2. DIRECT LABOR HOURS The difference between this method and the one first described lies in the different bases used for the determination of the rate of distribution; otherwise there is a general similarity in outline and application. Both are averaging methods, and the theory of the labor hours method admits the principle before stated, that an article increases in value in proportion to the amount of labor expended on it. But it is contended that time, and not cost, is the essence of the amount of labor, and that the actual cost for the time is merely incidental, or at most pro portional. That is to say, the indirect expenses of a plant are in keeping with the number of employees and the hours they work, rather than with the wages they receive. DISTRIBUTION OF INDIRECT EXPENSES 45 The plan of procedure is to divide the total indirect expense by the number of productive hours, i. c. hours charged to the product direct, and thus ascertain the amount per hour to be added to the cost of the product to cover indirect expenses. In the example given to illustrate the operation of the other method, if the hours charged to the product during the month had been 40,000, and the indirect expenses $5,000, the rate per hour to be added to the cost would be 12 cents. Again, if the article referred to had required four hours time in the pro cess of manufacture, its cost would have been 50 cents for the material, $1.20 for labor, and 12 cents for each hour consumed in the manufacture of the article, making an indirect expense of fifty cents. Then the total cost of the article would be $2.20, instead of $2.45 according to the other method. The first thing to be observed is the difference in the cost of the article, and a little reflection will show that this is not because the illustration is not in keep ing with the possible facts in the case, but that similar differences are likely to appear in the application of the two methods to almost any plant. In fact, it would be strange if the results did agree. In the one case, the product of an employee drawing a high rate of pay is charged with a greater amount for indi rect expense than the product of the lower priced employee. In the other in stance, or according to this plan, the indirect expense is equally divided between both high-priced and low-priced employees, supposing them to work an equal number of hours per day. For this reason the results obtainable from these methods could not agree, unless the rate of pay was in exact proportion to the time worked; and allowing this condition throughout the factory, both would still be in error, the amount depending on the difference in cost of the machine used and the nature of the indirect expense incurred in each particular depart ment. This brings up directly the question of their comparative value. It has been shown that the labor cost method, when applied to cover the whole of a plant, failed in three respects, in that it did not discriminate between the differences (1) in time of operations on articles of the same class, (2) in wages paid to skilled and unskilled workmen, and (3) in equipment and processes in the several de partments. Obviously, the labor hours method solves the first difficulty, since it is based on the time element above all else. The question is, that by so doing does it at the same time overcome the second objection to the labor cost method? Mature consideration leads to the belief that it does, in some part at least. All in all, indirect expense is much nearer being a function of time than of labor cost. The fact that the expense connected with the production of high-priced articles par ticularly is affected by the difference in the two methods has little or no bearing 46 FACTORY ORGANIZATION AND COSTS on the case, as such articles, as a rule, are listed at high prices, either because of the cost of material or because of the high wages necessarily paid to skilled work men. But these two factors are comparatively incidental as connected with indirect expense. Cheap material and unskilled labor may go hand in hand with long or expensive processes, and vice versa. This conclusion gains weight when the nature of some of the principal items of indirect expense are considered. Take, for instance, rent, insurance, interest on investment, salaries of office force, light, heat, depreciation of plant, and all similar items of the general operating expenses that pertain to the plant as n unit; these are almost directly proportional to the time in which they are in curred. Nor is there any warrant for claiming that power cost, supervision, machine depreciation, etc., are greater in those parts of the plant where wages are high than where they are low. In fact, supervision is likely to be less where the intelligence of the workman counts for more. Such items as hand tools, intricate machinery, etc., which, as a rule, accompany high-priced labor, are not sufficient in amount to overcome the tendency of the greater part of the indirect to accu mulate proportionally to the passing of time. In considering the third point of comparison, i. e. the difference in processes and equipment, the labor hours method finds itself no better off than the laboi cost method. It has been repeatedly shown that the product of large and ex pensive machines should carry a greater part of the indirect expenses than the product of smaller and cheaper machines, because of the differences in interest on investment, depreciation, power, floor space, etc. Of all this the labor hours method takes no cognizance, and the result is the inequality of charges which has been previously emphasized. The point holds true wherever these differences exist, and cannot be avoided except by the proper departmentalization of a factory. Just how serious this may all be can be better determined when the sales department undertakes to market the product. The company will naturally press the sale on articles which appear to bring the greater amount of profit. If this appearance is not in keeping with the facts, the whole policy of the com- pany may be shaped in the wrong direction. It is a fact that two manufacturers producing the same class of product are unable to compete with one another in certain lines, although they both pay the same price for material, employ the same labor, and use the same kind of equipment, and are apparently equally wel] managed. Any difference under these conditions, generally speaking, is trifling; yet one can market a certain product at a price which appears to be impossible for the other to meet. The fact of the matter is, that these articles actually cost both manufacturers substantially the same amount to produce, and the apparent difference is due DISTRIBUTION OF INDIRECT EXPENSES 47 entirely to the difference in the method of figuring indirect expenses, as the other elements of cost would probably be calculated by both parties in the same way. If the same methods of figuring the indirect were used by both, the extent of the competition would be governed entirely by the skill in buying and the skill in manufacturing, together with the ability of the sales force, all of which would represent actual conditions existing in business, instead of erroneous ideas as to the price at which the goods could or could not be sold. It is even possible, where there is a wide difference in the machines and equip ment, and where the margin of profit is narrow at best, that a company may be forc ing the sale on certain articles at an actual loss and purposely neglecting the sale of other articles, supposedly sold at a loss but actually bringing in large profits, all be cause of an inaccurate system of distributing indirect expenses over the production. Returning to the comparison of the two methods of distribution, the method which bases its distribution on labor hours would seem to be nearer the truth in the application of its principle than the method based on labor cost except in those cases where the labor cost can be shown to be proportional to the true cost of production. Its main source of error is at least constant, while the additional source of error in the other method includes a factor that varies from time to time, as the condi tions of manufacture and rates of pay change, and renders the result more uncer tain and less uniform. Both are imperfect as regards the consideration that if a method of distribut ing the indirect expense is to produce accurate results, the element or elements on which it is based must represent conditions actually existing. It is clear that neither of these two methods is based on this principle, and they do not represent actual conditions except in two instances viz : where the product and processes of manufacture are both very simple and uniform in character, or where the distribu tion is made departmentally. Whatever the principle of a method is, the results will always be inaccurate unless it is applied in such a way as to identify the pro duct produced in a department with the expenses peculiar to that department. No system based merely on an average percentage of the entire plant can over come this objection. 3 DIRECT LABOR AND MATERIAL The plan of procedure in this method is similar to that in the labor cost method, but uses the total cost of labor and material as the basis of the calcu lations. It is essentially an averaging method, and is rarely used in any other way. To be at all successful, the material should constitute by far the greater portion of the direct cost. Where the direct labor is a comparatively small part 48 FACTORY ORGANIZATION AND COSTS of the prime cost, and the material and indirect expenses are principal factors, this method might seem practical, subject always to the limitations of averaging methods in general. When the method is adopted where these conditions do not exist, i. e. where the direct labor constitutes an important part of the cost, the results will be fur ther from the truth than those obtained by any other of the methods described. No. 4. OLD MACHINE RATE. Under this plan the total indirect expenses are obtained, and also the total number of hours in which machines have been in operation. The total indirect expenses are then divided by the number of machine hours, thus obtaining the rate per machine hour for indirect expenses. This plan may be used to advan tage wherever the machines are all of one kind i. e. when they occupy substan tially the same floor space, use approximately the same amount of power, and cost approximately the same. When machines are unequal, the method of machine hours breaks down pre cisely where the method based on total hours of labor failed; it does not take into account the varying indirect expenses due to variation in size and cost of machines, and difference of power to operate them. It also fails utterly when applied to factories where there is a large amount of bench-work coupled with machine work. For instance, the machine time required for an article may be a very small part of the time actually spent on it. Suppose that one half the work is done on the machine, while the other half re quires hand labor. Obviously the share of the indirect expenses as applied to this article would be considerably less than it should be, and the extra cost must be borne by some article which is wholly, or almost wholly, machine made. Under these conditions the article that is all hand made would bear no share of the shop charges, even though the department in which it is manufactured occupies a considerable part of the floor room of the shop. This method is even less reliable than the first two methods described, unless there is a remarkable uniformity of the machine work in the factory. It can be used effectively only by applying it departmentally to those parts of the plant where machines are in use, and in distributing the balance of the indirect, by some other method, over the departments where the product is hand made. No. 5. NEW MACHINE RATE In outlining the various methods now in vogue for distributing indirect ex penses, it should be noted that none of the plans mentioned has received the 49 endorsement of the writer, except when used departmentally. As has already been stated, the best method of distributing indirect expenses is that which min imizes the amount of indirect expense to be pro-rated on a more or less arbitrary basis. By this is meant a method that will localize or centralize the expenses ordinarily termed indirect in such a way as to make it possible to charge these expenses to the product directly, instead of indirectly, and thus reduce the amount which would ordinarily have to be pro-rated over the production. Consequently, any method or plan which provides for charging directly the greatest amount of expense is the most desirable one to adopt. The new machine rate was devised with this end especially in view. Where it can be applied, the results may be said to be as near the true costs as it is pos sible to obtain. But attention should be called at the outset to the fact that the method is limited to those factories or plants where the majority of operations are machine processes. It must fail when applied to conditions where there is a considerable amount of bench work, or where machines are only incidental to the real process. The plan of procedure of the method provides for charging the labor, and all departmental expenses, directly to a process or machine in such a way as to show the total cost per hour, or unit of measure, of operating the machine or process. This includes such general operating expenses as do not pertain directly to the machine or process in question, but can nevertheless be associated indirectly with its operation. The rate thus ascertained is charged to the cost of the pro duct, the total charge depending on the length of time consumed in the production. In order to carry out this plan in a practical way, it is necessary to arrange the machines of the same kinds in groups, and thereafter to make the charges against the machines according to a stated name or process. Whenever possible, each group should be treated as a separate department; but when a department must include different processes, and machines of different processes, there must be a sub-division of charges in the department itself. It is also possible to handle certain processes other than machine-work, provided the cost of all production passing through these processes is affected uniformly. Attention should be called to the fact that the phrase "machines and pro cesses," is often substituted for the word "department," in order to emphasize the detailed distribution. Unfortunately, not every department can be formed to include machines and processes of a single type, and in that case the charges cannot be made through the department as a whole without a certain loss in accuracy. After the classification or standardization of operation has been determined upon, all operations or processes should be charged with the full time of em- 50 ployees engaged therein, as well as with any supplies or repairs relating to them. In addition to this, insurance, floor space, depreciation, interest on investment, and any or all other items connected with the manufacture of the product and incident to the operation, should also be charged. The charges just mentioned relate to expenditures which can be identified absolutely as relating to the ma chine or process. When these charges have all been made, the general indirect expenses, or expenses that are not and cannot be properly charged to any particular machine or process, should be distributed among the various departments according to some established basis. The department in turn applies these general expenses to the product, by a plan which will be explained later. Now that the total cost has been charged to the various machines or opera tions, the next step to be taken is to determine the number of operating hours of the machines or processes. From this is ascertained the cost per hour per unit of measure, so that the product passing through these various operations may be charged at this rate. All expenditures chargeable to the product, except material, will then be included for the particular operation or process. The general working plan of this method is now clear. The machines, or processes, are used as a medium for transmitting the charges from their source to the product. They are adapted for this, because a greater amount of expendi ture can be identified with a machine or process than with the product, especially as regards the indirect expenses. In other words, they serve to gather the costs in such -a way that the product may be charged directly with them, instead of indirectly. This is accomplished through the rate, that is, the cost to run the machine or process per hour. By such means the amount of general expenses to be more or less arbitrarily pro-rated is reduced to a minimum. In order to clarify this, attention is called to certain of these expenses ordi narily treated as indirect, but which in this instance become direct charges be cause of the method used in handling them. Take, as an illustration, interest on investment. Generally, where costs are figured, this constitutes a part of the general indi rect expenses and is distributed, together with the other items of its class, over the production of the whole factory. Thus it loses its identity, so to speak, as a separate item, being combined with other expenses to form a single account. Too often it is omitted altogether. By this method, the investment in the ma chines and equipment used in the several operations or processes is set apart, and the interest on this amount is charged directly to the machines or processes to which it relates. This is obviously a more accurate method of distributing interest charges, or any other item of the same character, since it is not necessary DISTRIBUTION OF INDIRECT EXPENSES 51 to take into consideration at this point any particular class of product, the ma chines or processes being all that is involved. It may be noted that as depreciation keeps an account of the decrease in the value of the equipment, it at the same time furnishes the base upon which the interest is to be computed for the then present period. Thus, as the value of equipment becomes less, through depreciation, the interest decreases propor tionately. The problem of depreciation itself finds a more accurate solution by this manner of handling it. As in the case of interest on investment, each machine or process is charged with the depreciation relating to itself. When the whole depreciation is grouped in the general indirect expense, any single department is either forced to help bear the depreciation properly belonging to some other department, or is burdening the rest of the shop with its own depreciation. r The first thing to be done in the calculation of depreciation is to estimate the life of the equipment or machine, based on operating full time. The cost of the equipment should then be divided by the number of hours in this period, in order to obtain the rate of depreciation per actual operating hour. In charging depre ciation monthly, according to this plan, the total number of operating hours of the machines or processes should be multiplied by this rate and the result charged in the cost. This is the most accurate way to figure depreciation, as only the working time is included in the calculation. Other items, showing the advantage of this method of treatment, are insur ance, rent, taxes, machine supplies, heat and power cost, etc. Such items as insurance, rent, taxes, light, maintenance of buildings, and other expenses of similar character, are generally divided among the several departments, on the basis of floor space occupied. Together they constitute an amount that may be designated as floor space cost, the total of which should be divided by the total floor space of the factory to find the amount per square foot or square yard. Each process or machine then receives its share, in proportion to the part of the total floor space it occupies. The cost of machine supplies, such as oil, waste, and other expenditures of this nature, for each group of machines, or process, presents no special difficul ties, and becomes an item with the rest in the direct charge. The distribution of power cost over the machine and process necessitates the determination of the horse-power of each machine by taking an indication of power. In this way the power is distributed over the whole productive equip ment of the plant. Allowance for horse-power to cover transmission should be made where great exactness is desired, especially where the transmission power is much greater for some machines than for others. 52 FACTORY ORGANIZATION AND COSTS After this information has been obtained, the power account should be charged with fuel, salaries of firemen and engineer, repairs, insurance, supplies, inspection of boilers and engines, depreciation, and all other similar accounts relating to the boiler and engine-room, together with an amount to cover interest on investment. This should then be divided at the end of the month by the total horse-power hours of all machines, as actually operated, in order to obtain the cost of power per horse-power hour for each particular month. This rate per horse-power hour should then be multiplied by the total horse-power hours of each machine, in order to distribute the power among the various machines and processes. All other charges relative to the machine or processes, exclusive of the general indirect expenses, should be charged to the machine or processes at the end of the month, in the usual way, except in the case of labor and material. The former should be taken from the time reports, and the latter from the material requisi tions, if a stock system is used, and, if not, from the invoices direct. The next question to be considered, now that all of the direct charges have been made against the machine or process, is the matter of those expenses which cannot be properly charged to, or identified with, any particular process or ma chine. These are divisible in two classes those which belong to the plant as a whole, and those which can be identified with departments as units but not on particular machines in the department. The first step is to divide the general indirect expenses among the various departments on some suitable basis, such as, for example, the expense charged to the departments, or cost of direct labor, etc. This amount, so distributed, is then included in and becomes a part of the regular departmental indirect expenses, afterwards distributed among the various machines or processes. The distribution of the departmental indirect expenses, which now includes the general indirect, is the last charge which goes to make the final machine rate. The question to be considered here is, whether the system of costs is based on a unit of measure that is, pounds or tons or per hour. If the former is the case, then the total departmental indirect expenses should be divided by the total number of pounds, or tons, or any other unit of measure produced, and the rate thus obtained distributed among these machines or processes at that rate per unit of measure. This transfers all of these departmental indirect expenses to the various machines or processes to which they belong. If the basis of cost is time, instead of quantity, the total number of hours in which all machines or processes were engaged during the month should be divided into the departmental indirect expenses and the rate per hour ascertained. This should then be multiplied by the total operating hours of each machine, or pro cess, and the amount entered in the cost in that manner. DISTRIBUTION OF INDIRECT EXPENSES 53 If desired, the total departmental indirect expenses may be divided by the total cost of direct labor, and the rate used in distributing these expenses over the various machines or processes, on the basis of the labor cost, charged to each machine or process. The working plan of the new machine rate method may now be summarized as follows: (1) All expenses which can be possibly charged to machines or processes are so charged. This includes labor, supplies, interest, etc., as outlined previously. It is this step that constitutes the essence of this method. (2) The general indirect expenses are distributed among the different depart ments, and are then added to the department indirect expenses. (3) The total department indirect expenses are then distributed over the ma chines or processes. (4) Combining the charges of one and three, the total machine rate is deter mined, which includes all items of cost but material. To find the cost of any article is a simple process. Suppose it to pass through several departments or processes. The number of hours it is operated on in each process, multiplied by the machine rate for that process, gives the different pro cess costs. To the sum of these, or the total process cost, add the material cost, taken from the invoice or material requisition, and the final, or factory cost, is obtained. No. 6. FIXED MACHINE RATE The essential step in this method consists of the preparation of rates, which are obtained departmentally either from the results furnished by a system pre viously operated or from an investigation and analysis of the expenses known to be chargeable to particular machines or processes. These charges are then calculated according to the maximum operating machine time. The machine rate thus obtained is then charged to the cost each month and credited to the department indirect expense account, irrespective of the actual cost per hour, as shown by the actual charges and the actual machine time. This department indirect expense account consists of the sum of the machine rates for a given period, and is supposed to include all the indirect expenses connected with the department as such. The general indirect expenses are not distributed departmentally in this method, but by a supplementary rate, which, as generally used, covers the whole factory. In this supplementary distribution any method desired can be employed, such as labor cost, or labor hours, etc. After these rates have been obtained, and the machines or processes to com- 54 FACTORY ORGANIZATION AND COSTS prise the system classified, the actual charges relating to the machines or pro cesses, which are presumably included in the rate, are determined. Whatever differences exist between the estimated rate and actual charges are transferred to the general indirect expense account, to be adjusted through the supplementary distribution. There is a certain similarity between this plan and the one previously de scribed, up to a certain point; but after that, and actually as to results, there is a wide difference. In this instance, all the charges relating directly to the ma chine or process are entered in the cost, precisely in the same manner as in the other system. But the indirect expenses in the new machine rate are distributed over the machines or processes, and included in the machine or process cost, in calculating the rate per hour; whereas, in the fixed machine rate, the indirect expenses which cannot be identified with particular machines or processes are pro-rated over the entire production on a percentage or some other basis. The fixed rate method differs from the other also, in that the rate, to begin with, is based on an estimate or, at best, on what happened during some previous period. It also assumes an efficiency of 100 per cent, in running, which is a con dition that has never been known to exist. Crediting the departmental indirect expense account with charges based on running maximum time, where the pro duct is only charged with the actual running expenses of the machines when they are at work, necessarily produces a credit balance for the indirect expense account in a comparatively short time. That is, the indirect expenses of the department appear in the charges to the production as being much greater than they really are. Compensation for these extra charges must be made somewhere, or the costs obtained would be nothing short of ridiculous. Therefore the difference or the amount by which the indirect expense account exceeds the actual charges, is deducted from the general indirect expenses before they are distributed. The nature of this proposition can be understood more clearly when it is con sidered that, if there are a great number of machines idle, the general indirect expenses appear to be much diminished. In fact, if a major part of the equip ment were not at work they would disappear entirely. At the very best, this results in a distribution that is so inexact as to be valueless to the manufacturer. Nor is it correct in amount, when considered in its entirety. The plan of deduct ing the rate of idle machines from the general indirect expenses assumes that there are no indirect expenses whatever connected with the machine while it is standing idle. But we have seen that this is not true. Interest, floor space, rent and depreciation, to a more or less extent, besides other expenses of this nature, go on just the same, and no provision is made for their incorporation in the true costs of the plant. DISTRIBUTION OF INDIRECT EXPENSES 55 This is far from an imaginary difficulty, for it arises in two cases, both very common viz : when parts of the factory are idle, as in dull times, or when there are machines that are only used occasionally at best. Some of these latter are a necessity, and yet, owing perhaps to their enormous capacity or peculiar product, cannot be expected to run more than a small fraction of the whole time. Obvi ously nothing can be gained by charging the product of such machines with charges based on full efficiency. In fact, its principal effect is to disturb the costs of the whole factory. On the other hand, if the machine rate, as previously fixed, be less than the actual rate, the difference between the charges of the estimated rate and actual charges must be added to the general indirect expense account, and subsequently distributed over the production in the supplementary entry; otherwise the cost records, without the supplementary entry covering these deficits in machine rate, would be far from accurate. Attention is at once attracted to the fact that no matter which way the dis crepancy occurs, recourse is had to the indirect expenses to adjust the difficulty. The trouble here is that the rate is essentially an estimate, and, at bottom, is arbitrary. If it agrees with the actual charges all well and good. But it is fai more likely not to agree with them; and then there is that discrepancy which cannot but throw the true distribution of indirect expenses out of order. The differences, and resulting errors, are accentuated because the rate is based on full running time, instead of the average or actual running time, which, after all, is the logical basis for a machine rate. It is not a question of what a machine can do but what it does do, day in and day out, even if this represents only 40 per cent, efficiency. Altogether, it may be concluded that, except in very special cases, the fixed machine rate is not adapted to give satisfactory results in the determination of true costs. No. 7. NEW PAY RATE The principles underlying this method are the same as in the first method, but they are applied differently. The indirect expenses relating to a particular department are ascertained separately, and the general operating expenses are first distributed among the departments on the basis of direct labor cost, before the percentage of indirect expense of each department is calculated, department indirect expenses are then applied separately to the product manu factured in each of these departments, but in a different manner been described The chief feature of this plan is that, after the indirect expenses are deter- 56 FACTORY ORGANIZATION AND COSTS mined departmentally, instead of charging them as percentages to the product of these departments, they are added as separate rates to the rates of pay of the employees engaged in each department. The new rate, which includes indirect expenses, is charged to the product by multiplying the employee s time consumed in the operation by the new rate, instead of first charging or extending the amount of labor cost and then adding the percentage for indirect expenses. This method has some distinct advantages and, at the same time, correspond ingly great disadvantages. In the first place, it is applied departmentally and so avoids most of the defects noted in the methods employing an average rate. Even then it can be used only where the conditions in the department itself are com paratively uniform as to wages, equipment, etc. Its great practical advantage lies in its simplicity. In comparison with pro rating the indirect expenses over several hundred orders or articles, it is excep tionally simple, since the greater part of the calculation lies in figuring the pay rate. When this is determined the application to any order or article is only a matter of multiplying the time the order or article was in process by the rate per unit time. Nor is the determination of the pay rate a bit more difficult than the fixing of any other rate which will distribute indirect expenses accurately. The saving of time in a large plant, resulting from the use of this method, would prob ably amount to a considerable item; and, allowing that the distribution had been made under conditions where it would be accurate, this point alone would recom mend it strongly to the manufacturer. However, the disadvantages connected with its use are no less great. Let us admit that it succeeds in giving true costs; this is only half the point of a cost system. The data of a good system should be so compiled and arranged that an analysis can be made of the costs in any or all parts of the plant. This is impos sible under the new pay rate in its simple form. It collects charges in totals, and attains its simplicity by neglecting the proper classification and arrangement of separate items. If the manufacturer wishes to find these things out, in order to locate leaks or effect economies, he must make a separate job of it and disassociate it more or less from the cost system. But by so doing he falls back into the same difficulty which he hoped to avoid by the use of the new pay rate viz: the necessity for detail. All in all, he might better, perhaps, have installed some other system which would collect and arrange the data necessary for analysis as a part of its regular function. Where the analysis of the costs in a factory is not particularly desired by the management, and where other conditions admit of its being used, there is no method that will give more satisfaction than the new pay rate. But it should be DISTRIBUTION OF INDIRECT EXPENSES 57 borne in mind that it sacrifices the means of detecting weak spots in the processes of production, which is one of the most valuable and essential features connected with a proper cost system. At different times in this chapter, the use of two or even more methods of distribution in the same plant has been suggested. This should be emphasized as one of the most valuable points made. One of the great difficulties in finding costs in large plants has been the utter dissimilarity of process in different parts of the same plant. How to deal with this feature, and at the same time keep within the limits of practical detail, has been a constant and a most irritating problem to the manufacturer. As has been pointed out, the practical solution lies in the proper departmen talization of the plant, and the determination and distribution of the indirect expenses through the medium of these departments. It is by this means that the expenses are properly localized and, at the same time, a wider field for the choice of distributing methods is obtained. When a plant is once properly classified, the manufacturer is then free to use a machine rate where the processes are essentially machine processes, or where they are not he can introduce the labor cost, or labor hours, or some other method suitable to the conditions. The new pay rate is often very effective when used in certain departments where the nature of all the expenses is already well understood. This freedom of choice marks the highest development of the modern cost sys tem, and is at once the result of and the most effective instrument connected with the proper organization of factories in arriving at the correct finding of costs. CHAPTER V GENERAL INTRODUCTION TO FORMS AND SYSTEMS Principles Used in Forms and Systems Course to be Followed in Study. ESTIMATED COST SYSTEMS Method of Principles Involved When a Stock System should be Installed What Action should be Taken when Results Show Inaccurate Estimates. ACTUAL COST SYSTEMS Importance of Conditions Governing Introduction Stock Systems Forms Used in All Systems. IN all of the forms and designs used in connection with the several systems appearing in the following chapters, together with the underlying principles, only those that have been in actual operation in both large and small factories have been used; therefore these systems, and the forms appearing in the following chapters, do not in any case represent what might be done, but what has actually been accomplished. These systems and forms should be taken up in the order in which the chapters appear, as the arrangement has been made with the idea of bringing to the atten tion of the reader the things with which he should be familiar before attempting to digest the next subject. If these chapters are carefully read, section by section, it should not be difficult for any one at all familiar with the principles of account ing and the conduct of business generally to understand the subject matter con tained in them. In presenting the several topics, so far as they relate to the conditions and underlying principles governing the subject, it has been necessary to use to a certain extent the same phraseology in explaining the application of the same principles or forms to different conditions; for if different words or phrases, meaning the same thing, were used, the reader not thoroughly familiar with the subject might otherwise be more confused than enlightened. Where two dif ferent systems are explained, and where some of the same forms are used in both systems, covering the same conditions, a reproduction of the same form occurs. This is done with the object in view of enabling the reader to see more clearly the difference between the two principles where the conditions are the same, and to comprehend more readily the forms in the system as a whole by not having so many forms of different design to keep in mind. It will also minimize reference to other sections of the work. In explaining the various designs of the same kind in the chapters explaining these designs and forms, it will be noticed that all of these designs are for the GENERAL INTRODUCTION TO FORMS AND SYSTEMS 59 most part explained collectively instead of separately. The reason for this is that one of each kind of form has been explained in the systems, with the excep tion of certain forms of a purely general character not relating to any particular system or constituting any essential part of a system. The designs so explained in the systems were selected from the ones submitted in the following chapters on forms, so as to explain at least two forms of the same kind illustrating differ ent conditions or principles. This explanation and the general remarks made in Chapter VI relating to forms, considered together, will cover the field better than a detailed explanation of each particular form without reference to a system. These forms, together with the remarks explaining each class of design collec tively, are intended to give the reader an idea of the various kinds of designs used in the compilation of data on each particular subject and to suggest various designs to be used for the same purpose but under different conditions, according to the kind of system to be inaugurated. The workings of the different kinds of systems and the underlying principles involved are explained in the chapters dealing with the systems; and if these forms are considered in connection with the outline given in respect to the principles involved in operating such systems, a better idea will be obtained of the purpose and advantage, or disadvantage, of some particular design over another than in any other manner. FORMS OR DESIGNS The reader will observe, by referring to the chapters wherein are shown sev eral different designs of the same form, that in each of these forms, in some cases many in number, appear slight changes in the ruling and general appearance; but if these designs are carefully scrutinized it will be seen that in reality this difference is more material than appears on the face. But there are forms with slight changes where the difference is not of importance appearing purposely, however, with the idea in mind of suggesting to the reader how to effect such changes in detail, so as to assist him in making any changes or creating new designs suitable to a particular business. ESTIMATED COST SYSTEMS In order to assist those who, instead of using an actual cost system, estimate their costs and keep their general accounts in the books in such a way as to make it difficult to form any opinion as to the accuracy of these estimates at the end of the year or at any other time, several methods calculated to aid in such case will be found in the chapters on this subject. The methods of verifying these estimated cost calculations are presented with 60 FACTORY ORGANIZATION AND COSTS the idea in mind of enabling the manufacturer to satisfy himself whether these estimates are at variance with the facts in the case or not; and if so, if these discrepancies in the estimates are of such a nature as to involve losses to such an extent as to cause alarm. These principles, involving the verification of estimated costs, are explained by illustrating the most simple method of ascer taining these facts consistent with accuracy; and from this simple method, using the same principles, two more extensive plans are described, these three methods being calculated to outline in which respect or in which element of cost the inac curacies occurred. After all of the facts have been determined, and it is definitely known wherein the estimated costs are incorrect, it is for the manufacturer to decide what action, in his judgment, should be taken. In order to aid his judgment in this respect, his attention is called to the fact that if these estimates are in fault in estimating material costs, and an investigation reveals the fact that these estimates cannot be more carefully calculated by his present methods, then a stock system should be installed. If, on the other hand, the results show that the difficulty lies in labor estimates in any one department, then in such a case a cost system should be installed in this particular department. In the event that all of the results shown are of such a nature as to cause doubt in his mind as to the accuracy of any of the estimates, then a complete cost system should be installed in all de partments, to be operated for a certain period of time, if not continuously, so as to obtain the information that would enable him to revise his estimates of costs, and to make such changes in selling prices and in methods of manufacture as the case requires. These remarks are made only for the purpose of assisting the manufacturer who does not now operate a cost system, and it is not to be inferred from what has been stated herein that any of the methods and plans mentioned can possibly furnish the information to be obtained from the operation of an actual cost system. From the experience gained in the designing and installing of cost systems in almost every class of manufacturing business, the reader is positively assured that the cost of production, according to article, cannot be estimated accurately or determined in any case where an actual cost system is not in operation. ACTUAL COST SYSTEM The importance of this subject, while being generally conceded, is nevertheless sadly neglected, and the only explanation that can be given is that either the business man and his assistants are not able to inaugurate such a system, or the expense that might be involved prevents him from taking any action in this GENERAL INTRODUCTION TO FORMS AND SYSTEMS 61 direction. This is the only logical explanation that can be offered where the importance of the matter is conceded and admits of no argument or difference of opinion. Experience has clearly shown that where an actual cost system is properly designed and installed, and where the information furnished is intelli- gentl} used in connection with both the sales department and factory, the installation would be wholly justified by the results. The expense of installing and keeping such records is so small in comparison with the saving as to be absolutely an unimportant factor, and one not to be considered for a moment, taking into consideration the net results derived. The attention of the reader is directed to the several systems described, in which are explained the two basic principles of accurate cost keeping namely, the use of, first, "Productive Labor," or, second, "Machine or Process Cost" as the basis of cost finding. Consideration is also given to the relation of these two principles to the two standard conditions under which each may be applied: these two conditions being, first, where it is advisable to obtain costs on each order or article, and, second, where it is advisable to obtain the average cost of all articles of the same description. The systems applicable to these two condi tions are hereafter designated as the "Special Order System" and the "Product System," respectively. If these two conditions are thoroughly understood, keep ing out of mind entirely any particular kind of business, and each principle is considered in connection with these two conditions, a better understanding of the basis of cost keeping can be obtained, as in these two conditions and these two principles lies the basis of all correct cost finding. Consequently the importance of thoroughly understanding both these conditions and these principles cannot be overestimated. With this in mind, the reader should then examine all of the forms in each one of these systems, so as to understand how to apply these prin ciples from a system standpoint to the conditions existing in any particular business. If the conditions existing in any plant are the same as those described in any of the systems presented in this work, and if the principle involved is not adaptable to these conditions, then the system in which the other principle is outlined under the same conditions should be studied in connection with the business to which it is proposed to apply a system of this kind. After a system, as well as all of the forms connected therewith, has been thoroughly comprehended, the reader should compare each of these forms with those shown in the chapters dealing with forms, wherein will be found a great variety of designs for the : purpose. From these forms such designs as will be most convenient ticular business can be prepared. It will be noticed that only two methods of distributing indirect expenses h been used in illustrating the systems. This has been done so as to show clearly 62 FACTORY ORGANIZATION AND COSTS the essential differences between the four complete cost systems, without confus ing the reader by the explanation of a different method of distributing indirect expenses in each case. For instance, the first two systems both relate to a busi ness where the product is manufactured on special orders only, and where it is desirable to obtain the cost on each order. In the first of these systems the indirect expenses are distributed on the "Productive Labor" method, and in the second on the "New Machine Rate" plan. The last two systems relate to a business where the product is not manufactured on special orders and where prod uct costs are desirable, the principles being the same as in the first two systems. Consequently only the same two methods of distributing indirect expenses are used in the systems so as to make the comparison between the systems marked and distinct. Other methods of distributing indirect expenses than the two used in these systems may be applied according to the conditions of manufacture. STOCK SYSTEM Although it is not necessary to inaugurate a perpetual inventory in order to obtain costs, yet it is advisable to do so whenever possible, as a safeguard to prevent waste of material, theft, or losses from any other causes; and also to guard against over-buying or failure to carry in stock such materials as are neces sary for the operation of the plant. There is no good reason why a system of this kind should not be in operation in every plant, notwithstanding all objections based on lack of storeroom accom modations and other reasons of the same kind. It is not necessary to have a stock room in order to keep stock records, although better results will be accom plished where some organization exists in this respect. Materials may be located in several departments without affecting the efficiency, as long as some one is in charge and responsible for the material in these departments. The advantage of using stock records is so great that it is difficult to understand why this practice is not more general, and equally hard to comprehend why the manufacturer permits his storeroom to be kept in the chaotic condition so commonly found in factories. The material in the operating departments of the factory is often scattered about to such an extent as to absolutely interfere with manufacturing, when, at the same expense, a more orderly state of affairs, operating decidedly to the advantage of everyone concerned, might just as well exist. In order to assist those desiring to design and install a system along these lines, numerous designs of all descriptions, relating to this subject, together with full explanations as to their use, will be found in the chapters in which stock records are explained. GENERAL INTRODUCTION TO FORMS AND SYSTEMS 63 CLASS OF FORMS USED IN THE SYSTEMS FORMS USED IN CHAPTERS FORMS USED IN CHAPTERS Purchase Requisitions: Stock Records Finished Product: 1 A . 36-37 12 B . 36-37 IB.. 38 12 K 39 1C. 39 12 F > Purchase Orders: Cost Records: 2 A . 39 13 E 3.s 2 B . . 37-38 13 L . 37-39 2 D 36 13 M . . 37-39 Report of Material Received: 13 S 39 oo 3 E . 36-37 13 T 32 3 F 39 13 U . 33-34 3 G . 38 Defective Work Reports: 14 A XK Stock Record Raw Material: i A QQ Statement of Factory Expenditures: 4 A . O J 15 A 38 4 B . . . 36-37 15 D 36 4 G . 38 Operating ledger: Production Order: 16 C . 38-39 51. . 38 Billing Svstems: 5 K . 35 17 A . 36-37-38-39 5 L 39 18 A . 36-37-38-39 5 N . 36 Register of Sales and Costs: 5 P 37 19 A . 36-37 Material Requisition: 19 B 39 6 A 38 19 T 38 6 B . 36-37 19 K 35 6 F 34 19 F 32 Bill of Material: 19 G . 33-34 7 A 35 Accounts Pavable Voucher: Report of Material Delivered: S TC 38 20 A . . 38 Register of Accounts Payable: O -LJ 21 B . 38-39 8 D 34 21 C 35-36-37 Time Tickets: 21 I) . 33-34 9 B 38 Check Voucher: O ^* 9 C . 3o A 38 9 H . 39 JJ A 22 B 39 9 X . 36-37 Cash Svstems: 9 AB . 34 23 A . 38-39 Pay-Roil and Labor Distribution Sheet : 93 B . 36-37 10 F 39 Drawing Pattern and Equipment Records: in G 38 4-i \ . 38-39 10 J 35 45 B . 36-37 10 K . . 36-37 46 A 32 10 L 39 46 B . 33-34 10 M . 33 Monthly Reports Relating to Financial Status 10 N 34 and Earnings: Production Reports: UT 35 53 A 53 B 34-38-39 .... 36-37 L 11 M . . 38-39 55 A 34-36-37-38-39 CHAPTER VI DESIGNS AND EXPLANATIONS RELATING TO CONDITIONS UNDER WHICH FORMS SHOULD BE USED Designs Used in Actual Operation Conditions under Which Used How to Select Forms Errors in Designing Forms Necessity of a Form General in Design Size Explanation of Broken Line Knowledge of Principles of Cost Necessary Where both Manufacturer and the Account ant Are at Fault. CHAPTERS VII to XXXI, inclusive, are devoted to the explanation and illus tration of the various forms which may be introduced in a manufacturing busi ness. The forms shown are in most cases similar to forms that are to-day in successful operation in factory systems that have been devised by the author. These forms have been used in a number of plants manufacturing different prod ucts, and it is believed that in their entirety they cover most of the important conditions which will be found to exist in any one plant. This does not mean that these forms are submitted to the business man or accountant as being absolutely orthodox in design and admitting of no change. No one form is adaptable to all lines of manufacture or accounting, and even in the same line of business the same form cannot be used successfully in every instance, as the volume of business, the conditions of manufacture, and the policy of the management, so far as the plan of organization is involved, would make this impracticable. For this reason the reader is cautioned to read carefully all of the explanatory matter relating to the conditions under which the designs should be used, before any selection of a particular design is made. In this way it will be possible for the reader to select a design that relates to a distinct prin ciple or condition of manufacture, and to change the design in details so as to obtain a form that will be suitable to the particular conditions existing in any plant. One of the most common mistakes made by the business man who attempts to design a system without technical knowledge, or without the assistance of an experienced systematizer, is in the arrangement or design of the particular form and in making the form so specific as to admit of no change whatever. In such cases a small omission here or there makes it impossible to use the form, whereas if a design general in character were used, no such difficulty would be experienced. Such forms are usually so arranged as to obtain information for one particular DESIGNS AND EXPLANATIONS 65 purpose only, and for this reason it is impossible to use the form in this compila tion of general results, or to utilize the information furnished for any other purpose except gathering the information for which the form was originally intended. It should be borne in mind that it is impossible to gather information on one particular subject without at the same time procuring information that could be utilized in other ways. As an illustration, it would not be possible to obtain a list of the material used in manufacturing, chargeable to a particular order or product, without at the same time gathering information that w r ould be of use in connection with a stock system; and this same principle is true in compiling any and all information relating to the details incident to manufacture and account ing generally. The size of most of the following designs has been reduced to facilitate repro duction. The standard size is, however, noted; but this size does not necessarily have to be followed, nor is it necessary to have the same number of columns shown in the illustration, as this would depend entirely upon the nature and volume of the business. In a number of the forms a broken line appears in the middle, which indicates that the size has been reduced and only the top and bot tom of the form shown. The length or depth of the form would not interest the reader, and would only occupy unnecessary space. Although every business man has experienced numerous changes in his sys tems of cost and stock keeping, to say nothing of the changes in bookkeeping, it is safe to say that many of these changes would not have been necessary had he and his assistants been familiar at the outset with the principles governing these matters. Although it is not possible for a technical man that is, the average public accountant to design and install factory systems purely from accounting principles, it is, on the other hand, equally impossible for the manufacturer or any of his assistants, with the knowledge concerning only manufacturing, to devise a system without at the same time possessing the technical knowledge of the public accountant as to theory and underlying principles. This, it might be stated, is the principal reason why the accountant is so often unsuccessful in installing systems; and the same reason explains the failure of the manufacturer in his own efforts to obtain the desired results along these lines. Neither under stands the other, and his difficulties. The object of these remarks is to show that both are at fault the manufacturer or business man, because he is wanting in knowledge which he unquestionably should possess; and the ordinary accountant or expert, because he attempts to use a theory that is correct without being thor oughly familiar with manufacturing as a whole. The accountant should be sufficiently familiar with the conditions of manufac- 66 FACTORY ORGANIZATION AND COSTS ture and the difficulties involved to be able to apply his principles and theories in a manner that will procure the desired results without interfering with pro duction, or seeking to obtain information in a way that is absolutely impractical. In this connection it may be stated that the designs and forms presented are the result of practical experience and a knowledge of manufacturing conditions and the technique involved in applying the principles of cost finding. CHAPTER VII PURCHASE REQUISITION Three Different Designs Explanations Concerning Use. (Form 1 A) PURCHASE REQUISITION. No DATE QUANTITY ARTICLE DATE WANTED __ __ _ ^ Signed: Approved: Standard Size 6H f. PURCHASE REQUISITION. Purchasing Agent) Please order the following articles Standard Size 6H x 68 FACTORY ORGANIZATION AND COSTS (For PURCHASE REQUISITION. No Co j 90 "or the use of (Purchasing Agent) Date Wanted QUANTITY ARTICLE \ Ordered Signeri ApprouoH hy 1 Purchase Order No. Standard Size 6K * 8M A DESIGN of this description is intended as an aid to memory and might be termed an organization form, its purpose being to facilitate the transactions between the purchasing agent or general office, and the factory or storeroom, in connection with the purchase of materials and supplies. Inasmuch as this form does not constitute any prominent part in a system, and as its purpose is accomplished after the goods have been ordered and received, almost any modi fication may be made in the form, such as the addition of more columns for specific purposes. It may also be made out in duplicate or triplicate for use in reference and filing. These matters may all be left to the judgment of the user, as they will not interfere in any way with any system. It might be well, however, to state that this form should not be used as a receiving report, which is sometimes done, for reasons that will be explained later in connection with forms on that subject. A form of this kind should originate either from the foreman of the depart ment requiring the goods, or from the stock clerk that is, the one in charge of the stock. Where a regular stock clerk is employed all requisitions should be made out by him, and, of course, the conditions under which this is done would vary. Where a storeroom is properly organized and the stock arranged in racks and bins, the stock cards, showing receipts, deliveries, and daily balances, and the bin cards, showing the minimum and maximum quantities, should be the basis of the issue of requisitions on the purchasing agent or the office. In other cases, even where a stock clerk is employed and where special orders are frequent, this requisition may be made out by the specification .clerk, the estimate clerk, or the superintendent of the plant; but where this is done the copy of the requi sition should be sent to the stock clerk in order that this material may not be used for any other purpose than that for which it was ordered. PURCHASE REQUISITION 69 If the requisitions are made out in duplicate only, they may be filed numeri cally or alphabetically, according to two general subdivisions that is, filled and unfilled ; but other subdivision or system of filing, that will facilitate keep ing track of unfilled orders, is entirely in keeping with the purpose of such a form. CHAPTER VIII PURCHASE ORDERS Four Different Designs Explanations concerning Use. (Form 2 A) To Address Terms Please Ship the following:- Place our order number on all Invoices and packages. A. B. C. Co. New York. PURCHASE ORDER. Ship via. No. 190. QUANTITY DESCRIPTION You are hereby authorized to furnish the above articles as stated. Acknowledge receipt of this order and state when you will ship. A. B. C. Co. per Standard Size 7}$ x.9 A. B. C. Co. New York. To PURCHASE ORDER Purchase Requisiti Order No. an No Address _ wn Please ship the material described below. Place our Purchase Order Number, Requisition Number and Car Number on all Invoices. Send duplicate Invoices and Bill of Lading for each shipment. SHIP ON OR BEFORE DESCRIPTION QUANTITY PRICE V A. B. C. Co. Per_ . A. B. C. Co., New York. Gentlemen:- We are in receipt of your order No._ (Tear this off and mail to) -which we expect to ship 190. (Signed) Standard Size 7>$ x 9 PURCHASE ORDERS 71 To Address Terms . Place our Order Number on all Invoices and Packages. Send duplicate Invoices for each shipment. A. B. C. Co. New York. PURCHASE ORDER. N Ship to^. Add rets. 790. - OR BEFORE DESCRIPTION QUANTITY RATE You are hereby authorized to furnish the above material as stated. Acknowledge receipt of this order. A. B. C. Co. per. Standard Size 7* A.B. C. C New Yor PURCHASE To 0. _ .180.... ORDER. ship to... . Address Terms Place our Order Number on all Invoices and Packages. Via. DESCRIPTION OR BEFORE QUANTITY RATE AMOUNT CHARGE TO : You are hereby authorized to furnish the above material as stated. Acknowledge receipt of this order. A B C Co 72 FACTORY ORGANIZATION AND COSTS (Form 2 D) Original The A. B. C. Co., New York. Name . DIIDOLJACIT ORP1FR m P No. ortant:-Put this number on r Invoice Arirfress" " PU RCH ASE UKU tK Terms Ship via DATE WANTED DESCRIPTION QUANTITY RATE You are h described Note:-Sen ereby authorized to furnish the above articles , If you cannot, please advise us at once. The A. B C.Co. d bill same day shipment is made. (purchasing agent) Standard Size X x (Form 2 D) Duplicate The A. B. C. < New York. Name PURCHASE C ;o., RDER. Ship No mportant:-Put this number on your Invoice via.. . _. Terms DATE WANTED DESCRIPTION QUANTITY RATE AMOUNT CHARGE TO . You are hereby authorized to furnish the above articles idescribed: if you cannot.please advise us at once. The A. B.C. C [ Note:-Send bill same day shipment is made. O. (purchasing agent) THIS form is the outgrowth or the result of the purchase requisition, where one is in use; but a purchase order is frequently used without a purchase requisi tion, especially in a small business, where the superintendent or one of the partners acts as purchasing agent. Ordinarily this form does not constitute a principal part of a general system. It is used for the transactions between the individual or company ordering the goods and the individual or company from whom goods are ordered, and thus takes the place of correspondence in connection with the purchase of material. As many copies as may be desired may be made out and used according to the requirements of the business. In no case, however, should a copy be sent to the receiving clerk, as the report of material received should be made entirely independent of the purchase order, and the latter form should not be used as a receiving report, as is frequently done. Where it is desired to keep a record of goods ordered according to article, it is advisable to execute an extra copy, to be sent to the stock clerk for the purpose of posting the article ordered to the stock records. An extra copy may also be made out to be attached to the invoice, or sent to the accounting department as an aid to the bookkeeper in checking up invoices, as regards the prices, and in order to advise him that such goods were actually ordered. This will prevent delays in the bookkeeping department in entering invoices, and will relieve the purchasing agent from the necessity of checking them up. The purchasing agent usually has his hands full with other matters, and is not always able to check up invoices as promptly as the accounting de partment requires it; and this in turn often results in delaying the bookkeeping department in this particular branch of accounting, and sometimes results in the loss of cash discounts that would otherwise be saved. The receiving report, next to be explained, furnishes the purchasing agent with all the information that is necessary in connection with keeping track of the quantity of goods received. As the bookkeeper would also receive a copy of this report, the invoice could be readily examined and passed from the information furnished by these two separate reports viz: a copy of the purchase order and a copy of the receiving report. Where these two forms are attached to the in voice a complete check is established on entries relating to purchases, as the purchase order is made out by one individual, the receiving report by another, and the invoice by an independent concern. Where any system or care is used in passing on entries of this nature, it would seem difficult to allow any errors or entries of an improper nature to be made. CHAPTER IX REPORT OF MATERIAL RECEIVED Seven Different Designs Explanations showing Conditions under Which All are Used Importance of Using a Form of this Character. (Form 3 A) REPORT OF MATERIAL RECEIVED. DATE 190 FROM PURCHASE ORDER NO. QUANTITY DESCRIPTION RECEIVED BY Standard Size 6 x (Form 3 B") REPORT OF MATERIAL RECEIVED. No. The following have been received in good order. DATE 190 PURCHASE ORDER NO. FROM CAR NO. QUANTITY DESCRIPTION DEPOSITED IN BIN NO. ~~ Date of Invoic Entered by e Reef ived by Standard Size x i REPORT OF MATERIAL RECEIVED 75 Korn il Oriirinal REPORT OF MATERIAL RECEIVED. No . Purchase Order Favor of... .^^^^^^^^^ QUANTITY ARTICLES _GROSS TARE NET Date Received Date of Invoice.. jeceived by _ _ Entered by Standard Size a% x. 6 (Form 3 C) Duplicate REPORT OF MATERIAL RECEIVED. No. Purchase Order. - No Favor of QUANTITY ARTICLES 1 1 RATE COST CHARGES TOTAL COST GROSS TARE NET Date Received Date of Invoice Received by.___ Entered by __ 76 FACTORY ORGANIZATION AND COSTS (Form 3 D) Original REPORT OF MATERIAL RECEIVED. Purchase Order No. No... Requisition No - DATE CLASSIFICATION QUANT | TY DESCRIPTION CHARGE TO NO. Invoice 190 _ Received by Entered Standard Size 5% x 6 (Form 3 D) Duplicate REPORT OF MATERIAL RECEIVED. Purchase Order No No Requisition No. DATE Received from___ CLASSIFICATION i COST QUANTITY DESCRIPTION CHARGE TO NO. INVOICE DISTRIBUTION TOTAL OF CHARGES COST Invoice.-. ...190 Received by ... Entered^. Standard Size 6 x 77 (Form 3 E)0riirinal REPORT OF MATERIAL RECEIVED Purchase Order No. No Narv.t! DESCRIPTION QUANTITY Charges Department Account Received by Entered by Standard Size 6}< x (Form 3 E) Duplicate 1 REPORT OF MATERIAL RECEIVED urchase Order No. __ ... No. Carrie DESCRIPTION QUANTITY fUK: HA-,: CHI. [ RATE v INT " | Charges. -- - .Department.-- -- - .Account. . Received by Entered by Staudurd Size, < 78 FACTORY ORGANIZATION AND COSTS (Form 3 P) Original REPORT Purchase Order Name F MATERIAL RECEIVED No No.._ 190 ARTICLE LOT NO. DESCRIPTION QUANTITY Received by: Entered by: Standard Size 8 x (Form 3 F)Duplicate Purchase Order Name REPORT No,. OF MATERIAL RECEIVED 190 No, ARTICLE COST LOT NO. DESCRIPTION QUANTITY INVOICE DSTRIBUTION CHARGES TOTAL RATE CHARGES OPERATING LEDGER DESCRIPTION AMOUNT ACCOUNT COLUMN FOLIO AMOUNT j Received byu i b/: Standard Size 8K * BEPORT OF MATERIAL RECEIVED 79 (Form 3 Q) REPORT OF MATERIAL RECEIVED. Purchase Order No.___ No. Requisition No. Name__ ....Date. ARTICLE DESCRIPTION Received by: Entered by Standard Size 8% x (Form 3 G Duplicate) Purchase Order Requisition No. Name No. REPORT OF MATERIAL RECEIVED No.. Date . ARTICLE COST ITEM NO. CLASS. NO. DESCRIPTION p P R~ic E RATE | AMOUNT $ . * i CHARGES DISTRIBUTION DESCRIPTION AMOUNT DEPARTMENT ACCOUNT FOLIO : AMOUNT Receiv ed by: ....... . _. Entered by: Standard Sizt &X x 11 THE usual method of recording data of this nature is by means of a receiving book which is kept by some individual employed for this purpose. The chief objection to this system is that it is cumbersome and unhandy for the purchasing agent and bookkeeper, in keeping track of goods ordered and in verifying invoices. Unless a record of this kind is indexed in a very thorough manner, mistakes are hard to detect, and it often means delays and hardship on all of the clerks inter ested in information of this nature. In using a form of this kind, such as those shown in this chapter, the reader should be careful in his selection of the form to be adopted and should be guided 80 FACTORY ORGANIZATION AND COSTS by the use which he intends making of the information. The number of the copies to be made out will depend upon the manner in which the form is to be used. As an illustration, if it is not to be used in connection with a stock system, and only for the purpose of advising the purchasing agent or bookkeeper of the quantity and quality of the goods received, then a simple form should be adopted, and any changes as to columns, captions, or phraseology generally, may be made according to the discretion or ideas of the user. Where the form is to be used in connection with a stock system, an extra copy may be made out for the use of the stock clerk. This form should be designed and arranged so as to facilitate posting and prevent errors. More regard should be given to design than in the former case, as in this instance it would be used for two specific purposes, and the stock clerk and purchasing agent should both be considered in arranging the design. If the stock records are to be kept both in quantity and value, a form should be adopted with columns for that purpose; and where the stock is classified that is, where a classification number is used instead of the name of an article, a "Classification Number" column should appear on the form. Likewise, if the location of the stock that is, the bin, rack num ber, or department is to be kept track of, then provision should be made on this form for this information; otherwise the stock clerk would be unable to keep his accounts in proper accord with the stock. If goods are purchased f. o. b. shipping point, and heavy charges for trans portation incurred by the buyer, thus affecting the actual cost of the article, it will be found convenient to arrange the receiving report so as to provide columns for distributing or pro-rating these transportation charges over the original pur chase price of the goods, thus showing the actual cost, as delivered, and indicat ing a new rate per article. Some of the designs shown illustrate how this may be done to advantage. If it is desired to furnish a copy of this report to the bookkeeping depart ment, the account and the department chargeable should also appear, in order to facilitate the bookkeeping and assure an accurate distribution of expenditures or charges. In such a case it is advisable, and good practice from an accounting standpoint, to attach a copy of this report to the invoice for reference and record. The principal reason for making out a report of this kind, instead of following the usual methods of having the invoice checked up, is to obtain accurate results and to insure an actual count and inspection of the goods said to be received, without depending upon the honesty or carefulness of the one receiving the goods or checking them off. It has been found from actual experience that this is a very weak point in the system of many establishments, and thousands of dollars are lost annually by paying invoices for goods said to be received, whereas, in REPORT OF MATERIAL RECEIVED 81 fact, the amount charged was never actually received. This has been clearly demonstrated from the actual use of the forms herein mentioned, and the amount of loss from this source is not exaggerated. The use of a form of this kind will give one the satisfaction of knowing that he is getting the quantity of goods for which he is paying. It is not advisable to send the invoice or a copy of the pur chase order to the individual in charge of the receiving department, as he might be careless in checking off and "O. K.-ing" invoices or purchase orders that were not correct. As a matter of fact, whenever this form has been put in operation this condition has been shown to have existed in each and every instance. CHAPTER X STOCK RECORD RAW MATERIAL Nine Different Forms Conditions under Which to Use in Quantity Only, or Value and Quantity- How Interlocked with Other Records Value to Purchasing Agent Proof of Value of the Form. (Form 4 A) Last P Last Q Freigh Article rice n;= STOCK CARD Classification No uotat t&E on Dis. xpress RAW MATERIAL Ma) Mir imum imum DATE SHEET QUANTITY COST NUMBER ORDERED RECEIVED DELIVERED RATE AMOUNT Standard Size 1x6 (Form i B) STOCK CARD RAW MATERIAL Article. Classification No._. Maximum Minimum .Bin No.._ Standard Size 1x6 STOCK RECORD RAW MATERIAL 83 (Form 4 C) STOCK CARD RAW MATERIAL Classification No. Maximu Minimur m n Article Pattern No Location RECEIVED DELIVERED BALANCE DATE SHEET NO. QUANTITY DATE SHEET NO. QUANTITY DATE QUANTITY Standard Size 4x0 84 u z QUANTITY _J < 6 z c O * c- CD u s ii.l 8 -1 -^ 3 j5 S.E 2S^ QUANTITY 1- uj O I z LIVERED QUANTITY u 1- LLJ d X z r 1- LU -l u < QUANTITY *: ICC. LJ CO H 1- uj o I z M >"! & Z O < I OC CO Q QUANTITY \ bo K RECEIVE K LU O I z PURCHASE ORDER NO. Q m 2 a tt ORDERE QUANTITY o> o -c PURCHASE ORDER NO. STOCK RECORD RAW MATERIAL 85 (Form 1 E) Minimum Maximum DATE ORDER NO. QUANTITY ORDERED FROM REQ. NO. DATE RECEIVED DATE CELIVEHED BALANCE PRICE VALUE Standard Size ."> x 8 Form No. 4 F RECORD OF RAW MATERIAL. Fur the month of l_ i Articles [ penal ) Purchases Deliveries 1m eutorj ( rn. uf IKriod ) yuan. Kate AtnouD QOHh iUte Amount Quan. iUte Aolouot lluan. Rate Au>UQt Standard Size 10 . z 1J, 86 FACTORY ORGANIZATION AND COSTS DC UJ I- < QC O O CO a = 5 111 33- 5 A X 88 FACTORY ORGANIZATION AND COSTS (Form 4 I) STOCK SHEET Classifies RAW MATERIAL Maximur Minimum Article ition No n 1 RECEIVED DATE FROM PURCHASE ORDER NO. REPORT OF MATERIAL RFCEIVED NO. QUANTITY PRICE AMOUNT REMARKS DELIVERED BALANCE DATE SHEET NO. STYLE HO. SIZES QUANTITY PRICE AMOUNT QUANTITY AMOUNT Standard Size 6 x ft THE remarks made in connection with the preceding forms apply largely to a record of this description, as this form is for the compilation of information ob tainable from the forms previously mentioned ; and also for recording information of material used or goods taken out of stock on forms to be mentioned later. A perpetual inventory of materials and supplies, carried in stock, may be obtained by the use of any of these forms; and this information may be recorded so as to show the articles on hand as to quantity only, or so as to show not only the quantity of each article on hand but also the cost. The particulars contained on this form will be determined by the purpose for which the information is to be used. If a cost system is not in operation, and it is only desired to establish a safeguard on the stock on hand and to assist the purchasing agent in buying, it will be necessary to keep the stock record of articles in quantity only, and the cost may be omitted. In either case a separate card or sheet should be used for each article where the stock is active. But where it is inactive, and where the purchases are infrequent and the stock is used in large quantities, then a record may be kept with all of the articles listed on one or several sheets, with several blank lines left between articles. Both methods are illustrated, and the user must decide which form is best suited for his particular purpose. In the operation or use of forms of this character, it should be kept in mind that the necessary data relative to goods received and delivered should be taken from a regular form filled out by some one responsible for the information ob tained, as confusion will result if entries are made in these records from personal knowledge or hearsay, and it will be impossible to depend on the results shown STOCK RECORD RAW MATERIAL 89 or to verify any of the entries should discrepancies occur. For this reason a regu lar method of posting from separate and independent reports should be followed, both as to material received and material consumed or delivered. Where this plan is followed and discrepancies occur, the balance shown will at least repre sent facts that will admit of verification, and it will be possible to conduct an investigation which should place the responsibility where it belongs. If it is desired to keep the stock records so as to show the quantity ordered, received, delivered, or used, and the balance on hand according to article, all of this information should be taken from the Purchase Order, Report of Material Received, and Material Requisition or Bill of Material, respectively, and not from any verbal information. In some cases it is desirable to provide columns in the stock records to show goods actually on hand, and that part reserved for the completion of a particular order, and then the forms should be used and designed in such a way as to indicate for what purpose the stock was reserved, and the quantity. Thus, not only the actual balance of stock on hand would be shown and the quantity reserved for some particular order, but the balance available for other purposes would also be indicated. In this way the stock clerk or purchasing agent can keep track of the maxi mum and minimum quantity which it is desired to carry in stock, by keeping in mind the fact that, although the maximum may be actually on hand, yet the reserve of a certain amount for some special purpose really reduces the balance of stock on hand available for other purposes. Therefore, this stock reserve should be deducted from the balance of stock on hand in ascertaining the actual amount of stock available. This should not be done in the records showing stock on hand, but should be entered in a column headed "Available." It will be found advantageous, where the same article is carried in stock in numerous sizes, colors, etc., to provide separate columns in the stock record for each of these varieties, using a separate sheet or card for each article but entering all the sizes, colors, etc., on the same record. At any particular inventory period, the stock records should be verified with the actual inventory, and in the event of a discrepancy whether overrun or shrinkage the stock record should be put in accord with the actual inventory, after the cause of such discrepancy has been ascertained. Unless the records are reconciled and compared with the actual inventory, and investigation made to ascertain the cause of the differences, the management cannot expect to have records that are worth the time and trouble involved in keeping them. Further more, everyone connected with this particular part of the business may become more or less careless, and this will result in compiling information which is inac curate and unreliable. 90 FACTORY ORGANIZATION AND COSTS It will be found advisable to adopt a method of verifying a certain number of articles each day or week, without any one knowing in advance which articles are to be inventoried. This will have the effect of keeping alert those in charge of the stock as well as those in charge of the records, and will be productive of results that cannot be obtained where the inventory is taken annually or semi- annually only. At the same time it will keep the stock records adjusted from time to time, and render it unnecessary to take an actual inventory of the entire stock at any one time. A complete inventory, taken annually or semi-annually, involves a great deal of work; nor is there any certainty, when this work has been completed, that the result obtained is accurate. A great deal of the stock is often scattered through the plant, and is passing from one operation to the other, so that some stock is very often entirely omitted or included twice in the inventory. The keeping of stock records may be likened to the keeping of cash records. The Cash Book indicates the amount of cash received and the amount disbursed. The balance shown by the Cash Book indicates the amount of cash that should be on hand, which amount should be verified by an actual count. It is thus seen that, in counting the actual cash on hand, there is available a record with which it should correspond and which checks the accuracy of the count. In the case of material, however, when no stock records have been kept, there is no record available with which the inventory as taken can be checked. When it is con sidered how much money is involved in the p urchase of materials, the importance of this matter is evident. Stock records are intended to give information similar to that given by the Cash Book, and in this respect the latter indicates the amount of cash that should be on hand, the former the amount of stock that should be on hand. It is to detect and, if possible, to prevent any difference between the amount of stock that should be on hand and the amount that actually is on hand that a stock system should be introduced. A difference or shrinkage in material is the equivalent of so many dollars actually lost, without any good or sufficient explanation therefor; and yet the average business man will allow differences of this kind to be adjusted and per manently disposed of without seemingly appreciating or understanding that he is charging perhaps a heavy loss and, in some cases, an unnecessary one against the profits of his business. The same man would not for a moment allow his bookkeeper to charge ten dollars against his profit and loss account for a shortage in cash, without experiencing a great deal of alarm. And yet, where is there any real difference? CHAPTER XI PRODUCTION ORDER Sixteen Kinds of Production Orders Illustrated General Use Duplicates Conditions under Which they are Used Relation to Costs. (Form 5 A Origr.al) Make FOUNDRY PRODUCTION ORDER NQ for Da te - Order No. _ Wanted _ Completed DESCRIPTION Patt f.jn No, Kind of Casting Quantity We pht Cost per Pound t Amount < Descript on . PRODUCTION | DELIVERED ! ii r~ ii i i . ii . dJ Received: Approved: Standard Size 8> * 11 <.Fonu 5 A Duplicate) Make FOUNDRY PRODUCTION ORDER N for D 0. ate Their Order No. - Wanted Completed DESCRIPTION Pat) ern NO Kind of Casting Quantity We ght Cost per Pound $ Amount $ Description . PRODUCTION COST \ , i-p^ , 1 : :i : t j \ LLLl r :; j 1 | i 1 ! 1 Received: Approved. Standard Sixe X * 11 92 FACTORY ORGANIZATION AND COSTS (Form 5 B) Original 1 1 FOUNDRY PRODUCTION ORDER NO dake for - Da te 3ate Wanted D ate Complet ed_. DESCRIPTION Pattern Nn Kinrl of Casting Quantity Weight Cost pr Pound Amount PRODUCTION DELIVERED DESCRIPTION DATE MADE DEFECTIVE GOOD DATE QUANTITY RECEIVED BY Metal Indirect /t Total Rate Amount Approved: Correct Cost Clerk. Standard Size TX * (Form5B)Duplicate 1 1 FOUNDRY PRODUCTION ORDER dake for No. Date... Date Wanted Da te Completed DESCRIPTION Pattern No. K "^ " f C"* ^ Quantity PRODUCTION COST DESCRIPTION DATE MADE DEFECTIVE GOOD Metal Cores Moulds lnHi r <-t Total Rate Amount Approved: Correct Cost Clerk. Standard Size 7Jf x PRODUCTION ORDER 93 Date Completed (Komi.-) C) Original Date Wanted PRODUCTION ORDER .No Date Issued PATTERN CLERK Owner Pieces Ordered Total Weight Instructions Price per Pound Pattern No._ Weight Each. Amount $ Entered by: Approved by: Date Wanted .Date Completed Standard Site 5>f x 8>i (FormS C) Duplicate PRODUCTION ORDER -No Date Issued .Owner __ Pieces Ordered .Total Weight__ -Instructions FOUNDRY .Price per Pound .Pattern No,_ Weight Each. . Amount $ Entered by: Approved by: Standard Size 5J< x 8^ (Form 5 C ) Triplicate PRODUCTION ORDER .Date Wanted..... Date Completed .No Date Issued. SHIPPING CLERK _Owner_ .Pieces Ordered. .Total Weight _ Instructions Entered by: Price per Pound Pattern No._ Weight Each- Amount Approved by: Standard Size 5)f x 94 FACTORY ORGANIZATION AND COSTS (Form 5 C) Quadruplicate Date Wanted.. Date Completed. PRODUCTION ORDER No Date Issued. COST DEPARTMENT Owner Pattern No. Pieces Ordered Weight Each Total Weight Price per Pound Amount $ Instructions MADE DEFECTIVE GOOD COST NO. OF WEIGHT TOTAL PIECES EACH WEIGHT NO. OF WEIGHT TOTAL PIECES EACH WEIGHT NO. OF WEIGHT TOTAL PIECES EACH WEIGHT COST Entered by: Approved by: (Standard Size 8X x 11) (Form 5 D) CORE ORDER Date To Foreman Core Dept: Make sets of cores as required for Patt. No.. charging all labor to Order No. Advise promptly if delivery cannot be made Foreman Standard Size 3^ x 6 PRODUCTION ORDER 95 (Form 5E) O ORDER No. _ MOLDER No. . PATT. No.. CLEANING DEPT BROKEN O.K. TOTAL WEIGHT (Form 5 F; Original PRODUCTION ORDER Date Issued for-- _ Date Promised.. JNSTRUCTIONS COMPLETED DEPARTMENT ~~[ SECTION NO. |; QUANTITY ff DATE ~ QUANTITY Charge to_ Address __ Contractor Architect Correct Approved Standard Size 8X * 11 (Form 3 F) Duplicate PRODUCTION ORDER No.._ SHIPPING DEPT. Date Issued Fj r Date Promised " INSTRUCTIONS COMPLETED DEPARTMENT SECTION NO. QUANTITY DATE QUANTITY I Ship to Mark B L in name of Express Freight _ Correct Approved. Standanfslzc 8X 1 11 9(5 FACTORY ORGANIZATION AND COSTS SUB-PRODUCTION ORDER Date Issued For Date Promised. INSTRUCTIONS COMPLETED DEPARTMENT I SECTION NO. QUANTITY Correct^- Approved. Standai-d Size 8K * 11 97 (Form5H)Oritfinal Class Completed PRODUCTION ORDER No... Date Quantity^ No. in set _ Temper No. Remarks Description. _No. of slots Template No. Standard Size C>s x 8% .Size of slots. Class Completed PRODUCTION ORDER Quantity. No. in set Temper No. Remarks Description. OPERATION No. of slots .Template No. -Size of slots SKETCH Month of_ RATE PROCESS COST Month of. HOURS RATE PROCESS COST TOTAL COST Standard Size (iH x 98 FACTORY ORGANIZATION AND COSTS (Form 5 I) FACTORY ORDER To Foreman Department Date, Charge all Material and Time to above Order No. No. DATE PATTERN DRAWING WANTED NO. NO. DESCRIPTION You are hereby authorized to manufacture the above articles as stated Inspected by Received 19 By._. --Manager Standard Size o xlX ( Form 5 J) PRODUCTION ORDER No . Department Date... DATE WANTED | DESCRIPTION QUANTITY Ship to B/Lin Name of Via_ _ Date to be shipped You are hereby authorized to manufacture the above articles as stated. Standard Size 7x8 ( Form 5 K) Return to Office immediately upon completion. FACTORY ORDER No.__ To Foreman Department Date. WANTED I DESCRIPTION QUANTITY You are hereby authorized to manufacture the above articles, as stated; material to be drawn from Store Room, as per Bill o.f Material No Completed _.19_ "" (Manager) (foreman) (Standard Size 5 x 1\C) PRODUCTION ORDER 99 (Form !TL) PRODUCTION ORDE To Foreman .. . Dnnartr .R No H-nt Da the following; te You are hereby authorized to manufacture MATERIAL REQUIRED FOR ABOVE ORDER QUANTITY .- 1 Received by__ Authorized by Staudard-Sizc 5X (Form 5 M) PRODUCTION ORDER No. . Date ORDER NO. QUANTITY SIZES Standard Sizex8 100 FACTORY ORGANIZATION AND COSTS (Form 5 X) Original PRODUCTION ORDER AND COST SHEET Department No.. QUANTITY DESCRIPTION DIAGRAM Date Wanted 19_ Complete 19.. Signed You are hereby authorized to manufacture the above articles as stated (Superintendent) Standard Size 5>f x 8 (Form 5 N) Duplicate PRODUCTION ORDER AND COST SHEET Department No. 19 QUANTITY DESCRIPTION DIAGRAM Date Comp Signe Wanted ... 19 {o\i are hereby authorized to nanufacture the above articles as stated. lete 19 \ d (Supcrmtenru-nt) MATERIAL LABOR PATTERN QUAN. DESCRIPTION RATE AMOUNT DATE WORKMAN MRS. RATE AMOUNT PARTICULARS RATE AMOUNT TOTAL DRAWINGS Total Material Total Labor Total Pattern Total Drawing Indirect TOTAL COST TOTAL LABOR TOTAL Standard Size 8 x 10 PRODUCTION ORDER 101 (Form 50) SUB-PRODUCTION ORDER Date Wanted ... Department Qrder N(J Date Completed,.... _ D ate Issued DESCRIPTION Completed .--Foreman Supenntendent Standard Sire 1x6 (Form 5 P) Original T _ PRODUCTION ORDER & COSTS lo Date Issued.. Date Completed Date Wanted DESCRIPTION Standard Size 5> 4 x 8X (Korni. ) I ) Duplicate PRODUCTION 0~RDER AND COSTS Date |ssued D.it- Com fl ;.-t..d G - W " : DESCRIPTION OPERATIONS NO.1 NO. 2 NO. 3 N0.4 N0.5 NO. 6 N0.7 NO.9 NO.10 TOTAL TIME COST PER HOUR PROCESS COST DATE DESCRIPTION MATERIAL USED QUANTITY SUMMARY Material Process Cost Total Cost Quantity Price Selling Price G-oss Profit Standard Size H^, x 11 102 "FACTORY ORGANIZATION AND COSTS THE purpose of this form is to substitute written instructions to the factory or manufacturing departments in place of verbal directions, and may be used under certain conditions for cost keeping purposes. In some cases it may also be used as a requisition on the storeroom for materials necessary for the comple tion of the order or product to be manufactured. Whenever orders are issued covering a product that passes through several departments, some of which require different specifications, or whenever the work on the same order is being prosecuted in several departments simultaneously, Sub-production Orders may be issued to each department describing only the work or parts to be manufactured in that particular department. Otherwise the same Production Order may be issued to all departments alike, by using a mani folding system and making as many copies as may be necessary. In making out these duplicates, it may be an advantage to issue a copy of the order to the ship ping clerk, stating shipping directions, in order that the shipping clerk may be in possession of this information and thus facilitate prompt deliveries. The stock clerk might also use a copy of the order with good results, especially where materials are given out on requisition, and in this way prevent employees from procuring materials and supplies for which no order has been issued. This will not only prevent dishonesty, but will also be the means of bringing to light material that has been wasted owing to shop errors or defective work. The stock clerk should check off the material that relates to the order when such material is delivered, and should not furnish any other material on this order without the authority of the superintendent, stating the reasons for the extra material. The design of the form to be used would be determined by the conditions of manufacture. If it is desired to use the form purely for the purpose of regulating production, only the necessary explanatory matter need appear; but if, on the other hand, it is considered advisable to utilize a copy of the form for cost keep ing purposes, separate columns with the proper headings printed therein should be added and so arranged as to facilitate posting from employees time reports and reports of material delivered. Where it is desirable to keep the cost by operation, proper columns should be provided for each operation, and the form so ruled and designed as to enable the cost clerk to add overhead charges and ascertain the total cost of the order. In issuing orders covering contract work or jobs that will involve large ex penditures, it will be found of advantage to divide the order not only according to the department but also according to sections, and have the time reported by employees in such a way as to show the time consumed in each particular depart ment on each section or part of the work. The term "section," for example, in a contracting business would apply to foundations, walls, partitions, roofs, etc. PRODUCTION ORDER 103 This illustration is used not because this kind of a form relates only to a contract ing business, but because it is sufficiently general to illustrate the meaning of the term section to any one in any other line of business. If section numbers are used and carried through the cost keeping, it will be possible to compare the cost with the estimates and to follow the progress of the work in a more intelligent way than would be possible if the time were reported in total only and posted in one amount as labor on that particular order. Several designs are herewith presented to suggest different ways of using a form of this description, and to assist the reader in arranging a form according to the requirements of the business without experimenting with designs that have never been used and might prove impracticable. CHAPTER XII BILL OF MATERIAL. REPORT OF MATERIAL DELIVERED Six Different Forms of Material Requisitions Two Separate Designs of Bills of Material, and Four of Reports of Material Delivered Use of Forms and Conditions under Which they are Used Relation of Bill of Material to Material Requisition. (Form6 A) Department __ MATERIAL REQUISITION . _ _ _ No ORDER NO. ARTICLE QUANTITY Received by Signed Standard Size MATERIAL REQUISITION No. Date 19 . __ WANTED FOR QUANTITY ARTICLE DATE WANTED RECEIVED QUANTITY BY Standard Size 6 x. 8 BILL OF MATERIAL 105 (FormOC) MA" Char e RFOI Article- - REUl FERIAL JISITION Date Order No. Machine No. Proce _ DESCRIPTION COST ARTICLE SIZE WEIGHT COUNT RATE AMOUNT Received by: A Dproved by (Standard Size.*.* 6) (Form 6 D) MATERIAL REQUISITION No. - ...Department Date DESCRIPTION CHARGE ARTICLE SIZE WEIGHT COUNT MACHINE NO. PROCESS ORDER NO. RATE AMOUNT Received by: Approved by: __ , : ^ ~ (Form 6E) Date Deliver to Descriptic MATERIAL REQUISITION For Job No. No. of Pieces C ost per Piece Lot No. ^Signed Cost Standard Size 3 x 6 106 FACTORY ORGANIZATION AND COSTS MATERIAL REQUISITION Standard Size 8K x 11 BILL OF MATERIAL 107 (Form R A) REPORT OF MATERIAL DELIVERED For the month of 19.. _J CLASSIFI CATION NO. : , NO. DEPARTMENT ARTICLE. QUANTITY RATE AMOUN1 TOTAL Standard Size 9^ x 12 fFonn 8 B) REPORT OF MATERIAL DELIVERED N . . Department O. ate. . ORDER NO. ARTICI L CHARGEABLE QUANTITY RATE AMOUNT Approve j- Correct: . Standard Size 9 x 10>$ (Form 8 C) INTER-DEPARTMENT DELIVERIES Department No. Date ORDER QUANTITY SIZE MATERIAL TO DEPARTMENT Standard Size 8X * 11 108 FACTORY ORGANIZATION AND COSTS (Form 8 D) SUMMARY OF MATERIAL REQUISITION DEPT. A DEPT. B CLASSIFICATION NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUN 1 NO. AMOUN NO. AMOUN Standard Size 9X x 10H MATERIAL REQUISITION THE explanations given in connection with the stock records before men tioned are to be considered in the selection of a design of this character. Several designs are set forth, suggestive of different conditions under which these forms may be used. Forms are shown which may be used where a separate requisition is issued for the material chargeable to a particular order or article. In such cases, all of the requisitions for each order are to be kept together, according to the number of the order. However, it may be more practical to use the same requisition for several orders, and to post from this requisition to the cost records and stock records according to the articles or order number shown on the requisi tion. In other cases it may be best to use one requisition each day for all articles issued from stock and chargeable to various order numbers and to deliver this one requisition or report to the office at night. In either of the cases mentioned, however, the individual receiving the material should sign the requisition. The object for which the information is being obtained will, of course, regulate the design of the form. It would not, for example, be necessary to put the cost of the material delivered on the requisition if no cost system is in use, or if the stock records are kept in quantity only. The nature of the business and the purpose for which the information is to be used will regulate the descriptive mat ter to appear on the form. BILL OF MATERIAL All the remarks relating to the Material Requisition apply also to this form, which is substantially a requisition, the only difference being that a design of this kind is more practical where a large amount of material, consisting of a great 109 number of articles, is to be used for a particular order, and where the quantity is known at the time the order is issued. It should be sent to the stock clerk when the production order is issued, and the material delivered as needed, the individual receiving the same signing in the columns provided for that purpose. In case more material is required than is called for by the bill of material or speci fication sheet, a requisition should be used and the reason stated. All supplies and material of this nature should be drawn out of stock on requi sition in the usual way; and this is true whether or not a Bill of Material is used for the material charged on orders. In other words, the Bill of Material, when used, will necessitate the use of a requisition also. In the event that materials are returned to stock that have previously been charged to orders, the regular requisition form or Bill of Material may be used for recording this information, and stamped "Returned." The information furnished by this form should be posted to the stock records and also to the cost records, according to the order number, article, or process chargeable. REPORT OF MATERIAL DELIVERED In a business where numerous articles are used in the manufacture of the product and the transactions are very active, it will be found of advantage to use a requisition upon which columns for cost keeping are not provided, and to summarize these requisitions on a form similar to the reports of material here with presented. The total quantity used and chargeable to each order, product, or process for the entire month or week is thus obtained, the cost for the total quantity being ascertained by making one calculation or extension. This will eliminate a great deal of posting to the stock records, as well as to the cost records, and will accomplish the same results with much less work. As has been stated, this design is only for the purpose of summarizing the requisi tions previously mentioned, and is to be regarded as a summary form with which the factory or the stock clerk need not be connected. Inter-department transactions or deliveries of material in process of manu facture may be followed by the use of a form of this character, ruled according to the requirements of the business. CHAPTER XIII TIME TICKETS Twenty-eight Different Forms Illustrated, including Clock and Time Stamp-tickets How Used- Day Work Piece Work Time Clock Use in Cost Systems Differential Rate. (Form 9 A) TIME REPORT _ Departm ent Date . Cloc Name k No Occupation Room, ORDER NO. KIND OPERATION QUANTITY TIME RATE AMOUNT ! Quantity O.K. Price O.K. Amount O.K. Standard Size >$ x (For PIECE WORK REPORT Dr., C . R- , Name k No Occupation m ORDER NO. KIND OPERATION QUANTITY RATE AMOUNT Quantity K.- - _ Price O.K. - Amount O.K. Standard Size 5> TIME TICKETS 111 (Form 9 C) TIME REPORT Department Name Date Occupation Clock No. DAY WORK ORDER NO. i KIND OPERATION TIME RATE AMOUNT U n 1 PIECE WORK ORDER NO. j KIND OPERATION QUANTITY RATE AMOUNT I ~T " i Quantity O.K. Price O.K. Amount O.K. (Standard Size 6x6) (Form 9 D) TIME REPORT Name... ": D . e P. a . rt . men L. Weekending Occupation Clock No- DAY WORK ORDER NO.) KIND OPERATION [i WON. TUES., WE" T "" " -r~ T ., PIECE WORK ORDER r.O. KIND OPERATION MOM. TUES. WE Quantity O.K. .. PnceO.K. .. Amount O.K. Standard Size 8x8 112 FACTORY ORGANIZATION AND COSTS (Form 9 E) TIME RE [ PORT )epartment Week ending 19 Name _ Clock No. Occupation - Mac line fs o Opera tion... DESCRIPTION OF WORK MON. TUES. WED. THUR. FRI. SAT. TOTAL RATE AMOUNT PRODUCTION HOURS PRODUCTION HOURS PRODUCTION HOURS PRODUCTION HOURS PRODUCTION HOURS PRODUCTION HOURS PRODUCTION HOURS Quantity O.K. Price O.K. Amount O.K. Standard Size, 5^ x Name Occupal TIME REPOR1 )epartment Date ion Clock No. PRODUCTION TIME COST ORDER NO. ARTICLE OPERATION MADE DEFECTIVE GOOD BEGUN FINISHED HOURS RATE AMOUNT Approved: Correct: Standard Size 5 x TIME TICKETS 113 Name Occupation. TIME REPORT Department Dte Clock No.. TIME RATE AMOUNT Time OK. Amount O.K. TIME REPORT Department Name... Week ending Occupation PRODUCTION T VL CHARGE ARTICLE I MADE DEFECTIVE | GOOD || 3EGUN | FINISHED [ HOURS OR ,R ER MACHINE PROCES Correct; Standard Size 5^ * 7 (Form 9 I) "TIME REPORT Department Date... Name Clock No, Occupation. Qrder No PRODUCTION TIME _, SECTION NO. T OPERATION | MADE DEFECTIVE GOOD BEGUN FINISHED H NOTE: State the correct time engaged on each section. Use a separate sheet for each order. Approved: Deposit this report in the box provided for that purpose. Standard Size 5 x # 114 FACTORY ORGANIZATION AND COSTS (Form 9 J) Nam Occi TIME REPORT ...Depart ment Date e ----- r- Clock No. Contract N jpation - - .- .. . -. . PRODUCTION TIME COST SECTION NO. OPERATION BEGUN FINISHED HOURS RATE AMOUNT 1 Note: St U d Approved e a separate sheet for each contract. Name TIME R C EPORT epartment Week ending If) ( ;iock l> )perati Jo. Occupation Machine No .( on ORDER NO. OPERATION I WON, TUES. WED, THURS. FRI. SAT. TOTAL RATE AMOUNT i i i I Quantity O.K. Price O.K. Amount O.K. Standard Size 5J i. (Form 9 L) Na Tr< Bu TIM.E REPOR me Dep T artment Week e Rate ndlng . _ ide ilding . . Order No OPERATION s V T w T F = TOTAL AMOUNT Correct Approved Standard Size 1 TIME TICKETS 115 (form 9 M) TIME REP Name D ORT epartment Da Ci Rc te Occupation .. Dck No. j Ol NO. DESCRIPTION JUANTITVl TIME || RATE , AMOUO MATERIAL COST !. DESCRIPTION WEIGHT rE AMOLS I T ] P ! - O.K. Quantity O.K. Amount O.K. Standard Size 5% x (Form ON) (Form 9 N) Back WEEK ENDINC NO. 275 NAME L- 190 DAY MORNING AFTERNOON OVERTIME TOTAL IN OUT IN OUT IN OUT MON. *650 5 1202 S J_30 ^J503 ?6 TUE. D *7 ?1213 ?1245 ?6oi r/i WED. *645 ^12?5 ^1 01 ^600 ^7 oo ^10 05 v& THU. ^655 a2oi iE125fl ^605 /o FRI. 9 30 l2oo 12.58 ^io r& SAT. 2640 ^1045 ^1259 ^559 i SUN. TOTAL 1 RATE,e |ME ^-J- HRS> / o o~~o ft /"-7 /<y TOTAL WAGES FOR WEEK_$Lc/L^r^ THIS SIDE OUT NO. 275 NAME Standard Size 3^ x Standard Sift 3* 116 FACTORY ORGANIZATION AND COSTS ( Form 9 O) ORDE DAT EMPI ART STYL No c OPEF R No. -- OYEE f> CLE lo. E )F PlEC ATION ES DAY ON OFF ON OFF ON OFF MON. TUE. WED. THU. FRI. SAT. SUN. TOT/i RATE AMOl L HO JRS WIN. JNT DATE NAME ORDER NO. DRAWING NO. PAT NO QUANTITY ARTICLE OPERA TION DAY IN OUT IN OUT IN OUT WON. TUE. WED. THU. FRI. SAT. SUN, MOM. TUE. WED. THU. FRI. SAT. SUN. STAND. TIME ACTUAL TIME HOURS .. . RA BONUS TE_. Standard Size (3% x 7) (Form THIS SIDE OUT No. NAME Z CD H 30 C H O ~z. CO btandind Size (S>. x 7) TIME TICKETS 117 OPERATOR ND. PIECE No. ORDER NO. MAKE DATE FINISHED DESCRIFT.JN OF JOB DAY ON OFF HRS. RATE DDLS. CTS. WEP. THU. FRI. SAT. SUN. MON. , TUT. ENTER ON COST CARD COUNTED AND APPROVED BY INCPECTOR J 2 3 4 5 6 i B 9 THOUSAND HUNDRED TEN UNIT F. OH Standard Size 4J i 6 (Form 9S) MACHINE fs Q. 7 ~ joe. NO WORK 8-E 910 " -11 L 10 i" _ 11- 12^19 I i-: 22 2 q -31 4- TOTAL f -39 6~ I i Standard Size i. (Form 9 T) NAME No. DATE | 1 I d o G. HI FACTODY EXPENSE DITE 1 * i o O NO. PIECES i| O w ORDER No. X 3 K CLOCK RECORD DESCRIPTION OF WORK. co CO ID co STARTEt 03 TOTAL CO CD RATE CO COST CD CO FOREMAN - 05 "CD Standard Size (3 x 5) (Form 9 U) . : i co CD CO O y a u WAITING Tint DATE U5 CD CO CD 09 STOPPE co 5TARTE CD O> TOTAL CD CO RATE TOTAL COST TOTAL TIME COST FOREMAN i stutni-irj sii<- :; \ j Standard Size i% x 9 118 FACTOKY ORGANIZATION AND COSTS (Form 9 V) (Form 9 TV) o : g UJ EMPLOYEE S NO MACHINE No. . PI-IB PRCM. AL W D NAME PART P u/ niTt AMT FiNisHFn OPERATION . STOPPED FINISHED STARTED STARTED QUANTITY STARTED TOTAL ARTICLE TOTAI TIMF RATE LA30R COST FOREMAN F n Nn. DBA* Nn. Standard Size 3x5 Standard Size 2% i 4% (Form 9 X) Ov -J- / ^ /if i O \ * / I ^^ 1 1 \/l I TIME EMPLOYED COMMENCED Date Job No. MACHINE SHOP Workman No Boring Drilling Grinding Planing Time Allowed Tapping Chipping Facing Milling Roughinj Premium Credit Thread ng Cutting Off Filing Mounting Shaping Foreman Turning Quantitv_ Total Time Rate . Cost DAY WORK REPAIR WORK JOB No. MACHINE No. LOT No. MAN No. MAN No. TIME EMPLOYED COMMENCED FOREMAN TIME EMPLOYED COMMENCED FOREMAN NAME NAME OPERATION COST .. Standard Size 3x5 Standard Size 3x5 TIME TICKETS 119 (Form9AA) Time Employed Commenced Date GOLD SILVER Name Job Cost of Time Job turned in Standard Size 3x5 (Form9 AB) TIME TICKET Name SALES ORDER DEPARTMENT NO. Date DESCRIPTION TIME RATE AMOUNT Standard Size 5 x t,y, THE subject of time keeping has not only attracted the attention of the manu facturers, but its importance has to-day been so fully realized that many devices along mechanical lines have been invented to facilitate the work. These devices, too numerous to be mentioned in this chapter, are, however, so important as to deserve a full description set forth in a chapter dealing with this subject only. It will be sufficient to say that time keeping may be obtained by two methods: first, by mechanical devices known as time clocks and time stamps, which, of course, are the most accurate; second, by having the time reported by an em ployee, or a time clerk in time books, time sheets, or other records. These Time Reports, whether made out on a time clock or by hand, may be either in the form of a weekly or a daily report. A separate report may, if desired, be made out for each job or order, whether an hour or several days is consumed for the comple tion of the work. The Time Report may be based on piece work, showing only quantity, and not time, the purpose being to show the production during a specific time for pay roll purposes. In this case, too, the report may be weekly or daily. Where a time clerk is employed because the employees are too illiterate to fill out their own reports, or for any other reason, a bound book or loose sheets in daily 120 FACTORY ORGANIZATION AND COSTS or weekly form may be used. Furthermore, where time stamps or time clocks are in use, and a time clerk is employed whose duty it is to give out work as well as to keep the time, cards may be used to good advantage; and in such cases it will be found advantageous to use a separate card for each piece of work upon which each employee is engaged. The nature of the information desired will necessarily affect the design of the form, whether a clock system or merely the usual method of writing in the infor mation is used. If the intention is to record the time for pay roll purposes only, a clock system showing either one or two weeks on a card, according to pay periods providing it is all paid at a day rate is unquestionably the best; but this does not mean that a time clock system is not advantageous under other conditions. When it is desired to use Time Reports in connection with cost keeping, there are two principles to be considered in designing the forms. A separate report or Time Ticket may be used for each order, article, or process; or the same ticket, showing all orders, articles, or processes engaged on during the day, may be used. A further division or distinction may be made as to the length of time the Time Ticket is to be used that is, whether for a day or for a week. These are the principal things to be considered in designing a form for this purpose; any other detail as to the information, being peculiar to the business, is necessarily of sec ondary importance. Where an employee is engaged for several hours on the same job, or where a time stamp is used and a time clerk or foreman gives out the work, it will be best to use a separate report for each order, article, or process. On the other hand, where these conditions do not exist, and the employee works on a number of articles, orders, or processes during the day, and where no time clerk or foreman gives out the work, it will be best to use one Time Ticket for each employee for the day. Where the time system is a part of the cost system, and the time is not sum marized or recapitulated on another sheet, the Time Tickets should be provided with columns showing the amount of labor cost applying to each order, number, article, or process; but where the time is summarized, either for piece work or day work, these columns in certain cases need not appear. That is to say, the Time Reports should be summarized and the wages calculated on a separate sheet, no matter what other summary or recapitulation showing labor distribu tion is made. In the event of piece work being the basis of pay, and no premium system being involved, a report may be made out showing quantities only and provided with columns for the rate and amount of pay; but these entries should be ap proved by some person responsible for quality, quantity, and price. Nevertheless, TIME TICKETS 121 experience shows that for effect, if for no other reason, the time should appear, although the basis of pay may be quantity. Furthermore, where the time is regularly kept it forms a basis for inaugurating premium systems or for revising piece-work rates, which in many cases are based on what employees accomplished on a day rate, and not on what they could do, or are doing, on a piece-work basis. In addition to this it is a satisfaction to know that the employees are working full time and at a uniform speed throughout the day and week, and that the rate of wages is not excessive for the time actually consumed. Better attendance is thus obtained, and the organization strengthened by this method. Inasmuch as any system of time keeping relates to cost keeping and is an important part thereof, the form to be used depends upon the kind of cost system in operation, which must be based on one of two distinct principles. The first principle provides for charging the productive labor against the order or product manufacture. The second principle provides for charging the labor against a machine, or process, and for ascertaining the cost per hour or per unit of operating the particular machine or process, which machine or process rate is then applied to the order or product. The basis of a system of this kind may be either time or quantity that is, the rate can be calculated according to the num ber of hours that the machine is in operation or to the number of units produced. Consequently, in using a Time Report it should be definitely settled which prin ciple is involved in the proposed cost system. If the productive labor method is decided upon and costs for each order are to be obtained, the Time Report should be so ruled as to indicate the time chargeable to each order. If the costs for each order are not to be obtained, the Time Report should provide columns for the article or product chargeable. Where the principle involves machine or process costs in connection with a production order, the order number and the process or machine chargeable should be shown; and where no order number is used the form should be provided with a column showing the name of the article as well as the machine number or process chargeable. The arrangement of the columns in detail will also depend upon the wage system in use. For instance, if the employees are engaged partly on day work and partly on piece-work, the forms should be so ruled as to provide for both classes of work; and where a premium or differential system is installed the form should be provided with columns indicating the data relative to the system in use. Where such systems are in operation, a time clock or time stamp will be found of great value. It will give more accurate results at less cost to the em ployee and to the employer than can be obtained in any other manner, and will, moreover, prevent disputes and dissatisfaction as to the accuracy of the amount of the premium or bonus. Fourteen Forms, showing Nature of Pay Rolls Distribution of Labor Relation to Distribution of Overhead Charges and Cost Records. (Form 10 A) PAY ROLL SUMMARY Name - Two weeks ending.. No. 19. DATE TOTAL DIRECT IMDJRECT SUPERV;SION AND POWER MAINTENANCE ;:,;. for two wef ;ks endi i? 19^ Standard Size 8 x (Form 10 B) PAY ROLL Cloc Name Rate k No. DATE ORDER NO. ARTICLE OPERATION MADE DEFECTIVE GOOD TIME RATE AMOUNT r i Standard Size 8 PAY ROLLS AKD DISTRIBUTION SHEETS 123 PAY ROLL Clock N Name Month ending 0. DAY NO. \ V -. -1 PIECES ADE WEIGHT 1 TOTAL jl NO. OF EAI H WEIGHT 1] PIECES A! 1 IHT EACH TOTAL II NO. Of WEIGHT PIECES GOOD All , M T : A! H TIME TOTAL WEIGHT HOURS RATE AMOUNT : Standard Sizc.8>i x 11 (Form 10 D) Machine No__- Name.. _. .. TIME RECORD n epartment ....Clock No TIME RECORD Wages ndirect D . Total Rate DATE ORDER NO. sLCTiuN NO. OR ARTICLE M. T. W. T. F. S. M. T. W. T. F, S. TOTAL RATE AMOUNT Standard Size 13 x 11 124 FACTORY ORGANIZATION AND COSTS z o> t- 1 j) 5 a < i z X l^s S3; s. X 5 A ^ U 5 z B 5 So -^ 0) a i >. > Or) z (- or a. in a C3 _J F -I < E a. DC > < Q. o J J 3 i i c L 3 C r S 1 ri P c 3 D ! 1 3 I I J j i t PAY KOLLS AND DISTRIBUTION SHEETS 125 (Form 10 F ) PAY ROLL For two weeks ending __ __ _ld DEPARTMENT AMOUNT OF PAY DISTRIBUTION NO. ROOM CLOCK NO. EARNINGS DEDUCTIONS AMOUNT PAYABLE HON. TUES. WED. THUR. FRI. SAT. MOS. TUES. WED. THUR. FRI. SAT. APR oved: Correct: Standard Size 14 x 15\ (Form 10 G) FACTORY PAY ROLL For. Week ending - 19... EMPLOYEE D STRIBUTION DEPT. CLOCK NO. NAME RATE TIME AMOUNT UPERV ; - s POWER MAINTENANCE Standard Size 11 z 126 FACTOKY ORGANIZATION AND COSTS DC o Q_ UJ DC O DC o PAY ROLLS AND DISTRIBUTION SHEETS 127 CO CO 128 FAOTOKY OKGAMZATION AAD COSTb (Form 10 J) ANALYSIS OF PAY ROLL Department Week ending WAGES DISTRIBUTION NAME CLOCK Mi. AMOUNT tj PAY RATE TIME M T W T F S CLASSIFICATION NO. 1 NO. 2 NO. 3 NO. 4 NO. 5 NO. : INDIRECT Standard Siie !:> x 16 130 FACTORY ORGANIZATION AND COSTS (Form 10 L) ANALYSIS OF PAY ROLL Oneration Month of - 2ft DATE CLOCK NO. CLOCK NO. CLOCK NO. CLOCK NO. | CLOCK NO. TO! HOURS MINUTES HOURS MINUTES HOURS MINUTES HOURS MINUTES HOURS MINUTES HOURS MINUTES i TOTAL RATE AMOUNT Standard Size 8x8 PAY ROLL NO. NAME AMOUNT OPERATING OPERATING DEPARTMENT DEPARTMENT NO. 1 NO. 2 OPERATING DEPARTMENT NO. 3 INDIRECT LABOR SUPERVISION OFFICE SALARY Standard Size 8 x 10}$ (Form 10 X) PAY ROLL Operating Department. No For the ending 190 NO. NAME AMOUNT DEPT.A DEPT.B DEPT.C Standard Size 8X x 10>i PAY ROLLS AND DISTRIBUTION SHEETS 131 THE nature of the Time Reports, and the basis of the pay system, will naturally regulate the character of the form best suited to compile the information fur nished by the Time Reports. These forms, like the Time Reports, can be divided into two principal classes, one showing the time or production of each employee on a separate sheet, thus constituting an individual time record, the other division listing all of the employees collectively on one sheet. The method first men tioned would apply particularly to piece work, or to work in which it is necessary to record or summarize the order numbers or articles to be charged with the employee s time ; and where it is desired to distribute the overhead charges over the employee s productive time, instead of later charging the expense against the order. To further explain this, the pay rates in any plant can be summarized that is, the number of rates of pay can be ascertained and the expense added to each rate, thus giving the new rate including the expenses. This new rate would then be charged to the order numbers or articles according to the employees who came under these rates. For a still more complete explanation of this matter the reader is referred to Chapter IV, on the "Distribution of Indirect Expenses." In the other pay roll method, all of the employees names appear on one or more sheets, and this may be designed to show the daily record of time or the total for the week or pay roll period. A form similar to this would necessarily have to be used in connection with making up the pay roll according to the other method. The extent to which the form is used for distribution purposes will be deter mined by both the cost system and time system. Ordinarily, where a cost system is used, the employee s time is distributed according to direct and indirect labor, but may be further analyzed according to department or process, or both. It is practical, in some cases, to use a separate form for purposes of analysis and dis tribution. In such instances a separate form may be used for each operation or machine, the employee s clock number or name entered at the top of the column, and the number of hours recorded therein daily; separate columns, of course, being provided for a number of employees on each sheet. At the end of the week the rate should be entered and the labor cost figured. The result, where a ma chine or process cost system is in use, would be charged in the cost records against the operation or the machine. Several designs for different purposes and conditions are presented, to show how forms of this description should be ruled to obtain the results under each particular condition, rather than according to any one class of business. CHAPTER XV PRODUCTION REPORT Fourteen Forms, representing Different Conditions Value Use in Connection with Other Records and Costs Use as a Cost Record. (Form 11 A) PRODUCTION REPORT N Department Date 3. 19... PRODUCTION QUANTITY ORDER NO. | ARTICLE OPERATION MADE DEFECTIVE GOOD i 1 Received by Correct: Standard. Size SJi.x 11 (Form 11 B) PRODUCTION REPORT ______ __ _ Department Room No. .. _. Date. . . _ ARTICLE PRODUCTION DIRECT LABOR ORDER NO. KIND OPERATION MADE DEFECTIVE GOOD TIME RATE AMOUNT __ ^ Receiv sd by: Correct Standard Size SJi x 11 133 (Form 11 C) PRODUCTION REPORT No Date PRODUCTION COST ARTICLE . I -, RATE AMOUNT DESCRIPTION QUANTrTY RATE AMOUNT Material: Approved: Correct: Standard Sue, 8>i 134 K < , K a Q LJ c/> D QUANTITY bin c ~o c 0) -X 0) <U MATERIAL ARTICLE co L_ </j H CO o z Q z | O < o CTION o OL 3 | Q Q. LL 1- REPOR artment QUANTITY Q. 1 <D Q Nouonaodd ARTICLE -b" o c u , iil (s Q- O. <c PRODUCTION REPORT 135 (Kurm U FT) REPORT OF PRODUCTION Department ORDER NO ORDER NO .. ORDER NO. ORDER NO ORDE R NO. ORDE . ORDER NO.- ORDER NO ORDER NO. MOURJ DATE CLOCK NO HOUR9 NO NO. .. NO.. . NO. 1 _ Approved Correct Slnndard Size 8X * 11 (Form 11 F) SUMMARY OF PRODUCTIONS & COSTS ...Operation Weekending ARTICLE PRODUCTION COST M T A T F S OPERATIONS MATEHIAL LABOR INDIRECT TOTAL RATE AMOUNT RATE AMOUNT RATE AMOUNT % AMOUNT RATE AMOUN Stuiidurd.Size 7> x.12 Operation. REPORT OF PRODUCTION AND COSTS Department For the Week ending. No. 1 J- PRODUC ARTICLE TION QUANTITY RATE ST AMOUN DISTRIBUTION HATER AL PBOCES " Al - 1 MACH NE OR -OSTS M. ~^T~ w. TIME ri I r. si \ TOTAL Appro ved:,-. =LLL ILL c 1 r r e c 1 Standard Size 10 x 12 136 FACTORY ORGANIZATION AND COSTS E OT _, i O o h- Q g a < HOURS Q CC Z 1- 1- o " a c: >- DC -a z : c: O UJ ~ 1- 0) <u S a. v O < I H THUKSC PRODUCTION Correct: rv- i V i O a. n .1 UJ on Ld z o DC LLl 3 Z ^ g Q " cc ^ ^_ o <f X D Q PUESD UCTION nr Q. c v HOURS 5 z O 1 3 I- Q. o o Q a. r i >, -> " T5 O ) Q .r Q- o S CC z i 138 FACTORY ORGANIZATION AND COSTS PRODUCTION REPORT NQ CU Time of Lighting POLA Date 1 J Blast put on Bottom dropped QUANTITY PRICE I AM )UNT i METALS CHARGED IN CUPOLA PIG Pig Scrap TOTAL 1 1 1 | j 1 i i j! Result of Melt | || i Defective | | | ! ji Plate Gates SCRAP ! i li ! I I P[ S Bed Plate 1 1 IN Waste Gates Pig Bed 1 1 1 1 i ii Oyster Shells 1 GOOD CASTINGS MADE 1 iCost of Melt i Pig 1 1 Ml Scrap TOTAL SCRAP Fuel FUEL I Sundries Coke LLJJJI Labor Coal I ll Indirect Wood 1 1 || TOTAL COST Deductions TOTAL FUEL Defective SUNDRIES i II Plate I I Gates Pig Bed 1 1 1 1 1 COST OF GOOD i 1 1 ! 11 CASTINGS MADE i i TOTAL , Cost per Ib. of Castings LABOR Percentage Defective 11 Scrap Waste TOTAL LABOR Standard Size 8>i x 12 139 (Form 11 IT) PRODUCTION REPORT BRASS FOUNDRY N D; 3. tte METAL QUANTITY RATE AMOUNT LABOR TIME RATE AMOUNT SUNDRIES FUEL L HI COST OF MELT RESULT OF MELT Metal, $ .. Good Cast Defective ngs, Quantity Rate Amount . Labor, ,, Fuel Scrap Waste ii ii Sundries, ii ii ,, Total, $ Correct: Approved: _ .- Cost Clerk Foreman Standard Size 8H x 12 140 FACTORY ORGANIZATION AND COSTS or O o. UJ Bz = 2 IS o o cc Q. boot- PRODUCTION REPORT 141 (Form 11 M) PRODUCTION REPORT -Department Operation, For month of- 1DTI/-, C 1 PRODUCTION j COST =4 0<~>rrert Approved Standard Size 9 * 13, -i 142 FACTORY ORGANIZATION AND COSTS _, 5 t- , .: _ AMOU i 6 -z. J I >-* 3 H T s ^ .s CC o o Q 0. LU cc Ill t- ^ i: K * (_ > O I I 5 < i --. s D U. w Q Hi X ; Q O OC d o / -r CO oc u H 7 Q _l ^ iJ Q I I S 2 * u o i IE > z J z I c c? z z s OJ OS Q NAME OF MOULDER PRODUCTION REPORT 143 THE value of this form is that it brings before the management the daily or weekly output of the plant. Separate forms may be used for each department, or the finished product only may be reported, according to the purpose for which the information is obtained. The reports may be used for the purpose of posting the stock records or cost records according to the design. In the case last mentioned the cost may be calculated on either the productive labor method or the process cost method, and the basis in either instance may be time or quantity, or both. In the forms pre sented, columns are provided indicating just how each form may be designed. As an illustration, if the direct labor method is in use, the amount of labor charge able to a particular article or order should be entered in the proper column and the correct percentage or indirect expense added, together with the material used and the total cost of the order or article shown. If the costs are to be ascertained by the machine or process cost method, forms should be used showing the produc tion and the time chargeable to the product. If quantity is the basis of cost, the rate per hour or per unit should be entered, and the cost extended for the total production of each particular article, to which the material cost should then be added and the total cost ascertained. In such a case a separate sheet may be used for each operation and the cost figured separately, to be afterwards sum marized according to article and by operation, or a column may be added show ing the cost of the previous operation, thus making the last sheet for each opera tion show the final or complete cost. A separate Production Report may be made out for each class of product, and all of the operations, together with the material used, summarized and extended on the Production Report. In either of the cases mentioned, where a stock and cost system is in use, the production should be posted to the finished stock records, and if a separate form is used a similar entry should be made in the cost records, decreasing the amount of the articles pro duced, appearing in, and charged to the Cost Sheet. When no Cost Sheet but the Production Report is used, it should be so ruled as to provide for carrying the quantities in process of manufacture, together with the accumulated cost, from one month to the other. As the product is finished it is transferred from these sheets, which should be decreased by that amount and posted to the finished stock records, if any are kept. If the form is only to be used for the purpose of checking up piece work and keeping a record of stock, the more simple forms of the ones presented should be adopted and no money columns need appear. CHAPTER XVI STOCK EECORDS FINISHED PRODUCT Six Forms, Different in Design, showing Inventory Orders Received Cancelled Orders Unfilled Orders Sales Profits Where Information is Obtained The Effect of the Unit Profit System on the Earnings of an Enterprise. (Form 12 A) Artie STOC FINISHEI e K CARD ) PRODUCT Class Nc Maximur Minimur , n__ _______ n DATE PRODUCTION SHIPMENTS BALANCE REPORT NO. QUANTITY REPORT NO. QUANTITY QUANTITY Standard Size, 1x6 (Form 12 B) Art! STOCK CARD FINISHED PRODUCT Classification No. Maximum cle Minimum DATE ! PRODUCTION SHIPMENTS BALANCE QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT I li Standard Size - x 6 STOCK RECORDS FINISHED PRODUCT 145 (Form C) Article FINISHED PART PRODUCT D e p art m e nt Sheet No. .. Maximum.. Minimum . . PRODUCTION DELIVERIES OR SALES BALANCE N3. *v ,- QUA.STITr RATE AMOUS I | | F - u Standard Size 10 x (Form 12 D) FINISHED PRODUCT | h ,^ c Max mun Art cle Minimun tion i | No. " I."." " _ _. -- "| DATE PRODUCTION-SIZES DATE o 3DERS RECEIVED SIZES 1 I 1 1 | DATE SHI PME NTS-SIZES . Standard Siie U x UK Artie STOCK-FINISHED PRODUCT classification N Maximum Minimum g Bm No. ) PRO DU N ORC ! )ERS SALE S -- . NFILLEC ORDERS B VLANCE - TT \=A i . 1:1111 i; W 5 II STOCK RECORDS FINISHED PRODUCT 147 ALL of the remarks and explanatory matter stated in connection with the stock records for raw material necessarily apply, in part, to these records, as both are for the purpose of keeping track of stock and regulating production. The form to be used depends upon the information desired; and the records may be so ruled as to show only the quantity of each article on hand, or may show, in addition, the cost, and consequently a record of production and ship ments. Columns may also be provided to record orders received and orders cancelled, as well as the unfilled orders relating to each particular article; so the management may be able to consider the balance of stock on hand in connection with unfilled orders, in issuing instructions to the factory relative to the kind of product to be manufactured. Furthermore, the design may be so ruled as to show all the information mentioned and, in addition, the gross profit on each article, which can be accomplished by posting the selling price as well as the cost price when each sale is made. This information will be of great value where a num ber of articles of the same class are manufactured which must be carried in stock as a complete line, although it may be known that little or no profit is made on cer tain of the articles, the question being whether sufficient profit is made on the others to justify carrying the entire line. Moreover, it will enable the management to ascertain exactly which articles are being made at a loss and which are made at a profit, and places the business on a unit profit basis from a system standpoint. As to the manner of procuring the information, the following would be the course ordinarily pursued. The production w r ould be obtained either from the Production Reports, the completed Production Orders, or the Cost Sheet, if neither of the other forms is used; whereas the sales or shipments can be taken from the Sales Sheet or Sales Book or from a copy of the Shipping Order, or from a sum mary of either of these forms; the orders received and cancelled can be taken from the original customer s orders, or from the correspondence; the unfilled orders, of course, represent the difference between the total orders received and the total sales and cancelled orders. The balance of stock on hand consists of the difference between the production and sales columns. The gross profit is ascertained by deducting the cost of the goods sold from the selling price. Where stock records are kept with finished parts, the same form and methods should be used as in the case of the finished product; there being no difference in the nature of the information, or the method of handling it, except that the deliveries are taken from requisitions, although there may be some entries taken from the Sales Sheet for parts sold. The stock balances should be verified from time to time by taking an actual inventory, according to the method explained under the caption "Inventory of Material," describing methods of taking inventories and verifying results with book inventories. CHAPTER XVII COST RECORDS Twenty-one Forms for Recording Costs Use in Special Orders Contracts Machine Costs Conditions under Which they are Designed and Used Relation to Distribution of Indirect Expenses Estimated Cost Forms Power Cost and Distribution. (Form 13 A) COST SHEET Costof___ .- - . __ PRODUCTION MATERIAL LABOR INDIRECT DATE ARTICLE OPERATION QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT RATE AMOUNT * AMOUNT j - 1 Standard Size 8> x 11 (Form 13 B) COST SHEET Their Order No Our Order No. Date Wanted . Cost of Date Finished . i PRODUCTION COST DISTRIBUTION : -- ; ARTICLE OPERATION QUANTITY RATE AMOUNT MATERIAL LABOR | INDIRECT |j ! . 1 Standard Size y, x 11 149 (Form 13 O Name. COST SHEET Order No Date of Order Date Completed DATE DESCRIPTION MATER.AL . .NDIRECT :i TIN SHOP MACHINE SHOP WOOD SHOP TOTAL DIRFCT COST Standard Size S>$ x 11 Profit Sel mg Price CForni 13 D) Cost of COST SHEET Their Order No. Our Order No. Date Wanted Date Finished PRODUCTION DISTRIBUTION :i L ARTICLE -^ ff INDIOEC -JL Standard Size 8X x 11 150 FACTORY ORGAN IZATION AND COSTS (Form 13 E) COST SHEET Article.. _ ... r,iTE LABOR MATERIAL EXPENSES TOTAL COST MONTH MY OPERATION CHECK MO. QUANTITY RATE AMOUNT DESCRIPTION Tu .^r QUANTITY RATE AMOUNT AMOUNT AMOUNT Standard Size ll.x.14 (Form 13 F) REPORT OF COST OF ERECTION r o c From 190 To er No. __. 190 . Name of Building _ _ City State Date Commenced Will be Completed Date Completed. CLASS OF WORK DISTRIBUTION OPERATION AMOUNT MATERIAL LABOR INCIDENTALS INDIRECT Sent in by. Examined by: Entered by: Standard.Size 8 i COST KECOKDJS 151 1 7 " _ : ! o t- i T3 V 4) Q. "5. u 1- z z J Q O < <IJ <IJ OJ QO Q - i z O h- J i" "c 0> E ^ 1 S" " HI Q 5 UJ I h- z :: I - P" ^** oo c: CO VW CJ H / 1 D 5 Z LJ cc S o > a: I i I K- cr LL i " H 1 Name of Building City _ Date Commenced CC u_ CO _l O OPERATION _ _ ._ _ _ TOTAL 152 FACTORY ORGANIZATION AND COSTS (Form 13 H) Cost of For __ DEPA RTMENT COSTS Orders: Our No Their N 0. DATE OPERATION SECTIONS _ Standard Size 10x11 (Form 13 I) COST SHEET ^ ur No . Thei Cost of -- Tonn No._ . ag( , < ile1 1 For Date Wan Date Com Date Bille ad.. COMPARATIVE COSTS DISTRIBUTION SECTIONS : iTIMATEC COST INCREASE DECREASE ACTUAL COST MATERIAL LABOR INDIRECT DEFECTIVE WORK TRANSPORTA- IID-. INCIDENTALS - i|GRAND TOTAL SUMMARY ESTIMATED INCREASE DECREASE ACTUAL We, the undersigned certify the foregoing has been examined and found correct. Cost:- Factory Erecting Selling Price 1 Gross Profit Percentage Correc Exam Appro ,t: iei e< (Cost Clerk) (Superintendent) (General Manager) Standard Size 13x11 COST RECORDS 153 (Form 13 J-l) DEPARTMENT Cost of Finish For COST SHEET Address ORDERS: Our No Their No. Date Wanted Date Completed. Date Billed .. COMPARATIVE COSTS DISTRIBUTION SHIPMENTS j DEPARTMENTS ESTIM. COST NCREASE DECREASE ACTUAL [ COST < MATERIAL LABOR INDIRE - TRANS- PORTAT ON ^DEFECTIVE DATE SHIPPING ORDER QUANTITY PRICE AMOUNT FACTORY COST: ERECTING COST: GRAND TOTAL SUMMARY 1 DESCRIPTION . INCREASE DECREASE | COST Factory Erecting I SELLING PRICE GROSS PROFIT Percentage We, the unders gned, certify that the foregoing has been examined and found correct. CORRECT: EXAMINED: APPROVED: Standard Siie 11 x 17 154 FACTORY ORGANIZATION ANL> COSTS (Form 13 J-2) DEPARTMENT ORDERS; COST SHEET ourNo Their N Date W Co Fin Fo st of 0. ish anted .. i i r Date Completed Address DateBlled | COMPARATIVE COSTS 1 2 3 A 5 6 DEPARTMENTS AMOUNT ESTIMATED COST ACTUAL COST ESTIMATE: ( OST ACTUAL COST ESTIMATED COST ACTUAL COST ESTIMATED COST ACTUAL COST ESTIMATED COST ACTUAL COST ESTIMATE: COST ACTUAL COST FACTORY COST: ERECTING COST: GRAND TOTAL COMPARATIVE COSTS MATERIAL LABOR INDIRECT INCIDENTALS DEFECTIVE WORK : NO. SECTIONS COST IB Ml M Wl 1 2 3 4 5 6 TOTAL Standard Size- 11 x 17 155 MACHINE COST Machine No. Department DESCRIPTION JAN. ! FEB. MAR. APR. MAY JUNE JULY Machine Costs 1 . J Labor Supplies ^_ Power Maintenance Depreciation r ,< Indirect Total Working Hours Cost per Hour Machine Record: Set up Idle In use Working Hours Lost Time Average Cost per Hour to date (Standard Size 6x6) PF IOCESS CARD REC Department-For the ORD No... M achine No Opera ion._. _- DISTRIBUTION Time Begun Finished Hours Idle Machine Costs Day Work 1 Piece Work Supplies Power Floor Space Maintenance License Depreciation Insurance Indirect Expenses TOTAL 156 FACTORY ORGANIZATION AND COSTS (Form 13 M) PROCESS COSTS & DISTRIBUTION For the month of - ID. ANALYSIS COST DISTRIBUTION HORSE RUNNING DEPT. POWER TIME H. P. HOURS POWER COST Rental Charge Machine No. 1 A Depreciation Machine No. 2 A License Machine No. 3 A Inspection Machine No. 4 B Insurance Etc. C Fuel etc. Water Repairs Oil, Waste, etc. Engineer Firemen Incidentals TOTAL Horse-Power Hours Horse-Power Distributed Horse-Power Developed Horse-Power Loss and Transm ssion Cost per Horse-Power Hour Standard Sizt (i^ x 6)f COST RECORDS 157 c/D GO O UJ < DC < Q. ^ O o 1 I : 158 FACTORY ORGANIZATION AND COSTS (Form 13 O) COST SHEET No Article _Size_ _ _ _ .Classificat on COMPARATIVE COSTS JANUARY FEBRUARY MARCH APRIL MAY JUNE AVERAGE OPERATION LABOR i TOTAL SUMMARY Material Labor Indirect TOTAL Factory Price Selling Price Gross Profit il Standard Size 11 x 11 159 - Oi > - - - - - fclfl c c 0) c o> i 6 _c 3 Q> - ,_ - U. (- III LLl - CO -- t- h- - - o U) + n) O 81803 3AI \ \ 1 COV. v..v ARTICLE 160 FACTORY ORGANIZATION AND COSTS LU UJ I CO CO o o COST RECORDS 161 CUPOLA COSTS For the month of I l COST OF METAL cgsr PER <{ || lunmT 11 4 II AuraiMT lhvt*-CQrr|| < !| AuniltlT -1 E = E I = \ Standard Size % X 18 (Form 13 S) Article COST SHEET No. DATE DESCRIPTION N0.1 N j N :.. NO. 4 NO. 5 MRS. MIN. QUANTITY MRS. MIN. QUANTITY HRS. MIN. QUANTITY HRS. MIN. QUANTITY MRS. QUANTITY t Total for Process F Process C Material C Tot n Proces Tot In Proces Finished month ate per Hour ost 5ott al Cost -first of month >-end of month Product Average Cost per unit 162 FACTORY ORGANIZATION AND COSTS SCHEDULE OF ESTIMATED COSTS MATERIAL LABOR INDIRECT TOTAL Standard Size 6 x (Form 13 U ) SCHEDULE OF ESTIMATED COSTS ARTICLE MATERIAL LABOR INDIRECT TOTAL NO. 1 NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 . L Standard Size 7 x COMPILATION of all the details furnished by the forms previously explained rela tive to cost rinding should be entered on a form similar in design to the several forms reproduced in this chapter. Nearly all of these forms represent a conventional type, and all have been in actual operation in several different lines of manufac turing. These forms present several designs for obtaining costs where the special order system is used in connection with a system based on the productive labor method or principle of cost finding. Other designs are shown where no orders are used, but the cost of production ascertained according to article, the same sheet or record being used continuously until filled up with entries. Designs are also illustrated for a special order system where the work is in the form of large contracts, but where the cost of each section is calculated by departments on the productive labor principle. These costs are arranged in analytical form, indicat ing the nature of the charges or cost, and in parallel columns with the estimated cost, so that the difference between the estimated cost and actual cost is shown. Other forms will be found where the basis of cost is the machine or process, and where the costs are figured either according to a special order number or COST RECORDS 163 according to the name of the product or article. These forms are also general in character, but specific as to the conditions under which each should be used. From the foregoing it can be seen that the first question, and the most impor tant of all to be determined in designing or installing a system, is the basis of cost finding that is, whether the cost of each production order or only the cost of all articles of a similar description should be obtained. In many instances a factory order is issued for goods that are manufactured continuously, and the cost of this order is ascertained separately. This is good policy in some cases, as results are obtained in this way that could not be accomplished if the cost of the article was figured separately from the orders issued. In some instances, however, it is neither possible nor practicable to figure costs according to a par ticular order, owing to the fact that it is impossible to keep track of any particular order after the product passes through several operations; and in cases of this kind it is simpler to ascertain the cost by article and disregard the order number entirely. After this has been decided, the next question to be considered is whether the direct labor method or the process cost method shall be applied to the cost keeping system. The former method means that the labor is charged directly to the order or article to which it belongs, and to this is added the material cost and the pro-rata share of indirect expenses, which gives, of course, the total cost of the order or article shown in the record. In designing the form to carry out this principle, the fact should be kept in mind that the labor cost may be obtained as a whole by department or by operation. Furthermore, in a system of this kind the question of figuring indirect expenses should be considered, as this, too, would affect the design. The most accurate results from a cost-keeping standpoint can be obtained by calculating costs whenever possible according to the machine or process cost sys tem, for the reason that by this system a larger amount of the indirect expenses can be definitely charged to a particular machine or process. For instance, such expenses as power, insurance, depreciation, maintenance, machine supplies, and some of the labor ordinarily included as non-productive labor, can by this method be charged to a machine or process, thereby reducing the amount of general ex pense not chargeable to a particular operation or process. Inasmuch as the most uncertain element in cost is the basis or fairness of the method of distributing the overhead expenses over the production, it is evident that any plan or method that will reduce the amount of the expense to be distributed on a more or less arbitrary basis will naturally produce more accurate costs. After these charges have been made against the machine or process, the operating hours by which is meant the number of hours the machine is in use during the month are entered, 164 FACTORY ORGANIZATION AND COSTS and the cost per hour ascertained. This rate is entered on the cost sheet and used to calculate the cost for each order number or article. As the number of hours with which the order or article is charged for each operation is shown on this record, it is an easy matter to multiply the total number of hours charged for each operation by the rate per hour and extend the amount. To this amount is added the material cost, which gives the complete cost of the article or order. The same general plan can also be applied where it is not possible to figure the time on the product, but to ascertain the tonnage or number of pounds or any other unit of measure, and make the distribution on this basis instead of on a basis of time. The reader will of course have to decide which is the best plan for him to adopt. The manner of compiling the information on these records relative to material cost, labor cost, or production will be governed according to the nature of the business and the kind of system installed. All information should be obtained from forms to be installed, and posting made in a regular way from these forms to the cost records. For the information and use of those who do not desire to inaugurate an ac curate system of cost keeping, several forms which will be found of use in such cases are illustrated. These forms are explained in the chapters relating to "Estimated Cost Systems," to which the reader is referred regarding the proper methods of operating and verifying results obtained from such systems. CHAPTER XVIII DEFECTIVE WORK REPORTS Two Forms, showing Use Value Disposition of Defective Work. (Form HA) DEFECTIVE WORK REPORT Department For 1 j - DEFECT CAUSE - - QUANTITY A . Approved: Correct: Standard Size 8 x 11 (Form 14 B) DEFECTIVE WORK REPORT Nc Department Week Ending _ ... .. ... i. 1 J ARTICLE MACHINE NO. I DEFECT DISPOSITION OR PROCESS MOM. TUE8. WED. THURS. FRI. SAT. TOTAl RATE AVCLST : [ 1 II Rece ved by: Correct: 166 FACTORY ORGANIZATION AND COSTS As the name would suggest, this form is intended for bringing to the atten tion of the management product that is rendered worthless, or partly so, in pro cess of manufacture. Although the form is simple it is quite important, and will in most cases result in a saving to any business where it is used, as the majority of foremen and super intendents are not particularly desirous of having frequent reports of this char acter made to the management. From a cost-keeping standpoint, if the product is worthless it may be disposed of in one or two ways either by charging it directly against the order number or article, or by charging it to a defective work account, which account is included in the general expenses of the business. But in the event that the material is reclaimed, it should be taken into stock at a reduced rate, to be agreed upon, and the difference between the cost and this reduced rate should be charged in the same manner as stated above either to the order number or article, or to the defective work account. Whichever method is used, the effect, generally speaking, is the same. It is a loss that occurs to some extent in almost every factory, and can only be prevented by the definite knowledge of knowing when it exists and the reason therefor. If these facts are known, some action, at least, can be taken to keep the amount to a minimum even if it cannot be eliminated. The report may be in the form of a daily or weekly record. CHAPTER XIX STATEMENT OF FACTORY EXPENDITURES Four Different Designs representing Factory Operations Showing Plant as a Whole Depart mental Expenditures : Material, Labor, and Indirect Inventory Purchases Material De livered to Factory Departmental Expenses Method of Distribution of Indirect Classifica tion and Costs. STATEMENT OF FACTORY EXPENDITURES Dated 1 J DISTRIBUTION FOR THE CURRENT MONTH FOR 1 "HE CURRENT FISCAL YEAR TO DATE ACCOUNTS i! TOTAL A B C D E A B C D E TOTAL C ect: If Material Labor Total Indirect: I " " i Laoor ITT gupenrlslon Supplies " I Light, Heat and Power Freight, Express and Ctrtaee (Outward)}! Maintenance Incidentals Depredation General Operating Expense Total Percentage Total Expenditures IH"T*- (beginning of period) Grand Total Cort of gales A.. - ..-.-. iBTenturT (en.l t-f jicriod) | 1 STORE ROOM OPERATING EXPENSES DISTRIBUTION OPERATIONS C MC>NTH T F *E*R L ACCOUNTS C MONTr7 . TC^TE )EPARTMENTS C MONTH T 7< J^^TF % Inrentorj (beginning of period ) ; j || ! supeHn^denc. ( || 1 jj [TO 1 i General Labor B PDKJbases rrn y^ neat K \ v ,.e r . c Insurance D Total Taxes E ! 1 1 1 1 { || i Freight, Express and Cartage 1 r -...- ; . Factory Supp lea Salaries of Factory and OOoe Clerks | | il Fx-torT Office Sii].|i ies , Incidentals i , .! 1 1 !l I I 1 1 * i i Inrentor; of Raw Material (end of period) || [ TOTAL TOTAL Approved: Correct: _ _ Standard Size 11 x 17 168 FACTORY ORGANIZATION AND COSTS STATEMENT OF EXPENDITURES Dated . 10 ACCOUNTS Direct: Purchases : Freight. Express and Cartage (Inward) Labor Total Indirect: Light, Heat and Power Rent Warehouse Labor Insurance Printing Storage Maintenance Depreciation of Fixtures Incidentals Total ! Percentage Total Expenditures Inventory (Beginning of Period) Total Cost of Sales Inventory (End of Period) I 1 1 Standard Si/.i- J>< STATEMENT OF FACTORY EXPENDITURES CURRENT MONTH CURRENT FISCAL YEAR ACCOUNT AMOUNT TOTAL AMOUNT TOTAL 1 Material Direct Labor Indirect Expense: Labor Supervision Supplies Light, Heat and Power Maintenance Insurance Taxes Telegraph and Telephone Printing, Postage and Stationery Salaries of Factory Clerks Incidentals Depreciation Total Factory Expenditures Inventory (Beginning of Period) Total I Cost of goods sold Inventory (End of Period) . STATEMENT OP FACTORY EXPENDITURES. For the month of - _ 19 Departments H 39 \ > ~ ~ > ~ 7 T- :: : ^ s ~ Amount 3 -- X 3 = S Q H M H a o o H 3) 0, " 8 \ i 8 3 "- i 3 ^ - __- |S 5 1 g i v - S S B rl -. Q - - i - : 9 * ~ ; ; ? g V V g ; r j Dlitribation : --. - r s j . i ; - - 11 -- 14 J i Departments X, n - - .> o - - \ : ~ "- i S s. I fi - - : a H N | 1 M -- a a S f a - | Q ~ i i S i S i \ ij < S a 4 3 ~: ng ~ 1 \ 11 w< s 1 - i 2 i -^ r. g IB -- s S 2 f ^ ^ O - s " _> y; I - e 1 - ; i i X a : - ; f? -~ ~" S i 5 i ~ 1 :; fi = Amount B - jjs i i i ~ i M i i * ^ r i. i f: R i s 7 -;, K 1 a >? :: 3 a 1 1 | - 1 I 1 i 41 i il s ! i i Salaries uf Factor; Office Clerks I t - z 1 jj - - --- r ; * ! -. jo 5 M i ~ 8 _: ;-. - ; : -_- : * 3 r> 9 -. -. M a | ^ " ( .-. ^ ; ^ i g 3 5 S 8SS - ~ E: s sd- i a| ~ : 1 s -t - Account! i \i 3 - i i 1 i 1 I - 1 j J -^ i i Incidentals i 1 Ueueral OMratlug Kxijenses I Material-Finished anil In Process ( bejlnnlnj of porlod ) i 1 ], -3 I | 1 = 1 s r. Amount 2 | ;-; s s 8 1 5 ^~ * i 00 x Operationa InrcDtorj (beglon.iic of period) I OellTered to Uiwratinj Uepts. Inventor; of Raw Material aten.l of uerlod 170 FACTORY ORGANIZATION AND COSTS IN this form will be found a summary or analysis of all of the transactions affecting the factory operations, and several designs are shown where the factory expenditures are classified or divided into departments departments, in this instance, meaning operating departments in the factory. Other designs illustrate the same kind of statement where the factory is not divided into departments. Both kinds of statements, however, show in effect the direct labor, material pur chases, and material used, as well as the indirect expenses of the factory in one case according to department and in the other merely as a whole. The state ment also shows the value of the goods sold during the month or period at the cost price; and the inventory at the beginning and the end of the period, of all goods finished and in process, as well as the inventory of raw material on hand, together with the amount of purchases and the amount of material delivered to the operating departments during the same period. In several of these forms the general operating expenses of the factory that is, the expenses that are not chargeable to any particular department, but to all alike are shown, as well as the method of distributing this expense among the departments. In this manner the total amount of expense in each department, including the pro-rata share of general expenses, is ascertained. When this is done the total indirect expense should be figured in each department and the percentage or rate ascertained, which percentage or rate should be used in calculating costs. The reader s attention is called to the classification or names of the accounts. This is the same for all departments, and although different names could be used in each department for the same kind of expense, this would only make the keep ing of the accounts more complicated and would prevent the preparation of the statement in a condensed form. The classification of accounts shown is of a standard nature, and can be used in any manufacturing business. Expenditures may be classified in one of the several accounts appearing in this statement. In addition to this, if each account is given a number and each department repre sented by a letter, a considerable amount of writing will be avoided in account keeping. As the reader will observe, this design relates to the bookkeeping department proper, and the information can be obtained by keeping accounts with each de partment, by treating the general operating expenses practically as a depart ment, and by distributing this expense among the several departments each month. Any ordinary ledger may be used in keeping these accounts, but several forms particularly adapted to this kind of bookkeeping are shown in Chapter XX, under the caption "Operating Ledger. " CHAPTER XX OPERATING LEDGER Three Designs, showing how Factory Charges are Recapitulated Relation to Voucher Account Numbers Proof with General Ledger Analysis of Charges by Month or Year Relation to Purchase Journal. (Form 16 A) OPERATING LEDGER Operation __ .. _ ._____._. . __ Department ACCOUNT CHARGEABLE DISTRIBUTION PATE LABOR SUPERVISION SUPPLIES POWER AND FUEL MAINTENANCE: DEPRECIATION INDIRECT FROM LAST TOTAl MONTH m RATE AMOUNT i . Standard Size 8 x 11 (Form 16 B) OPERATING LEDGER .De Dartment OPERATION JANUARY FEBRUARY MARCH APRJL PROCESS COST RATE OPERATING HOURS OR PIECE WORK PROCESS COST RATE OPERATING PIECE WORK PROCESS COST RATE OPERATING HOURS OR r.fi AOHK PROCESS COST RATE OPERATING HOURS OR PIECE WORK , Standard Size 8 X 11 172 FACTORY ORGANIZATION AND COSTS GC HI O Q Ul _J O z h cc LLf 0. O OPERATING LEDGER 173 THE forms herewith submitted are not orthodox in design, and are intended to be used in cases where the accounts are active and numerous, and particularly where it is desired to show not only the expenditures affecting a department but also the operation chargeable. This form shows a method of keeping a separate sheet for each department, arranging the account at the top of each column (thirteen in all), and posting direct from the several books of account common to all manufacturing enterprises alike, or from the back of a voucher as ex plained in Chapter XXIII. After all of the charges or entries have been made in this book for the month, the total should be ascertained and proven with the general books giving in total the expenditures which this record is in tended to show in detail. After this verification has been made, a summary sheet should be opened, at the top of which should be entered in each of the columns (numbering thirteen in all) which were previously used for the names of the accounts the twelve months of the year, the last column being used to show the total for the entire period. The accounts for the department are to be written on the side of the form in the column provided for that pur pose. In this way a comparative record showing an analysis of all the charges against each department for a year is obtained in a comprehensive manner, and the total of each account for any particular expense is also shown. Further than this, a separate analysis may be prepared on the same record by entering the depart ments at the head of the form and the accounts on the side, or vice versa, thus showing not only the total expenditures relating to each particular account, but also the amount charged to each department for expenses of the same nature. The same results can be obtained if the accounts are not numerous and the departments few in number, by using a Purchase Journal or Register of Accounts Payable, ruled with separate columns for each department and each account; but this method requires a book that is necessarily cumbersome to handle and is not as practical as the form described above. A Distribution Book, or Register of Accounts Payable, which is sometimes better known as a Purchase Journal, may be used to advantage with the Operating Ledger by having columns showing two or three general classifications for the purpose of posting to the Private or General Ledger, with which the Operating Ledger would be reconciled or balanced each month. By changing the design of the form somewhat, one of the cost records for determining the expenditures chargeable to a process or a machine can be elimi nated, and the operating hours shown in this form. The cost of each operation or process per hour may be indicated, and this information summarized by the 174 FACTORY ORGANIZATION AND COSTS use of a separate form, thus showing the net result for the month of all operations in the same department. Where this is done, the information as to expenditures for each operation in each department is shown. In any event, this record should be balanced with the records from which the information was originally obtained. CHAPTER XXI BILLING SYSTEM SALES CREDIT CERTIFICATE One Form of Sales Sheet and One of Credit Certificate Shown General Use of the Forms and Their Relation to Costs. (Form 17 A) Original A. B. CO. MANUFACTURERS OF STOVES, RANGES AND FUR Sold to -- _- -_ MACES New York . Address _ _________ .. DESCRIPTION |; SELLING PRICE CLASSIFICATION ARTICLE QUANTITY RATE AMOUNT . No. of Pk Ship. Wt. Frt.Rate Pkg.Chg ^s. Shipped to _ByFrt._- Via By Exp. . _ Date Shipped .Col.. ^. . _^ Standard Size 8 r 8 (Form 17 A) Duplicate Standard Size 6H * * 176 FACTORY ORGANIZATION AND COSTS CFoTm 17 A) Triplicate COST PRICE Standard Size 8 : (Form 18 A)Orignal THE A.B.C. CO. Business NEW YORK n a te Salesman w Favor O f._. CREDIT CERTIFICATE Address ARTICLE ^^ CREDIT ALLOWED DESCRIPTION QUANTITY RATE AMOUNT i : Approved: Correct: Standard Size 7 x 8>$ (Form 18 A) Duplicate Business... THE A._B. C. CO. -Date Salesman NEW YORK No Favor of CREDIT CERTIFICATE Address ARTICLE SELLING PRICE COST PRICE DESCRIPTION QUANTITY || RATE | AMOUNT || RATE || AMOUNT Approved: Correct: Standard Size 7 x 10 BILLING SYSTEM SALES CREDIT CERTIFICATE 177 IT is not the purpose of this work to explain the various billing systems and order systems in vogue, and the forms herein presented are shown merely to illus trate how sales should be handled where a cost system is in operation and where it is desired to show the profits of the business monthly. One of the forms shown represents a bill and a sales sheet, but, if desired, other copies may be made, according to requirements of the business. In this case the original is sent to the customer, whereas the duplicate, after being numbered, goes to the shipping clerk. The cost of the article sold is entered upon the triplicate in the columns provided for that purpose, after which these sheets are registered in a sales book, which may be ruled so as to show both the selling price and the cost price, and also the distribution and classification of the product sold according to departments. The posting to the customer s account is done in the usual way. If the business is not divided into departments, the sales sheet does not have to be registered; and in this case the sales for the month, both at the selling price and the cost price, can be totalled on an adding machine or carried forward from page to page. The total sales at the selling price are entered to the credit of the merchandise account, and the cost price debited to the same account and credited to the factory account. Before any of these entries are made, however, the goods returned should be deducted from the sales made at both the selling price and the cost price. Allow ance should be deducted from the sales only, there being no corresponding cost for such entries. The credit certificate should not be issued, however, until advice has been received from the receiving department that the goods have been ac tually returned, or that the allowance has been passed upon by some person in authority. CHAPTER XXII REGISTER OF SALES AND COSTS Ten Forms Different in Design Classifying Costs and Sales on These Records Postings to the Ledger. (Form 18 A) REGISTER OF SALES AND COSTS For the Month of 19..... SALES COST OF SALES DAT SALES SHEET NO. NAME TERMS SALESMAN FOLIO ntSSi ABC/ k B C FACTOR* AMOUNT 4 1 Standard Size 14 x 19 (Form 19 B) DAILY ANALYSIS OF SALES AND COST Dated ...19... A B C D E F G H SALES i COST SALES COST SALES COST SALES COST SALES COST SALES COST SALES COST SALES COST .__ 1 1 J K L M N o P SALES COST SALES COST SALES COST SALES COST SALES [_ COST SALES COST SALES COST SALES COST | Standard Size U% x 16 REGISTER OF SALES AND COSTS 179 (Form 19 C) REGISTER OF SALES AND COSTS For the month of 19. DEPARTMENT "A" DEPARTMENT " B " DEPARTMENT "C" DEPARTMENT "D" DEPARTMENT "E" SALES PRICE FACTORY PRII - ACTUAL j COST PRICE SALES PRICE FACTORY PRII F ACTUAL COST PRICE SALES > RICE FACTORY PRICE A T 1 COST PRICE SALES PRICE FACTORY , "I COST PRICE SALES ! PRICE FACTORY PRICE ACTUAL COST PRICE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 I 27 28 29 30 31 Standard Siz.j 10 i 11 (Form 19 D) REGISTER OF SALES AND COSTS DISTRIBUTION JANUARY" FEE 5RUARY IV ARCH SALES CC ST PROFIT ^ SALES | C 3ST PROFIT $ SALES C< )ST PROFIT Papp.r: I . \ TotM | 1 Cnttnn- Total \ .Lito Total 1 Buffmo- Wh*pl ? - Total Siirns: Total Printing: Total GRAND TOTAL Standard Size It i 15}$ 180 FACTORY ORGANIZATION AND COSTS REGISTER OF SALES For the month of- _. 19.. DESCRIPTION CLASSIFICATION ADDRESS TERMS SALESMAN LEDGER FOLIO AMOUNT No. 1 No. 2 No. 3 No. 4 No. 5 No. 6 Standard Size 14 (Form 19 F) ANALYSIS OF COST OF SALES ARTICLE QUANTITY SOLD MATERIAL LABOR INDIRECT TOTAL RATE AMOUNT RATE AMOUNT RATE .AMOUNT RATE AMOUNT Standard-Size (Form 19 G) ANALYSIS OF COST OF SALES ARTICLE MATERIAL LABOR INDIRECT TOTAL NO. 1 NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 RATE AMOUNT RATE AMOUNT i RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT KATE AMOUNT Standard Size 11 x 15 REGISTER OF SALES AND COSTS 181 THE functions of a record of this kind are to keep an abstract of the sales made and to classify the different kinds of products sold according to the stated departments, both at the selling price and cost price, as well as to show the profit on each sale, if desired. Several different designs are submitted, some providing for an entry of each sale, and others showing the total sales for the day only. In either case the totals at the end of the month should be treated in essentially the same manner that is, the total sales of each department at the selling price should be posted to the credit of the department, and as each customer has been debited with the sales made to him, the accounts will be kept in balance. The total sales at the cost price should be debited to each department, and the total of all departments at the cost price credited to the factory account. After these postings have been made, each department will show the sales at the selling price as well as at the cost price; and consequently the difference between the two sides of the account will represent the gross profit of each department. The factory, having been previously charged with all of the expenditures relating to manufac turing, and now being credited with the cost of goods sold, will consequently show the value of the inventory on hand, if the costs have been accurately figured. For those interested in compiling information of this nature, in connection with verifying estimated cost calculations, forms particularly suited to this class of work are fully explained in Chapters XXXII, XXXIII, and XXXIV, relating to Estimated Cost Systems. CHAPTER XXIII ACCOUNTS PAYABLE VOUCHER T\vo Different Designs, explaining Use and illustrating Connection with the Register of Accounts Payable and Operating Ledger. (Foi m 20 A Front ACCOUNTS PAYABLE VOUCHER No.. Favor of _ _ Date DATE OF INVOICE DESCRIPTION AMOUNT OF INVOICE DEDUCTIONS AMOUNT PAYABLE 1 - Approved for Payment Correct Standard Size 8H * ACCOUNTS PAYABLE VOUCHEJR 183 (Form 20 A) Back ACCOUNTS PAYABLE VOUCHER Date CLASSIFICATION OF ACCOUNTS OPERATING ACCOUNTS 1 Material 2 Direct Labor 3 Indirect Labor 4 Supervision 5 Supplies 6 Light, Heat and Power 7 Freight, Express and Cartage 8 Maintenance 9 Incidentals 10 Insurance 1 1 Taxes 12 Telegraphing and Telephoning 13 Postage, Printing and Stationary 14 Salaries 15 Depreciation 16 Advertising 17. Traveling Expenses 18 Commissions 19 Legal Expenses 20 Interest 21 Merchandise Discounts 22 Doubtful Accounts 23 Rent DEPARTMENTS A B C D E F G H 1 J K L Favor ,A_ddra of >5 OPERATING LEDGER PRIVATE LEDGEIi OEPT. A/ C NO. AMOUNT ACCOUNT AMOUNT Date Paid Amount of Check Deductions Amount of Invoice Dheck No. | Standard Size.H x 9}$ 184 FACTORY ORGANIZATION AND COSTS THE A.B.C. CO. CREDIT VOUCHER i Favor of No Date DATE AMOUNT OF INVOICE DEDUCTIONS AMOUNT PAYABLE DATE AMOUNT OF INVOICE DEDUCTIONS AMOUNT PAYABLE _ Approved: Correct: Treasurer Boo-xespar Standard Size 8 x 8H O o q 03 THE object of this form is to combine a filing sj stem with the bookkeeping in such a manner as to constitute a proper voucher for all expenditures that may be entered in the general books of account. These vouchers do not have to be paid when made out, as there is no immediate relation between the accounts payable voucher and the Cash Book, both being independent records. When this system is properly used, the voucher should be accompanied by a copy of the purchase order, a copy of the receiving report, and the creditor s invoice. After the voucher has been paid, the returned check may be filed with, or attached to, the voucher; but in any event the number of the check, as well as the date, should be entered on the back of the voucher, thus forming a com plete record of the transaction. A separate voucher should be used for each concern, but as many invoices or transactions may be entered on a voucher during any one month as may be ACCOUNTS PAYABLE VOUCHER 185 desired. The account and the department chargeable should be entered on the back of the voucher, which should then be registered or entered in the Register of Accounts Payable; after which the information furnished should be posted into the Operating Ledger or the Distribution Book, if one is kept. It will be found convenient to have the names and numbers of the accounts printed on the back of the voucher, with the departments, so as to familiarize everyone inter ested with the various accounts and the numbers by which they have been designated. Another form of voucher, appearing under the caption "Check Voucher," Chapter XXV, is shown, and this form differs from the ones presented in that the check appears on back of the voucher. It should be handled, however, in sub stantially the same way that this voucher is used, with the exception that only such bills as are to be paid in one amount or by one check should be entered on the same voucher; but this does not mean that the voucher must necessarily be paid when made out, as previously explained. CHAPTER XXIV REGISTER OF ACCOUNTS PAYABLE, OR PURCHASE JOURNAL Four Forms Illustrated Use Explanation of Postings. Form So. 21 B REGISTER OF ACCOUNTS PAYABLE. CREDITS Accounts Payable When and How Paid Ma Voucher No. Favor of Terms Folio Vouchers 1 avaW Date Cheque N o. Bank Standard Size 14 x 14 REGISTER OF ACCOUNTS PAYABLE 187 Form So. 21 B F OR 19 UBB1T8 Miscellaneous Accc UlltS Op i.i. .iu Accu mti r roperty Acco unt:; Standard Size II x 1! CO z D o o o < u. O cc u H co o tu DC Oi *;>. s : 9 5 ill K feg M 1 s * c CO M c o t Cfl LJ n II o> c u. 1 s FACTO 8UPPU Ul ^ CO ? tr o: 1- > ij ^ < Qu rn HO3N 133SIW 1- z ii j u 0| u EGISTER OF / ACCOUNTS C s a I z 1! H "j av.vd gnooov A. " CO l C Q LEDGER FO1 10 FAVOR OF VOUCHER NO. i 190 FACTORY ORGANIZATION AND COSTS PURCHASE JOURNAL DATE NAME FOLIO AMOUNT CLASSIFICATION NO.1 CLASSIFICATION NO. 2 CLASSIFICATION SUNDRY NO. 3 AMOUNT ACCOUNT H . _- Standard Size 8 x 11 As the name implies, this book relates to purchases and, in fact, to invoices for all expenditures connected with the business, including pay rolls. The design is such that the accounts may be registered and the date of payment indicated, which will in some cases make it unnecessary to keep personal accounts with creditors. In fact, some of the accounts may be kept in this manner, and personal accounts opened in a regular Purchase Ledger for the more active accounts. The principal feature of these designs is the facility afforded for distribution of charges to the various accounts by the use of special columns headed with the names of these accounts, the totals of which are posted into the ledger at the end of the month in one amount. Such items as may be entered in the miscel laneous columns must, however, be posted separately. A voucher form may or may not be used with a record of this kind, at the option of the reader. Where an Operating Ledger or Distribution Book is used in connection with this record, the headings should be as to classification only, inasmuch as a de tailed analysis of the expenditures entered in these columns will be found in the Distribution Book or Operating Ledger. Where no voucher is used, and a de tailed analysis according to department is desired, columns should be ruled show ing the account number, so that an analysis of these expenditures may be ob tained. This can be done either by posting from these columns to the Operating Ledger according to the respective account numbers, or by summarizing the col umns in this book at the end of the month. In any event, the totals entered at the end of the month should be posted to the General Ledger against the proper account. CHAPTER XXV CHECK VOUCHERS Two Distinct Forms Explanation of How Used. (Form 22 A) Front Credit Vouch Favor of er No Check Voucher THE A. B.C. COMPANY, NEW YORK. No._. - DATE AMOUNT INVOICE DEDUCTIONS AMOUNT PAYABLE DATE AMOUNT INVOICE DEDUCTIONS AMOUNT PAYABLE Check Voucr Pay to the o ier No. New York, ... ...190... rder of UNION NATIONAL BANK. NEW YORK. Dollars In full payment of above account. THE A. B.C. COMPANY Treasurer. Standard Size 7> x (Form 22 A) Bark THE A. B.C. COMPANY, NEW YORK. ENDORSEMENTS. Favor of - Credit Voucher No. Check Voucher No. $ Dated 100 . Standard Size 7^ * 192 FACTORY ORGANIZATION AND COSTS Check Voucher No New York 19... FIRST NATIONAL BANK NEW YORK Pay to the order of $ Dollars In full payment of account THE A. B. C. COMPANY. President Secretary Standard Size 7K * 75* (Form 22 B) THE A. B. C. CO. Check Voucher No.- Favor of ._ ._______. .____ Z1 T F ! DEDUCTIONS DATE | * MOUNT F DEDUCTIONS INVOICE PAYABLE INVOICE PAYABLE i DISTRIBUTION DEPARTMENT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT NO NO. NO NO. NO. NO. Approved for Payment: Correct Standard Size 7M * 7& ONE of the forms herewith submitted illustrates a check with columns pro vided for a statement of the bills covered by the amount of the check, and is only for the purpose of securing a proper receipt with the return of the cancelled check from the bank. The other form shows all of this information and, in addi tion, the account and department chargeable. In the form first mentioned, the entry is made in a cash book only ; whereas, in the latter case, an entry is made in the register of accounts payable, or Purchase Journal, as well as in the Cash Book. Both forms will be found useful and easy to operate. CHAPTER XXVI CASH SYSTEM Register of Receipts and Disbursements (2 forms) Report of Expenditures (1 form) Cash Voucher (1 form) Pay Envelope (1 form) Distribution of Money for Pay Roll (2 forms) Explanations Referring to General Use Deposit of Currency Petty Cash Funds Bank Columns. Form No. 23 B. KKGISJEK OF KECEIPTS IL DISBURSEMENTS CASH BECEIVED BANK ACCOUNTS Date Keceived from Udg.r Folio Gross Amounts Deductions Net Cash First National Bank L^ij,, Uiicilluoou* UUwuool Interest Amount DepoelU Cbxju. No. Standard Size 14 < H 194 FACTORY ORGANIZATION AND COSTS Form No. 23 B. For the month o(_ -19 CASH DISBURSEMENTS Date Paid To Ledger Folio Gross Amounts Deductions Purchase LeJjer *" r p, ,>\o" HiuellUMUl Discount Standard Size 14 z 14 (Form 21 A) D epartment ENDITURES No REPORT OF EXP From-- -_ _10. to 19 PAY ROLL NAME TOTAL HOURS RATE AMOUNT SIGNATURES SUMMARY OF CASH RECEIPTS AND DISBURSEMENTS DESCRIPTION SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY TOTAL Disbursements: Material Labor Incidentals Travel Postage Telegrams, etc. Total Balance from last Week Received || BALANCE ON HAND Correct Cva i , .i 1 " _ &"*reu "/- Standard Si/..- 11 x 12 g tr 3 >s rn o 196 (Form 25 A) Pay to. Account Charge $ Approved by CASH VOUCHER 190 No.. Standard Size 1x6 ( Fcrt-rn 28 A") Front Name.. Two we.eks ending Standard Size 2> x 3% (Form 28 A). Back No. Received from The A. B, C. Company my wages wages in full for Two weeks ending Standard Stze 2^ x CASH SYSTEM 197 PAY ROLL DISTRIBIT . . DPI-I rtON artment . 19 V\ t-t i\ ending INDIVIDUAL PAY DOLLARS CENTS AMOUNT 50 20 10 5 2 1 50 ! 25 10 5 1 Approv sd: Correct, Standard Size 5 (Form 27 B) PAY ROLL DISTRIBUTION Week ending 19 DISTRIBUTION DENOMINATION FACTORY OFFICE TOTAL Dollars Fifties Twenties Tens Fives Twos Ones Cents Fifties Quarters Dimes Fives Ones Total Approved: Correct Standard Size NOTWITHSTANDING the importance of other records and systems connected with modern methods of accounting practice, there is a tendency on the part of the business man to regard his cash system with more care and to give it promi nence over all the other records. But even where this is done, records relating 198 FACTORY ORGANIZATION AND COSTS to this department are in many cases so poorly designed and the S} r stem so loose that dishonesty could result which would not easily be detected, unless the ser vices of an expert accountant were retained. One of the principal mistakes made in handling the Cash Book, for instance, is not to deposit all of the currency received, and to make cash payments out of these funds. This results in a cash system that is virtually both a general cash record and a petty cash record. A book of this kind, unless properly de signed, involves unnecessary detail incident to recording small items of expendi ture, and makes it difficult, ordinarily, to balance the cash. By this plan the balance shown by the bank check books, as well as the petty cash or currency on hand, must be included in proving the balance shown by the Cash Book. The most approved method of handling receipts and disbursements is to use a general cash book and enter therein all receipts, from customers and from cash sales as well as from other sources; to deposit all of these funds daily, or at any other convenient period; and to make all payments by check. The Cash Book will then represent the balances shown in the check books, independent and separate from any petty cash funds that may be kept. In this respect the best way to handle petty cash is to draw a check, say for $100, which should be charged to a petty cash account in the General Ledger. If the fund is found too small and it is decided to increase the amount, another check should be drawn, which should then be entered in the same way and charged to the petty cash account. If it is decided to decrease this amount, then the amount should be entered in the General Cash Book as cash received and deposited, being subse quently transferred or posted to the credit of the petty cash account in the Ledger. As these funds are used or expended, proper petty cash vouchers, a sample of which is herein submitted, should be filled out. At the end of the week, if, for instance, $65.00 has been expended, an analysis or summary of these expendi tures should be made and a cash check for this amount drawn. This check should be entered on the disbursement side of the Cash Book, and the amount, e. g. $65.00, charged to the proper accounts. This check should then be cashed and the amount returned to the petty cash drawer; which, added to the amount of the fund that was not expended in this case $35.00 will reimburse the cash fund for the expenditures made and increase the balance or fund to the original amount that is, $100.00. In the forms of cash books submitted columns are provided so that the de posits, the checks, and the bank balances for each bank, from day to day, can be constantly before the management. This eliminates the necessity of using check book stubs for deposits. In these records the columns are so ruled as to show the gross amount of the accounts paid by customers. Deductions for dis- CASH SYSTEM 199 counts or allowances may be entered in the several columns headed " Deductions," and the net amount entered in the net cash column; which column, at the end of the day, is totalled and entries made of the deposits in the proper bank columns. To illustrate this point more clearly: should a customer remit for an account amounting to and carried in the Ledger at $100, and should he deduct 5 per cent., or $5.00, discount, sending a check for the balance, $95, the $100 would be entered in the customers Ledger column and the $5.00 discount in the discount column; and the amount of the check, $95, in the net cash column. The same explanation will apply to disbursements or cash paid to creditors. A record of this kind should, of course, be posted in the usual way, and any special columns desired by the bookkeeper may be added. In this chapter will be found some forms that will be useful in ascertaining the amount of each denomination or kind of currency required for pay rolls. One of these forms shows the individual pay of each employee and the denominations necessary for the exact amount of his pay; whereas the other is a summary of all of the other sheets. In addition to the petty cash voucher just mentioned, another form or report of expenditures is shown. This form is to be used where outside work or contracts are involved where the funds are charged to the superintendent in charge of the work, and his account credited with the weekly expenditures, including pay roll. It is not the intention of this work to describe or submit a list of designs of cash books or any books of account, relating to the general office, and the ones submitted or described are illustrated only because they are used in connection with the complete systems explained later, so that the reader may clearly under stand how the entire system, including all records, should be operated. CHAPTER XXVII GENERAL LEDGER! CLASSIFICATION OF ACCOUNTS, LEDGER FORMS, AND CUSTOMERS RECORDS Classification of Accounts Customers Ledger showing Profit or Loss on Sales (1 form) Cus tomers Record Card (1 form) Customers Record of Pattern Costs (2 forms) Statement of Private Ledger (1 form) General Ledger Controlling Accounts Consignment Accounts Factory Accounts Assets Liabilities Reserve Funds Surplus Administrative Expenses Depreciation Selling Expenses Method of Keeping Accounts according to Classification Classification of Accounts in Detail New Form of Private Ledger Profit on Customer. Customer Address Cl JSTOMERS LEDGER Ratm y DEBIT BALANCE CREDIT DATE DESCRIPTION G ROSS PROFIT ft C OST OF SALES SALES AMOUNT AMOUNT FOLIO DESCRIPTION DATE ~1 ~ "- Standand Size.ll x.12 (Fora* 29 A) State . Name Rating CUSTOMERS RECORD CARD City Route Dun Bradstreet Spec al CALLS SALES DISCONTINUED DATE BY RESULT DATE AMOUNT COST DATE REASON Standard Size 1x6 GENERAL LEDGER: CLASSIFICATION OF ACCOUNTS 201 (Form 30 A) Custome Descripi PA FTERN COSTS Pattern No._ on SALES COST OF SALES GROSS PROFIT ; DATE SALES SHEET NO. ORDER NO. NO. OF PIECES WEIGHT EACH TOTAL WEIGHT PR CE PER POUND AMOUNT TOTAL PER POUND AMOUNT TOTAL PER POUND AMOUNT TOTAL Standard Size 7 x 10 Customer Address.. PATTERN CO! 3TS Card N ji FOR THE CURRENT MONTH FOR THE FISCAL YEAR TO DATE PATTERN SALES COST OF SALES GROSS PROFIT "ATTERH SALES COST OF SALES GROSS PROFIT | NO. PER LB. AMOUNT PER LB. AMOUNT PER LB. AMOUNT J NO. PER LB. AMOUNT PER LB. AMOUNT ?L- . ^B. AMOUNT $ Standard Size 7 x 10 GENERAL LEDGER: CLASSIFICATION OF ACCOUNTS 203 GENERAL LEDGER CLASSIFICATION OF ACCOUNTS PROPERTY: Real Estate and Buildings. Machinery and Tools. Factory Furniture and Fixtures. DEFERRED CHARGES: Factory. Administrative Expenses. Selling Expenses. CAPITAL. CURRENT LIABILITIES Notes Payable. Accounts Payable. Pay Rolls. Interest Payable. ASSETS CURRENT ASSETS. Cash. Notes Receivable. Accounts Receivable. Consignments. Material finished, in process, and raw. DEFICIT. LIABILITIES RESERVE FUND: Doubtful Accounts. Depreciation. SURPLUS. Men s Hosiery. SALES AND COST OF SALES Ladies Hosiery. Children s Hosiery. Selling Expenses. GENERAL EXPENSES Administrative Expenses. OPERATING LEDGER OR DISTRIBUTION BOOK CLASSIFICATION OF ACCOUNTS OPERATING ACCOUNTS 1 Material. 2 Direct Labor. 3 Indirect Labor. 4 Supervision. 5 Supplies. 6 Light, Heat and Power. 7 Freight, Express and Cartage. 8 Maintenance. 9 Incidentals. 10 Insurance. 11 Taxes. 12 Telegraphing and Telephoning. 13 Postage, Printing, and Stationery. 14 Salaries. 15 Depreciation. 16 Advertising. 17 Travelling Expenses. 18 Commissions. 19 Legal Expenses. 20 Interest. 21 Merchandise Discounts. 22 Doubtful Accounts. 23 Rent. 204 A Storeroom or Raw Material Account. H Boarding and Pressing. B Picking. I Finishing. C Carding. J Packing. D Spinning. K Box. E Winding. L General Operating Expenses. F Knitting. M Selling Expenses. G Dyeing. N Administrative Expenses. The first question to be considered in designing a system is the results to be obtained. If the system is to be a complete one, these results will ultimately be shown in the general accounts, which are usually contained in a General Ledger. These accounts should be so classified as to show both the financial status and earnings of an enterprise. The proper classification and arrangement of these accounts will affect to a great extent the accuracy and clearness of the results to be obtained. It is not necessary in the case of a small enterprise to have an elaborate or extensive classification of accounts. A few will answer all purposes in such cases, providing that the purpose of each account is well defined and charges and credits to these accounts during the year are properly made. The accounts, however, must be so kept and arranged as to admit of showing proper results, either at the end of the year or monthly, according to the general plan of the system. In the classification of accounts herein set forth, it will be observed that the assets appear under three principal classifications namely, Property, Deferred Charges, and Current Assets. The accounts under the caption first mentioned represent the fixed assets of the enterprise, and by this term is meant assets that cannot readily be converted into cash. The accounts appearing under the cap tion "Deferred Charges" represent expenses chargeable to future operations of any nature whatever, such as unexpired insurance, prepaid interest, unusual advertising charges, catalogue expenses, or any other expenses that should not be entirely charged off during any one period but should be pro-rated over several months or fiscal periods. This can be done by charging the original amount to any account properly named under this classification, and by writing off or credit ing to this account the proper proportion each month, charging the amount thus written off to some suitable expense account. Under the last classification men tioned i. e., Current Assets, will appear assets of a nature that may be termed quick assets, which can be realized upon currently or from time to time, and are intended to represent the accounts from which funds can be derived to meet current liabilities. GENERAL LEDGER: CLASSIFICATION OF ACCOUNTS 205 Attention is called to the account styled "Accounts Receivable/ which rep resents the amount due from customers. As the method of keeping such an account, which is called a controlling account, may not be familiar to the reader, an explanation is given. At the time the system is started, the balance due from customers as shown by the trial balance, or a detailed list should be entered in total to the debit of this account in the General Ledger. At the end of each month the total sales should also be posted to the debit of this account, as well as any other charges against accounts kept in the customers ledger, from either the Sales Book, Journal, or Cash Book. This account should then be credited with all cash received during the month from customers in total, and also with any other credits, such as returns and allowances, or adjusting entries of any nature what ever. The difference between the two sides of the account will then show the balance due from customers at the end of the month. To verify this balance the balances should be taken off from the customers ledger in detail, and the total of this schedule, or trial balance, should agree with the total shown by the " Ac counts Receivable" account in the General Ledger. It is apparent that the cus tomers individual accounts are charged and credited individually with the same transactions of entries that are charged and credited to the "Accounts Receiv able" account in the General Ledger in total; and that, therefore, the balance, as shown by the "Accounts Receivable" account, should correspond with the total balances as taken from the Customers Ledger. The next account to be discussed is the Consignment Account. This is a con trolling account, the same as the account just explained, and represents the total of the accounts which appear in the Consignment Ledger in detail. In keeping this account it should be borne in mind that consignments should be charged in the general books at cost, and not at the selling price. The entry is made merely to transfer the items from a regular stock account to the consignment account, in order to keep a record of the location of the finished stock, and cannot be con sidered in any sense as a sale. Where consignments are active and where the ac counts are numerous, especially in particular sections of the country, several controlling accounts may be kept, such as New York Consignments, Boston Con signments, Chicago Consignments, etc., each one being supported, however, by a separate ledger or section of a ledger showing the individual accounts. As the goods are sold, the consignment account should be credited and the customers account charged; but the terms of the consignment will regulate the kind of entry best suited in each particular case. The next account calling for explanation is the Factory Account. This ac count represents the inventory of raw material as well as finished stock and goods in process of manufacture. If desired it may be divided into three separate 206 FACTORY ORGANIZATION AND COSTS accounts for each section of the inventory. Where the former method, which is the simplest, is adopted, the information as to charges and credits to the account would be obtained as follows: At the beginning of the period, the value of the inventory at cost should be entered to the debit of the factory account in the General Ledger. All expenditures for material, labor, and expenses relating to manufacturing, as shown by the several books of account, should then be posted to the debit of this account each month. The total shipments or sales at the cost price should be credited to this account monthly, the offset to this last entry being a charge to the merchandise account or, if the sales are classified, to a department account. The difference between the two sides of the account will now show the value of the inventory at cost, providing the sales have been priced accurately as to cost. This method of handling the factory account relates to a system where the profits based on book inventory are shown each month, as will be shown in later chapters. It can be seen from the foregoing remarks that only total amounts are indicated in the factory account, and that it would be necessary to analyze these charges if it were desired to show a statement of the various expenses and charges properly classified. In Chapter XX will be found forms illustrating oper ating ledgers and distribution books which can be used for the analysis of these charges. In this manner the material purchases, the direct or productive labor, and the indirect expenses of the factory may be shown from month to month in a concise manner, and in a way that will enable the bookkeeper to balance these accounts with the factory account. If it is desired to further classify the ac counts that is, to show the expenses of each department of the factory instead of the expenses of the factory as a whole, this can be accomplished by using the same forms. Separate accounts for the various kinds of expenses chargeable to each of these departments may be opened if desired, and where this is done these records should be balanced or proven with the factory account at the end of each month. From these remarks it can be seen that the factory account is just as much of a controlling account as the customers ledger account, and should be treated in precisely the same manner. Under the caption "Liabilities," in this classification of accounts, it will be observed that the accounts are classified into four separate general classifica tions that is, Capital, Current Liabilities, Reserve Funds, and Surplus. Capital, in the case of a corporation, represents the capital stock, either authorized or issued, according to whether the treasury stock is carried as an asset or not. Where the enterprise is operated by an individual or firm, the capital would represent at closing periods the net worth of the partner or partners, and would, of course, be subject to change each year. GENERAL LEDGER: CLASSIFICATION OF ACCOUNTS 207 All of the accounts appearing under the caption "Current Liabilities" repre sent the immediate liabilities or accounts that must be paid currently from the current funds. Attention is called to the account styled "Accounts Payable," which represents the amount due individuals and companies as shown in the Purchase Ledger. The same remarks relating to the method of keeping the "Accounts Receivable" account, previously explained, apply also to this account, which is also a controlling account and should be balanced or compared each month with the total shown by the trial balance of the Purchase Ledger. The method of treating the reserve fund for doubtful accounts is to ascertain the total volume of business done for a period of, say, five or ten years, and to calculate the total amount of bad debts for the same period, and thus ascertain the per cent, of loss on the volume of business. This per cent, of the sales should be charged each month as one of the administrative expenses, the amount being credited to this reserve fund. As accounts are known to be bad or worthless, the account may be charged to this reserve fund, credit being given to the individual account as well as to the controlling account. The depreciation fund, so far as bookkeeping is concerned, should be treated in the same manner that is, the amount charged each month to the proper expense account and credited to this reserve fund. As to the method of arriving at the rate of depreciation and the proper account to be charged, the reader is referred to Chapter III, relating to "Analysis of Cost Accounting." The surplus account, of course, explains itself; but it should be credited with the net profits of the business each year and charged with dividends in the case of a corporation, no such account being kept where an individual firm operates the enterprise. The accounts shown under the captions "Sales" and "Cost of Sales" relate to the volume of business done. Each account is charged with the cost of goods sold, and the total of these charges is credited to the factory account, as has already been explained. These accounts or departments are credited with the sales at the selling price, and the total amount of all these credits is charged to the customers ledger controlling account. The difference between the two sides of the account will now show the gross profit, provided that the sales have been properly priced as to cost. The selling and administrative expenses shown in this classification should now be distributed among these departments, on the basis of the volume of business done in each department at the cost price. These accounts would then show the profit in each of the departments. The next schedule shows the various sub-accounts, and is arranged so as to be easily kept, not merely accord ing to the name of the account, but also by department, thus indicating the expendi tures in the various branches of the business. It will be seen that the name of 208 FACTOKY OKGANIZATION AND COSTS the accounts are all standard, that each account is numbered, and that the de partments are known by letters instead of by numbers, the object being to stand ardize the accounts and to represent each in the bookkeeping by numbers. As an illustration of how these accounts are operated, if it should be desired to charge supplies to department D, the entry would be made 5 D, which would mean Spin ning Department supplies; or, if it were desired to charge this same account with insurance, the entry would be 10 D, which is much simpler than writing the words Insurance and Spinning. In other words, an expenditure relating to any one of these twenty- three accounts can be charged to any one of the departments. This does not mean, however, that the same accounts or all of them are to be kept with each department, as no one department would require all of the ex penditures enumerated, nor would the expenditures in the several departments be of a similar nature. Some of the accounts, in fact most of them, do relate to all departments, and all of the accounts relate to some of the departments. If it is not desired to keep the business by departments, then only the accounts shown may be opened in the Ledger and the departments omitted ; but in either case the totals shown in this ledger should be balanced with the factory account in the General Ledger every month. The purpose of this analysis and its value to the business man are clearly shown in Chapter XIX, in connection with the " State ments of Factory Expenditures." One of the forms herein presented illustrates a new design of private ledger, showing on the right-hand side the trial balance or statement of affairs in compara tive form, and on the left-hand side an analysis of the transactions affecting these accounts during the month. This information is obtained from the totals of the books of original entry, and from other transactions relating to the private ledger accounts, the entries being made in the proper columns opposite the account affected. If this form is used it will take the place of not only a ledger, but of the trial balance, the profit and loss statement, and balance sheet as well, and will give the same information with less work than is necessary by the former method. Of course, an ordinary form of ledger may be used if desired. Other special designs, in addition to this private ledger form, are shown for customers records and ledger accounts, the principal object of which is to show whether or not a profit is derived from the business transacted with any one cus tomer. Where it is desired to ascertain whether or not a particular section of the country or a particular customer is consuming a class of goods that yield a profit or not, a form of this kind may be used with good effect, as it will show the profit not only on the customer, but on all of the customers in that particular locality. Such forms as are herein referred to relate, of course, only to certain cases and conditions. CHAPTER XXVIII DRAWINGS, PATTERNS, AND EQUIPMENT RECORDS Plant Cards (4 forms) Tool Records (2 forms) Pattern Record (1 form) Drawing Record (1 form) Estimating Records (2 forms) Contract and Price Records (3 forms) Inventory- Repair and Maintenance Cost Tool Room Estimates Section Cost Use of Price Curds Value to Purchasing Agent. (Form 33 A) Class _ Name . ...No. ^Size B R Loc uilding oom No ition No. DATE ON HAND ADDED TOTAL REPAIRS DEPRECIATION NO. COST NO. COST COST AMOUNT 5j AMOUNT Standard Size 8X * K (Form 3* A) Name No. Size Loc atio 3 Pu Class Buildin Room 1 T jNo. to. ...From . Cost $ . . Dat( rchased DATE COST REPAIRS : RI .-.- -. NATURE AMOUNT t AMOUNT Standard Size 8X x 210 (Form 35A) No A. B. C. CO. ARD Class... Size PI ANT r Buildir Room. g _ Locati Name Description BATE QUANTITY COST PRICE INSTALLATION CHARGES TOTAL COST - < I Standard Size 4x6 (Form 36.V No. Size . - Cl Locati Name Descri Room ption DATE PURCHASED FROM MATERIAL LABOR TOTAL COST Standard Size 4x6 Form 35 A & 36 A Back REPAIRS DEPRECIATION DATE DESCRIPTION LABOR MATERIAL TOTAL * AMOUNT il DRAWINGS, PATTERNS, AND EQUIPMENT RECORDS 211 (Form 37 \) Front WORKMAN S TOOL RECORD DESCRIPTION SIZE DATE RECEIVED CONDITION NAME OF WORKMAN Standard Size 1x6 (Form 37 A) Back DESCRIPTION SIZE DATE RETURNED CONDITION STOREKEEPER Standard Size 1 1 6 (Form 38 A) Q OC DATE BROKEN NAME AND SIZE OF BROKEN ARTICLE MAKER S NAME TOOL KEEPER S INITIALS O H o z > c 0) -Q "5 E O n) 1- Z This card must be sent to the Superintendent s office every week. Standard Size ( x 6 212 FACTORY ORGANIZATION AND COSTS (Form 39 A) o PATT Nn DESCRIPTION KIND OF PATTERN No. ON GATE No. CORE BOXES WFf-.UT Fru BIN LOCATION RHFI f (Form 40 A) DRAWINGS & PATTERNS Numbers Drawing Description Pattern N <JO. 0. DATE ANALYSIS OF COSTS PENCIL SKETCH TRAC NQ INK SKETCH BLUE PRINTS PATTERN 1 TOTAL Labor Time Rate Amount Supplies:- % TOTAL COST Standard Size 2X Standard Size_4_x 6 Estimat For ESTIMATE BLANK p> nn . . , No. Dat e Submitted Departr nent ESTIMATED COST MATERIAL LABOR SECTION AMOUNT ARTICLE QUANTITY PRICE AMOUNT OPERATION TIME RATE AMOUNT Standard Size g)j z 11 DRAWINGS, PATTERNS, AND EQUIPMENT RECORDS 213 (Form 42 A 1) Estinr For._ Contr ESTIMATE BLANK ated on Date Submitt Date Accepts Architect Nc ed d actor___ .. __ .. ... _ - _ ESTIMATED COST DISTRIBUTION DEPARTMENTS AMOUNT MATERIAL LABOR i INDIRECT TRANSPORTATION INCIDENTALS GRAND TOTAL SUMMARY OF ESTIMATE DESCRIPTION QUANTITY PRICE EACH AMOUNT TOTAL Estimated Cost: Price Quoted Estimated Profits Percentage Ma de by . Chec :ked by Approved Sup t Standard Size S% i 11 (Form 42 A" ) Eitimato For ESTIMATE BLANK Date Subr Date Acc< Architect nitted No ~- Contractor ESTIMATED COST OF SECTIONS 1 | 2 3 4 5 6 7 8 9 10 r- - -_. - SUMMARY DISTRIBUTION NO. SECTIONS LABOR INDIRECT TRANSPORTATION INCIDENTALS 1 10 Total Standard Size M x 11 214 FACTORY ORGANIZATION AND COSTS (Form 43 A) Name Addre Term CONTRACTS _Date Rec d ss Date Completed ..Contract No. ARTICLE KIND SIZE ORDERS RECEIVED SHIPMENTS BALANCE DATE QUANTITY DATE QUANTITY QUANTITY i Standard Size i s. 6 (Form M A) CURRENT PRICE CARD Approximate Quantity Article used per year DATE VAX IV QUANT PRICE JM TY MINIMUM QUANTITY PRICE REMARKS , Standard Size 1x6 (Form CURRENT PRICE CARD Name Ledger Address Salesman ARTICLE DATE PRICE DATE PRICE DATE PRICE DATE PRICE Standard Siza i * 6 DRAWINGS, PATTERNS, AND EQUIPMENT RECORDS 215 DURING the last few years the attention of the manufacturer has been called to the importance of having an appraisal of his plant made, and a detailed record of the equipment and of its value prepared. For this reason as a matter such as this necessarily relates to factory organization designs of various kinds are presented, showing how a running inventory may be established in connection with the machinery and tools, as well as with patterns, drawings, and similar property. These designs are so ruled as to indicate the amount of the repairs relating to any particular machine or class of tools for any period. This informa tion will be especially valuable where old machinery is in use, which is sometimes more expensive to maintain than might appear; and although general accounts are kept usually showing the total repairs to the entire plant, the information obtained by the records outlined is more suitable for making changes or deter mining on the installation of new machines than a general record would be. Fur thermore, the rate of depreciation can also be shown, which should be based on the life of the machine in connection with the average operating time. Where a regular tool room forms a part of the organization, tool records should be kept in about the same manner that stock records are kept; and these tools should be so classified and arranged and not only in the records, but also in the tool room as to show the quantity of tools on hand available for each particu lar class of machine. The bins or racks in the tool room should also indicate the condition of repair of the tool, and tools that are not in repair or in perfect con dition should be kept in separate bins apart and distinct from the tools recently sharpened or repaired. This can only be done by systematizing the tool room proper, and by inaugurating a tool room system, simple in design but neverthe less effective if properly operated. ESTIMATE BLANKS These forms are submitted principally because estimates are frequently pre pared, if we are to judge by the forms used, or rather the lack of forms, with very little care. The first form shown is for the purpose of making out an estimate for work to be done in a particular department, showing prime cost only that is, material and labor, but dividing the order into sections. This form, after being properly filled out, is transferred to the next form shown, and the total for the department entered in the amount column and distributed according to material and labor. The same information is entered on the next sheet, under the caption "Estimated Cost of Sections," according to the section number. The section costs are re-analyzed in the lower portion of the sheet under the caption "Sum mary," according to Material and Labor. The same process is carried out 216 throughout all the departments, until the total estimated cost of the order is ascertained according to departments and divided according to labor and mate rial in each department. From this it can be seen that any omissions in the esti mate would necessarily be brought to light. The intention of the form is to prevent mistakes; and if this or a similar design is used, it is reasonable to assume that this result will be accomplished. Any other expenses or charges may be added. Columns are provided for dis tributing the indirect expenses departmentally instead of in total, as this will produce a more accurate estimate. A design of this kind is intended to be used where the orders are particularly contracts; but the design is presented merely for illustration. A form somewhat similar ma} be employed whether the estimates are for small orders or large contracts, and some mistakes otherwise possible might be prevented by its use. CONTRACTS AND PRICE RECORDS These forms are merely submitted as sundry organization forms, and are for the purpose of keeping track of quotations furnished to the purchasing depart ment for various materials and supplies used in the manufacturing and other departments. In one of the Current Price records, a separate card is used for each article that quotations are received on, no matter how many different firms or companies furnish quotations on this particular article. One of the other forms provides a means of recording quotations on several articles received from the same concern, and in this case a separate form is, of course, used for each indi vidual or company from whom goods are purchased continuously. The other form is usually used in cases where quotations are received from various com panies from whom goods are not regularly purchased, as a check on the other class of quotations. Both forms are useful and will prove of advantage to the purchasing agent. The other forms, relating to contracts, refer to the sales department and in a measure have the same bearing or relation to this department that the current price cards have to the purchasing department, these cards being used for record ing quotations to customers and for keeping track of balance due on contracts sold at a stated price but subject to future delivery. The design is general, and may be provided with special columns to meet any particular conditions called for. CHAPTER XXIX INVENTORY OF MATERIAL FORMS Five Different Designs, showing Use in Relation to Stock Systems. INVENTORY OF MATERIAL Article.-. location.. Book Inventory.. Actual Count Difference Cause- ._$_. _.$_. Date taken By- standard Size 5X X 7 (Form 45 B) INVENTORY OF MATERIAL Department Taken 19. ARTICLE LAST OPERATION PRODUCTION ORDER NO. LOCATION ACTUAL INVENTORY STOCK RECEIVED SMRI ,K4uE OR OVERRUN COUNT CR WT. PRICE AMOUNT COUNT OB WT. PRICE AMOUNT COUNT OR WT. AMOUNT Standard Siie 8X xll 218 FACTORY ORGANIZATION AND COSTS (Forni46.A) INVENTORY SHEET ARTICLE QUANTITY MATERIAL LABOR INDIRECT TOTAL RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT Standard Size 8 x 11 (Form 46 B) INVENTORY SHEET Department-- ARTICLE QUANTITY MATERIAL LABOR INDIRECT TOTAL OPERATION N0.1 OPERATION N0.2 OPERATION N0.3 OPERATION N0.1 OPERATION N0.2 OPERATION N0.3 RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT Standard Size 9 x U (Forra.i7A). She Call Ent Inv stNo.. p. . entory 190 Fo :o Pr ced I Entered Examin Y , , Department - ... ed by . n . at . b) sred by ... jd by __ CHECK QUANTITY DESCRIPTION OPERATION NET-PRICE PRICE REGULAR EXTENSIONS NET PRICE PRICE REGULAR Amount Forward Standard Size 9)4 x 11 INVENTORY OF MATERIAL FORMS 219 \ INASMUCH as the question of inventory taking is one that confronts the manu facturer at least once a year, it is deemed advisable to discuss this subject some what at length, and to present the different forms that experience has proven to be the most practical for use under different conditions. There are two principal conditions to be considered in taking an inventory: one is where a stock system is in use and the actual inventory is to be used in verifying the stock records; the other is where no stock records are kept and where it is not intended to install any. The first two forms shown treat with the first condition, and the designs differ only in that one article is entered on each form, whereas in the other case several articles in the same department are entered on the same form. In effect, how ever, these forms are substantially the same. The object of both is to show the actual inventory and then to enter on these forms the theoretical inventory as shown by the stock records, in order that any difference between the two inven tories may be shown, the cause therefor ascertained, and the stock records adjusted so as to show the true condition of the stock at the time the inventories were taken. Where it is not desired to use the inventory in connection with the stock system, the form last shown may be used instead of the form first presented, as all that will be necessary in a case of this kind is to take the inventory in the usual way according to departments, and using a larger sheet than in the former case. No matter what plan is followed, care should be taken in listing goods in process of manufacture so as to show the last operation, otherwise inaccurate re sults in pricing the inventory will be almost certain to occur. Considerable diffi culty will be experienced in making extensions and entering prices where this is not done. Time will be saved if the inventory is originally taken with the great est care and the meaning of all the articles listed in the inventory sheet made clear. This result can be accomplished by having official-looking inventory sheets which will command respect from those taking the inventory, and thus insure better results than can be expected where ordinary blank paper of dif ferent sizes is permitted to be used. Where it is desired to install a stock system and cost system from an inventory taken at any particular period, the inventory should be divided into three prin cipal sections namely, raw material, goods in process of manufacture, and fin ished product. The articles listed in the first class should be transferred to stock cards or stock sheets for raw material, as is shown in the chapter describing forms of this character. The amount and the cost should be entered according to article in the column headed " Balance," a separate stock card being used in most cases for each article. 220 FACTORY ORGANIZATION AND COSTS The articles shown in the subdivision of the inventory for goods in process of manufacture should then be transferred to a cost sheet for each order number, article, or process, and the quantity and cost entered as well as the last operation on the article, as is further explained in the chapter relating to Cost Systems. All of the finished product should likewise be transferred to the stock records for finished product, and the quantity and cost entered. Designs of this descrip tion will be found in a chapter on that subject. As to the method of continuing these records after the inventory has been transferred, the reader is referred to the several chapters on cost and stock sys tems, as well as various forms, all different in design, treating with this subject in all its details. CHAPTER XXX SALES REPORTS AND ANALYSIS Salesmen s Reports (1 form) Salesmen s Costs (1 form) Sales and Selling Costs (1 form) Orders and Sales (1 form) Salesmen s Record, showing Sales by Territory, Costs, Selling Expenses and Profits Classification Cost of Orders Sales and Selling Costs. SALESMANS REPORT Name . __ No. Date-. DATE TOWN STATE CALLS RESULT Approved:- - Correct: - - - - _ - . Standard Size 8ft * H 222 FACTORY ORGANIZATION AND COSTS Form Ho. 49 A SALESMEN S COSTS. Salesman ! - .Territory. FOE THE YEAE 19 Sales Gross Profit Selling Costs Net Profit Amount Coot Araoun CuramisB Traveling Total Amount January February March April May June July AuKuet September October November December Total for the year FOE THE YEAE 19 January February March April May June July August September October November December Total for the year Standard Size 13 s 13 (Form 50 A) STATEMENT OF SALES AND SELLING COSTS Date d 19 SALES SELLING COSTS NET PROFIT SOURCE AMOUNT COST G ROSS PROFIT % SALARIES OR COMMISSIONS EXPENSES TOTAL % AMOUNT % Approved: Correct: Standard Size 10 X 12 SALKS UKI OU TS AND ANALYSIS 223 (Form 51 A) Factory 1 Article . rice ORDERS AND SALES Sheet No. ORDE RS SALES i - ; :. . , i : ORDERS : RECEIVED CANCELLED DATE NUMBER QUANTITY PRICE |l AV JNT RAT! A 1 | TTT 4 - Standard Size 11 x 13>i ALTHOUGH the leading manufacturers, as well as those interested in other lines of business, have given more attention to records of this character than to the subject of cost keeping, and are for this reason better equipped in this respect, it is felt, nevertheless, that some of the following forms will be new to most of them because of the peculiar nature of the information furnished and the accuracy of all the statements dealing with salesmen s costs and profits. The design setting forth the result of salesmen s efforts in each particular territory is so arranged as to indicate not only the exact amount of the sales each month, but also the cost of the product sold and the gross profit monthly. From this may be deducted salaries and commission, together with travelling expenses, thus showing the net profit after charging such expenses as were actually incurred. These figures differ from the ordinary statistics compiled by sales managers in that they are all taken from the bookkeeping department, the cost of goods sold together with the amount of the sales is obtained directly from the Sales Records, and the selling costs are taken from the Salesmen s Records. The results shown by a form of this kind may be summarized, entering all sales men s accounts on one form and showing the results obtained by each for the month, which information may be used to advantage in the adjustment of salaries. One of the other forms presents a somewhat different record than those usu ally kept in a sales department, in that it shows the orders received, sales, and unfilled orders according to article, together with the selling price and cost price of the articles sold. This will enable the sales manager to ascertain which sales man is getting proper prices for the articles sold and which one is not. As the form 224 FACTORY ORGANIZATION AND COSTS i indicates, each salesman s orders should be kept in a separate section, so as to follow up the unfilled orders of each salesman to facilitate deliveries and to aid in passing on credits. It might be well to add that any por f: on of these records may be included in the monthly reports to the board of directors or the management. CHAPTER XXXI MONTHLY REPORT RELATIVE TO FINANCIAL STATUS AND EARNINGS Production and Costs (1 form) Statement of Profit and Loss (2 forms) Comparative Statement of Profit and Loss (1 form) Comparative Balance Sheet (2 forms) Classification of Financial Statements Monthly Earnings. STATEMENT OF PRODUCTION AND COSTS Date^ __. _ _19 = ; PRODUCTION INVENTORY BEGINNING OF PERIOD PRODUCTION CURRENT MONTH COST OF SALES CURRENT MONTH INVENTORY END OF MONTH ; ANTITY BATE AMOUNT QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT FROM ALL SOURCES Standard Size 10 T H 2 MONTHLY REPORT 227 -o 4) rt TOTAL t uj-> Q ix Q Q <n to 3 c z ^ < 1- u. O tr I-" Q- ul UJ Q D. u. l- z So Q TATEME Sj O Q (0 Q- m UJ Q . o.< UJ^ Q ANALYSIS ^ *. *. v, ~ S T> C Q. < S O 3 ? I I? * ** 2 ^ c 2s i 3 i k ! <n "o - Sbc , S^lU Sillll^t* ^OZlxn O d> 0} o o d 3 z< i i | i 228 FACTORY ORGANIZATION AND COSTS z > e e E e j j: 111 if 3 =3,; S I Illl till 230 FACTORY ORGANIZATION AND COSTS (Form 56 At) ASSETS For the Year Ending, . . 19 ACCOUNTS ^ Hs 1 JAN FEB> MARl APR< MAY JU NE JULY AUG. SEPT. OCT. NOV. DEC. I Property T _Real Eitmte nd BuUd gs _L J_ Michinerj >nd Tooll BMtMJ! OMo. Deferred Charges:-) . -. --_ -. . . _-_._- . .1 Uttfj Selling E.pn,,,, , . Current Assets <>.h Aooounta HoelEa^l J[j, tw R^.lr,V,l, I Deficit- Standard Size 1 JH x 17 (Form 56 AS LIABILITIES For tlie Year Ending 19 - ACCOUNTS ^Hfi JAN> FEBl MAB APR> MAY 1 J JNE j JULY AUG. SEPT. OCT. NOV. DEC. Capital Stock! Current Liabilities Divjde.cds Payable: Reserve Fuod.s; .... >t preceding Month - *p Standard Size 9^ x 17 MONTHLY REPORT 231 THE nature and size of the business, together with the wishes of the manage ment and those financially interested in the earnings and financial status of an enterprise, will necessarily regulate the character of reports to be furnished, and for this reason only such forms as are more or less standard and adapted to prac tically any line of business are presented for consideration. Several different forms, showing approved methods of indicating earnings monthly in analytical form, as well as comparative statements and cumulative reports, are all presented. To any of these, extra columns may be added to suit the reader s ideas as to what information he wants. In the case of statements showing the assets and the liabilities of an enterprise, the same remarks also apply. The statement of production and costs is calculated to be used where the product manufactured does not involve a great number of articles, but it may also be used to show the total articles of any particular class manufactured dur ing the month, together with the condition of the inventory at the beginning and ending of the period. The statement of factory expenditures, which appears in another chapter, setting forth the expenditures of the several departments of the factory as well as the indirect expenses, may also be incorporated in the monthly report if pre ferred. As to the method of preparing these statements, it is enough to say at this point that they are taken from the General Ledger with the exception of the statement of production and costs, which is taken from the stock records ; and the statement of factory expenditures, which in some cases might be taken from the Operating Ledger or Distribution Book. For a full description of the methods of preparing these statements, the reader is referred to the several systems described in this work. CHAPTER XXXII ESTIMATED COST SYSTEM BASED ON AN ANNUAL VERIFICATION OF MATERIAL, LABOR, AND INDIRECT EXPENSES Simplest Condition Proof at Inventory Periods Bookkeeping Forms not Affected Beginning Inventory Schedule of Estimated Costs Sales Analysis Complete Plan of Verification. IN outlining a system of verifying estimated costs at inventory periods, and showing in which element of the cost of production the estimated costs are at fault, the simplest condition is presented to the reader in this chapter, because it not only admits of a clear explanation to those not thoroughly conversant with bookkeeping and accounts generally, but because it also applies and would be all that is necessary for a small business, in which the operations are few and the factory conditions simple. It is not intended in this chapter to show the manufacturer how to figure his costs, but only to help him in determining whether or not his estimates are as accurate as he supposes, or as they should be; and, if not, where the principal difference or errors have occurred. If these instructions to be given are carried out, it will be possible to determine to the satisfaction of any one whether the material, the labor, or the expenses are correctly stated in the estimates of cost which have been used. This information will not be obtainable until the inven tory period, but at that time an absolute check can be established on all of the elements entering into the cost of production, and any inaccuracies in any of these elements of cost will be shown and determined to a certainty. This will in no way affect the bookkeeping. These suggestions are merely along the line of helping the manufacturer to determine when his books are closed whether or not he would be justified in installing a cost system in his particular plant. The results shown by this verification of estimated costs will leave no room in his mind for doubt as to what course he should pursue. INVENTORY SHEET (Form 46 A) In inaugurating a system of this description, calculated to be used as a means of verifying cost calculations, the first step is to take an inventory of the plant, and to divide this inventory according to the three elements entering into the cost of production namely, material, labor, and indirect expenses. These items ESTIMATED COST SYSTEM 233 (Form 46 A) INVENTORY SHEET ARTICLE QUANTITY MATERIAL LA BUR INDIHCCT TOTAL RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT Standard Size 8 x 11 should be entered on the Inventory Sheet for each article appearing in the Inven tory at the time the inventory is priced, and this price should represent the same estimated cost price which it is desired to verify. The method of doing this is simple. All that is necessary is to divide the elements entering into the total cost of the article into the three elements of cost. This is done by having a sched ule of the estimated cost at hand which will, of course, show these elements. As an illustration, supposing that a certain article costs $1.50, according to the schedule of estimated costs, which cost consists of 75 cents for material, 50 cents for labor, and 25 cents for indirect expenses, and that four of these articles are shown in the inventory. The entry on this Inventory Sheet would be $3.00 for material, $2.00 for labor, $1.00 for indirect expenses, and $6.00 for the total cost of the articles. After all of the articles have been priced in this manner and the total ascertained, the inventory should be re-entered in the Ledger to the debit of each of these three accounts that is, supposing the total inventory amounted to $10,000, of which $6,000 was represented in the first cost of material, 3,000 in labor and $1,000 in indirect expenses, these amounts are the ones which should be entered in the Ledger to the debit of these various accounts. SCHEDULE OF ESTIMATED COSTS (Form 13 T) A form of almost any design similar in character to this one can be used as a record of the estimated costs for all of the articles manufactured. If desired, it may be in the form of a card with columns provided for each month, in order to record therein changes in either material cost or labor cost, due to variations in these elements; but the same principle and the same information should appear in order to carry out the plan herein outlined. 234 (Form 1ST) SCHEDULE OF ESTIMATED COSTS ARTICLE MATERIAL LABOR INDIRECT TOTAL ( _^-^ ^___ J -- _^^ Standard Size The prices shown in this schedule are the ones which should be used in pricing the inventory, not only at the beginning of the period, but also at the end of the period; and these same prices are used in connection with entering the cost price on the Analysis of Cost of Sales next explained. For this reason, whatever form is used it should be convenient and specific as to design. (Form 19 F) ANALYSIS OF COST OF SALES - ARTICLE QUANTITY SOLO MATERIAL LABOR INDIRECT TOTAL RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT Standard-Size 8>i i ANALYSIS OF COST OF SALES (Form 19 F) Since the quantity and kind of goods sold constitute a prominent part of this plan of verification of estimated costs, it will be necessary to prepare a statement similar to the one illustrated in this chapter, showing all of the articles sold be tween the time the inventory was first taken according to this system and the time that the inventory was taken at the close of the period. An inventory can of course be taken at any time during the year when it is desired to verify these estimated costs. After this schedule has been prepared and the total quantity of ESTIMATED COST SYSTEM 235 each article sold ascertained, the cost price of the three elements shown in the schedule of estimated costs should be entered in this schedule in the three col umns provided for these three elements namely, material, labor, and indirect expense and the total costs of each one of these elements extended in the amount columns for the total quantity of each article sold. The total of these three elements should then be entered in the total cost column; after which all of these columns, including the total cost column, should be added and the total ascer tained. PLAN OF VERIFICATION Since the total of the three elements entering into the cost of production, as shown in the inventory at the time this system was started, have been charged against these three elements in the Ledger that is, to the material account, the labor account, and the indirect expense account, respectively; and as the purchases of materials, exclusive of supplies, in the nature of expense have been charged against the material account during the period intervening between the begin ning inventory and the ending inventory; and as the same is true in the case of the labor account and the indirect expense account, which would also be charged with all of the expenditures relating to those accounts during the period men tioned it is clear that, if these accounts are credited with the inventory at the end of the period according to the same classification, the difference between the two sides of the account will show the actual cost of material, labor, and indirect expenses consumed and expended in the manufacture of goods actually sold. These same items, at the estimated cost, are shown by the Analysis of Cost of Sales. Consequently, if the estimates are correct, the total amount shown for mate rial, labor, and indirect expenses in this Analysis of Cost of Sales should agree with the balance of each of these accounts in the Ledger. If the ledger balances exceed, in any of these accounts, the amount shown in the Analysis of Cost of Sales for the same account, the difference will mean that the estimated cost fig ures are too low by exactly the amount of this difference. On the other hand, if the reverse is the case, it will mean that the estimated costs are higher than the actual costs. The manufacturer must judge for himself according to the result, considered in connection with trade conditions, which is the most detri mental to his business. In charging labor to the labor account, it should be kept in mind that this term means, in this instance, such charges relating to manufacture as are supposed to be included as labor in the estimates of costs. Likewise, in classifying or charg ing expenses to the indirect expense account it should be remembered that this 236 account must include indirect or general labor not charged to the labor account or included in the estimates of cost as labor, as well as such supplies as are not properly chargeable to the material account and that are not therefore included in the estimates of material costs. The term indirect expense in this instance means all expenses relating to manufacturing only, and covers all items that are included in the amount indicated or used in making estimates of costs. Several expense accounts, such as rent, insurance, indirect labor, supplies, and all other items of this nature, may be kept in the Ledger, and these accounts transferred when the books are closed to the indirect expense account proper, so as to show the total for purposes of verification. In the event that it is desired to incorporate or record the verification figures in the Ledger, the entry would be as follows: Credit these accounts that is, the material, labor, and indirect expense accounts, respectively with the total cost of all of the amounts shown in the Analysis of Cost of Sales; and in the same entry charge the total of these three amounts to the sales account, which account will then show the gross profit, based on the estimated cost calculations. After this has been done, the three accounts mentioned will show the theoretical inven tory in each of these accounts, based on the estimated cost. These balances should then be compared with the actual inventory showing the total material, labor, and indirect expenses, as per the ending inventory. If the theoretical inventory exceeds the actual, the difference should be credited to these accounts and the total amount charged to the sales account, which ac count will then show the actual gross profit instead of the estimated gross profit. If the reverse is the case, the entry would be reversed and the result would mean an extra gross profit. Where the manufacturer feels sufficient confidence in his estimates of costs, and desires to have his bookkeeper prepare a monthly state ment showing the profits based on these estimates, these entries may be made monthly instead of at inventory periods, and any differences in the results shown adjusted at the end of the year. CHAPTER XXXIII ESTIMATED COST SYSTEM BASED ON AN ANNUAL VERIFICATION OF DEPARTMENTAL CHARGES FOR MATERIAL, LABOR, AND INDIRECT EXPENSES Dividing the Elements of Estimated Costs Conditions under Which the Best Results are Obtained Inventory Record Schedule of Estimated Costs Sales Analysis Purchase Journal Pay Roll Complete Explanation of Plan Relation to Ledger and Postings Gross Profit Explained. THE distinctive features of this plan of verifying estimated costs are, that the first two elements of cost described in the preceding system are subdivided and so analyzed as to show more clearly in what respect the costs are inaccurate by indicating in which class of material the cost calculations have been most inaccurate, and in which department the labor has been most incorrectly esti mated. The indirect expenses will be verified according to this plan in the same manner as has already been explained in the system immediately preceding. (Form 46 B) INVENTORY SHEET Department ARTICLE QUANTITY MATERIAL LABOR INDIRECT TOTAL OPERATION N0.1 OPERATION N0.2 OPERATION N0.3 OPERATION N0.1 OPERATION NO. 2 OPERATION N0.3 RATE AMOUNT RATE AMOUNT RATE AMOUNT RATB AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT i Standard Size 9 x U INVENTORY SHEET (Form 46 B) For the guidance of those who have read the preceding system, this form may be compared with the form therein used. It is different only in that columns are provided for subdividing the general classes of material entering into the cost of production instead of using one column for that purpose. The same remarks are true in the case of labor, which in this form is divided into departments, whereas only the total appears in the other design. 238 FACTORY ORGANIZATION AND COSTS The manner of taking the inventory and of filling out the columns is the same in this system as in the other, and this method should be studied and read in con nection with that system. Consequently a detailed description of this feature is here omitted. After the total amount of the entire inventory has been ascertained, separate accounts should be opened in the Ledger with each class of material and the labor in each department, as well as a separate account for indirect expenses. The totals of this inventory should be entered in each of these accounts in order that they may be opened in such a way as to provide for verifying each of them when an actual inventory is taken. ( Form 13 U ) SCHEDULE OF ESTIMATED COSTS ARTICLE MATERIAL LABOR INDIRECT TOTAL NO. 1 NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 r~T Standard Size 7 z 7K SCHEDULE OF ESTIMATED COSTS (Form 13 U) The only difference in this schedule and in the one described in the preceding system is that separate columns are provided, as in the case of the inventory, for classifying both the material and the labor. This classification of material and labor should be identical in this form with that in the Inventory Sheet. The same classification, after having been once established, must not be changed under any circumstances unless all are changed, otherwise it would prevent verifying the estimated cost and render useless any information compiled. The same remarks relating to the schedule in the other system, explaining how the infor mation should be used and the arrangement of the columns, also apply in this case. The cost prices to be entered on this schedule are the estimated costs which it is desired to verify; and it is assumed here that a record of these prices is al ready in the possession of the management, and is in such shape as to be easily dissected or analyzed. This being the case, the result may be readily entered in the several columns according to the different classifications in which the mate rial is to be divided, as well as the different departments in which the labor has ESTIMATED COST SYSTEM 239 been classified. In these estimates provision should also have been made for the indirect expenses which are included in the total cost of the product. ANALYSIS OF COST OF SALES ARTICLE MATERIAL LABOR INDIRECT TOTAL ^ so. 1 1 iO. 2 1 0. 3 40. 1 M O. 2 0. 3 ;.T E AMOUNT ^TE AMOUNT Standard Sire 11 x ANALYSIS OF COSTS OF SALES (Form 19 G) In regard to this form, the reader is again referred to the preceding system, in which a similar form, more simple in design, is explained. The purposes for which the form is to be used, however, are absolutely the same and the design itself identical, except that the material in this form as well as the labor has been subdivided. PURCHASE JOURNAL DATE NAME FOLIO AMOUNT CLASSIFICATION NO.1 CLASSIFICATION NO. 2 CLASSIFICATION SUNDRY NO. 3 AMOUNT ACCOUNT Standard Siie 8 x 11 PURCHASE JOURNAL (Form 21 D) Up to the present time no reference has been made to the manner of charging material purchases, for the reason that the requirements in this respect for the 240 FACTORY ORGANIZATION AND COSTS system first described were so simple that any ordinary bookkeeping method would be sufficient from which to obtain this information. But in this case, as the material is to be classified according to the captions shown in the Inventory Sheet, it is considered advisable to present a form in this system that will suggest a method by which this can be accomplished without any particular effort, and with practically no change in the bookkeeping methods. Purchases are entered in this record to be posted to the credit of the various accounts for individuals and companies from whom goods are purchased, and the amounts of these purchases are distributed and entered in their respective columns, which in effect classifies the purchases according to the accounts already opened in the Ledger. At the end of the month the totals of these columns are posted to the debit of the account appearing at the head of the column. (Form 10 M) PAY ROLL NO. NAME AMOUNT OPERATING DEPARTMENT NO. 1 OPERATING DEPARTMENT NO. 2 OPERATING DEPARTMENT NO. 3 INDIRECT LABOR SUPERVISION OFFICE SALARY Standard Size g 1 10}$ > j i PAY ROLL (Form 10 M) Any ordinary Pay Roll book, that is provided with sufficient columns in which the labor in each department, together with the indirect labor, may be entered, will answer the purpose as well as the form submitted. This form illustrates the manner in which the second element entering into the cost of production is ob tained according to operating departments. It also illustrates how the amount of indirect labor expense is obtained. The totals thus obtained should be entered in the Ledger through the Cash Book, or by means of a journal entry to the debit of these department labor accounts and the indirect expense account. In classifying this labor, it is to be kept in mind that the distribution must be made according to the way the labor was classified in the beginning inventory and in the estimated costs. In other ESTIMATED COST SYSTEM 241 words, the labor as classified in the estimated costs must be the same as the inventory and pay-roll classifications, not only in name but in fact, otherwise misleading results may occur. PLAN OF VERIFICATION The principles involved in this instance are identical with those laid down in the former system, although the methods of verification and the results to be obtained from this method are more complete than in the former plan. It is possible to show in this instance not only that the material has been inaccurately estimated, but which kind of material. The same is true in the case of labor, as not only is the total difference shown, but it is also shown in which department or class of labor mistakes have occurred in estimating labor costs. Where the labor amounts to a considerable sum, and large inaccuracies have occurred in any one department, to a greater extent than in others, a careful examination of estimates relating to articles manufactured in this department upon which the labor cost is heavy can be made, and the estimate revised so as to correct these defects in preparing future estimates. This system will be started in the same manner as the other system, by charg ing to each material account and to each labor account, as well as to indirect expense account, the amount shown in the beginning inventory in the columns provided for these different accounts. This will be the means of opening these accounts in the books to make this plan operative. After this has been done, the purchases should be entered and charged to these accounts from the Purchase Journal described herein. The labor can be charged to these accounts from the Cash Book or by making a journal entry, at the option of the bookkeeper. At the end of the year, or whenever it is desired to verify these estimated costs, an inventory should be taken on the same form and in the same manner as the beginning inventory was taken, so far as classification is concerned. This inventory should be credited to these accounts, which will then show the costs of the various kinds of material used in the manufacture of the goods actually sold, as well as the labor in the several departments and the indirect expenses incurred for the same purposes, all of which should be transferred to the sales account or profit and loss account, and the books closed. The amount so transferred to the sales account or profit and loss account, representing the actual cost of all of the material accounts and labor accounts separately, as well as the amount of the indirect expenses, should now be com pared with the results shown in the Analysis of Cost of Sales, where all of the costs appear as estimated according to the same classification. The difference between 242 FACTORY ORGANIZATION AND COSTS the two amounts will represent the inaccuracies in estimating costs, the inaccura cies for each classification being shown. From this it can be seen that, since the accounts in the Ledger have been charged with the beginning inventory relating to each of these accounts, and subsequently with all of the purchases, labor, and expenses, and since they have been credited with the inventory at the end of the period, analyzed in the same way, the balance represents the actual cost of all of the goods sold. The schedule showing an analysis of estimated costs, when compared with the actual cost, will furnish reliable data showing wherein the estimated costs are at fault. The amount or extent by which the estimated costs are inaccurate, and wherein they are inaccurate, will regulate the action to be taken in revising these cost estimates. Before entering the inventory in the Ledger, or closing the books, it should be determined whether it is desired to record the result of this test or verification of estimates in the general books. If this is to be done, the following is the proper plan of procedure. Credit the several material accounts, as well as the labor accounts and the indirect expense account, with the amounts shown in the Anal ysis of Cost of Sales in which is recorded the total estimated cost of all goods sold between two inventory periods, according to the same classification as is entered in the Ledger. Charge this amount that is, the total of all these estimated costs to the sales account or profit and loss account, according to the manner in which the books are closed. Then take the difference between the balances shown in the material accounts, labor accounts, and indirect expense account, com pare these balances with the total of the inventory according to the same classifi cation, and ascertain the exact amount of the difference. Enter this difference in the general books by means of a journal entry to the debit or credit of the sales account or profit and loss account, and credit or debit the several material and labor accounts and the indirect expense account with the amount of the difference relating to each account. These accounts will then show the actual inventory of the material accounts, the labor accounts, and the indirect expense account, and will correspond with the totals shown by the actual inventory. The sales account or profit and loss account, after this entry has been made, will show the gross profit based on actual figures, whereas before this entry was made adjusting the inventory accounts the estimated gross profit appeared. The term "gross profit," as here used, means the difference between the sell ing price and the actual cost price, including indirect factory expenses, but not including such expenses as selling expenses and administrative expenses, which do not relate to the cost of production and should not be so treated. As has been shown in the preceding system, a monthly profit and loss state ment and balance sheet can be prepared from the General Ledger, if the entries ESTIMATED COST SYSTEM 243 above mentioned, relating to the Analysis of Cost of Sales, are prepared and en tered in the records monthly instead of making this entry only at the end of the year. If the entry is made monthly, instead of at the end of the year, the same information will appear in the ledger accounts relating to this particular part of the bookkeeping as if the entry were made annually, except that no adjustment of inventories and therefore no verification of estimated costs can be made. The accuracy of the profits shown will naturally depend upon the accuracy of the estimates of cost. CHAPTER XXXIV ESTIMATED COST SYSTEM BASED ON A MONTHLY OR ANNUAL VERIFICATION OF ESTIMATED COST OF CLASS OF PRODUCT ACCORDING TO DEPARTMENTAL MATERIAL, LABOR, AND INDIRECT EXPENSES Principles Method Different Elements Inventory Schedule of Estimated Cost by Class of Product Analysis of Cost by Classification Use of Purchase Journal Material Requisition Summary of Material Time Reports Pay Roll Plan of Verification, Showing Inventory Charges for Labor and Material by Department Estimated Cost of Sales by Classification Accounting Features in the Ledger Statement of Profit and Loss and how Arrived at Monthly on Estimated Cost Basis, and Yearly on Inventory Inventory Closing Treatment of Selling and Administrative Expenses Balance Sheet. THE basic principles of this plan of verification are similar to the two preced ing systems, the only difference being that the analysis is more complete than in the system first mentioned, and an additional feature is added to the extensive analysis shown in the second system. This feature is in the form of providing the plan or method of classifying the sales according to a general classification of the product sold, in obtaining the analysis of cost, in such a way as to be trace able to each classification of the product. In this way it may be seen that after verifying the costs the results obtained will show which of the several classes of product have been inaccurately estimated as to cost, and which kind of material has been inaccurately estimated and in which department the labor has been erroneously estimated, together with any inaccuracies in the distribution of the indirect expenses relating to this particular class of product. This should demonstrate that in the first system the verification plan provides only for verifying the three elements in the cost of production namely, material, labor, and indirect expenses; while in the second system this plan of verification is more extensive, being based on an analysis of these three elements of cost, thus extending the plan of verification to each of these subdivisions. And in this, the third system, the plan of verification is carried still further, the results show ing not only an analysis of subdivision of the elements of cost, but also an anal ysis of the cost into the several classifications of product sold, each classification consisting of numerous articles. This analysis is made in order to indicate which of the elements of cost have been incorrectly estimated. This, the third plan of verification, is therefore the most extensive and conse quently the most complete. The object in showing the three plans is to begin with the simplest method, for purposes of illustration, and to extend it step by step, until a complete plan is explained. ESTIMATED COST SYSTEM 245 CForm 16 B) INVENTORY SHEET 1 l Department ARTICLE QUANTITY OPERATION No.1 MATERIAL OPERATION N0.2 OPERATION N0.3 OPERATION No.1 LABOR OPERATION NoT2 OPERATION NO.3 IN RATE 3IRECT AMOUNT I RATE OTAL AMOUNT ; F-4 C AMOUNT RATE AMOUNT RATE AMOUNT RATE iV )UNT RATE AV RATE v M Standai a : In 1 cU INVENTORY SHEET (Form 46 B) A system of this description is calculated to verify the elements of cost by a general classification of products into departments, and the inventory, which is of course the starting point, must be taken with this object in view. The following would be the proper method to pursue. Use a separate sheet, or several sheets as the case may be, for each department, and extend the estimates of cost in the several material and labor columns and in the indirect expense column. This will then furnish an analysis of the total estimated cost of the article, and will, when the inventory for this department is completed, present the information necessary to open the ledger accounts for this classification of product that is, the several material and labor accounts as well as the indirect expense account. It can thus be seen that for each department there will be several ledger accounts for material and labor and one for indirect expenses. In these accounts the total shown by the inventory for each department should be charged. The reader is referred to the preceding systems for any information relative to the basic principles involved, as only the method of obtaining this information is stated in this chapter. Attention is called to the method of treating raw material on hand not relat ing in any way to goods in process of manufacture or to the finished product. The amount of material in the storeroom, or in the plant, upon which no labor has been expended, should be entered on a separate sheet in the ordinary way, and the total of this amount should be charged to an account in the Ledger styled "Storeroom" or "Raw Material." This account will be charged from month to month with all purchases relating to material not in the nature of supplies, and will be credited from month to month with the raw material used, as reported by the Material Requisitions to be used in connection with this system. 246 ( Form 13 U) SCHEDULE OF ESTIMATED COSTS ARTICLE MATERIAL LABOR INDIRECT TOTAL NO. 1 NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 . _- ~~" n Standard Size 7 x 7K SCHEDULE OF ESTIMATED COSTS (Form 13 U) The only difference between the design and purpose of this form and the one used in the second system is in the use of the information furnished in pricing the inventory at the beginning and end of the period, and in pricing the sales during the period intervening between the two inventories. This difference does not affect the form in any way, and any additional information concerning other forms will be explained when the forms affected are reviewed, as any remarks at this point might tend to confuse rather than to enlighten. (Form 19 G) ANALYSIS OF COST OF SALES ARTICLE MATERIAL LABOR INDIRECT TOTAL NO. 1 NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT RATE AMOUNT KATE AMOUNT Standard Size 11 x 15 ANALYSIS OF COST OF SALES (Form 19 G) This is the same design as used in the second system, its use in this case being, however, different. This difference consists merely in using a separate sheet, or several sheets as the case may be, for each classification of product, showing all the articles sold between the two inventory periods and giving an analysis of the 247 estimated cost entered in the several material and labor columns and in the indi rect expense column. A separate sheet must also be used for each classification or product; whereas in the second system the articles were entered without any regard for classification. It should also be remembered that this classification must be identical with the beginning inventory classification, for if the product were classified differently from the original inventory it would be impossible to verify the estimated cost of each of these various classifications of product. (Form 21 D) PURCHASE JOURNAL DATE NAME FOLIO 1 AMOUNT CLASSIFICATION NO.1 CLASSIFICATION NO. 2 CLASSIFICATION NO. 3 SUNDRY AMOUNT ACCOUNT Stamlard Size 8 x 11 PURCHASE JOURNAL (Form 21 D) This record is to be used for the purpose of entering invoices for goods pur chased and differs from the form used in the preceding system only to the extent that one material column for raw material is used in place of several, as Material Requisitions are to be used in connection with this plan. All material purchased can now be charged to one account, the distribution to the respective depart ments being made from the Material Requisitions. The total purchases of mate rial for the month, exclusive of supplies in the nature of an expense, should be posted to the debit of the storeroom account, which account has been previously charged with the inventory of raw material at the beginning of the period. Except as above noted the method of using this form is the same as in the other system, and should be readily understood by any one familiar with book keeping. MATERIAL REQUISITION (Form 6 F) The use of Material Requisitions is not incorporated in either of the other systems, but is necessary to make a plan of this description operative. As has already been shown, the total amount of raw material indicated by the inventory 248 FACTORY ORGANIZATION AND COSTS (Form 6 F) Department MATERIAL REQUISITION No. . Date__ .10. ORDER NO. DESCRIPTION QUANTITY RATE | AMOUNT Standard Size 6 is charged to a storeroom, or raw material account, in the Ledger, to which is also charged, from month to month, the total purchases of such material. Conse quently this account, through a requisition of this description, should receive credit each month for all material delivered to the operating departments charge able to the several classes of product for which the material was used. These material requisitions should be priced according to the invoice or cost prices. After this has been done, the storeroom or raw material account will naturally show the value of the raw material on hand based on inventory or purchase price. When these requisitions have been priced a separate one being used for each classification of product to which the material is chargeable a summary should be made each month on the form next mentioned, showing the classification of product chargeable. The total thus ascertained is the amount to be entered in the Ledger through a journal entry. It should be credited to the storeroom or raw material account, and charged to the material accounts relating to each classification of product for which the material was used, as shown in the Summary of Material Requisitions. (Form 8 D) SUMMARY OF MATERIAL REQUISITION i DEPT. A DEPT. B DEPT. C CLASSIFICATION NO. 1 NO. 2 NO. 3 NO. t NO. 2 NO. 3 NO. 1 NO. 2 NO. 3 NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT NO. AMOUNT Standard Size ESTIMATED COST SYSTEM 249 SUMMARY OF MATERIAL REQUISITIONS (Form 8 D) As the name implies, this form is merely to be used for the purpose of obtain ing the cost of material used during the month, chargeable to the various clas sifications of product. Any other form, as to ruling, columns, etc., which will furnish the same information, may be used if preferred. The results obtained, how ever, should be entered in the journal, and each classification of product charged with the amount of material shown; and the total amount of all material used should be credited to the storeroom or raw material account. CForm 9 AB ) Name TIME TICKET Date SALES DEPARTMENT ORDER NO. DESCRIPTION TIME RATE AMOUN r _. ._ _^_^ -~-^_ Standard Size 5 i TIME REPORT (Form 9 AB) Inasmuch as this plan involves ascertaining the labor chargeable to each classification of product, according to operating departments, it will be necessary to use a form similar in character to the one presented. A separate report should be made out by each employee in the plant whose time relates in any way to the product manufactured. This report should show the department in which the employee is engaged and the class or product to which his time is chargeable, in order that these time reports may be summarized to show the amount of labor chargeable to each classification of product in each operating department. The method of summarizing this information will be explained in the Pay Roll form following. PAY ROLL (Form 10 M) This form shows, in total, the amount of each employee s pay in each operat ing department, chargeable to each classification of product, as well as the amount of his non-productive or indirect labor meaning labor that cannot be charged to any particular classification of product. 250 FACTORY ORGANIZATION AND COSTS (Form 10 M) PAY ROLL NAME AMOUNT OPERATING DEPARTMENT NO.I OPERATING DEPARTMENT NO. 2 OPERATING DEPARTMENT NO. 3 INDIRECT LABOR SUPERVISION OFFICE SALARY Standard Size 8 x A separate sheet should be used for each operating department, and the col umns from left to right, provided for distribution purposes, should be headed with as many classifications of the product as are to be kept, providing extra columns for indirect labor, supervision, and similar items. The total of this pay roll, as analyzed, may be entered in the Cash Book, showing the labor chargeable to each classification or product according to operating departments, as well as the indirect labor, etc., and can subsequently be posted in the Ledger to the debit of these accounts. If desired, only the total may be entered in the Cash Book, which can be posted to the debit of a pay roll account. The pay roll account can then be credited, through a journal entry at the end of the month; and the accounts mentioned that is, the classifications of product as well as the indirect labor can be charged. This last method will prove more satisfactory than the first, as the entry distributing these charges may be made monthly instead of weekly. PLAN OF VERIFICATION The object of this plan, as has already been explained, is to verify the esti mated costs relating to each classification of product, according to several gen eral subdivisions of material, labor, and indirect expense. It has also been shown that separate accounts must be opened in the Ledger with each classification of product for the various materials relating to the product, for each operating department labor charge, and for the indirect expense charge. A separate account must also be opened for the storeroom or raw mate rial account. The inventory shown in the inventory sheet must be transferred or entered to the debit of these several accounts viz : the raw material account, and the various accounts relating to the classification of product to which the inventory relates. After this has been done, the subsequent purchases of raw ESTIMATED COST SYSTEM 251 material should be charged from the Purchase Journal to the raw material ac count, as has already been explained. This account must not, however, be charged with any purchases of an expense nature not included in the estimated material cost, and any such purchases should be charged directly to the indirect expense account. The labor chargeable to these various classifications of product, accord ing to operating departments, may be entered in the Ledger through the Cash Book or the Journal, as has already been explained in describing the Pay Roll. In any case the total labor chargeable to each classification of product, according to operating departments, should be entered in these accounts weekly or at the end of the month, and the amount chargeable to indirect expenses for indirect labor and similar items shown in the Pay Roll should be similarly treated. It will now be seen that all direct charges, such as material and labor, have been entered to the debit of the classification of product to which they relate; and it will be observed that an account appears in the Ledger styled " Indirect Expenses," not relating to any of these classifications of product, but which should be charged or pro-rated among them. This can be done by ascertaining the total amount of indirect expenses and by dividing this by the total labor charged to all of the classifications of product. The percentage thus ascertained should be multiplied by the amount of labor charged to each classification of product, and the result distributed or charged through a journal entry to each of these prod ucts as indirect expenses, the total amount being entered to the credit of the indirect expense account proper, which account should then balance. Other methods of pro-rating indirect expenses are outlined in Chapter IV, devoted to this subject. It can be seen that all classifications of product are now charged, with all expenditures relating to the cost of production. The next question to be considered, according to this plan of verification, is the means of crediting these various classifications of product with the amount of goods sold at estimated cost, this estimated cost being analyzed in the same way in which the expendi tures or charges are analyzed. This information is contained in the Analysis of Cost of Sales, which shows all sales during the month for each classification of product, analyzed in the same way in which the ledger accounts are kept; the cost being entered according to the schedule of estimated costs to be verified. It is therefore clear that if the totals shown in the Analysis of Cost of Sales for each classification of product are credited in the Ledger to the corresponding ac count, these accounts will show the value of the inventory based on the estimates for each classification of product and analyzed according to the several material and labor accounts and indirect expenses relating to each classification. This result should agree at the end of the year, or when an inventory is taken, with the actual inventory, provided that the ending inventory has been taken in the same 252 FACTORY ORGANIZATION AND COSTS way and at the same prices at which the sales were priced at cost. If the esti mated costs are incorrect, the difference between the actual inventory and the theoretical inventories, shown in the books, will represent the inaccuracy in esti mating costs, not only in the class of product but also in the various material and labor accounts and the indirect expenses. With this information it will be pos sible to ascertain which class of product has been most inaccurately estimated, where these inaccuracies are most prominent, in what department the labor was inaccurately estimated, whether the principal errors occurred in estimating the costs of any particular class of material, and to what extent calculations and dis tribution of indirect expenses have affected the errors in estimating costs. STATEMENT OF PROFIT AND LOSS (Form 53 A) The object of presenting this form is to illustrate more clearly the result to be obtained by operating this plan. Before explaining the form shown, it is thought best to more fully explain the closing entries just described from a bookkeeping standpoint. At the end of the month, when the total sales at the selling price have been ascertained accord ing to the respective classifications of product, the total sales for each classification should be credited to the sales account for that classification or product, this ac count being independent of the accounts already opened for the same product. The accounts previously opened relate to expenditures and costs, show the inven tory, and have no connection whatever with the sales at the selling price. The purpose of opening a separate account for each classification of product sold can now be understood. These accounts should be charged with the total cost for each classification of product as shown by the Analysis of Cost of Sales, and this entry represents the debit for the corresponding credit that has been posted to the various accounts for the classification of product. The sales accounts for each classification are credited with the sales at the selling price, and charged with the sales at the estimated cost price, as has been explained; and the differ ence, or balance, consequently represents the estimated gross profit. In preparing this Profit and Loss statement it will be necessary to refer to the ledger account, and enter the sales and the estimated cost of the sales, which already appear in the account, in the columns provided for that purpose. The difference between the two amounts is extended in the column headed " Gross Profit," opposite the department to which it relates. After this has been done, the next step is to ascertain, by referring to the accounts styled "Selling Ex penses " and " Administrative Expenses," the total of these accounts, and enter I " .- C: ? - 7 - > ~r - - **^ ^i *?, o " ^ , r t O >-T( O rJ 95 -~, a o ocl t^. M 5 : ^JtiL 1 a >-i so 255 these amounts in the Statement in the columns provided therefor. The per cent, that the selling expenses bears to the estimated cost of goods sold should be ascer tained, and the estimated cost in each department multiplied by this per cent. The same procedure should be followed in the case of administrative expenses. In this way the selling expenses and administrative expenses are distributed among the several departments. These two amounts that is, the selling ex penses and administrative expenses should then be added and the sum entered in the total column, opposite the proper department. These amounts will then represent the total expenses chargeable to each department. By deducting these expenses from the estimated gross profit appearing opposite each department, the "Net Profit" is obtained, and entered in the column thus headed. The total of this column, showing the estimated net profit of each department, will of course indicate the total estimated net profits of the business, the accuracy of which will depend entirely and absolutely upon the accuracy of the estimated costs. After the selling expenses and administrative expenses chargeable to each classification of product have been ascertained, these accounts that is, the sell ing and administrative expense accounts should be credited with the total amount, and the various classifications of product charged with the proper amount. These classification accounts will then show the estimated net profit on the various classifications of product sold, which amount should then be trans ferred to the general profit and loss account in the usual manner. BALANCE SHEET (Form 55 A) Those familiar with bookkeeping will readily understand this statement, which represents a trial balance after the books have been closed, and is usually called a Balance Sheet. From a bookkeeping standpoint it does not differ in this instance from any other . balance sheet; but from a business standpoint it differs to the extent that the accuracy of the inventory shown is based on the accuracy of the estimates of cost used in crediting the several classifications of product. As this plan provides for preparing this statement monthly, based on these estimated inventories, it might be well to call attention to the fact that when the actual inventory is taken the difference between the estimated and actual figures should be credited to these accounts and charged to the sales ac count for the same classification. This means that, if the theoretical inventory or the balance as shown in the books exceeds the actual inventory, the inventory accounts must be credited and the sales accounts charged; and where the actual inventory exceeds the balance shown in the ledger account the entries should be reversed. CHAPTER XXXV DEPARTMENTAL COST SYSTEMS, SHOWING COSTS AND PROFITS AT INVENTORY PERIODS Nature of System No Extra Clerk Hire Required Organization Value of a Production Order- Its Use as a Cost Record Bill of Material for Schedule of Material Cost and How Used The Relation of Day and Piece Work Plan to this System How the Pay Roll is Analyzed Nature and Use of the Production Report The Use of a Register of Accounts Payable and How it should be Kept Register of Sales, showing Classification by Departments Departmental Accounts Handling of Raw Material Classification of Accounts and How Charged and Credited Profit and Loss Inventory. IN the preceding chapters relating to estimated cost systems, an effort was made to verify estimated costs and to determine wherein the inaccuracies oc curred. In this chapter a system will be explained that will enable the manu facturer to inaugurate a cost system, making it possible to obtain the cost of the general classes of product manufactured without installing a detailed system of cost finding, for obtaining the actual cost of production of each particular article manufactured. At the same time these records will be compiled under the general classifications, so as to show the actual cost and profits according to a general class of product at inventory periods. The principal objection advanced by the average manufacturer against the inauguration of a complete cost system is the extra amount of detail involved in the compilation of the data necessary to obtain the actual cost of each article manufactured, which usually necessitates an enlargement of the office force or clerical help. One of the objects of this system is to indicate to the manufac turer whether, in his particular case, a system involving such details is necessary or not. In the event that a particular department or class of goods shows a loss at the end of an inventory period, and the other departments or classes of goods show a profit satisfactory to the manufacturer, then a detailed cost system may be inaugurated in this particular department. In this connection the reader may infer that no great saving would be effected by the inauguration of a complete cost system in all departments. This, however, is a wrong impression, as the saving in any factory would be sufficient to justify a liberal expenditure in this direction, and at the same time result in increased earnings. In many cases, where the product consists of several hundred different articles, many of these articles are manufactured at an actual loss, and consequently a loss is paid out of DEPARTMENTAL COST SYSTEMS 257 profits, although the net result or profit in all departments is satisfactory to the management. This has been shown in numerous cases in actual practice. PRODUCTION ORDER (Form 5K) (Form 5 K) To Foreman.. . _ Return to Office immediately upon completion. FACTORY ORDER No. . Department Date DATE WANTED DESCRIPTION QUANTITY You are hereby au from Store Room, Completed -o- tl t zed to manufacture the above articles, as stated; material to be drawn er Bill of Material No 19 (Manager) (foreman) (Standard Size 5 x ?X.) The purpose of this form is to substitute written instructions for verbal direc tion in the manufacture of all products in the several operating departments, and is intended to enable the management to direct and regulate the production of the class of product called for by orders received from customers. The proper use of this form will enable the management to keep in touch with all that is going on in the several departments of the business, and to supervise the labor forces and the heads of the several departments in such a way as to materially increase the efficiency of the plant. At the same time it helps to es tablish a check on over-production of goods, and to stimulate production on goods actually ordered and for which customers make frequent inquiry. The form in itself is simple and can be readily understood, and the practical operation and its intelligent use will effect a greater saving than might seem apparent by a casual examination. In another section of this chapter will be found a Day and Piece Work Report, which should be used by each employee in the plant ; and the number of this Pro duction Order should appear on this report, not for the purpose of cost finding, but with the object in view of preventing the employee from filling in time reports and piece-wwk reports not actually in process of manufacture. This relates not only to establishing a safeguard against dishonesty so far as piece work is con cerned, but is further intended to prevent employees from making out reports of time not consumed in the business of the company. 258 BILL OF MATERIAL (Form 7 A) (Form 7 A) BILL OF MATERIAL Deoar tment Date Estimate No.. . _ Required for ... Order No. ... . .. ... CLASSIFICATION NO. ARTICLE QUANTITY RATE AMOUNT RECEIVED BY Approvec by:. Ordered by: Standard Size 7Hi * 8)4 In the operation of this design it should be kept in mind that its purpose is for preparing estimates showing all the material used in the manufacture of either a special order, which means a class of product that may or may not be manufac tured in the future, as well as for standard goods which will be constantly manu factured and carried in stock. In the latter case a bill of material should be made up and priced for every article that is carried in stock, and this price or cost should be revised from time to time as the cost of raw material increases or decreases in market price. Otherwise inaccuracies would necessarily occur in transferring material used from the raw material account to the departmental account, as will be seen later. The purpose of this form is to record the calculations of the amount of mate rial used each month that is chargeable to the several departmental accounts called for by this system. The total of the bill of material is credited to the raw material or storeroom account, which should be charged with the inventory at the beginning of the period and with all purchases made since. This form relates directly to the Production Report explained later. DAY WORK AND PIECE WORK (Form 9 C) This design presents a combination Day Work and Piece Work Report, and will be found useful in any plant where the employees are engaged partly at a day rate and partly on piece work. Where this is not the case two separate forms may be used, or Form 9 A may be substituted to take the place of both forms, DEPARTMENTAL COST SYSTEMS 259 (Form 9 C) Name TIME REPORT Departm ent Oats Occupation - Clock No DAY WORK ORDER NO. KIND OPERATION TIME RATE AMOUNT PIECE WORK ORDER NO. KFND OPERATION QUANTITY RATE AMOUNT Quantity O.K, Price O.K. Amount O.K. (Standard Size 6x6) as is explained in the chapter relating to the designs of various kinds of Time Reports. In any event, every employee in the plant should make out a Time Report daily, showing the nature of the work engaged upon, the time consumed, and, if practicable, the number of articles produced. The number of the production order, previously explained, should also be entered on this report; and the fore man of the department in which the employee is engaged should make it his busi ness to examine these reports daily, and turn them into the office at night or the following morning with his name signed to each form. The management should ascertain whether or not this form is really examined or merely signed, as the results at the end of the year bear a close relation to this particular design, simple as it may seem. In the case of piece work, a careful examination should always be made as to quantity, quality, and price. As far as the quantity is concerned, a proper safeguard should be established on operations connected with product that is not finished immediately but carried in stock in a partly finished condition for future operations; as it is an easy matter, particularly where a complete cost system is not in vogue and where stock records are not kept, to falsify piece-work reports without the knowledge of the management, foreman, or those in charge of making out pay rolls. The results shown by these reports should be transferred daily to the Analysis of Pay Roll herein described. Where piece work is involved, the quantity should be entered in the several columns in the form last mentioned, provided for the day s results, opposite the name of the employee. In the case of day work the number of hours should be entered in these columns, in lieu of the quantity. 260 FACTORY ORGANIZATION AND COSTS ANALYSIS OF PAY ROLL (Form 10 J) (Form 10 J) ANALYSIS OF PAY ROLL Department Week ending.. .... WAGES IBUTIC NAME CLOCK AMOUNT RATE TWB M T W T F 8 NO. 1 NO. 2 NO. 3 NO. 4 NO. 5 NO. <5 INDIREC Standard Size 12 x 16 All of the results called for by this design should be obtained from the Time and Piece Work reports previously explained. The columns running from right to left are explained as follows: Under the caption "Name" should be entered the name of each employee, and the clock number, if one is in use, should be entered in the column provided for that purpose. At the end of each day the Time Reports should be entered opposite the name of each employee in the column for that particular day, and in case the results shown by the Time Reports are based on Piece Work, the quan tity should also be entered, but a separate sheet should be used. The total for the week, in either time or quantity, should be entered in the total column in either hours or quantity, and the rate per hour or per article should also be en tered in the column provided for that purpose. The result that is, the rate multiplied by the time or quantity should be entered in the column headed "Amount of Wages," opposite the employee s name. Under the caption headed "Distribution" should be entered the amount of each employee s wages, chargeable to the particular classification or kind of goods on which he was engaged. Any time not chargeable to any particular class of goods should be entered in the column headed "Indirect Labor." The total of this distribution that is, labor chargeable to the various kinds of goods manu factured and the indirect labor added together should equal the amount of the employees wages for the week; and the total wages of all the employees for the week should, of course, equal the total amount charged to the various kinds of products and indirect labor. When the pay-roll check is drawn and entered in the Cash Book for the weekly 261 pay roll, the amount should be charged in the Ledger directly to the pay-roll account; and at the end of the week or month a journal entry should be made crediting the pay roll account and charging the various kinds of products appear ing in this Analysis of Pay Roll as well as the indirect labor account. This entry will balance the pay roll account, and charge or distribute the amount of the wages to the proper accounts or departments for the period in question. This explanation is made at this point in order that the preceding remarks relating to the object of the Piece and Day Rate Reports may be better understood, as well as the relation of the forms previously mentioned to the general classification of products for the purpose described in the beginning of this chapter. PRODUCTION REPORT (Form 11 L) There are several methods in vogue relating to reporting production of fin ished parts departmentally as well as finished products, and various designs of different kinds will be found in the chapter relating to this subject. In this instance it is only intended to report the production of finished prod uct that is, goods ready for market ignoring entirely anything relating to fin ished parts that are used in assembling or manufacturing the finished article. The form should be ruled precisely as presented, except that the name or number of the article, according to the classification, should be printed on one or several forms, according to department. In case several departments operate inde pendently that is, produce a finished product a separate form should be used for each department, with all of the articles appearing. Where the entire product passes through all the departments and is delivered to a stockroom or stock clerk, one form will be sufficient. The foreman of the department in charge of the manufacture of the product, or the superintendent, may keep this record, which should be in loose-leaf form and executed in duplicate. The information can be obtained from one of two sources namely, from the Production Orders previously mentioned, or from the Time and Piece Work Reports ; but in either case the entries should be made daily. As can be seen by reference to the design, columns are provided for the daily production, and the entries should be made each day under the proper date opposite the article produced. The total should then be extended for the month in the column provided for that purpose. After all of the figures have been veri fied the original should be sent to the main office. Upon receipt of this form, properly filled out, the bookkeeper or cost clerk should fill in the column under the general caption "Material Costs." All of the information called for can be obtained from the Bill of Material previously 262 FACTORY ORGANIZATION AND COSTS Z 3 OLA8MFK ATI TOTAL fe o _J < cc LU H AMOUNT 5 o . c E BILL OF MATERIAL NO. u. TOTAL r CM to <N 10 CM 1- * CSI CE o CO CSJ Q. Ill CM CM -o $> OL O csj z o O CM Q. <I H Q CD o 3 cr Q- 00 Q r- CD 10 * CO CM <-> c ^r E ni cr> O 00 r~ CO 10 d- CO CM - ARTICLE O d CJ K 2 B z o 5 | : = = u Correct: DEPARTMENTAL COST SYSTEMS 263 described. The number of this Bill of Material and the cost or rate per article- that is, for the article shown on the left of the form should be entered, and this rate multiplied by the total number or quantity of this particular article manu factured for the month. As will be seen by examining this form, a number of articles should be entered under the classification of manufactured products, which is the basis of this Cost System. After all of these articles have been priced and the amount extended according to classification, the total should be entered in the column headed "Classification Total." The total amount for all classifications, representing the total amount of material used for the month, should be credited through a journal entry to the Storeroom or Raw Material account, and charged to the various kinds of product shown in the column headed "Classification Total." The effect of this entry is to credit the Storeroom or Raw Material account with goods taken out and used in the manufacture of product actually finished and ready for shipment, and at the same time to charge the department or class of goods with the cost of this material. REGISTER OF ACCOUNTS PAYABLE (Form 21 C) Although this form does not relate directly to a cost system in the true sense of the word, yet a careful examination of the nature of the design will show its utility in obtaining the results called for by this system. The usual title for a record of this description is "Purchase Journal," but this name is not used in this instance, as the book is used for other functions that is, it admits of a more extensive classification of accounts and also makes it unnecessary to keep an account with each individual from whom goods are purchased. All of the col umns on the left-hand side of the book, under the general caption "Credits," relate to the terms of the purchase, and show from whom goods were bought and when and how the account was paid. The purpose of the column headed "Open Accounts" is for transactions with creditors with whom it is desired to keep an open account in the Ledger. The column headed "Vouchers Payable" is intended for all other accounts where it is not necessary to keep separate ac counts in the Ledger. In the case last mentioned the total of this column should be posted in one amount at the end of the month to the credit of " Vouchers Pay able," and as these accounts are paid, the date of payment, together with the check number, should be entered in this Register opposite the proper account in the columns provided for that purpose. The items entered in the columns headed "Open Accounts" should be posted separately from day to day to the credit of the proper individuals or company in a regular Ledger. If it is desired to keep a Private or General Ledger and to have DEPARTMENTAL COST SYSTEMS 265 this ledger self-balancing, a controlling account should be opened and styled "Creditors Ledger," and the total of the column headed "Open Accounts" should in that case be posted to the credit of the account last mentioned in the General Ledger. A complete explanation of this principle will be found in Chapter XXVII. All of the columns on the right-hand side of the book, under the general cap tion "Debits," relate to the distribution or classification of purchases. It is not the intention at this point to classify or head these columns in a complete man ner, as the captions or accounts that appear in these columns are merely for the purpose of suggesting to the reader the proper method of redesigning a record along these lines. In Chapter XXVII a classification of accounts according to various requirements is shown, and from this it should not be difficult to select a classification of accounts applying to any line of manufacture, and the reader is referred to that chapter in studying or using this design. It is deemed sufficient to state that the total of these several columns should be posted at the end of the month to the debit of whatever account appears at the head of the column. In the case of the miscellaneous column each item should be posted separately. The miscellaneous column is intended for accounts that are not sufficiently active to require a special column, the value of the special columns being principally to save posting and writing the name of the account. The two columns on the left-hand side of the book added together should equal the sum of all the columns on the right-hand side of the book under the caption "Debits," which means that the Debits and Credits should be equal. REGISTER OF SALES (Form 19 E) (Form 19 E) REGISTER OF SALES For the mQnth of w _ DESCRIPTION CLASSIFICATION DATE SALES SnEET NO. SOLD TO ADDRESS TERMS SALESMAN LEDGER FOLIO AMOUNT No. 1 No. 2 No. 3 No- 4 No. 5 No. 6 Standard Size It x 15J The chief reason for presenting this form is to illustrate the method of classi- 266 FACTORY ORGANIZATION AND COSTS fying the sales according to the manufactured product. Any other method that will obtain the same results may be used, as can be seen in Chapter XXII, which shows several designs of this character. The information can be obtained from the Sales Sheet, or may be entered directly in this Register and the amounts entered under the proper classification of product, the total amount of the bill being entered in the column provided for that purpose. At the end of the month the total amount of the sales for each department or classification of product should be credited to the proper department shown at the head of the several columns, and the total of all goods sold in all departments charged to the Customers Ledger controlling account if one is kept; and if not, the individual postings to the customers account is all that is necessary. DEPARTMENTAL ACCOUNTS In the preceding forms the method of obtaining all of the information neces sary to procure the results called for by a departmental cost system is ex plained up to the point of entering the amounts chargeable to the several departments in the general ledger. The name of these accounts and the num ber required must be determined by the one inaugurating the system. All the data relating to departmental accounts, as well as all other accounts, can be obtained by referring to the Classification of Accounts in Chapter XXVII. In this particular case the proper account and the method of closing each at the end of the inventory period is as follows: Raw Material All the charges to this account should be obtained from the Register of Ac counts Payable herein described, or from any other record now in use that will furnish the same information. The credits to this account should be taken from the Production Report explained in the beginning of this chapter, and the amounts entered each month. At the end of the year this account should be credited with the value of the material in the process of manufacture, ex clusive of labor. The method of closing this account is to take the difference between the two sides of the account, which is the theoretical inventory, and either increase it or decrease it to the amount of the actual inventory, charg ing the difference to indirect expenses, as shrinkage in materials, or crediting the amount of indirect expenses, if the theoretical inventory exceeds the actual inventory. DEPARTMENTAL COST SYSTEMS 267 Classification of Departments The term classification, kind of product, or department is used to express a classification of the various articles manufactured, and does not relate directly or indirectly to any operating department in the factory. The object is to show the profit as well as the amount of sales in these various branches of the business. For the information of those not familiar with accounting, it might be well to state that it is not possible to show profits on an operating department unless it is an independent factor in itself. The results called for in these various departments are obtained from the following sources. The labor chargeable to each department is obtained from the Analysis of the Pay Roll previously described, which is entered in the Ledger by means of a journal entry and credited to the pay roll account. The cost of material chargeable to these departments comes from the Production Report, which is also entered in the Journal and credited to the raw material account at the end of each month. At the end of the year, or of any inventory period when the books are closed, the indirect expenses, which means the general expenses relating to manufacturing exclusively, may be charged to the several depart ments, exclusive of raw materials, on the basis of the amount of labor charged to each department that is to say, divide the expenses by the labor and ascer tain the rate, and multiply the amount of labor charged to each department by this rate, and the result will show the amount of expense properly chargeable to that particular department. All of the accounts charged to these departments should be credited to the accounts styled "Indirect Factory Expenses/ which account will then balance, providing the distribution of the expense is accurate. The sales for each department should be posted at the end of the month from the Register of Sales to the credit of the proper department. The difference between the inventory at the beginning of the period and the end of the period, as shown in the inventory account, should be charged or credited to the proper department account that is to say, if the beginning inventory exceeds the end ing inventory, the difference should be charged to the department the inventory relates to; and if the reverse is the case, the amount should be credited to the department account and charged to the inventory account. The difference between the two sides of the account for the department will now show either the gross loss or the gross profit. The total amount of the selling expenses and administrative expenses, which means expenses which do not relate to manufacturing, should now be pro-rated over the several departments on the basis of the volume of business done in all departments at the cost price or debit side of the account. The total amount 268 FACTORY ORGANIZATION AND COSTS charged for selling expenses to the several departments should be credited to the account styled "Selling Expenses/ which should then balance. The same entry should be made for "Administrative Expenses/ which will then also balance. The difference between the two sides of the departmental accounts will now show the net profit of each department, which should be transferred to the regu lar Profit and Loss account, the total of which will represent the net profit of the business. Inventories The most approved method of treating Inventory Accounts in the Ledger is to charge the beginning inventory to an Inventory Account separate and distinct from the regular Merchandise or Department account, and when the next inven tory is taken merely increase or decrease the beginning inventory to correspond with the actual inventory taken at the end of the period, charging or crediting the difference to the Merchandise Account, or in this case to the several depart ment accounts. CHAPTER XXXVI SPECIAL ORDER SYSTEM ACCORDING TO THE PRODUCTIVE LABOR METHOD OF COST FINDING Conditions Governing the Application of Principles Involved Stock System Outlined General Outline of Systems Method of Ordering Material Reporting Material Received Order on Factory to Manufacturer Delivery of Material from Stock to Factory Time Reporting Pay Roll Finished Stock Factory Expenditures Billing System Returned Goods and Allowance Sales and Cost Cash Receipts and Expenditures. AN outline of a method of obtaining the cost of production by general classi fications has been stated in Chapter XXXV, dealing with this subject. Some of the forms and explanations relating to that system are similar, in some respects, to certain forms and remarks contained in the system outlined in this chapter, but only, of course, in a general way. As has already been seen, the system in Chapter XXXV does not deal with the cost of each article, but in this chapter a method is outlined of ascertaining the material cost and labor cost of each par ticular order and of applying the indirect expenses to the respective orders, thus showing the final cost of the product manufactured in complete detail, instead of according to a general classification. The term "Special Order" means orders that relate to goods chargeable to a particular customer or for goods to be carried in stock. In the event that a cus tomer orders several different articles at one time, and it is desired to ascertain the cost of each article so ordered, then a separate Production Order should be issued in each instance; but in the event that the order is of such a nature as to be unlikely of reproduction or re-order, then only one order should be issued for all of the articles specified in the customer s original order. The Special Order system can be, and frequently is, applied to factories manu facturing and carrying in stock a definite line which is produced continuously throughout the year, the order being used to regulate production and to facilitate the supervision of the work so ordered through the several operating depart ments of the factory. In all the explanations and forms that follow, it is to be understood that the remarks apply alike in both cases. The intelligent use of a Production Order in either instance mentioned will in effect bring about a condition of systematic operation, regulate production, result in prompt deliveries, and will tend to produce results of a character that are unobtainable in any other manner. A modern system of stock keeping, interlocked with the general books of 270 FACTORY ORGANIZATION AND COSTS account, is presented in this chapter and is based on actual figures no estimates being used in any of the calculations resulting in a self-balancing record. In presenting the several designs relating to office forms, no attempt has been made to treat with all of the forms relating to general office organization, but rather to confine the designs and explanations to records of a character neces sary for the operation of a self-balancing cost, stock, and accounting system. The methods herein presented are intended to illustrate the best known meth ods for intelligently and accurately compiling an interlocking record, so as to make it possible to ascertain the profits of the various departments, as well as the profits on each order or article, monthly, without taking an actual inventory. A general explanation relating to the method of operation is that the factory is charged with all expenditures relating to the cost of production, such as the inventory at the beginning of the period, purchases, labor, and all expenses in curred in the operation of the plant, not including selling or administrative ex penses. These figures being charged to the factory are necessarily included in the cost and charged to the particular orders; and the factory is credited at the end of the month with the total amount of goods actually sold during the month at the cost price shown on each order. The difference between the two sides of the Factory Account will represent the value at cost of the inventory of all mate rials finished, in process, and raw, and should agree with an actual inventory, item for item, at any period. But a slight difference may and unquestionably will occur, due to shrinkage in material. A complete separation or distinction is made between the two principal branches of the business that is, the manufacturing department and the sales department; the object of which is to place the burden of responsibility, which means expense, upon the department to which it relates. It is true in many instances that this responsibility exists in theory only, but even in such cases it is advisable and practical to make the distinction for the purpose of classification and compilation of expenses if for no other reason. The accounts in the General or Private Ledger should be kept so that a Profit and Loss statement and Balance Sheet may be prepared showing the financial status of the enterprise at the end of each month, in order that the management may be able to ascertain which department is weakest and where attention may be given to either restore or increase the efficiency of a particular department. PURCHASE REQUISITION (Form 1 A) This form does not relate directly to either the cost or stock keeping, but rather as an adjunct calculated to assist the purchasing agent, and is intended to sub- COMPLETE COST SYSTEMS 271 (Fonn 1 A) PURCHASE REQUISITION. DATE . QUANTITY ARTICLE DATE WANTED | ^ _ Signed: Approved: (Form 2 D) Original The A. B. C. Co., New York. No. octant: -Put this number on r Invoice Address PU RCHASE ORDER Terms ._.... . . _ - Ship via DATE WANTED DESCRIPTION QUANTITY RATE You are h described Note:-Sen ereby authorized to furnish the above articles , If you cannot, please advise us at once. The A. B.C. Co. d bill same day shipment is made. (purchasing agent) Standard Size f>K x 7% (Form 2 D) Duplicate The A. B. C. < New York. Name _ PURCHASE C .0., RDER. Ship No mportant:-Put this number on your Invoice via Address Terms... _. DATE WANTED DESCRIPTION QUANTITY RATE AMOUNT CHARGE TO You are hereby authorized to furnish the above articles described: if you cannotplease advise us at once. The A. B.C. C Note:-Send bill same day shipment is made. O. (purchasing agent) Standard Size 7}$ x 9 272 FACTORY ORGANIZATION AND COSTS stitute written requests in place of verbal statements. It is presented with the belief that it should constitute a part of a system of any well-regulated factory where the best results are desired, and in order to prevent misunderstanding and delays in connection with procuring prompt deliveries of raw materials. The form should be made out by the foreman of the operating department requiring the materials, or the stock clerk, and should be delivered to the purchas ing agent or to the person who has charge of ordering materials and supplies. Inasmuch as the form is simple in design and limited as to its purpose, which varies in each particular case, no further explanation is necessary at this point. Those desiring more complete information on this subject are referred to Chapter VII, relating to forms of this description. PURCHASE ORDER (Form 2D) The relation of the form last mentioned to this Purchase Order varies with the nature of the business. In some instances it is advisable to make out a sep arate Purchase Order for each Purchase Requisition received; while in other cases, where several kinds of products are purchased from the same concern, several requisitions can be entered on one purchase order to advantage, and in such instances the number of the Purchase Order should be entered on the Pur chase Requisition for information and record. Upon receipt of the Purchase Requisition, the purchasing agent or the one in charge should issue this Purchase Order in duplicate, or as many copies as seem expedient may be prepared, according to the nature of the business. The original should be sent to the individual or company from whom the goods are ordered, and at least one copy should be kept on file for the information of the one in charge of the buying. The other copies, if any are made, can be utilized in whatever manner would be productive of the best results. REPORT OF MATERIAL RECEIVED (Form 3E) The purpose of this form is to obtain an independent record or report from the receiving clerk or the individual receiving the goods, in order to obtain accu rate records for the Stock System, and at the same time to insure accurate counts or measures of materials and supplies purchased. This form should be made out in the factory from an actual inspection and count of the goods received, without reference to the Invoice or Purchase Order, which should never be in the posses sion of the individual filling out this report. This is important, as herein lies the COMPLETE COST SYSTEMS 273 (Form 3 E)Original REPORT OF MATERIAL RECEIVED Purchase Order No _^ No. Name _ _ _ - - _ DESCRIPTION QUANTITY Charges Department Account Received by Entered b^_ Standard Size 6>< x 6% (Form 3 TIT Duplicate F r REPORT OF MATERIAL RECEIVED urchase Order No. No. . Jame _ DESCRIPTION QUANTITY - PR - - - E CE RATE AMOUNT [ [Charges.- .Department- _ .-Account. -- Received by Entered by Standard Size, 6% x 8X only real safeguard on purchases and disbursements for the same, so far as being able to know, definitely at least, that the quantity paid for has been received. This form should be executed in duplicate and both copies should be sent to the office the original to the purchasing agent or the one in charge of the buy ing, and the duplicate to the one in charge of the stock records. The original is for the information necessary in following purchases and goods ordered upon which partial shipments have been made. In the lower section of the duplicate is shown the charges relating to transportation, which should be distributed over the purchase price or first cost and the result entered in the column headed "Rate," which means the final cost including transportation. The quantity of each article should then be multiplied by the rate, and the result entered in the column headed "amount." The items appearing in this record should then be posted to the Stock Card for raw materials in the column headed "Received," 274 FACTORY ORGANIZATION AND COSTS both as to quantity and value, and the rate should likewise be entered for refer ence. This report should, of course, be compared with the invoice as to quantity and price by the bookkeeper before any entries are made in the general books or the Stock Records. In the event of discrepancies steps should be taken to adjust the differences with the purchaser in the usual manner, but no entries should be made in either record on a disputed account except where the mate rial is used, in which case the Purchase Order and Receiving Report should gov ern the entry which means that the entry should be made for the quantity actually received and at the price at which the articles were ordered, unless there is some good reason to act otherwise. STOCK CARD RAW MATERIAL (Form 4B) (Form 1 B) STOCK CARD RAW MATERIAL Classif Maxim Minimi. Artie e _ _ Bin No cation No.. jm m _ _ RECEIVED DELIVERED BALANCE Standard Size 1x8 The manufacturer of to-day is becoming more and more acquainted with the value of a perpetual inventory and systems of stock keeping; and although much literature has been published and widely distributed on this subject, there is still a tendency to defer any action along the lines of installing such systems because of the fear that the detail said to be involved might not justify the expenditure incident to the installation of the system. The conditions existing in each par ticular case are so widely different that it is difficult to show just what the saving might be, admitting at the outset that some extra cost and time would be in volved in doing something that is not done at present. The direct bearing that the result would have, in saving in cost due to delays, theft of material, waste and defective work, is a matter that each individual will have to decide for him self. Nevertheless, the consensus of opinion favors the inauguration of such a system, providing a plant is in a condition to admit of it. Furthermore, it is not good business to carry thousands of dollars in stock without any safeguard against COMPLETE COST SYSTEMS 275 dishonesty or waste; and if the plant is in such shape that a system of this de scription is not practicable, it means in reality that heavy losses are almost cer tain to be of daily occurrence, due to this lack of organization. The Stock Card presented in this system is of a conventional type, and is so general in design as to be adaptable to almost any class of business. The infor mation called for under the caption "Received" should be obtained from the Report of Material Received, and should be posted daily. The columns under the caption "Delivered" relate to the material that has been used in the manu facturing departments, and should be posted from the Material Requisition described in another section of this chapter. The column headed "Balance" represents the difference between the two columns first mentioned, both as to quantity and value. These balances should be shown daily or after each change or entry, in order to indicate the condition of the stock on hand so as to regulate purchases. A separate card should be made out for each article on the same plan or prin ciple that a separate account would be kept with an individual or company, and the article charged with the amount received and credited with the amount de livered. In the upper right-hand section appear the words "Maximum" and "Minimum/ which relate to the maximum quantity of the article desired to be carried in stock as well as the minimum amount, the purpose being to prevent over-purchases or a shortage of material ordinarily necessary to carry in stock. Inasmuch as this system provides for a perpetual inventory and is calculated to establish a check or safeguard on stock, it is desirable to make a practice of verifying the book inventory from time to time by taking off a list of certain articles each day or week, and having the one in charge of the stock take an actual inventory of the material shown on the list for comparison with this stock record. Where discrepancies exist, the Stock Record should be adjusted to cor respond with the actual inventory on the date at which it was taken, providing, of course, that the discrepancy is small and apparently due to natural causes; otherwise an investigation should be made and the reason ascertained. By fol lowing this plan a more accurate inventory will appear in the records daily than can be taken at the end of the year when everything is inventoried at one time; and, furthermore, the effect on the employee will be productive of good results otherwise unobtainable. PRODUCTION ORDER AND COST SHEET (Form 5 N) The functions of a Production Order have already been explained in Chapter XXXV. In the present system the Production Order is made to serve as a Cost 276 FACTORY ORGANIZATION AND COSTS (Form 5 N) Original PRODUCTION ORDER AND COST SHEET _______________ . Department No... 19 QUANTITY DESCRIPTION DIAGRAM Date Wanted. _. ____ __ _ 19 You are here by authorized to manufacture tides as stated Complete.. _ __ 19 the above ar Signed (Superintendent) Standard Size 5}( x 8 (Form 5 X) Duplicate PRODUCTION ORDER AND COST SHEET Department No. ._ 19 QUANTITY DESCRIPTION DIAGRAM Date Comp Signe Wanted .19 19 1 ifou are hereby authorized to nanufacture the above articles as stated. lete d (Superintendent) MATERIAL LABOR PATTERN QUAN. DESCRIPTION RATE AMOUNT DATE WORKMAN MRS. RATE AMOUNT PARTICULARS RATE AMOUNT TOTAL DRAWINGS Total Material Total Labor Total Pattern Total Drawing Indirect TOTAL COST TOTAL LABOR TOTAL 4 Standard Size 8 x 10 Sheet also. The form is made in duplicate, the original or short copy being delivered to the factory, while the duplicate, provided with columns for cost- keeping purposes, remains in the office. All the information called for under the caption "Material" can be obtained from the Material Requisition, and should be posted directly to this order in the columns provided for that purpose in order that the total material cost of the order may be obtained. The time relating to labor that is chargeable to this order should be entered COMPLETE COST SYSTEMS 277 in the columns provided for that purpose, which are deemed sufficiently clear to render explanation unnecessary. The columns relating to Patterns and Draw ings are merely to suggest to the reader the proper method of entering charges on special orders for costs of this description. After the material and labor costs, as well as the cost of patterns and draw ings, have been ascertained, the charge for overhead or indirect expenses should be added. The items just mentioned added together will give the complete cost of the order, including all expenses relating to the cost of production. The method of arriving at the percentage of indirect expense to be added to each order is fully explained in this chapter under the caption "Statement of Factory Expenditures, Form 15 D," and more complete information describing all of the known methods of treating indirect expenses is given in detail in Chap ter IV, on that subject. For the immediate information of the reader, however, the indirect may be obtained in the following manner. The total indirect ex penses as shown in the Statement of Factory Expenditures, just referred to, is di vided by the direct labor or labor actually charged to orders, and the percentage that is obtained will necessarily represent the amount chargeable to each order- that is to say, by multiplying the amount of labor charged to each order by the rate of indirect expenses, the result will be the amount of the overhead or indirect expense charge; and if the calculations are correctly made, the total of all ex penses charged to each order added together will equal the entire amount of indirect expenses shown in the books. This system of cost finding is perhaps the most conventional of all systems in use, generally speaking, and is known as the Direct Labor or Productive Labor Method. The principal difference between this and other systems is merely in the manner of distributing indirect factory expenses. Both systems that is, the one explained in this chapter and the system mentioned in the next chapter are called Accurate Cost Systems, the word accurate being used to express a balan cing system; that is, a system the details of which can be verified or proven with the several accounts relating to costs in the general books. However, the cost of the same article, due to different methods of figuring, will vary materially accord ing to which system is used, although both systems are "Balancing" and can be verified with the general books. The manufacturer, therefore, should exercise careful judgment as to which method he adopts. MATERIAL REQUISITION (Form 6C) This form is made out originally by the foreman of the department requiring the materials or supplies specified, and in effect represents an order on the stock 278 FACTORY ORGANIZATION AND COSTS (Form 6 C) r , MATERIAL Article ^ REQUISITION No. Date Order No. Machine No. Process DESCRIPTION COST ARTICLE SIZE WEIGHT COUNT RATE AMOUNT Received by: A oproved by tStandard.Size.4-x6) clerk to deliver to the bearer the article called for and to charge the same to the order number or expense account specified. After the material has been delivered this form should be sent to the office, where the rate and amount or costs should be entered, the rate being taken from the stock card at the average cost of the article shown on the requisition, which average appears in the column headed "Balance" on the stock card. After the Requisition has been priced the amount should be entered in the column headed "Delivered" on the proper stock card, and the Balance of Stock changed or reduced by the amount delivered. This form also relates to the cost records just described, and the material should be charged to the order number indicated on the Production Order and Cost Record in the columns headed "Material." After this has been done the Material Requisitions should be filed according to order number for reference and record. It should be borne in mind that this form that is, the Requisition together with the Report of Material Received, constitutes the original entry for the stock system, and great care, therefore, should be taken to have these records complete. The receiving clerk is responsible for the amount received, and the foremen of the several departments should likewise be responsible for stock delivered to these departments. It follows, therefore, that the balance of stock on hand, as shown by these records, should agree with the actual inventory, natural shrinkage ex- cepted. TIME REPORT (Form 9 X) The utility of a form of this kind cannot be overestimated, when it is consid ered that one of the greatest losses in any business, from the management down, COMPLETE COST SYSTEMS 279 (Forra9X) N 9 Vi * f/ jf x ^ ?/ <\xn / ti i r^ ^ A i O ^ 4"i\ "^ TIME EMPLOYED COMMENCED Date Job No. MACHINE SHOP Workman No Boring Drilling Grinding Planing Time Allowed Tapping Chipping Facing Milling Roughing Premium Credit Thread ng Cutting Off Filing Mounting Shaping Foreman Turning Quantity_ Total Time Rate c^ is that of time. It would seem advisable, therefore, to make an effort at least to ascertain the amount of this loss, in order that some intelligent action may be taken to decrease or reduce it to a minimum. To some it may seem that a Time Report registered on a clock or stamped with a time stamp, showing actual time consumed, is impractical and drawing the line too fine. It is a fact, never theless, that cost calculations are usually based on individual statements said to be true but made out, generally, after the work has been done. Therefore this represents an estimate by a man who as a rule is not responsible and in no way interested in the costs. In this system the time should be stamped on a card of the employee, and the order or job number entered, as well as the machine number and workman s number. The operation upon which the workman is engaged should be checked, and all of the operations should, of course, be printed on the form, when it is originally designed according to the nature of the business. The time employed should also be stamped when the job is finished, which will give an accurate account of the time consumed on the order. The employee s rate should then be entered and the cost extended, which should be charged to the same order number as is shown on the Time Report, Production Order, and Cost Sheet under the caption "Labor." Where the time is not chargeable to any particular order, but relates to indirect labor or other expense items, the same remarks apply, ex cept that these items are not charged to orders but to indirect expenses, as is explained in the Pay Roll Book. After all of the postings to the Cost Record have been made, which should be done daily, the Time Reports should be entered in the pay roll, each day, and then filed according to order number or, if desired, according to clock num- COMPLETE COST SYSTEMS 281 her, until the week s pay has been made up, at which time it would be advisable to re-assort them according to order number. FACTORY PAY ROLL FORM (Form 10 K) All of the information called for in the several columns appearing in this design can be obtained from the Time Reports previously described. The pur pose of this form is to show the time of each employee daily for pay roll purposes, and at the same time to distribute the time at the end of the week in order to ascertain the amount chargeable to expense accounts, such as indirect labor, supervision, power, maintenance, etc., and in order to indicate the exact amount charged to orders, which should be entered in the column headed "Direct." All of these columns added together should equal the amount of each employee s pay, and the total of the pay roll should, of course, equal the distribution of the pay for all employees. At the end of the week after paying off, the total amount of this distribution should be charged to the several accounts shown at the head of the columns under the caption "Distribution," and the amount credited to pay roll, which account should be charged through the Cash Book with the amount of the check. If desired, however, this Journal entry or credit to the Pay Roll account can be made at the end of the month for all of the pay rolls together, which would reduce the number of entries. The result, of course, will be the same, and will balance the Pay Roll account. The object in keeping the Pay Roll account, instead of entering the distribution in the Cash Book, is to show the amount of the pay roll from week to week, month to month, etc., on one account. The Pay Roll form presented herewith is executed in duplicate that is, a short copy is intended to be used where the employees are seldom changed, and is for the purpose of preventing the necessity of rewriting the names each week. The second, or duplicate sheet, is the actual Pay Roll, and a separate sheet is used each week; while the first sheet only represents a list of the employees, the names not appearing on the second copy. If desired, only the second copy may be used and the names rewritten weekly. STOCK CARD FINISHED PRODUCT (Form 12 B) The functions of this card are identical with the Stock Card for Raw Mate rial, described in this chapter, but the information is obtained from a different source. For the information of the reader it might be well to state that this form is intended for articles carried in stock, and does not relate directly or indi- 282 FACTORY ORGANIZATION AND COSTS (Form 12 B) STOCK CARD FINISHED PRODUCT Classificatio Maximum_ Art cle .Minimum n No DATE PRODUCTION SHIPMENTS BALANCE QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT QUANTITY RATE AMOUNT Standard Size 1x6 rectly to goods that are manufactured on special order and shipped immediately for a particular customer. A separate card should be used for each article manufactured and carried in stock. The information called for under the caption "Production" should be taken from the Production Order and Cost Sheet as each order is completed, the Cost Sheet being filed in a separate file for finished orders. The Sales Sheet or record of goods actually sold should be posted to this card under the caption "Shipments" in the columns provided for that purpose, the posting being done daily. The column headed "Balance" represents the difference between the first two columns and shows the balance of stock on hand as well as the quantity and cost and the average cost per unit or rate. In this respect the reader s attention is directed to the fact that all of the columns headed "Amounts" represent the cost and not the selling price, which has nothing to do with the stock records. Where it is desired to show the profit on each article in the finished stock record by indicating the selling price as well as the cost price of goods sold, forms are shown in Chapter XVI, representing various designs of stock records. This inven tory or stock record may be verified from time to time in the same manner that the Raw Material records are verified. STATEMENT OF FACTORY EXPENDITURES (Form 15 D) The results obtained from the forms presented in this system, if properly en tered in the general books, can be expressed in a form similar to this one, which will show the operations of the factory as well as the inventory at the end of the period. The method of preparing this statement is identical with that of prepar ing a trial balance, but the accounts are grouped so as to show the amount of COMPLETE COST SYSTEMS 283 (Form 15 D) STATEMENT OF FACTORY EXPENDITURES ACCOUNT CURRENT MONTH CURRENT FISCAL YEAR TO DATE AMOUNT TOTAL AMOUNT TOTAL | Material Direct Labor Indirect Expense: Labor Supervision Supplies Light, Heat and Power Maintenance Insurance Taxes Telegraph and Telephone Printing, Postage and Stationery Salaries of Factory Clerks Incidentals Depreciation Total Factory Expenditures Inventory (Beginning of Period) Total Cost of goods sold Inventory (End of Period) Standard Size 8X * direct labor and material purchased, as well as the total indirect expenses in analytical form for both the current month and the fiscal year to date that is to say, for two or three months, as the case might be, depending upon the time elapsed since the beginning of the year. The indirect expenses for the month, as well as for the year to date, should be divided by the direct labor for the respective period, in order to ascertain the per cent, of indirect expenses to direct labor, so as to be able to charge the proper burden to each order as previously explained. The total expenditures that is, material, direct labor, and indirect expenses, added to the inventory at the beginning of the period, less the cost of the goods sold during the period, will equal the value of the inventory at the end of the period. All the accounts appearing in this schedule should be kept in the General Ledger, unless it is not desired to keep accounts in analytical form as listed under indirect expenses in this schedule. In such a case the three accounts appearing at the beginning of the schedule, or one account called "Factory," would answer the purpose; but it would be necessary to dissect or analyze this account item for item if a statement such as is herein presented is desired. Assuming that the accounts will be kept according to this schedule, another account not listed should be opened in the Ledger namely, "Factory," and all of the accounts shown in 284 FACTORY ORGANIZATION AND COSTS this schedule should be transferred to this account at the time the books are closed. The inventory at the beginning of the period is carried in the Factory account, and no other inventory of any description appears in any of the other accounts. The cost of goods sold during the month should be credited to the Factory ac count, and the difference between the beginning inventory and all of the goods purchased and expenses incurred during the period as shown in this schedule, will represent the inventory at the end of the period if the costs are correct. This schedule does not provide for showing the expenses departmentally, or any of the percentages relating to these departments, as this system is intended for the use of a small plant; but other designs showing this information in vari ous forms will be found in Chapter XIX, explaining forms of this character. BILLING SYSTEM (Form 17 A) As the basis of this system is the cost of sales, which means the cost of goods sold, this form or one similar in design is absolutely necessary; and from experi ence gained with all kinds of conditions in factories and costs this has been found the most practical of all. In this system the form is executed in triplicate, but as many copies as de sired may be made out. The original constitutes the bill and is sent to the cus tomer. The triplicate represents the Sales Sheet, and differs from the original only in the respect that the cost price of the goods sold is entered in the column provided for that purpose, so as to obtain the necessary information to show the profit and inventory according to the plan outlined. The duplicate is sent to the shipping clerk. The cost price can be obtained from one of two sources from the Production Order and Cost Sheet in the case of special orders, and from the Stock Card for Finished Products where the goods sold are taken out of stock. The Sales Sheet should be numbered consecutively and registered in the Register of Sales and Costs described later. CREDIT CERTIFICATES (Form ISA) This form is the reverse of the billing system just described, and its purpose is to issue a credit memorandum to customers for goods returned. The object of using the duplicate is to procure a copy of the certificate sent to the customer, and to provide for entering the cost price and the selling price of goods returned for the information of the individual keeping the Stock Record of Finished Prod uct; and also to deduct the amount of returns from the proper sales accounts to be kept according to this system. 285 ( Form 17 A ) Original Sold to. Address. A. B. CO. MANUFACTURERS OF STOVES, RANGES AND FURNACES New York. DESCRIPTION SELLING PRICE CLASSIFICATION RATE AMOUNT No. of Pkgs.. Ship. Wt Frt.Rate Pkg. Chg. _ Shipped to ._ Via . B/\- in name of. Date Shipped . By Frt.- By Exp. . Prepaid. Standard Size 8 x 8 (Form 17 A) Duplicate Standard Size 6& x.8 280 FACTORY ORGANIZATION AND COSTS (Form 17 A) Triplicate COST PRICE Standard Size 8 z 9V (Form 18 A)Orignal THE A.B.C. CO. Business NEW YORK Salesman M Favor of ._. 9 RE _ DI T ? ER _T^L9 A J E Address ARTICLE CREDIT ALLOWED DESCRIPTION [ QUANTITY RATE II AMOUNT Approved: Correct: Standard Size 7 x fft (form 18 A) Duplicate Business THE A-B. C. CO. Date Salesman NEW YORK No Favor of CREDIT CERTIFICATE Address ARTICLE ~ SELLING PRICE COST PRICE DESCRIPTION 1 QUANTITY I RATE | AMOUNT | RATE ] AMOUNT Approved: Correct: Standard Size 7 x 10 COMPLETE COST SYSTEMS 287 This form should not be issued until a receiving report has been received showing that the goods have actually been returned; and in that case the clerk in charge of the Finished Stock records should add the amount to the Stock Card for the article returned, either in the production column in black ink, or as a de duction in red ink in the shipment column, and increasing the balance in either case. The duplicate Credit Certificate should be entered in the back part of the Register of Sales and Costs; and the total returns and allowances for the month, both at selling price and cost price, should be deducted from the sales before posting to the Ledger at the end of the month. REGISTER OF SALES AND COSTS i For the Month of ..19...J SALES COST OF SALES %. DATE SALES DATE SHEET NO. NAME TERMS SALESMAN ! FOLIO ,*C"MU A B C > V B C FACTORY AMOUNT < F - Standard Size It x 19 The object of this form is to register the Sales Sheet previously described, in order to classify the sales at the selling price and cost price for the month. The total amount of the sales should be entered in the "Accounts Receivable" column and distributed in the other columns according to the classification of sales. The cost price or amount of the bill should be entered in the columns under the general caption "Cost of Sales," according to the kind of product, in the columns provided for that purpose, and the total entered in the column headed "Factory" the "Factory" column representing the total cost of the order or sales. The difference between this column and the column headed "Accounts Receivable" should be entered in the columns headed "Gross Profit," which shows the profit on each order as well as the total profit for the month. 288 FACTORY ORGANIZATION AND COSTS At the end of the month the books should be added and all totals entered in ink, after the distribution has been proved with the total column and the profit column. The result should be posted to the General Ledger, to the credit of the proper department, at the selling price, and the cost price should be charged to the proper departments and credited to the factory account. It is to be under stood, of course, that the individual sales at the selling price are to be debited to the customer. The column headed "Profit" should not be posted. REGISTER OF ACCOUNTS PAYABLE (Form 21 C) For explanation see "Departmental System," Chapter XXXV. Also explanation of "Forms," Chapter XXIV. REGISTER OF RECEIPTS AND DISBURSEMENTS (Form 23 B) In this design is presented a form of Cash Book that is entirely new to most business men and bookkeepers, for the reason that it is not in what might be called general use, but has been used with great success in many instances and is in reality a conventional form. On the left-hand side of the book, under the caption "Cash Received," a column is provided for all amounts received from customers, and a miscellaneous column in which all other entries can be made. If it is desired, various special columns may be added under this general caption "Gross Amount," according to the requirements of the particular business. The columns in question, how ever, relate to the gross amount covered by the remittance, and not necessarily the amount of the check. For instance, a customer pays a bill amounting to $100.00, but first deducts 5 per cent., or $5.00, for discount, the check being for $95.00. This would be entered in the Customer s Ledger column as $100.00, and in the discount and allowance column the $5.00 would be entered, and the bal ance of $95.00 entered in the net cash column. At the end of the day, when the deposit is made up, the net cash column would be footed and the amount of the deposit entered in the column headed "Deposits" in the proper Bank column, if more than one bank account is kept. The same explanation will apply to the miscellaneous column that is given in the case of the Customer s Ledger column. The object of keeping a separate ledger column for the Customer s Ledger is to make the General Ledger self-balancing by having an account in the General Ledger with the Customer s Ledger, which can be done by charging the balance due from customers to this account at the time the account is started, and sub- COMPLETE COST SYSTEMS 289 Form No. 23 B. REGISTER OF EECEIPTS & DISBURSEMENTS CASH KECE1VED BANK ACCOUNTS Date Received from ?r Gross Amouuts Deductions Net Cash First National Bank C J Mi,.ll.o... W^M Interest Amount DepoelU Cheque No. . Standard Size 14 i H Form No. 23 B. For the month of. - - - .18 CASH D1SBUESEMENT8 Date Paid To Ledger Folio Gross Amounts Deductions Udjer l-.m:,,- Ui>cell.iieou> DilcoQDt StauJar.l Size 14 j[ 14 290 FACTORY ORGANIZATION AND COSTS sequently charging all sales and crediting all cash received from customers to this account, as provided for in this Cash Book. The same explanation, relative to the "Cash Received" column, applies to all of the headings appearing on the right-hand side of the book under the caption "Cash Disbursements," as in the former case; but each check drawn is entered in the check column in the proper Bank section, if more than one bank account is kept, the gross amount being extended as well as any deduction in the columns provided for that purpose. The gross amounts added together, less the deduc tions, should equal the amount of the check column, or actual cash paid out. All posting to ledgers should be made in the usual manner. The reader will observe that this Cash Book is not designed for currency payments, all such amounts being handled through a petty cash fund, by drawing a check and charg ing the same to petty cash, reimbursing this fund from time to time for the amount actually paid out, which will then increase the petty cash balance to the original amount for which the first check was drawn. This is the best method of handling currency payments and the general cash as well, and is undoubtedly the only safe method of handling a record of this description. See Chapter XXIX. INVENTORY OF MATERIAL (Form 45 B) STATEMENT OF PROFIT AND LOSS (Form 53 B) See Chapters XXXI and XXXVII. BALANCE SHEET (Form 55 A) See Chapters XXXI and XXXVII. CHAPTER XXXVII SPECIAL ORDER SYSTEM ACCORDING TO THE PROCESS OR MACHINE COST METHOD OF COST FINDING Conditions Governing Use Basic Principles Involved Distribution of Power Costs Machine Costs per Hour Distribution of Indirect Treatment of Depreciation, Repairs, Insurance Interest on Investment Floor Space and Machine Charges Application of Machine Rate to Orders Use of Material Requisitions and Time Reports Pay Roll Process Cost Records Accuracy and Simplicity Combined Preparation of Profit and Loss Statements and Balance Sheet. THE essential difference between this system and the one described in Chapter XXXVI consists of entirely reversing the basis of cost finding by charging all expenditures, except material, against a particular machine or group of machines of the same kind, or against a particular operation or process. The object is to obtain the total expense chargeable to the machines or processes, as well as the actual working hours of the machine or process during the month, so that the actual process cost per hour can be obtained. Where it is possible to inaugurate such a system, more accurate results will be procured than by the method described in the previous chapter, because in this system it is possible to charge a greater part of the general or overhead expenses against the process than by the other method, which necessarily reduces the amount of the indirect expense to be pro-rated on a more or less arbitrary basis over the production. In this system such expenses relating to manufacturing as cannot be identified with a particular process are distributed among the various machines or operations on the basis of the amount of labor charged to each, or according to the number of hours; but in any case the amount of this expense is so reduced by this principle of cost finding as to be unimportant. As an illustration of the expenses that are charged or included as indirect according to the former method, and which according to this method become direct charges to the process and product, may be mentioned such items as power, maintenance, depreciation, supplies, insurance, rent or the equivalent. As to the manner of identifying the items mentioned with the process, this will be explained later, it being desired at this point to merely show the difference in principle be tween the two methods. The reader might infer, since many of the forms used in the two systems are similar in design, that the systems in both cases were also the same. In this respect it might be well to say that the same forms were used as far as possible in order to more clearly illustrate the actual difference of the 292 FACTORY ORGANIZATION AND COSTS two in reality; and many other designs could have been used, as the reader will observe from the collection of forms in another part of this work. By referring to the forms shown in both cases, it will be seen that the Produc tion Order and Cost Sheet and Pay Roll are considerably different in design, and that in the former system the Process Cost record did not appear, nor did the record showing power cost and distribution. Otherwise all of the forms used in the two systems are almost identical, and were purposely made so. In this system a better description will be found of how the bookkeeping forms are to be used and the several financial statements prepared; but the other forms, used in the previous system, will not be explained as fully as here tofore, as it would mean an unnecessary duplication of words. Remarks will be made only where the form is affected by the change in principle. The reader s attention is called to the fact that this system is not presented with the intention of treating with any particular kind of business, but merely to set forth a principle and exhibit designs purposely made general in character, so that these can be applied with slight changes to any line of business where these conditions exist and consequently where this principle can be used. It is not the purpose of this work to describe each line of business, as that would be practically impossible under the circumstances; nor is it intended to illustrate any particular kind of business, as that, on the other hand, would tend to con fuse rather than enlighten. For this reason the condition involved under which certain principles may be applied, regardless of the technique or details of any one line of business, is the basis of this work. And inasmuch as a large variety of forms for each particular purpose will be found herein, it should not be difficult for any one to select from these designs those most suited to the details of the particular case, making such changes as to headings and increasing or reducing the number of columns in these forms at the time the system is devised. PURCHASE REQUISITION (Form 1 A) PURCHASE ORDER (Form 2 B) REPORT OF MATERIAL RECEIVED (Form 3 E) STOCK CARD RAW MATERIAL (Form 4 B) For instructions as to the manner of operating these forms in connection with obtaining the results called for by this system, the reader is referred to the ex- COMPLETE COST SYSTEMS 293 planation given in the preceding system in Chapter XXXVI, and also the de scription of these various forms appearing in Chapters VII, VIII, IX, and X, respectively. PRODUCTION ORDER AND COST SHEET (Fornv o P) (Form 5 P) Original To Date Completed PRODUCTION ORDER & COSTS Date Issued.. Date Wanted DESCRIPTION Staudard Sire 5^ x 8>i (Form 5 P) ftuplieats To PRODUCTION ORDER AND COSTS Date |ssued Date Completed Date Wanted DESCRIPTION DATE OPERATIONS NO.1 NO.2 NO. 3 NO.4 N0.5 NO.6 NO.7 NO. 8 NO.9 NO. 10 TOTAL TIME COST PER HOUR PROCESS COST DATE MATERIAL USED SUMMARY DESCRIPTION QUANTITY PRICE AMOUNT ANALYSIS AMOUNT Material Process Cost Total Cost Quantity Price Selling Price Gross Profit Stamlard Size As many copies as may be required can be made at the time this form is exe cuted. In this instance only two forms will be used a short copy showing the kind of goods to be manufactured, without showing any of the information ap pearing on the bottom of the other form. The short copy should be sent to the 294 FACTORY ORGANIZATION AND COSTS foreman of the department in which the goods are to be manufactured for his information, and also that the order number may be known to the employees engaged on this work, to facilitate reporting time. The duplicate should remain in the office, and is intended for the purpose of ascertaining the time in hours chargeable to this order according to each opera tion or process. The posting should be made daily from the time reports of the employees engaged on this order, and the time reports must, of course, show not only the order number but the operation as well. It makes no difference which employee works on this order or what his rate may be, as this has nothing to do with a cost system of this character. All that is necessary is to enter the num ber of hours for each operation or machine. At the end of the month the total time appearing in each operation column should be ascertained, and the process or machine rate entered. This can be obtained from the Process or Machine Cost record, to be explained later. The total number of hours, multiplied by the rate per hour of each operation, will give the process or machine cost chargeable to the order, according to operation or machine. The total of these operations added together will give the total cost of the operations chargeable to this order, which will include indirect or overhead expenses, as will also be explained under the caption "Process Cost Record " (Form 13 L) in this system. The cost of the material used should be entered on this order from the Mate rial Requisitions in the same manner as in the preceding system. The total cost of this material should be entered on the right of the form under the caption "Summary," and the total process or machine cost shown in the upper section of the form, added to this, gives the final cost of the order without any addition or subtraction for expenses or any other item. This Cost record should then be transferred to a file for completed orders, after having been entered on the Sales Sheet in the "Cost" column, or else in the Fin ished Stock record, if the article is manufactured for stock. This transfer is ex plained more fully in the previous system. MATERIAL REQUISITION (Form 6C) All of the remarks relating to this form as explained in the preceding system, together with the explanatory matter appearing in Chapter XII on this subject, apply in this case also, except that certain supplies chargeable to a process or machine are taken from this requisition, which is summarized according to pro cess or machine at the end of each month, and entered in the Process or Machine Cost records as supplies, according to the operation chargeable. COMPLETE COST SYSTEMS 295 TIME REPORT (Form 9 X) (Form 9 X) For a full explanation of this form the reader is referred to the system just described, as the same form is used in this case. Attention is called, however, to the fact that in this instance the time is charged to the order only so far as hours and minutes are concerned, no amounts or labor costs appearing on the Cost Sheet for separate orders. The labor cost shown by these Time Cards is summar ized according to process or machine number. Where several machines of the same kind are in operation they may be grouped together, so far as costs are concerned, and the total labor cost shown by these Time Reports as chargeable to a process or machine entered at the end of the week or month on the Machine or Process Cost record, charging the amount to the proper machine number or group of machines or processes opposite labor. The total number of operating hours shown by all of these Time Reports repre sents the same number of hours and minutes charged, separately, to each order. After this has been done the Time Reports may be filed in any way that is found most convenient, the entries having been made, of course, in the Pay Roll book daily, so as to ascertain the amount of wages due to each employee. This distri bution of time, however, must be accurate, as the total amount charged in these cost records against the several operations must correspond with the total amount of the Pay Roll for the week or month, which is entered in the distribution column showing the direct or productive labor. This is important if accurate results are to be obtained and a balancing system inaugurated. COMPLETE COST SYSTEMS 297 PAY ROLL (Form 10 K) The same general remarks relating to other systems apply also to this, except as to results. If it were possible to have a record of time kept along the lines laid down in the system referred to, and kept also according to the principles outlined in this system, it would be seen at once that the amount of direct labor would increase in this system, whereas the indirect labor as well as the main tenance would decrease. This is because more labor can be charged against a machine or process than can be charged to the product direct; and herein, as well as in other respects, this system, where it is practical to install it, is to be preferred to the other. It means more accurate results. As has already been stated, the direct labor appearing in this Pay Roll should be verified with the Machine and Process Cost records, so far as direct labor is concerned, in order to prove the accuracy of the distribution. STOCK CARD FINISHED PRODUCT (Form 12 B) The operations of this form are fully explained in the preceding system and also in Chapter XVI, where several different designs of the form is presented. Complete information regarding it can be obtained by referring to these two chapters. PROCESS COST RECORDS (Form 13 L) It is by this design that the basis of this Cost System is illustrated, and right here is where the principal difference in this and other systems lies. By follow ing these remarks carefully it will be easy to understand where and how this system will produce more accurate results from a cost distribution standpoint than any other method known. As in the case of other forms this design admits of change, not only as to the arrangement of the columns and analysis of the cost so far as the names used to describe the costs are concerned, but also as to an entire rearrangement of the information contained in the form; but it must be kept in mind, however, that the same results must be recorded that is, the operating hours and the various machine or process costs. To illustrate what is meant, take the present form, which provides for the distribution of time and cost on the side of the form and the operations at the top of the various columns. By leaving the columns last mentioned blank, and using a separate card for each operation or machine, the columns may be headed according to days, weeks, or months without changing in any way the present 298 FACTORY ORGANIZATION AND COSTS (Form 13 U PROCES .___-. _.Deoa S CARD REC tment-For th< ;ORD 1 No M achine No Opera tion... DISTRIBUTION Time Begun Finished Hours ; Idle Machine Costs Day Work Piece Work Supplies Power ; Floor Space Maintenance License Depreciation Insurance Indirect Expenses TOTAL Cost per Hour : 1 1 Standard Size 6 ruling and without affecting the results to be accomplished by the form. On the other hand, the form may be re-designed and the distribution of the time and cost entered at the top of the columns or form and the operations entered on the side, and the form used as a daily, weekly, or monthly record for all operations in the plant. Where this is done and the form used for recording daily transac tions, naturally a separate record either in the form of a sheet or card must be used each day and summarized according to weeks and months, and so on. The information to be entered on this record is obtainable from three sources that is to say, from the Time Reports, so far as hours and labor cost are concerned ; from the Material Requisitions, for supplies used; and from the general books so far as all of the other items are concerned, except power. The charges or costs first mentioned that is, the labor should be obtained by sorting all the Time Reports relating to the same operation and ascertaining the total labor chargeable to the operation, as well as the number of operating hours and minutes charged to the various order numbers shown on the Time Report. After this has been done, then the supplies chargeable to each operation, as shown by the Material Requisition, should be ascertained and entered against the operation chargeable. The next element of cost relates to power, where the operation is performed on COMPLETE COST SYSTEMS 299 a machine. Without discussing this fully, as a detailed explanation is given under the caption "Power Cost and Distribution," it will be sufficient to say at this time that the rate per horse-power hour, and not horse-power, shown on the form just mentioned, should be multiplied by the total operating hours of the machine and the amount entered as the cost of power. It will be seen later that it would be manifestly unfair to distribute power cost against the machine merely on the basis of horse-power, as the machine might not, and very likely would not, be operating full time. The next item relates to floor space. This is obtained from the general books in the following manner. The total floor space of the plant should be ascertained by departments and should be reduced to square feet. Then the amount of rent paid or the equivalent to rent, which will be explained below, should be divided by the total number of square feet and the rate ascertained per square foot. The space occupied by each machine or process should be calculated and this space or number of square feet multiplied by the cost per square foot will give the amount to be charged in this form as "Floor Space." Where the property and plant is owned by the individual or company operating the plant, the amount of rental equivalent should be ascertained by taking into consideration interest, taxes, maintenance of buildings, insurance on buildings, the cost of ground maintenance, and any other items that may relate to the cost of maintaining the grounds and buildings. These items are the ones previously referred to as Rental Equivalents. The next item appearing is that of maintenance; and this cost is obtained in part from the Time Reports and in part from any material used from the requisi tions just mentioned, the total being entered against the operation which the re pairs relate to. The item "License" can be obtained from the general books, and represents charges made in some States and cities for the privilege of operating certain kinds of machines. Where this applies it should, of course, be charged to the machine. The depreciation appearing in this form is taken from a regular schedule after it has been calculated, and the same amount may be entered each month, as the total of all of these charges to the operations for depreciation will appear in the general books. The method of treating depreciation can be found in Chapter IV, but it might be well to call attention here to the fact that it is sometimes well to estimate the life of a particular machine, based on running full time. Then ascertain the amount of the depreciation per hour and charge the machine at this rate, for the actual working hour. Where this is done, of course, the amount of deprecia tion charged to the machine will be different each month, as will also the total amount of depreciation appearing in the general books. More accurate results will be obtained, however, since it must be admitted that depreciation is based on 300 FACTORY ORGANIZATION AND COSTS the number of hours the machine actually works. This does not mean that a machine may not depreciate in value and in fact becomes worthless, due, perhaps, to modern inventions, but as the term is generally understood it does apply. The method of figuring the insurance charged to the machine is based on the average rate charged by the various insurance companies, and can be taken from the insurance policies, a schedule being prepared which will answer until the insurance rate is changed. The total of the insurance so charged to the machines or operations must, of course, correspond with the entries made in the general books, and is credited to either a reserve fund or to deferred charges. That is, if the insurance is paid in advance, it should be carried as a deferred charge in the general books; and if the reverse is the case, it should be credited to the reserve fund for insurance. When the insurance is paid later, the reserve fund should be charged by this amount. The next item appearing is that of Indirect Expenses, which can also be ob tained from the general books by dividing the indirect expenses as there shown by the total direct labor also shown. The labor charged to each machine or pro cess is then multiplied by the per cent, thus obtained, and the amount entered against the operation or machine; or the total indirect expenses may be divided by the machine hours and the rate per hour ascertained, which, multiplied by the hours charged to each machine or operation, will give the amount chargeable to the machine or operation. The conditions existing in each plant will necessarily regulate the choice of the method used. For a full analysis of this subject see Chapter IV, explaining several different methods of handling the expenses of this nature. From the foregoing it will be seen that all of the cost relating to manufacturing, except cost of material, has been charged against each operation or machine, and that the total number of hours also appears. The next step, of course, is to ascer tain the cost per hour, which is only a matter of division. This being obtained, the manufacturer has a record of the actual cost of operating each machine or each process in his plant; and with this information all that is necessary is to apply this rate to the various orders passing through any or all of these operations by keeping a record of the length oT time each order has consumed in any particular operation, and by multiplying the number of hours shown by the rate per hour, the process or machine cost will necessarily be determined, which, as has already been shown, includes the indirect expenses. This system provides for this information being recorded on the Production Order and Cost Record described herein; and inasmuch as the number of hours charged to the various orders passing through these operations during the month is the same as appears on this form, in total, for the several operations, it follows COMPLETE COST SYSTEMS 301 that, if the number of hours charged with these orders is multiplied by the rate, the total machine or process cost is bound to be distributed among these orders, if the work is accurately done. POWER COST AND DISTRIBUTION (Form 13M) PROCESS COSTS & DISTRIBUTION For the month of 19- ANALYSIS COST DISTRIBUTION OEPT. HORSE RUNNING H. P. || POWER POWER TIME HOURS COST Rental Charge Machine No. 1 A Depreciation Machine No. 2 A License Machine No. 3 A Inspection Machine No. 4 B Insurance Etc. C Fuel etc. Water Repairs Oil, Waste, etc. Engineer Firemen Incidental* TOTAL Horse-Power Hours Horse-Power Distributed Horse-Power Developed Horse-Power Loss and Transm ssion Cost per Horse-Power Hour Standard Size Ski * 6)4 As previously shown, the power cost is distributed according to this system among the operating machines on a basis of the cost of a horse-power hour. The method of arriving at this cost is substantially the same as in the case of the ma chine or process cost that is to say, the rental charge, depreciation, insurance, and license, together with the other items appearing on this form under the caption "Analysis," are obtained from the same sources and in the same manner as the items of cost relating to machines and processes. The total of this cost is divided by the total horse-power hours, or the number of hours the machines are in operation, multiplied by the horse-power of each machine, which gives the horse-power hours of each machine and the total horse-power hours of the power distributed or utilized. This unit rate or horse-power cost per hour should be multiplied by the total horse-power hours of each machine, and the amount ex tended in the column headed "Power Cost." The total of this column should 302 FACTORY ORGANIZATION AND COSTS equal the total shown in the column headed "Cost," relating to the analysis of power cost. BILLING SYSTEM (Form 17 A) CREDIT CERTIFICATE (Form 18 A) REGISTER OF SALES AND COST (Form 19 A) REGISTER OF RECEIPTS AND DISBURSEMENTS (Form 23 B) In order to save space, and because these forms have already been explained, not only in the preceding system, but also in that section of the work relating to forms (Chapters XXI, XXII, and XXVI), it is not deemed necessary to give any further explanation in this chapter. REGISTER OF ACCOUNTS PAYABLE (Form 21 C) For explanation of this form, see "Departmental System," Chapter XXXV, the first system explained, and Chapter XXIV, on "Forms." INVENTORY OF MATERIAL (Form 45 B) For an explanation of this form, see Chapter XXIX. STATEMENT OF PROFIT AND LOSS (Form 53 B) A statement of this kind must naturally be prepared from the information contained in the several accounts kept in the Ledgers, and at this point it might be well to state that all of the postings in the Ledger should be made from the Register of Accounts Payable, Cash Book, Register of Sales and Costs, and the Journal, according to a suitable classification of accounts. The accounts that would affect a statement of this kind consist of the various sales accounts or sales departments, in which would be entered on the credit side the sales at the selling price, and on the debit side the cost of the goods sold for the same period, which information, as has already been explained, will be obtained by posting from the Register of Sales and Costs. COMPLETE COST SYSTEMS 303 (Form 53 B; |~~ STATEMENT OF PROFIT AND LOSS Dated ANALYSIS DEPT. A DEPT. B DEPT. C DEPT. DEPT, E DEPT. F DEPT. G DEPT. H DEPT. J TOTAL Sales Cost of Sales Gross Profit Expenses: Selling Administrative Total Net Profit from Operat g All other Income and Expenditures NET PROFIT FROM AIL SOURCES Standard Size 13 X 13 Therefore, in connection with the preparation of this statement, it will be observed that three of the elements already appear in this account that is, the sales at the selling price, the cost price, and the balance or difference representing the gross profit on goods sold in each of the departments the business may be divided into. The other information relates to the selling expenses and adminis trative expenses of conducting the business, which are obtained by posting from the Register of Accounts Payable to the Ledger such items as relate to expendi tures of this nature, and also any other expenses that may appear in either the Cash Book or the Journal chargeable to these particular accounts. If these ac counts are divided that is to say, several selling expense accounts kept and several administrative accounts opened then the sub-accounts should be closed into the general accounts and the total of each of the two main expense accounts pro-rated or distributed among the Sales Accounts or Sales Departments on the basis of the volume of business done at the cost price. After this transfer has been made, each department will show the amount of selling expenses as well as the amount of administrative expenses charged to it, and the department account will then indicate the net profit on this line of goods. Thus it is seen that the other two elements called for in the statement can now be entered and the net profit from operating shown. All of the balances COMPLETE COST SYSTEMS 305 shown in the Department account, which means the net profit, should now be transferred to the General Profit and Loss account, and these accounts that is, the department accounts ruled off. If there are any other items of profit of a miscellaneous character entering in the Profit and Loss account, they may be included in the statement as miscellaneous income and added to the net profit from operating, which will then show the profit from all sources. The net result shown by this statement should, of course, correspond with the amount appear ing in the balance sheet next to be mentioned. COMPARATIVE BALANCE SHEET (Form 55 A) The only material difference between this form and the Trial Balance is that the Balance Sheet is a statement of assets and liabilities after closing the books, and does not include any expense accounts or any other items relating to profit and loss except the balance of the profit and loss account in total. Consequently, the statement of profit and loss, or the Profit and Loss account must first be completed before this statement is made out. The information is all obtained from the General Ledger, if controlling accounts are contained therein, and if not the amounts called for relative to Accounts Receivable and Accounts Payable can be taken from a schedule showing the balances of amounts due from cus tomers and amounts due creditors respectively. In other words, after the Profit and Loss account has been made up, this statement can be prepared by entering the balance of each account in the column headed " Current Month ; and if it is desired to show the increase or decrease between the current month and the pre ceding month which means the changes in the accounts between these two periods then the increase or decrease should be entered in the column provided for that purpose with black ink in the former instance, and with red in the latter. This can be done by taking the balance of the account at the beginning of the month and at the end of the month, and ascertaining by subtraction the net increase or decrease for the period. The object of classifying the accounts according to property, deferred charges, current assets, etc., is to show the total amount of each class of assets as an aid to the management in determining the true status or strength of the enterprise from a financial standpoint. The form in itself is regarded as comprehensive and requiring no further explanation. CHAPTER XXXVIII PRODUCT SYSTEM ACCORDING TO THE PRODUCTIVE LABOR METHOD OF COST FINDING General Outline Various Functions of Material Requisitions Material Delivered Combination Day and Piece Work Analysis of Pay Roll by Department Division of Pay Roll when the Month Ends in the Middle of the Week Standard Cost Sheet; Illustration of Use Illustration of Indirect on the Cost Sheet Relation of Cost Sheet to Finished Product Detailed Production Report Stock Record for Finished Product showing Orders Received, Unfilled Orders, Sales, Costs, and Profits Method of Handling Defective Work Analysis of Factory Expenditures The Use of the Operating Ledger Distinction between Factory and Sales Department A Plan to Make Each Responsible The Purpose of the Factory Account "according to this Plan" The Relation of Each Department to the Management The Gen eral Ledger Accounts Billing System Analysis of Sales and Costs Description of Accounts Payable Voucher Ledger Postings from Register of Accounts Payable Check Voucher Veri fication of the Inventory from Day to Day The Profits between the Factory and Sales Depart ment as a Separate Factor The Preparation of Profit and Loss Statements and Balance Sheets. A SYSTEM of this kind may be operated successfully under conditions where the product is all manufactured and carried in stock, from which customers orders are filled directly, without the orders having any direct connection with the product. Where these conditions exist and the same article is manufactured continuously throughout the year, and where no connection between orders re ceived from customers and the product manufactured is made, it may be an advantage, and often is, to keep a separate Cost Sheet for each article and disre gard entirely any production orders issued to the factory calculated to regulate production, but not intended to be used for cost keeping purposes. The principal difference between this system and the system described in Chapter XXXVI is that, in this instance, the cost is obtained according to article irrespective of any production order numbers, whereas in the other case costs are calculated and charged against a particular order number. In addition to this, the present system is more complete in many respects, as the indirect expenses are determined according to department; while in the other system this informa tion was only obtained as applying to the factory as a whole. The method de scribed in this chapter will insure a more accurate distribution of the indirect expenses. Several different forms not included in either of the other systems such as an Operating Ledger or Distribution Book, Defective Work reports, and Piece Work reports showing production, more complete in design than the other forms are introduced. The Voucher System of accounting, in connection with COMPLETE COST SYSTEMS 307 the Check Voucher System, is also presented for the first time, and all the opera tions in connection with records of this description are explained. Another feature that will appeal to the business man operating a plant where a system of this kind would be installed, and where a number of articles are manu factured and carried in stock, is the system of stock keeping presented. The form presented is one of the most complete designs for this purpose, and is in tended to enable the manufacturer to ascertain the exact gross profit, which means factory profit, or the difference between the actual factory cost and the selling price of .every article manufactured. Moreover, this will be done so as to form a part of the general counting-house books, and in a manner so accurate and complete as to enable the one keeping this record to verify this profit with the general books of account kept in the office. In addition to this, the form also shows the unfilled orders in connection with the balance of the stock on hand according to each article, which will be found of great value if used in regulating the production of these articles. Experience has shown that the information on this form, considered in connection with the maximum and minimum quantity of stock to be carried, is the proper key to the stock situation. The columns are so arranged as to make it possible to carry this information along by means of daily postings. The management will be able to have more complete reports prepared, show ing the operations of the factory and indicating the profits departmentally accord ing to a more accurate plan in this system, than by the form connected with the system shown in Chapter XXXVI; all of which means that this system is more complete than the former one, and better adapted to a factory where a little better grade of office help is employed and where the organization admits of the business being so systematized as to bring to the attention of the management all the statistics incident to its operation. PURCHASE REQUISITION (Form 1 B) PURCHASE ORDER (Form 2 B) REPORT OF MATERIAL RECEIVED (Form 3 G) STOCK SHEET FOR RAW MATERIAL (Form 4 G) The first three forms are for the purposes explained in the system under Chap ter XXXVI, and also as explained in the Chapters VII, VIII, and IX, relating 308 FACTORY ORGANIZATION AND COSTS (Form 1 B) T o PURCHASE REQUISITION. No. 190 ( Purchasing Agent) Please order the following articles: FOR THE I DEPT. JSE OF OKL ES NO. ARTICLE ! PURCHASE ORDER NO. QUANTITY ,_ D E 1 ! _^____- . .... ~~I ^~r ! | li ! Approved: Signed: Standard Size 6X x (Form 2 B) A. B. C. Co. New York. To PURCHASE ORDER. Purchase Requisiti Orde No. >n No. ... ...190.... lease ship the material described below. Place our Purchase Order Number, Requisition Number and Car Number on all Invoices. Send duplicate Invoices and Bill of Lading for each shipment. SHIP ON OR BEFORE DESCRIPTION QUANTITY PRICE 1 A. B. C. Co. Per - A. B. C. Co., New York. Gentlemen:- We are in (Tear this off and mail to) 100 .. .. (Signed) Standard Size 7X-* to forms of this description; and while they are different in design from any of the forms described in any of the other systems, the difference is of such a nature as to be practically a matter of choice as to which should be used rather than anything else, and are presented in this system with that idea in view. The form last mentioned that is, the Stock Sheet for Raw Material differs from the other stock sheets only in that columns are provided to show the date and quantities of material ordered, which is a feature that does not appear in the other forms described in the other systems. This information can be obtained from the purchase orders, and all the other information in precisely the same way and from the same sources as in the system under Chapter XXXVI except that the material requisitions may be summarized on the Report of Material Delivered, explained later in this chapter, and the total amount for the week or month COMPLETE COST SYSTEMS 309 (Form 3 Q) REPORT OF MATERIAL RECEIVED. No Purchase Order No. Requisition No. Name Date ARTICLE C NO SS DESCRIPTION I j I I I Received by: Entered by Standard Size 8^ x *% (Form 3 G Duplicate) REPORT OF MATERIAL RECEIVED No. Purchase Order No. Requisition No. Name., Date .. _.. - A - RT|CLE - | COST TEM NO. CLASS. NO. DESCRIPTION fRiCf j RATE AMOUNT CHARGES DISTRIBUTION DESCRIPTION AMOUNT DEPARTMENT ACCOUNT FOLIO AMOUNT i ! M I I Mi Received by: Entered by Standard Size 8X x U entered in the Stock Records, instead of posting each item separately as shown on the Material Requisition for stock used. Otherwise there is no difference in the manner of operating this form. PRODUCTION ORDER (Form 51) In this instance the Production Order is used only for the purpose of giving the factory superintendent or foreman written authority to manufacture the goods shown in this order, instead of giving directions to them verbally, and 310 FACTORY ORGANIZATION AND COSTS O III < o| 03 s z E E *j x "E a .- QUANTITY V < Q U H Ul E LJ UJ Q QXIANTITY h- s 1- ui o ^ j5 ^ 1- 5 i>- y: o 1 ^ | ~ ?. O :/} O 1- CO s RECEIVED QUANTITY MATERIAL RECEIVED SHEET NO. PURCHASE ORDER Ng Q LJ E LU QUANTITY c (J tr PURCHASE ORDER NO. "* UJ 2 COMPLETE COST SYSTEMS 311 (Form 5 I) To Foreman Charge all \ FACTORY ORDER No . .Department Date laterial and Time to above Order No. ra-E WANTED PATTERN NO. DRAWING NO. DESCRIPTION QUANTITY 1 You ar Inspec Receiv By here ted b ed by authorized to manufacture the above articles as stated !, _ ._ .Manager 10 Standard Size 5 x forms no part of the system of cost keeping, nor does it relate in any way to the stock record. The importance of using such a form as this is fully explained in the system in Chapter XXXVI, as well as in Chapter XI, relating to forms of this character, to which the reader s attention is called. MATERIAL REQUISITION (Form 6 A) (Form 6 A) Department MATERIAL REQUISITION _ _ No ORDER NO. ARTICLE QUANTITY Received by Signed z 5k The essential difference between this form and the one explained in the preced ing systems is that several orders, or the material for different purposes, may be drawn from stock on this form instead of using a separate form or requisition for each order number or special purpose. Nor is any provision made in this form for pricing the material so delivered from stock, as it is the intention in this sys tem to illustrate how the material can be summarized according to article and also by department chargeable, so as to require only the pricing of the total ma terial used during the month. This will, of course, save a great deal of time in 312 FACTOEY ORGANIZATION AND COSTS making extensions and in looking up prices to be entered on requisitions, whicli the former method calls for. If this method is adopted the totals shown by this report of material delivered would be entered in the Stock Record at the end of the month, instead of each day. Apart from this the Requisition should be used for the same purpose as all other requisitions that is, for obtaining material from the store-room. REPORT OF MATERIAL DELIVERED (Form 8B) (Form 8 B) REPORT OF MATERIAL DELIVERED No Department f I ORDER NO. PRODUCT CHARGEABLE ARTICLE QUANTITY RATE AMOUIST Approve d: _ - _ Correct: Standard Size 9^ x This form should be used in connection with a material requisition of the design just explained. Its purpose is to ascertain the total amount of material delivered from the store-room during the month, according to article and charge able to a particular department, as well as to indicate the name of the product the material was used for and to which it should be charged. The totals shown by this report, after the cost price has been entered and the extensions made, should be transferred to the Stock Record for Raw Material, according to the article so used, and entered therein in the columns provided for that purpose. After this has been done a charge should be made in the columns shown in the Cost Sheet for that purpose, for the amount of material chargeable to the product or to the article manufactured from this material. The total amount of material used in any one department should be entered in the Operating Ledger from the report to the credit of the Store-room Account, and to the debit of the depart ment in which the material was used. After these entries have been made this report may be filed departmentally according to date and number, or all of these sheets for all departments may be kept together in one binder according to months. COMPLETE COST SYSTEMS 313 DAY WORK ANP PIECE WORK REPORTS (Form 9 B) (Form 9 B) PIECE WORK REPORT - -- - .Department Dt< Clo< Ro Name k No m Occupation ORDER NO. KINO OPERATION QUANTITY RATE AMOUNT - 1 Quantity O K Price O.K. Am ount O.K. Standard Size In all of the time reports shown so far, the design has called for a separate report being made out each day, but in this case the form is so designed as to admit of the full week s work being entered on the same time report, which illus trates a combination day and piece work report. This will be found an advan tage in a plant where the employees are engaged part of the time on day work and part of the time on piece work. Two separate forms may be used, however, if desired. In any event, the Time Reports should be entered, after being duly approved, in the Pay Roll records, and also entered in the Cost Record and charged on the Cost Sheet to the proper article shown in the Time Report, the amount being entered in the columns of this record relating to labor and all other columns properly filled out. As this system is based on the Productive Labor method, it will be necessary to extend the time of each employee by entering the rate of pay and extending the amount, but care must be taken in posting these labor charges to the Cost Sheet to indicate the department in which the work was done, as the indirect expenses will not be distributed on the total labor as has been done in the system under Chapter XXXVI, but on the amount of labor in each department. This involves separate percentages in each department. PAY ROLL (Form 10 G) While this form differs only from the other forms of pay rolls used to the extent that no columns are provided for a record of the daily time, yet it might be well to call attention to the fact that the Pay Roll must be made out, so far as the listing of the employees names are concerned, in such a way as to indicate 314 FACTORY ORGANIZATION AND COSTS (Form 10 G) FACTORY PAY ROLL Fo r .Week ending 19 EMPLOYEE DISTRIBUTION DEPT. CLOCK NO. NAME MAINTENANCE Standard Size 11 x 12 the labor by departments not only in totals but also as to distribution, showing direct and indirect labor, etc. The reason that no columns are provided in this system for a daily record of time is because the Time Reports show all of this information, and it would be an unnecessary duplication of the facts if it were re-entered here. Since the Pay Roll is divided and analyzed by departments, it would be ad visable to keep a Pay Roll account in the General Ledger, charging this account from the Cash Book with the checks drawn, and crediting it with the amount of the Pay Roll as distributed in this record. This will then balance the Pay Roll account and leave a record for the information of those interested, showing the total amount of the Pay Roll in the Ledger. When the end of the month comes in the middle of the Pay Roll period, or thereabouts, the Time Reports may be called in and new ones issued to each employee, upon which to record the balance of the week s time. The amounts so entered in the Pay Roll are used only for the purpose of obtaining the total amount of accrued wages for the part of the week that would be unpaid at the end of the month, so as to obtain the proper charge to the factory and to show in the books to the credit of the Pay Roll account the accrued but unpaid wages. COST SHEET (Form 13 E) Up to this point a standard form of Cost Sheet, such as is herein presented, has not been introduced, and for this reason attention is called not only to this form but also to the numerous assortment of designs or forms of this character shown in Chapter XVII. Almost any condition applying to the manufacturing COMPLETE COST SYSTEMS 315 (Form 13 E) Article COST SHEET DATE LABOR MATERIAL ^"M* TOT L COST MONTH D OPERATION CHECK NO. QUANTITY RATE AMOUNT DESCRIPTION UU tlON QUANTITY RATE AMOUNT AS IOUNT All OUNT Standard Size 11 x 14 business will be found to be covered by these forms not necessarily as to cap tions, headings, or number of columns, but: as to the principles governing the designing of such forms, and also so far as their general character is concerned. Other records which experience has shown to be useful in cost rinding will be found in Chapter XI, explaining "Production Orders," and Chapter XV, explain ing "Production Reports/ some of which are used for this purpose. The method of operating this form is to use a separate sheet for each article manufactured until used up, according to the method next to be explained. All of the labor charges should be taken from the Time Reports, and this labor should be entered according to department so that the indirect expenses may be distributed over the labor of each department according to the percentage of indirect expense shown in the Operating Ledger, described later, for the par ticular department shown in the Cost Sheet. The production should also be en tered under the general caption "Labor" in the column headed quantity; the material cost can be taken from a requisition, but, preferably, from the report of material delivered, if the general lines laid down in this system are followed. After the indirect expenses for each department have been added, based on the amount of labor charged, the total of the three elements of cost should be entered in the column headed "Total Cost." To illustrate how the indirect expenses should be figured, suppose that $12.50 is charged to an article for labor, $5.00 of which emanates from Department A, and $7.50 from Department B. If the expenses in Department A are calculated as 50 per cent, $2.50 would be charged for indirect expenses to the article for work done in that department; and, on the other hand, if the expenses in Department B figure 100 per cent, the expenses charged for work done in this department would be $7.50 These comparisons are made to illustrate the method of enter- 316 FACTORY ORGANIZATION AND COSTS ing the indirect expenses as well as to show the importance of dividing up the expenses according to departments, and the effect that it usually will have on im proving the accuracy of the cost. It may occur to the reader that considerable detail would be involved in carrying out such a plan, and in answer to this atten tion is called to the chapter relating to Pay Rolls and Distribution Sheets, and to Form 10 D, as well as to Chapter IV, explaining various methods of distributing expenses, in which this question is discussed. Returning to the description of this particular form, at the end of the month, after the totals have been entered for the articles finished as shown by the Produc tion Report for Finished Product, the cost should be entered on this record for the amount actually expended, and this Cost Sheet reduced both as to quantity and cost for the amount so finished. The balance, representing goods in process of manufacture, is brought down for the beginning of the next month, and this balance should indicate the quantities and costs in the various operations. The amount entered on the Finished Stock sheet will later be transferred to those records, as will be explained in the next form. PRODUCTION REPORT (Form 11 M) (Form 11 M) PRODUCTION REPORT Department . Operation For month of - 19 PRODUCTION COST NO. , ARTICLE 1 2 8 4 B 6 7 8 9 10 11 12 13 14 ie I" IT 18 10 20 21 ,22 23:24 AMOUNT Correct . _ . _ _. Approved Standard Size 9 x 13X; This form should be made out by the superintendent, foreman, or stock clerk, or some other individual under the immediate supervision of the superintendent or manager of the factory. The report relates to finished product only, but may be used to show the production of a particular department or operation as well. As can be seen, twenty-seven columns are provided for the working days of the month. The dates should be entered at the top of these columns, and a list of COMPLETE COST SYSTEMS 317 the articles manufactured printed on the left of the form under the caption "Arti cles" to facilitate the making out of the report. The daily production of each of the articles appearing should be entered in these columns, and the total for the month extended in the column provided for that purpose. After this report has been approved by the superintendent or manager of the factory, the cost of each article, as shown in the Cost Record just described, and the amount or total cost of each article produced during the month, extended in the column headed "Amount." All the articles finished should then be transferred or posted ac cording to article from this report to the Finished Stock record, and entered in the column headed "Production" and added to the stock balance for the article produced. STOCK RECORD FINISHED PRODUCT (Form 12 F) A separate sheet should be used for each kind of article carried in stock. The inventory at the beginning of the period when this system is installed should be entered in the column headed "Balance," both as to quantity and cost, and the rate indicated. All the information relating to production can be obtained from the Production Report just mentioned. As each of these entries is made, the balance shown at the extreme right of the sheet should be increased to cor respond. The unfilled orders on hand at the time the system is installed should also be entered according to article; and any orders received from customers for this particular article should be entered in the columns provided for that pur pose. In the event that any of these orders are cancelled before the goods have been shipped, this should also be indicated and the column headed "Unfilled Orders" changed. The information relating to sales at both the selling price and the cost price can be obtained by posting each day from the Sales Sheet to this record all of the articles sold, at which time both the cost price and selling price should be entered and the gross profit indicated. The balance of stock on hand, of course, should be changed as these entries are made, and care should be taken in reducing this balance to use the cost price of the goods sold and not the selling price. The selling price is entered only for the purpose of showing the average selling price of the article, and the gross profit resulting from the sale of the same articles at possibly various selling prices. DEFECTIVE WORK REPORT (Form 14 A) The intention of a form of this kind is to bring to light defective work or shop errors that usually occur in every plant, in order that the cause may be ascer- * 1 i COMPLETE COST SYSTEMS 319 DEFECTIVE WORK REPORT _.. ...Department For _L9. ^ ARTICLE DEFECT CAUSE DISPOSITION RATE AM( Approved: . Correct:.. .. Standard Size g x 11 tained and the amount of this work or loss reduced to a minimum. The disposi tion of work of this character will depend upon the nature of the business. It can be either charged to a defective work account and included in the indirect expenses, or charged to the product for which it was intended, which will increase the cost of that article; as the amount will obviously not affect the quantity pro duced but increase the cost of production of the particular article. Where some of the material is reclaimed from products of this nature, the difference between the cost of the work spoiled and the amount received, or the value of the reclaimed stock, can be charged according to either method mentioned. If part of the stock is to be used again in manufacturing, this should of course be transferred to the Stock Records for Raw Materials. STATEMENT OF FACTORY EXPENDITURES (Form 15 A) A statement of this character should be used in connection with the system outlined here, where the business is divided into several operating departments; and in such cases an Operating Ledger or Distribution Book should be used such as will be explained immediately after this form, as it affords the most conven ient method of compiling expenditures of this character. All the information shown can be obtained from this Operating Ledger. The purpose is to reveal the expenditures relating to each department in order to ascertain the amount of expenses shown as indirect, as well as the percentage of each of these depart ments for cost keeping purposes. It will be found in any plant that more accu rate costs can be obtained by dividing the business into departments, because the indirect expenses of each department are sure to be different; and this dif- Ill 31s s eM C H : - -.^..J-l "111 l= " a S m COMPLETE COST SYSTEMS 321 ference will so affect the costs, in some instances, as to be misleading to a great extent. The information shown under the caption " Direct" represents the produc tive labor of each department as well as the material used ; whereas all the items appearing under the caption "Indirect" represent expenses chargeable directly to each of these departments, except the account "General Operating Expenses," which means such items as appear in the lower section of the form that do not relate to any particular department but to all departments alike. These expenses can be pro-rated, as (has been) shown, over all the departments, on the basis of the amount of direct labor charged to each department, by multiplying this amount by the per cent, obtained from dividing the total amount of the operating ex penses by the direct labor. The department accounts will then be charged with all the indirect expenses, including the general operating expenses; and the per centage shown will represent the proper amount to be added to articles manu factured in any one of these departments. In the lower left-hand section of this form are indicated the store-room operations. That is, the value of the inven tory at the beginning of the period as well as the purchases during the period are shown, together with the material delivered to operating departments during the month, which is recorded in the upper section of this statement under the caption "Direct," opposite the account Material. The two amounts first men tioned added together, less the material delivered, will show the inventory of raw material on hand at the end of the month. OPERATING LEDGER (Form 16 C) The Voucher System of accounting, introduced later in this chapter, is oper ated in conjunction with a Distribution Bock of this character; although entries may be made, and in fact should be made, in this record from other books, as will be exp ained. The principal function of this record is to reduce the size of the Voucher Register or Register of Accounts Payable, as it is called in this work by keeping only general accounts in the record just mentioned. This eliminates the numerous special columns that the Register of Accounts Payable would otherwise have to contain in order to save posting. The object of having these special columns in the Accounts Payable register is to enter therein all of the charges re ating to a particular account, and to post the total of all of these items in one amount at the end of the month, instead of posting each separately. Consequently if the business is divided into ten or twelve departments, and each department is divided into a number of accounts showing an analysis of the expenditures or charges, it can be seen that a Register of Accounts Payable pro- 322 FACTORY ORGANIZATION AND COSTS oc LU o Q U O z cc UJ Q. O COMPLETE COST SYSTEMS 323 vided with all of these columns would necessarily be too awkward to handle and impractical to say the least. For this reason, if for no other, a Distribution Book or Operating Ledger should be used where these conditions exist, in order to obtain a proper analysis of the expenditures relating to the various depart ments. A separate sheet should be used for each department, and all of the accounts relating to each department entered at the head or top of the several columns thirteen in all appearing on this form. The posting to these departments should be taken from the back of the Voucher described later, for all of the amounts appearing in that column under the caption "Operating Ledger." It will be observed that these columns read as follows: " Department, Account Number, and Amount," and are intended to be used to indicate the department chargeable, which should be designated by a letter, and the name of the account indicated by a number. These same account numbers and the department letters should appear on this sheet that is, at the top of the columns reading from left to right. The accounts may be headed, "Material, No. 1;" "Direct Labor, No. 2;" "Indirect Labor, No. 3," etc. meaning, of course, that Account No 1, where it appears on the back of the Voucher, should be entered in the column headed "Material" for the proper department indicated by letter on the back of the Voucher. This is explained in the section of this work referring to "Classification of Accounts" (Chapter XXVII), to which the attention of the reader is directed. When all the postings have been made to these various departments in this record, not only from the vouchers, but also from the other books of account, and the amounts entered in the several columns according to the account charge able appearing at the top of the column, the totals for the month should then be entered and this sheet ruled off. After these totals have been proved or bal anced with the Factory Account kept in the General Ledger, this account would include all of the operating departments kept in this Ledger or Distribution Book, exclusive of selling and administrative expenses which appear separately in the General Ledger. The selling and administrative accounts should also be analyzed on a sheet in this book, showing the distribution or analysis of these two classes of expense. After these accounts have been balanced with the de tails shown in the various columns or accounts, the result of the entries for the month for each department should be transferred to a Summary Sheet, which should be headed "January," "February," etc., for the fiscal year, and the last column headed "Total." At the left-hand side of this form should be entered, reading from the top of the sheet downward, the names of the various accounts relating to this department that appeared on the previous sheet at the top of 324 FACTORY ORGANIZATION AND COSTS the column. The amounts that were entered, so far as the total only is con cerned, should be transferred to this summary sheet and entered in the column according to the month the entries or transactions occur in, opposite the proper account; and at the end of the year the total for each of these accounts should be entered in the column headed "Total/ so as to show the total expense of this description for the year in each department. After these summaries have been made up for each department, a Summary Sheet should be prepared, which, in effect, is a Trial Balance, showing the departments at the head of the sheet and the various accounts on the side of the sheet, reading down, in the column pro vided for that purpose. The total of all these departments and accounts should be balanced with the three principal accounts, which are really controlling accounts kept in the General Ledger that is to say, the Factory Account will include all the departments and accounts, exclusive of selling expense and administrative expenses; and this figure or amount should correspond with the balance of the Factory Account in the General Ledger. The total expenses shown as selling expenses should agree with the account in the General Ledger of the same name, and likewise the administrative expenses. Attention is called to the fact that a separate department should be estab lished for light, heat, and power, and this expense distributed among the various operating departments of the factory at the end of each month, on the basis of horse-power consumed in each department that is, either consumed or indi cated. For a full explanation of this the reader is referred to the system ex plained in Chapter XXXVII, wherein power cost and distribution are fully set forth ; but it is not necessary in a system of this kind to be so precise, nor is it practical, because of the basis of this system, which is quite different from the one mentioned. BILLING SYSTEM (Form 17 A) CREDIT CERTIFICATE (Form ISA) Both of these forms have been fully explained in Chapter XXXVI, and also in Chapter XXI; but it might be well to call attention to one fact. The infor mation for entering the cost of sales or the cost of goods returned should be taken from the Finished Stock record, already described, and this cost or price should in every instance represent the average price or average cost of each article on hand appearing in the several stock sheets for finished products in the column headed "Balance," COMPLETE COST SYSTEMS 325 The reader s attention is called to one principle involved in making a com plete distinction or separation between the factory and the sales department that is, the accounts may be so kept as to have all the profit shown in the vari ous sales accounts or departments, which means kind of goods sold, by including or entering on the Sales Sheet the actual cost of product manufactured and giv ing the factory credit at cost, absolutely, and showing in the Factory Account only the value of the inventory, no profit appearing whatever. The other method is and this the management should consider carefully to establish a standard price at which the various articles manufactured by the factory shall be sold, theoretically speaking, to the Sales Department by the Factory Department, just the same as if they were separate and distinct indi viduals or companies, but on the same principle and in the same way, so far as system or method is concerned, as is provided for in this chapter. When this plan is followed the Factory Account should show a profit or a loss which will represent the difference between what the product was sold for to the Sales De partment and the actual cost of production. The chief advantage in adopting a plan of this kind that is, using a fixed or stated price at which the factory shall be given credit is that it puts the superintendent in the position of making the Factory Account show a profit, or at least no loss, on this basis providing he approves and accepts the selling prices to the Sales Department. In addition to this, a plan of this kind is particularly valuable where the product could be bought in the open market from other mills at possibly these regular factory prices, if not actually cheaper; and the result will show at the end of the year whether the factory is able to compete with other mills without interfering with the progress of the Sales Department. For that reason it puts the management in the posi tion of being able to hold each department responsible for results the Factory for producing the goods at not more than a stated price on the one hand, and the Sales Department for marketing the output at a price sufficiently above the pur chase price from the factory to produce dividends for the company. The prac tical business man will appreciate the fact that, leaving out bookkeeping and systems entirely, a plan of this kind is good business if nothing more, where two distinct departments operated by two separate organizations form a part of the general organization. Where this plan is adopted, Sales Sheets should be used, executed in triplicate, or else an extra column should be added to the regular Sales Sheet, which would make three columns in all one showing the price at which the goods were sold to customers by the Sales Department; the other showing the price at which the goods were sold to the Sales Department by the Factory, and the last columns showing the actual cost of production. In posting these amounts at the end of 326 the month, the entries should be made as follows. The first column that is, the selling price relating to customers should be charged to customers and credited to the regular sales accounts or departments; the factory selling price shown in that column meaning the price at which the goods were charged to the Sales Department by the Factory should be credited to a Factory Sales Account and charged to a regular Sales Account or department that is cred ited with the goods sold to customers. The cost price column, showing the actual cost of production, should be credited to the regular Factory Account, showing the inventory, and charged to the Factory Sales Account just men tioned. The effect of this will be as follows. The Factory Sales Account will show the profit, if any, between the price charged the Sales Department and the actual cost of production. The Sales Department that is, the general classification of products sold to customers by the Sales Department will show the profit be tween the amount charged the Sales Department by the Factory and the amount actually received for the goods from customers. Where a factory price is used in addition to the actual cost price, the profit of the factory, which is really an interdepartmental profit, appears in the books in addition to the information shown by the general plan outlined in this system. REGISTER OF SALES AND COSTS (Form 19 C) The only difference between this record and the one explained in the system in Chapter XXXVI, is that only the total sales for the day are entered and classi fied. The totals shown by all of the Sales Sheets for goods sold during the day would be entered on this form, instead of registering each sale as in the former case. This form is also more suited to a system where three elements enter into the sales that is, the actual selling price, the factory selling price, and the actual cost price. The blank space between the two guide lines just above the three money columns is for entering the distribution or classification of the sales ac cording to the kinds of products sold, representing numerous articles grouped together or classified under these headings. This classification can consist of two or three departments or as many as may be desired, according to the nature of the product and the value of the information to be obtained from classifying the products in this manner. It is not necessary to divide the product into departments at all, as one general account showing the sales and profits on the sales will answer in some cases, but usually it is desirable. If the product is classified the volume of business done in each department will be shown, together with the profit in each. The manner of posting the information furnished by this COMPLETE COST SYSTEMS 327 (Form 19 C) REGISTER OF SALES AND COSTS For the month of 19 DEPARTMENT "A" DEPARTMENT "B" DEPARTMENT "C DEPARTMENT "D" DEPARTMENT "E 1 DAY gs M P C R I C E HY C ot >T PR CE 3*3 FACTORY PRICE ACTUAL SALES COST PR ICE PRICE FACTORY 1 Hllh COST PR ICE PRICE FACTORY PRICE COST PRICE SALES FACTORY PRICE PRICE COSV T PRICE 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 ! 29 30 31 i [ Standard Size 10 X.U record to the Ledger is fully explained in this chapter under the caption "Bill ing Systems. " ACCOUNTS PAYABLE VOUCHER (Form 20 A) As the name indicates, this form is for the purpose of obtaining a proper Voucher for all entries relative to expenditures connected with the business; and is also used in this instance for purposes of classification. A separate Voucher may be used for all the transactions affecting one individual or company for the entire month, or several vouchers may be made out during the month whenever remittances are made. Attached to this Voucher, however, should be a copy of the Purchase Order, showing the goods ordered, a copy of the Receiving Report, showing the goods actually received, and the Invoice. These documents should be attached to the Voucher for every entry or invoice entered on the Voucher. These entries, after being approved, may be made on the Voucher, as the bills are received ; but it is not necessary to make the distribution until the end of the month, or whenever it is desired to make remittances. In such an instance the invoices attached to the Voucher should be analyzed and the department and accounts chargeable entered on the back of the Voucher under the general caption 328 "Operating Ledger." The total of all these expenditures, according to the class ification, entered in these columns relating to the Factory, should be entered in the column headed "Private Ledger." Any charges relating to selling expenses or administrative expenses should be entered in this Private Ledger column also, in order to facilitate classifying or entering this Voucher in the Register of Accounts Payable, next to be men tioned. On the other side or section of the Voucher is shown a standard classi fication of accounts, which should be printed on the Voucher together with the account number. Immediately under these accounts appear the departments, which are given a letter instead of a number for reference, in order to save writ- (Foim 20 A Front ACCOUNTS PAYABLE VOUCHER No. Favor of Date DATE OF INVOICE DESCRIPTION AMOUNT OF INVOICE DEDUCTIONS AMOUNT PAYABLE Approved for Payment Correct COMPLETE COST SYSTEMS 329 ing the names. In making the entries, therefore, as to distribution, on the back of this Voucher in the column headed "Operating Ledger," only the letter desig nating the department and the number of the account should appear, together with the amount. This is intended to save work and also to use the same names for accounts relating to all departments where the same kind of expenditures are involved. In other words, any of these accounts can be charged to any of the departments; but not all of these accounts would be kept, nor would they affect all departments, as, for instance, legal expenses could not possibly affect the store-room or any of the other manufacturing departments, unless in the case of patents or some unusual circumstances. (Form 20 A) Back ACCOUNTS PAYABLE VOUCHER Date CLASSIFICATION OF ACCOUNTS OPERATING ACCOUNTS 1 Material 2 Direct Labor 3 Indirect Labor 4 Supervision 5 Supplies 6 Light, Heat and Power 7 Freight, Express and Cartage 8 Maintenance 9 Incidentals 10 Insurance 1 1 Taxes 12 Telegraphing and Telephoning 13 Postage, Printing and Stationery 14 Salaries 15 Depreciation 16 Advertising 17 Traveling Expenses 18 Commissions 19 Legal Expenses 20 Interest 21 Merchandise Discounts 22 Doubtful Accounts 23 Rent DEPARTMENTS A B C D E F G H I J K L Favcn- Addre: of_ _ * OPERATING LEDGER PRIVATE LEDGER DEPT. */ c NO. AMOUNT ACCOUNT AMOUNT Date Paid Amount of Check Deductions Amount of Invoice Dheck No. | Standard Size 8>i x 9% 330 REGISTER OF ACCOUNTS PAYABLE (Form 21 B) This form has been fully explained in the system in Chapter XXXV and also in the description in Chapter XXIV, to which the reader is referred. The prin cipal difference in this form and the one explained in the system in Chapter XXXV is that in the former case no departments were kept nor Distribution Book used, the accounts appearing on the right-hand side of the sheet; whereas, in this in stance, a Distribution Book is used and several departments are kept. For this reason only three general or rating accounts appear viz., Factory, Selling Ex penses, and Administrative Expenses. The totals shown on the back of the Voucher under the caption "Private Ledger" should be entered in these columns, according to the amount chargeable to each. The several accounts supporting these general or total figures are entered in the Operating Ledger according tc department and the account chargeable. At the end of the month the Factory Account, Selling Expenses, and Admin istrative Expenses should all be posted to the debit of these accounts in the Gen eral Ledger, after each has been proved with the several accounts in the Operat ing Ledger. All other accounts should, of course, also be posted. Form No. 21 B REGISTER OF ACCOUNTS PAYABLE. CREDITS Accounts Payable When and How Paid Date Voucher No, Favor of Term. Folio Vouchers Pajabl Date Cheque No. Bank Standard Size 14 x 14 COMPLETE COST SYSTEMS 331 Form No. 21 B F OR 19 DBBIT8 MiacellaMei.ua Accounts Operating Account! Property Accounts Name Folio Amount Victor? Srfli^ gip.n.~ AdinlniMrtlt** KKM*^ IUcMnir * Tooli U.l E>u fa BuiMioj j rumitire & Fiilara Standard Size 14 X 14 CHECK VOUCHER (Form 22 A) There is no material difference between this Voucher or Check and any other ordinary bank check, except that columns are provided in which to indicate the (Form 22 A) Front Credit Vouch Favor of er No Check Voucher THE A. B.C. COMPANY, NEW YORK. No DATE AMOUNT INVOICE DEDUCTIONS AMOUNT PAYABLE DATE AMOUNT INVOICE DEDUCTIONS sv IUN7 PAYABLE Check Voucr Pay to the o er No. New York... ..190. _. UNION NATIONAL BANK. NEW YORK. rder of _ - Dollars n full payment of above account. THE A. B.C. COMPANY Treasurer. Standard Size 7M " 332 FACTORY ORGANIZATION AND COSTS (Form 22 A) Back THE A. B.C. COMPANY, NEW YORK. Favor of Credit Voucher No. _. Check Voucher No... -Dated .-.190. EN DORSE ME NTS. Standard Size bills included in the settlement and covered by the Check, and any deductions or claims that may be taken off before making settlement. It is intended also to insure a receipt in a comprehensive and uniform manner for the purpose of protection, reference, and record. This Voucher or Check is entered in the Cash Book in the usual way, and the number of the Check or Voucher is entered on the back of the Accounts Payable Voucher as well as in the Register of Accounts Payable, showing the Voucher to which the Check relates. The Check Voucher is then sent to the individual or company in whose favor it is drawn just the same as any other bank check. REGISTER OF RECEIPTS AND DISBURSEMENTS (Form 23 A) In this form the bank columns appear in the middle of the book instead of each side, as in the case of the form described in the system in Chapter XXXVI. Otherwise there is no difference worth mentioning. A full explanation of the manner of operating these forms will be found in Chapter XXXVI, and also in Chapter XXVI, describing these forms, to which the reader is referred. INVENTORY OF MATERIAL (Form 45 A) The purpose of this form is to test the stock balances shown in the Stock Records from time to time, without waiting to take an actual inventory of the entire plant. It can also be used to take the regular inventory, either annually COMPLETE COST SYSTEMS 333 (Form 45 A) INVENTORY OF MATERIAL Article--. ...Location.. Book Inventory- $_ Actual Count $_ Difference. _ $_ Cause. -. Date taken By- Standard Size 5% x 7 or semi-annually. All of the details incident to the conditions under which this may be done, and the advantages to be derived by so doing, appear in Chapter XXXVI, Form 4 B, and also in Chapter XXIX, explaining several forms of this kind and illustrating different designs and the conditions under which each should be used. STATEMENT OF PROFIT AND LOSS (Form 53 A) This form differs only in design from the one explained in Chapter XXXVII, in that it is intended to be used where the sales are divided into a number of departments. Where these conditions exist the design will occupy less space if the ruling is similar to this one. The method of preparing the form and the manner of obtaining the information is the same. The reader is referred to Chapter XXXVII for a full explanation. COMPARATIVE BALANCE SHEET (Form 55 A) This is the same form explained in Chapter XXXVII, and no explanation is needed here. CHAPTER XXXIX PRODUCT SYSTEM, ACCORDING TO THE PROCESS OR MACHINE COST METHOD OF COST FINDING Conditions Under Which to Use General Outline of Method Sundry Forms Used Time System- Use of Cost Sheet Check Voucher. THIS system is based on the same principles described in Chapter XXXVII, so far as the basis of the cost finding is concerned; but the forms used incident to determining the cost of the articles produced are not the same. It is intended, as the forms will indicate, for a more extensive business, and differs also in regard to the production department. This system would be best applied in a business or condition where the product is manufactured for special orders and no stock is carried on hand. In the former instance no relation be tween the production department and the orders existed, but the departments and operations were all well defined. In this system, however, the relation of the costs to the production department is well defined, as a standard line of prod uct is manufactured and carried in stock regardless, in a measure, of the orders received from customers. The principal difference in the two systems occurs in this respect, as the costs in the latter are obtained according to article and not according to special order. The difference in the number or design of the forms is caused by the difference in the method of operating, and the condition causing these differences in design should be kept in mind in devising a system. The small and particular details incident to any particular business, such as special columns, technical headings, and names of the forms, constitute a secondary consideration in designing a system. The object or principle involved, as well as the kind of information to be obtained, and the manner of obtaining it so far as it relates to the basic prin ciples underlying the system, are the main features to be considered. In this instance it is assumed that a standard line of product is manufac tured, and that the operations are well defined and their relation to the product manufactured definite. The principle involved necessitates a method of obtain ing the expenditures or costs chargeable to each operation or machine, as well as the operating hours of each. With this information the cost of operation per hour can be ascertained. The length of time consumed in the manufacture of each article produced in each of these operations should next be determined. COMPLETE COST SYSTEMS 335 This time may be multiplied by the cost per hour shown, which will then show the cost. The operating hours, together with the cost relating to the machine or process, form the basis of this plan. In a system of this kind the basis need not necessarily be time, as in some instances this is not practical. As an illustra tion, the total number of pounds, tons, or any other unit of measure may be used; and the cost per pound, or ton, for each operation ascertained. This rate is charged to the articles produced by multiplying the total pounds or tons of each by the cost per pound or ton, etc. Therefore the basis of a system of this kind may be either time, showing the cost per hour, or quantity, showing the cost of any unit of measure. This applies either to time consumed in the manu facture of an article, regardless of quantity, as a basis; or according to the total unit of measure produced in connection with the cost per unit of measure, re gardless of the time consumed. The result by either method, where the condi tions admit of it, will be equally accurate. PURCHASE REQUISITION (Form 1 C) PURCHASE ORDER (Form 2 A) REPORT OF MATERIAL RECEIVED (Form 3 F) STOCK CARD RAW MATERIAL (Form 4 A) Designs of this character have been fully explained in the descriptions relat ing to these forms in Chapter XXXVI; also in Chapters VII, VIII, IX, and X, respectively; and the usual explanatory matter is here omitted for this reason. PRODUCTION ORDER (Form 5 L) In this instance no Material Requisition is used, because this design is so ruled as to furnish a record of the material used in the production of each article, and at the same time to furnish written instructions to the Factory Department concerning the kind of product to be manufactured. All posting to the Raw Material records for material used should, therefore, be made from this record; and the total cost of the material should be charged on the Cost Sheet in total, against the article manufactured for which the mate rial was used. After the Raw Material account has been credited and the article 336 FACTORY ORGANIZATION AND COSTS charged in the Cost Record, this form should be filed in a binder and arranged according to the article manufactured from this material. PRODUCTION ORDER No.... To Foreman Department Date. You are hereby authorized to manufacture the following; MATFRIAL. RfQ jmt: FOR ABOVE ORDER : QUANTITY f RATE AMOUNT Received by Authorized by_ Standard-Size S%^g){ TIME REPORT (Form 9H) (Form 9 H) TIME REPORT Department Name Week ending 19 _ Occupation PRODUCTION ___^____ _ TIME CHARGE DATE ARTICLE I MADE | DEFECTIVE | GOOD || BEGUN | FINISHED | HOURS | % n \ MA HINE | PROCESS Correct: Standard Size 5} x 7 These reports may be made out either daily or weekly, according to the wishes of the management; but in this instance the Pay Roll book used is ruled to admit of the time being entered daily if desired. The Time Report described in Chapter XXXVII differs from this one in two essential features. In the other system the report is made out by using a time stamp. In this system the time is reported without the use of a clock. Again, in the other instance a separate card or Time Report was used for each operation by each employee ; whereas in this system the employee may use one Time Report for the entire day or week, entering the operations or machine number in the COMPLETE COST SYSTEMS 337 columns appearing under the caption "Charge." This method necessitates the use of a Summary Sheet for analyzing the amount of time chargeable to each operation or machine. According to the other method several reports might have to be made out each day. The result in either case, of course, would be the same. The question of convenience is the only one involved. After these reports have been entered in the Pay Roll the total time of each employee should be transferred to the Analysis of Pay Roll, explained later. In making these transferring entries only the number of hours and minutes need be entered in the column, for the time of each employee; but it must be kept in mind that this time must be entered on the proper analysis of the Pay Roll sheet, as a separate sheet is used for each operation and the employee s number or name entered at the top of this sheet that is, at the top of the column, of which there are several. If the Time Reports are kept on a daily basis this summary should be made from day to day; but if the time is reported weekly then it should be entered weekly. At any rate the total time of each employee for the week, charged in each operation, should correspond with the total number of hours entered in the Pay Roll book for the same employee and for the same period of time, as the total of this Analysis of Pay Roll for all of these operations for the week or month must correspond and balance with the total shown in the Pay Roll book. PAY ROLL (Form 10 F) (Form 10 F ) PAY ROLL For two weeks ending _ _19 DEPARTMENT AMOUNT OF PAY DISTRIBUTION NO. ROOM CLOCK so. EARNINGS DEDUCTIONS AMOUNT PAYABLE MON. TUES. WED. THUR. FRI. SAT. MON. TUES. WED. THUR. FRI. SAT. App oved: Correct: Standard Size 12 Several similar designs on this subject have been presented in the preceding systems and also in Chapter XIV; and it is only considered necessary to mention the fact that this Pay Roll book or form is not provided with columns for divid ing up or distributing the labor into direct and indirect, because this information 338 FACTORY ORGANIZATION AND COSTS is shown in detail in the Analysis of Pay Roll, next to be explained, according to operation and employee, which is all that is necessary in the way of distribution. Apart from this, this form is the same as the others, and is to be used for the same purpose and in the same manner. ANALYSIS OF PAY ROLL (Form 10 L) (Form 10 L) ANALYSIS OF PAY ROLL Operation - - -- - Month of - - *&. . DATE CLOCK NO. CLOCK NO. CLOCK NO. CLOCK NO. | CLOCK NO. TOTAL HOURS MINUTES HOURS MINUTES HOURS MINUTES HOURS MINUTES HOURS MINUTES HOURS MINUTES TOTAL RATE AMOUNT Standard Size 8x8 Reference has already been made to this form in the Time Reports; but the final disposition of the results obtained or furnished at the end of the month, relating to hours and labor cost, have not been explained. A separate sheet should be used for each operation, and the name or clock number of each employee entered at the top of the several columns running from left to right appearing on this form that is, only so far as the employees engaged on operations of this kind are concerned. The information relating to time of employees chargeable to this operation is shown in the Time Reports of each em ployee, as has already been seen. At the end of the week or month the total number of hours and minutes in each of these columns, provided for each employee connected with these operations, should be shown, and his rate per hour entered. The amount should then be extended at the bottom of the sheet, and the total of all these employees in hours and minutes, and the labor cost relating to the operations for the week or month, should be ascertained and entered in the Ma chine or Process Cost records, to be mentioned later. The total labor cost of all these operations added together, plus the indirect labor, should equal the total amount of the labor shown in the Pay Roll book for the same period. This form is not used for any other purpose; and after COMPLETE COST SYSTEMS 339 this information has been obtained the object has been accomplished and the form should be filed in a binder according to operations and arranged according to date. PRODUCTION REPORT (Form 11 M) This form, which is also used in Chapter XXXVIII, should be made out in the factory, and is for the purpose of obtaining the total production of the vari ous articles manufactured during the month in the several operations, including the finished product. The explanation given in the system mentioned regarding this form applies here also, but a separate report should be made out for each operation; whereas in the former instance it was only necessary to report the finished product. The total production of each article for each operation, accord ing to this system, should be transferred at the end of the month to the Cost Sheet, according to the article produced, and entered in the proper columns, showing the production according to operation. Where the finished product is shown in the report, it should be entered as a deduction in the Cost Sheet just mentioned. The total cost as well as the rate entered in this report, should then be transferred, so far as finished product is concerned, to the Finished Stock records and entered in the column headed "Production," and the balance shown in the Stock Sheet increased by this amount. The report should then be filed in a transfer binder according to operation and arranged according to date. STOCK SHEET FINISHED PRODUCT (Form 12 E) (Form 12 E) STOCK-FINISHED PRODUCT C|a Ma> Ml* Article. . _ _ . Bin ssification Is imum 0. No. PRODUCTION ORDERS SALES i UNFILLED BALANCE : DATE QUANTITY RATE M tOUNT RECEIVED CANCELLED SHEET NO. QUANTITY RATE M IOUNT ORDERS QUANTITY RATE AM OUNT i 1 1 Standard Size 12 x 14 This form has been explained in Chapters XVI and XXXVIII; and with the exception that no columns are provided showing the selling price and the profit 340 FACTORY ORGANIZATION AND COSTS on the article, it is precisely like the one referred to in Chapter XXXVIII, and is to be used for the same purpose and in the same way. MACHINE AND PROCESS COST RECORD (Form 13 L) POWER COSTS AND DISTRIBUTION (Form 13 M) These forms have been explained in Chapter XXXVII, and all remarks made therein apply here. The labor cost and the number of hours, however, are taken from the Analysis of Pay Roll described in this system instead of directly from the Time Reports, as in the other system. COST SHEET (Form 13 S) (Form 13 S) COST SHEET N< Article - -- ). DATE, DESCRIPTION NO.1 NO. 2 NO. 3 NO. 4 NO. 5 MRS. MIN. QUANTITY MRS. MIN. QUANTITY MRS. : MIN. QUANTITY MRS. MIN. QUANTITY MRS. MIN. QUANTITY Total for Process F Process C Material C Tot n Proces Tot n Proces Finished Average C month ate per Hour ost iost al Cost -first of month al _ >-end of month. _ _ _ . | Product lost per unit Standard Size .<>. x 12 A record such as is herein illustrated may be designed, generally speaking, in two ways: first, by keeping a separate sheet for each article, entering the de scriptive matter as to time, production, cost, etc., on the side of the form reading down, and the operations at the top of the sheet reading from left to right, as is shown in this form; secondly, the conditions may be reversed, the reading matter COMPLETE COST SYSTEMS 341 as well as the ruling of the design arranged differently, and several articles en tered on one sheet, as is shown in Form No. 13 M in Chapter XVII, describing Cost Forms. Either design may be used with this system, as the result will be the same. All necessary information as far as time is concerned can be obtained from a summary of the Time Reports, according to article and by operation; and the result may be entered in this record and charged to the proper article according to operation. In the Production Report referred to in this system, the produc tion of each article according to each operation is shown, and should be entered in the same manner as the time. These two factors being obtained, the rate per hour shown in the Machine or Process Cost records should then be entered and the amount extended, chargeable to the article for each operation based on the time consumed in each operation. This will then give the total process cost of the several operations, to w r hich should be added the material cost, which will then show the total cost of the articles produced during the month according to operation. To this should be added the balance or inventory of goods in process of manufacture at the beginning of the month, from which should be deducted the cost of the articles that have been finished and transferred to the Finished Stock records; the sheet will then show the inventory of goods in process of manufacture at the end of the month. If desired, the production and cost of each operation may be transferred from one operation to the other, until the last operation of finished product has been determined. This involves deducting from each of these operations the cost and the quantity transferred from Operation No. 1 to Operation No. 2, etc.; which means that the amount by which Operation No. 1 would be decreased would at the same time increase both the quantity and cost of Operation No. 2, and so on. As a result the inventory, in quantity and cost, would appear in each of these operations together with the accumulated cost; whereas according to the other method the quantities would appear, but the accrued cost in each opera tion after the first would not appear. The unit cost according to the operation of the article would, however, be more clearly shown than in the method just men tioned. In either case, so far as the cost is concerned, the result will be the same, but the second method involves more work than the first. OPERATING LEDGER (Form 16 C) The subject treated by this form has been thoroughly discussed in Chapter XXXVIII, and under Chapter XX describing various forms of this character. 342 FACTORY ORGANIZATION AND COSTS BILLING SYSTEM (Form 17 A) CREDIT CERTIFICATE (Form ISA) These forms are explained in the systems in Chapters XXXVI and XXXVIII, and also in Chapter XXI, describing such forms. DAILY ANALYSIS OF SALES AND COST (Form 19 B) (Form 19 B) DAILY ANALYSIS OF SALES AND COST Dat d 19 A B C D |l E ! F G H SALES COST SALES COST , ^A.FS COST SALES COST SALES COST SALES COST SALES COST SALES COST n 1 J K L M N P SALES COST SALES COST SALES COST SALES COST SALES COST SALES COST SALES COST SALES COST 1 Standard Size U>< x 16 Where a number of departments are kept and the sales classified according to these departments, both at the selling price and cost price, and where it is not necessary to make a regular abstract of the sales showing to whom sold, Sales Sheet number, the amount of the sale, etc., a General Summary sheet will be better adapted to these conditions than any other kind of form, where the sales are particularly active. Where customers buy a great number of articles which have to be classified under several different headings in a record of this kind, this form is presented as a result of the experience in connection with operating systems under such conditions. The results shown should be posted and handled as in the preceding system. REGISTER OF ACCOUNTS PAYABLE (Form 21 B) For explanation see Chapters XXXV and XXXVIII, and also Chapter XXIV, explaining sundry forms of this character. COMPLETE COST SYSTEMS 343 CHECK VOUCHER (Form 22 B) THE A. B. C. CO. Check Voucher No._ Favor of DATE !| AMOUNT OF DEOUCT , ONS AMOUNT AMOUNT OF DEDUCT|ON8 AMOUNT INVOICE PAYABLE INVOICE PAYABLE I, DISTRIBUTION DEPARTMENT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT ACCOUNT NO NO. NO NO. NO NO. Approved for Payment: Correct: Standard Size 7ft * 7 iForm 22 B) I- lil I K O a z HI Check Voucher No New York 19... FIRST NATIONAL BANK NEW YORK Pay to the order of $ Dollars In full payment of account THE A. B.C. COMPANY. President Secretary Standard Size ?K VM The difference between this form and the one explained in the preceding system is that this Voucher is a combination of the Accounts Payable Voucher and the Check Voucher just mentioned. The date and amount of the invoice, together with any amount deducted for discount or allowances, as well as the net amount payable appear in the upper section, on the inside of the Voucher; 344 FACTORY ORGANIZATION AND COSTS whereas the distribution, specifying the department and account chargeable, appear in the lower section. The section showing to whom the amount should be paid and constituting an order on the bank, appears on the back of the Voucher. All postings to the Operating Ledger as to distribution, as well as the manner of entering this Voucher on the Register of Accounts Payable, should be handled in the same way as the Accounts Payable Voucher. When this Voucher is paid, however, it should be entered in the Cash Book; whereas in the other system a separate Check Voucher was made out in addition to the regular Accounts Pay able Voucher. When this Voucher is sent to the individual or company in w r hose favor it is drawn, all documents referred to in describing the other Voucher should be detached until this Voucher is returned by the bank after having been paid. The documents in question should then be attached and this Voucher filed ac cording to number, as is explained in the system preceding this and also in Chap ter XXV, relating to Vouchers. CASH BOOK, 23 A. See Chapters XXVIII and XXXVI. INVENTORY OF MATERIAL, 45 A. See Chapters XXIX and XXXVIII. PROFIT AND Loss STATEMENT, 53 A. See Chapters XXXI and XXXVII. BALANCE SHEET, 55 A. See Chapters XXXI and XXXVII. CHAPTER XL MECHANICAL OFFICE APPLIANCES " Special attention is called to the fact that not a line of this chapter is advertising paid or otherwise and the only object of the author is to acquaint the reader with modern methods of this character, and to give an idea of their value. The only names given are those necessary to describe the device. If the reader does not already know the company manufacturing the machine in which he may be interested, the author will be glad to furnish this information." Purpose of this Subject in the Work How Appliances are Explained General Advantage Proper Conditions under Which to Use. THE purpose of introducing a chapter on modern office devices in a work of this kind is to present information to the manufacturer which may aid him in the organization of his office and in the handling of the immense detail con nected with the majority of manufacturing plants. In compiling the various records that must be made the saving of time is a very important item, provided it can be accomplished without a sacrifice of accuracy. The clerk hire generally necessary in the office of a large plant acts as a dead weight on the profits, and any device which promises to lighten this burden on the cost of production is at least worth careful consideration. Also, since the general purpose of mechanical office devices is to lessen the indirect expenses of a factory, the discussion of the topic is clearly within the scope of a book on Factory Costs. It is purposed as far as possible to explain the various mechanical devices without specifically endorsing or recommending any particular machine; and it is hoped that the reader will be able from the information furnished to form an opinion as to what particular machine or device will be of most benefit to him in the conditions existing in his business. Should the information not be suffi ciently clear, it would be well for the reader to send for a descriptive catalogue or for a representative of the company manufacturing the device in which he is interested. As stated in the note at the head of the chapter, the author will be glad to furnish such information as he is able. The position of the author in connection with modern office devices is one of unqualified approval of the subject as a whole. This is a long way from approval of particular machines. In fact, conditions to which office devices have to be adapted vary so much in different instances that the choice of a machine is hardly a matter to be dealt with on general grounds. Most of these devices are invented 346 FACTORY ORGANIZATION AND COSTS for special purposes and to meet special needs, and depend for their sale on the existence of the conditions for which they were particularly devised. The point to be kept in mind, however, is that it is just as much an advantage for the office to have the latest and most modern methods of handling office de tail as it is for the factory to have the most modern machinery for handling the product. It is one phase of the modern tendency to eliminate useless labor and to reduce costs to a minimum. Many of the devices treated of in this chapter are useful not only in the office, but they may be used in the factory itself as a more convenient and accurate means of gathering the detailed information, such as hours of labor, time of opera tions, etc. ; essential items in making out pay rolls and finding the cost of different articles. Four distinct advantages are urged in behalf of mechanical offices devices in general viz : 1. They save time in collecting, arranging, and calculating the different items that must be handled in office management. To illustrate this it is only necessary to refer to the function of those time stamps and clocks which register the time of employees on cards in such a way that the computation of the week s pay is only a matter of a short addition and easy multiplication. If wage tables are used even this is dispensed with, as there is then no necessity for the double handling of time records, a feature of the ordinary methods of computing pay rolls. In collecting data for finding costs, the time of beginning and completing operations is usually registered on cards by the workman himself in writing. The use of time stamps in the factory effects a considerable saving of time in this respect alone. 2. They obtain greater accuracy with less labor incurred. Calculating ma chines gain in accuracy by reason of eliminating the personal equation in the operation itself. They serve to guard against that peculiar error occasionally occuring in the calculations of the best of bookkeepers, where again and again the same error is made at the same point. The only source of error in these machines proceeds from the recording of the figures on the machines in the first place; and as this is essentially a matter of personal attention, it seems impos sible to guard against it entirely. All this, of course, is under the supposition that the machine itself is in order. Much emphasis should be placed on the increase of accuracy in accounts fol lowing the use of duplicating and mimeographing devices. By means of these machines errors of transcription are entirely avoided. Whatever errors may exist are at least constant in every record. MECHANICAL OFFICE APPLIANCES 347 3. Through their use the clerical force may be reduced, either in actual dif ference in numbers or in the class of clerks hired. That is to say that the man agement may often substitute a machine, with a clerk of ordinary intelligence and moderate pay, for the skilled employee whose wages are necessarily high. 4. They arrange the work in better form for inspection and use than do the old pen and ink methods. The printed tabular forms and loose sheet devices are surely easier to deal with than cumbersome books and written columns, which have been used from remote times in the accounts of manufacturing firms. In introducing a set of mechanical devices in an office all four of these features must be considered. The benefit derived in one way may be more than cancelled by the accompanying inconveniences in another direction. If there should be, for instance, sufficient detail in an office to keep one adding machine busy, and if this detail was so divided among several clerks that one clerk would have to wait until another clerk was through using the machine, the investment in the machine would be a failure because of the time lost; for in that case the cost of using the machine would be greater than the cost of doing the same work with out it. Another instance of this appears when the time clocks or time stamps in a factory, for recording the time of workmen on tickets, are either so few in num ber or at such distances from the workman that considerable time is lost in walk ing from the place of work to the clock to register and back again. Here it is clearly seen that what is saved in accuracy of time reporting is more than lost by the time taken to register. Mechanical devices are like many other things in life they must be used under proper conditions to obtain the proper results. Just as much care should be exercised in their introduction as in the installation of other new methods in the factory, or of a cost system itself. That is to say, the methods and the num ber of methods employed should depend entirely on the office organization. There is another phase in connection with mechanical devices which is of great importance. To be used economically a machine must be operated at or near its capacity for use. An operator of any machine must be sufficiently skilled in its use to obtain such results if the machine is to pay. He must be able to work it with both speed and accuracy, otherwise the work could be done more quickly and with less cost by the ordinary use of pen and ink and the head. It would be well in many cases where there is, say, only one machine in an office, for one person to do all the work required on the machine, after the man ner in which stenographers are now employed. It is only by some such means that both the full capacity of the machine and the services of the operator are obtained. 348 FACTORY ORGANIZATION AND COSTS There are many extensions in connection with the pay roll where from one to three persons are employed, taking from one to three days a week in the calcu lation and final arrangement for payment. Should wage tables be used in con nection with other proper mechanical devices at least 75 per cent, of this time might be saved. In every case where cost systems are in use, bringing with them the gathering and arrangement of so much detail, there is no question that me chanical devices would save at least 50 per cent, of the labor in the compilation of the many sets of figures. To sum up the present position, there is no doubt that proper mechanical devices, in connection with the handling of factory and office detail, are just as much an important factor in the reduction of the cost of production by the sav ing of indirect expense as any other factor treated of in this connection. The questions remaining open relate to the selection of such devices as will be best adapted to different circumstances. With these brief general remarks on devices as a whole, we will pass on to the consideration of particular classes of instruments and machines used. The uses and advantages of each will be described as they are taken up separately. The mechanical devices in the market to-day which are of value in keeping up the factory organization, insuring accuracy of results, and the saving of time, may be classified as follows: Calculating and computing machines. Adding and listing machines. Typewriting machines with mechanical device attachments. Duplicating and printing machines. Addressing machines. Time clocks. Time stamps. Wage tables. Check stamps. The Phonograph. Counting machines. Filing devices and loose-leaf ledgers. These will be considered and described in the following chapters in the order given. CHAPTER XLI CALCULATING AND COMPUTING MACHINES Sixteen Machines Mentioned, of Which Six are Illustrated by Cuts. THE usefulness of automatic calculating machines and machines which list and add at the same time is not even debatable. The increase in their general use in the last decade is a sufficient answer to any question as to their place in the modern business world. Wherever it is possible to pass such work over to machines it should be done, both for convenience and accuracy. The performing of the fundamental arithmetical operations has always been considered as an example of the mechanical processes of the mind, and the scale of wages paid to such clerks is an indication that the work on which they are employed is not considered of a high grade. This general sentiment has existed for centuries, and one of its natural results has been the endeavor to invent some kind of a machine to do this automatic work and relieve the brain of all the fruitless toil involved, as well as to avoid the ever-occurring errors due to mental operations. The famous endeavor of Charles Babbage in the early part of the nineteenth century to construct a ma chine that would perform the operations of higher mathematics as well as the simple operations of arithmetic, and at the same time record them, was the real beginning of the modern attempt to accomplish this end, which has resulted in the several different machines in the market to-day. None of the later machines have been constructed upon such an ambitious plan as Babbage s, but they have succeeded in what they have tried to do. Calculating machines may be divided into two general classes, those merely indicating results and those printing the result at the same time with the opera tion. The most common form of the former is the familiar "Slide Rule," used al most universally by engineers for approximate calculations. There are a great many calculators made on the slide rule principle, some of which are straight and some circular in shape. Some perform addition and subtraction only; while others are adapted for multiplication and division as well as for more com plicated operations of mathematics. The "Thatcher" and the "Omnimetre" are examples of the slide rule cal culators. 350 FACTORY ORGANIZATION AND COSTS The cut shows the face of the dial used in the Sexton s Omnimetre. By com bination of the different dial plates, computations in no less than ten different functions of mathematics may be performed. These functions are as follows: The fundamental operations, logarithms, squares, square roots, cubes, cube roots, fifth powers, fifth roots, sines tangents, versed sines, and secants. SEXTONS OMNIMETRE Some of the circular forms of the slide rule are modified in such a way as to make them applicable to a great many conditions, and are capable of complex operations. In the Engineering Magazine of July, 1904, Mr. Geo. H. Seward mentions one, the invention of Mr. Carl G. Barth, which was able to handle eleven of the twelve variables that enter into the determination of the most economical way to remove a required amount of stock for a piece of lathe work, the one remaining variable not incorporated in the slide rule being the "Stiffness of the Work." CALCULATING AND COMPUTING MACHINES 351 It is apparent .that this form of calculating may be put to several uses in the factory itself, but is not on the whole adaptable to commercial uses where the results must be exactly expressed in dollars and cents. One class of adders that have accomplished this more or less conveniently work on the principle of revolv ing dials. Such are the "Calcumetre," "Herring s and Webb s Adders." The "Locke Adder" is a type of bar calculator. The "New Idea" calculator is designed to exhibit ready-made multiplications occurring in pay roll and labor cost sheets. It consists of two encased revolving barrels, one within the other; and, as shown in the illustration, is worked by two projecting knobs at either end. The figures required to represent the number of hours or pieces appear in the open slot at the extreme left. The rates by week, day, or hour, or prices per piece, are stationary above the shutter movement. To find the result, turn the inner knob until a shutter opening shows beneath the desired rate; then turn the outer knob until the desired hours (or pieces) show at extreme left. When the result appears in the shutter opening all other figures are shut out. The slot beneath the shutter is used for divisions of the hour into such fractions as may be required. m;W7.5t8t:ssi5m.^^^^^ NEW IDEA CALCULATOR The " Arithmachine " is an ingenious adding device, four and a half inches by one and a half inches by three-fourths of an inch, which operates by endless chains in contact with a numeral disk. It is operated with a stylus. Similar to it and adapted to computations with larger numbers is the "Gem" adding machine, of which a cut is given. The stylus is inserted in the endless- chain gear and moved according to the numbers operated on. The additions show in the register above the fact. Turning the screw at the lower right hand clears the register and makes the machine ready for the next computation. Except in special cases, however, the best results in office work are obtained by the use of machines made more on the principle of the typewriter, where the operator registers the figures by pressing down the keys of the instrument. At this point one class of machines completes the calculations by the use of a crank, 352 FACTORY ORGANIZATION AND COSTS GEM ADDING MACHINE THE " MILLIONAIRE while the other class indicates the results immediately, or by a repetition of press ing down the keys, if necessary. The crank machines are fitted more for large computations, as in insurance work, or where there is a great deal of multiplication to be gone through. This is generally done by multip ying by one figure at a time and then combining the results. For instance, if it is wished to multiply by 6, an arrangement of the number to be multiplied is made on the machine and the crank turned six times. Among the principal crank machines are the "Millionaire," "Unitas," "Tri- CALCULATING AND COMPUTING MACHINES 353 umphator," "Thomas," "Odhner," "Tate," "Burkhardt," and the "Baldwin." The "Millionaire" differs from most other crank machines because, in performing a multiplication or division, only one turn of the crank is required for each figure in the multiplier or quotient, instead of one turn for each unit of each figure. The carriage containing the multiplier and product rows shifts automatically instead of by hand. The two factors always appear in two straight lines just above the product, thus affording an easy check in each calculation. Any amount set up on the marker slides appears in a straight line directly underneath, allow ing an easy check by the operator. THE " UNITAS " CALCULATING MACHINE The "Unitas" is a machine which has several distinct features. It shows, in one operation, no less than four different elements. For instance, in the opera tion of division it shows simultaneously the dividend, divisor, quotient, and remainder. Likewise in figuring discounts it shows grand total, percentage, dis count, and the remainder. The gear-wheels are arranged so that any one part must do its work before another part will move. This "running in check" is a guarantee against mistakes in operation. The cuts show the appearance of the face of the machine. The markers which govern the actions are shown as working in grooves, by the side of which are the numbers to be operated on. There is a "split" lever at the lower left- hand corner, one part of which controls the operations which show in the large figure slides, the other part doing the same for the small figure slide. When the two parts are united they perform the same operation, which is the one indicated by the setting of the large part of the lever. When they are separated the opera- 354 FACTORY ORGANIZATION AND COSTS tion in the small slide controlled by the smaller part is always opposite to that indicated by the large part. For example: in division the quotient appears in the small figure slide, while the product of the quotient and divisor appears in the upper large slide, thus acting as a check on the operation. All figures can be cancelled within a fraction of a second. Machines similar to those described above save time and prevent any number of errors in dealing with long lists of material and finding the values of the dif ferent items. It may be said of them, as in fact of the majority of the purely computing machines, that they are assembled in small and convenient forms for office use. The "Comptometer" and "Mechanical Accountant" may be mentioned among examples of key-operating adding machines which resemble typewriters in their general working methods. The "Comptometer" is a machine built to deal principally with the four fundamental operations. Two numbers are printed on each key on the board, one in black and large in size, the other in red and small. The sum of these two numbers is always nine. There are seventy-two keys in all, allowing every com bination needed. COMPTOMETER For adding all that is necessary is to depress the keys corresponding to the numbers in black to be added. To add, say, 459 and 362, the operator would depress first 9 in the unit s column, 5 in the ten s, and 4 in the hundred s. This CALCULATING AND COMPUTING MACHINES 355 may be done simultaneously, as the results are recorded by separate columns. Then perform the same process for the number 362, and the result shows in the register. To multiply, one picks out the multiplicand on the machine and strikes it repeatedly, the number of repeats depending on the figures in the multiplier. Thus, to multiply 872 by 675, the number 872 is first depressed five times; then moving the same number, 872, one place to the left, it is struck seven times, which is equivalent to multiplying 8,720 by 7, or 872 by 70. Likewise moving the 872 another place to the left and striking it six times multiplies it by 600. The addition of the partial product is performed automatically, and the result indicated in the register. The operations for subtraction and division are slightly more complex but similar in principle. Subtraction is performed by adding the complement of the subtrahend; while division consists of a mechanical way of performing repeated subtractions. The speed of the machine is limited only by the necessity of allowing one key to resume its normal position before striking another key in the same column. Considerable skill is required to operate rapidly, but no more than in running a regular typewriter with sufficient practice. Results can be obtained in less time, perhaps, than with any other machine. Without such skilful operating it is used at a great disadvantage. When installed in an office it should have a regular operator. There are several interesting and valuable features emphasized by the manufacturer, but which are not germane to the present description. The "Mechanical Accountant" is another key-operating machine, somewhat resembling the "Comptometer," and works on the same general principle. In addition to the regular dials it has another set working simultaneously with the keys and indicating just what key to strike, thus leaving the operator to prove his work as he goes along. CHAPTER XLII ADDING AND LISTING MACHINES TYPEWRITING MACHINES WITH MECHANICAL DEVICE ATTACHMENTS Seven Machines Mentioned and Six Illustrated by Cuts. ALL the calculating machines spoken of thus far are valuable for purely cal culating purposes only. Where it is merely necessary to go through the opera tions without collecting the items they are quicker and more economical in every respect. Where they are applied to lists previously made the same is true. Their use has now spread until there are comparatively few banks or large commercial houses where one form or another is not employed. In spite of the fact that adding and listing machines seem to cover the ground of calculating machines, there is a wide difference in their actual field of useful ness. The listing machines are not as rapid on the whole as the others, since they have double work to do and are assembled with that end in view. There are several makes of adding and listing machines, covering anywhere from a comparatively small part of the office detail to practically the whole field. Besides these many of the typewriter companies are marketing their machines with attachments capable of doing much or all of the listing and billing arising in the average commercial office, and some of them have adding and subtracting attachments to sum up the items thus listed. Among the best known adding and listing machines are the "Burroughs," "Pike," "Comptograph," " Addograph," "Universal," "Wales," and "Duntley." The "Burroughs" machine has practically the same facilities for subtracting and dividing as were found in the key- working calculating machine. For multi plying the process is exactly the same as in the Comptometer. The process of subtraction and division may be explained in detail; and it should be borne in mind that the principle for doing these operations is similar in all machines, while the differences are merely incidental. One number is subtracted from another by adding its complement, and casting out one from the first place at the left of the subtrahend. For instance: the complement of 7 is 3; of 82, 18; and of 204, 796, etc. Then 9 minus 7 equals 9 plus 3 equals 12, which gives 2 for an answer when the one on the left hand is cast out. To make this rule prac tical on the machine the subtrahend should be preceded by a row of nines to the left-hand limit of the keyboard. Now supposing it is desired to subtract ADDING AND LISTING MACHINES 357 6748 from 39867. On the machine is placed a complement, or on the keys themselves, as in the case of the "Comptometer." From this the complement of 6748 is at once seen to be 3252. Then add as before, the keyboard looking as follows: 39867 999993252 000033119 33119 is the correct result. Since division is a short way of subtraction, the same principle of using the complement of the division is used. For instance: When 3455 is divided by 15, the quotient shows how many times 15 can be subtracted from 3455. It is found to be 23 times, with 5 left over. The dividend 3455 is set into the machine, and when the handle is pulled it shows on the adding wheels. According to the rules for subtraction the complement of 15, which is 85, is used; and since "15" is contained in the "34" of the dividend "3455," it is set into the keyboard by depressing the keys in the columns that correspond to the adding wheels on which the "34" appears. A "9" is set into the left of the "85," making "985," in order to carry the first figure of the quotient into the next column. Now set the repeat button and draw the handle once. The number 101955 appears on the adding wheels, the "19" taking the place of the "34." The "1" at the left indicates that the 15 has been subtracted one time. Since the "19" is larger than 15, a second subtraction of 15 can be made. Pull the handle again, and the number "200455" appears. The "4" is less than 15, hence the 15 can not be subtracted again. The "2" at the left shows that 15 is contained twice into 34, and the "4" is the remainder. Since 15 will not go into "4," release the "985" and set it over one place to the right. This sets the complement in such position that the 15 can be sub tracted from the "45" which shows on the adding wheels. Watch the adding wheels and pull the handle. At the first pull the "45" changes to "30," and at the second to "15." Since 15 is contained into 15, pull the handle again, and "00" shows up, and a "5" remains at the right. The whole amount on the wheels now is "23005." The "23" is the quotient and the "5" is the remainder. Speaking of listing machines in general, while these operations of subtraction and division can thus be performed, it should be remembered that the greater use is in addition and multiplication, for which all the machines are much better fitted. The uses that machines of this kind, which both list and add, can be put to 358 FACTORY ORGANIZATION AND COSTS are almost numberless. By the use of carbon paper duplicates can be made, which can be entered from the print as permanent records. This is a guarantee that all copies will be alike and that there will be no error in transcribing accounts. Another valuable feature found in most listing machines is the provision for tabulating figures in different measures or in foreign money. Thus for particular j purposes a machine may be fitted to add columns of gallons, quarts, and pints; or square feet and inches; or s. d. To meet the various needs of different commercial houses many varieties of machines have been devised. The " Burroughs" machine is made in no less BURROUGHS than fifty-eight different styles, many of which are adapted only for particular purposes. Some of them have a "split device" by which they can add two, three, or even more columns at a time. When set at "Normal" the machine does the work of a regular machine, in case of a nine-column machine with a listing and totalling capacity of 9,999,999.99. When set at "Split 1" it lists and adds two separate columns at the same time; and when set at "Split 2" it lists and adds a set of columns of figures at the right while listing, but not adding, another set of columns at the left. Another form of this machine, shown in the cut, is one that is especially de signed for pay roll and cost records. It is especially useful in connection with summarizing information from original records. It is arranged to print and add hours and quarter-hours in the left-hand section, and amounts of money in the ADDING AND LISTING MACHINES 359 right-hand section, with one pull of the handle. In this way a section of the pay roll may be drawn up to show the time and earnings of each employee, with the grand total of hours in the column and the dollars and cents in the other. This machine may be arranged also to convert minutes into hours in the cen tre section instead of quarter-hours, as shown. When used for ordinary \vork, this machine has a capacity of 99,999.99 in the right-hand section, and 9,999,999 in the left-hand section, the fractional column not operating excepting at the will of the operator. The "Pike Adding Machine," shown in the figure, is another machine which lists and automatically adds at the same time. The proper keys are depressed for the item which is to be recorded and added, and the handle at the right is pulled to its farthest position forward, then released and allowed to return auto matically. The total wheels at the front of the keyboard show at all times the amount accumulated in the machine. When the machine is clear the wheels display a row of ciphers. PIKE ADDING MACHINE There is an arrangement for totalizing at any desired point, without inter fering with the grand total. This is accomplished by the use of an eliminating key, which allows the number to be printed without being combined with the 360 FACTORY ORGANIZATION AND COSTS lists already made. There is also a "repeat key" and an "item counter" at tached to the machine. The "Comptograph," of which a cut is given, is another machine with special features which make it desirable in certain circumstances. The work is arranged in sheets, not in rolls; and there is an automatic locking device which prevents writing off the lower end of the sheet or running the sheet out of the machine. Another valuable feature is that the work is visible while it is actually being ADDING AND LISTING MACHINES 361 printed. Arrangements are made for cross-footing, and the keyboard furnishes the same facilities for computation previously described. The "Addograph" is a machine used to combine the results of an adding machine with the typewriting machine. It performs the work while the type writer copies the totals. It can be disconnected at any time, leaving the type writer free for ordinary use. The "Universal" is, in general, fitted to do the same work as the others. The printing section and accumulator are so arranged that they can be split, together or independent y, at the will of the operator, between the fourth and fifth, fifth and sixth, sixth and seventh, seventh and eighth banks of keys, making four separate points at which the machine can be split according to the requirements of work to be done. When the printing section and accumulator are split together, the ma chine will list but not add in the left-hand column, and list and add in the right-hand column, carrying the total past the split point to the full capacity of the machine; and will print the correct total while the machine is so split. When the printing section only is split, the machine will add simultaneously in two separate columns and print the correct totals, provided the two separate columns do not exceed the entire capacity of the machine. When the accumu lator only is split the listing appears as a single column, but only that part of the column to the right of the split will be added. UNIVERSAL The "Wales" and "Duntley" are still other examples of adding and listing machines. Both are of the types known as "Visible" writers. 362 FACTORY ORGANIZATION AND COSTS TYPEWRITING MACHINES WITH MECHANICAL DEVICE ATTACHMENTS The use of the typewriter in offices is so general and has been for so long an established custom that any space given to their description would be entirely superfluous. Lately, however, there have been attachments added to the ma chine which list and add in the manner described above. The advantage of such attachments in an office where the conditions do not justify the expenditure for a separate billing machine is obvious. It brings a greater per cent, of this de tailed labor into the same class with ordinary letter writing. REMINGTON The "Wahl" attachment on the "Remington Typewriter" may be mentioned as an example of this. It supplies the advantages connected with an adding machine and in no way interferes with the use of the typewriter in its ordinary functions. The attachment consists of a totalizer or adding mechanism which travels on the carriage truck, and an actuating mechanism which is connected directly with the figure keys of the typewriter. This mechanism may be dis connected where desired by moving a lever, and even when it is connected with the figure keys of the typewriter, the machine will not add except as the totalizer passes over a driving-wheel at the writing centre. The totalizer moves freely on the truck, and may therefore be shifted easily to any position on the scale. ADDING AND LISTING MACHINES 363 This allows the adding of columns at any part of the sheet or the mounting of additional totalizers on the rack. Subtraction is provided for by a mechanism that will make it as simple as addition, and avoids the roundabout methods usually necessary. Its use in inserting discounts, credits, freight allowances, etc., in billing work makes this an important feature, besides which it allows the easy correction of errors in addi tion caused by the operator striking the wrong keys. The cut will show the general appearance of the machine with the attachment. ELLIOTT-FISHER The "Elliott-Fisher Standard Writing- Adding Machine" is a modern device covering practically the whole field of office work. It provides for doing much of the work at one writing, thus avoiding the necessity of re-handling. The ma chine comes mounted on a special table so fitted that the work can be done on loose leaves of any size whatever; or it will accommodate regularly bound books, and make its entries directly on the pages. A free downward stroke, a considerable swing, provides for as many as twenty copies at once if desired, by using carbon paper; and these copies may be ar ranged so as to give all or any part of the records shown on the original. The 364 FACTORY ORGANIZATION AND COSTS t surface upon which it writes is flat and stationary, and this lends considerable freedom to the movements of the machine. The cut shows the general appearance of the billing adding machine, which differs in some details from the bookkeeping machine. Although the adding mechanism is an integral part of the machine it is under separate control of the operator, and may be disconnected by moving a shift-lock. The adding register remains fixed over each column; and as the items are written, when the printing action comes to this column, the depressed keys engage the adding mechanism and the register records the written number in its proper unit or decimal place, and adds the figures of the item to those already accumu lated in that column. When fully equipped the twenty-four-inch machine has fifteen different adding registers, and writes, manifolds, tabulates, and adds sep arately in each one in a single operation. Most of the standard typewriter companies now have attachments or exten sions on their machines which fit them for making out statements, bills, etc.; and some have adding attachments also. The Duntley machine, before men tioned, is connected in this way with the Monarch Typewriter. This adds ma terially to their value in the office. The bill is printed directly over the sales sheet as in the regular billing adding machines, and by the use of carbon paper the two records are made simultaneously. Their principal disadvantage in this work is that they do not work on a flat surface, which to a degree limits their use. CHAPTER XLIII MULTIGRAPHS AND MIMEOGRAPHS Five Different Machines and Four Illustrated by Cuts. IN the sending out of circular letters or similar material where there are sev eral repetitions of the same statements to be made, the typewriter properly gives way to some form of multigraphing or mimeographing machine. It is often desirable to get out a thousand or more copies, and the typewriter or billing machine, using carbon paper, can at best duplicate the reading matter compara tively few times. The original forms of the multigraph employed gelatine pads or clay prepara tions with special ink. This form is hardly suitable for business demands, both on account of the trouble in making the master records and the limited number of copies that can be obtained with one impression. Some form is needed where the master copy can be easily made, and where if desired an indefinite number of copies may be taken at an economical rate of speed. One form of machine accomplishing this result does so by the use of specially prepared paper, which is perforated and used on the principle of the ordinary stencil. As a class these may be designated as stencil mimeographs, and the " Rotary Neostyle" and " Edison Rotary Mimeographs " may be taken as examples. The stencil paper itself consists of a specially open and long-fibred prepared stencil sheet coated with a patented wax composition, behind which is placed a silk sheet called the "perforating silk," when it is designed for use on the type writer. The paper that is designed to reproduce handwriting does not have this silk backing, but is placed directly over a steel plate in which are cut intersecting corrugations producing, whenever a stylus is passed over the surface, fine punc tures in the line of writing. These corrugating points are so fine and minute as to be invisible to the naked eye, each one being but a two-hundredth part of an inch from the next. For autographic purposes the stencil sheet is placed face down in a frame, pressed into place, and locked there with tightening catches. The sheet of paper upon which the copy is to be printed is placed upon a blotter resting upon a board beneath the stencil sheet, and an ink roller is passed over the sheet, forcing the MULTIGRxlPHS AND MIMEOGRAPHS 367 ink through the perforations onto the paper. An indefinite number of copies can be taken. For office purposes, however, the form that is used on the typewriter is more convenient and effective in every respect. The stencil sheet, backed by the silk and an. oiled board, is inserted in the typewriter, first covering the face of the sheet with oiled tissue paper. The operator then writes exactly in the same way as in ordinary typewriting, with the exception that no ribbon is used. The stencil is made by striking the type against the combined sheets with an even touch, which to obtain the best results should not be too hard. This causes a waxed coating of the stencil sheet to be removed and held by the " perforating silk" in the lines and shape of the character so struck. Any standard typewriting machine will make a good stencil copy. In the best forms of mimeograph this stencil sheet is placed on a cylinder and backed by an ink pad. The ink itself is brushed or painted inside the cylin der, and is distributed by capillary attraction through the pad. The machine part has now to provide for making this cylinder pass over a paper surface so that the pressure will force the ink through the perforations and make the de sired copy. ROTARY NEOSTYLE The cuts will show the appearance of the cylinder and how the stencil sheet is fastened on it. These machines, known as "rotary" mimeographs, perform much more rapidly than the others. The average speed is from forty to seventy copies a minute, or two thousand to four thousand per hour. The greatest drawback to the use of the stencil mimeographs lies in the trou ble of arranging and preparing the stencil sheet and mounting it on the ink pad. The cost of stencil sheets is also to be considered. Once mounted, however, an unlimited number of copies may be taken. 368 FACTORY ORGANIZATION AND COSTS The "Beck" duplicator is an example of the film duplicators. These are very handy where only a few, say from twenty to sixty, copies are wanted. The original, written with typewriter or pen with ordinary ink and on ordinary paper, is placed face downwards on the surface of the film, which is coated on a cloth backing, and left for two minutes, producing the negative. Copies may then be rapidly taken by placing sheets of plain paper over this negative. The copies dry at once, making it unnecessary to use blotters. The "Beck" duplicator will reproduce handwriting and typewriting at the same time, and works in two or more colors if desired. BECK DUPLICATOR The films are arranged on rollers, so that when one copy is made the film may be wound up to a new position. The ink is soon absorbed in the film, and it is not long before another negative can be made directly over a place which has been previously used. This may be repeated several times. The different machines of this type differ only in details w r hich are of no particular importance. The "Gammeter Multigraph" is a more pretentious machine, and differs from the classes described above by using its own type, and thus virtually becoming a multiple typewriter or a printing machine on a small scale. Instead of fur nishing copies it reproduces the original with the same type. It is thus more of an office printing-press than a duplicator, and finds its greatest usefulness when so used. The cut will show the general appearance and arrangement. The type is contained upon a revolving supply drum or cylinder, which constitutes the left half of the machine as shown. As this drum is revolved an indicator points to MULTIGRAPHS AND MIMEOGRAPHS 369 the letter desired and the pressure of a single key throws the type character through a channel at the right of the machine on to the printing drum. The handling of the type with the fingers is unnecessary. There is no keyboard, but every character is thrown out on the drum by the one key. GAMMETER MULTIGRAPH In this manner each line is set up and spaced. The distribution of the type is accomplished by the same process, a distributing key sending each character back to its proper place. For the printing a wide ribbon similar to the tpyewriter ribbon is wound over the drum and the machine is ready. With every turn of the drum a copy is turned out, the ribbon moving from one spool to another. With a motor a maxi mum rate of six thousand copies an hour can be obtained. There is an attach ment for counting the number of copies made, which acts on the principle of the cyclometer. There are also many useful secondary attachments for sale with the machine. Electrotypes can also be used on the "Gammeter," thus enabling it to print any style of type desired. With an electrotype on office form printing there is substituted a direct inking attachment in place of the ribbon, thus producing an actual printing plant on a small scale. Another machine using its own type is the "Writerpress," which consists of a flat type-bed upon which metal type is arranged for printing, and a moving, rubber-covered impression roller. The type is set into a type frame and this frame placed in the machine. The paper is then fed one sheet at a time against the paper guide, and the rubber-covered roller passing over produces the desired impression, the return automatically ejecting the printed sheets. 370 FACTORY ORGANIZATION AND COSTS " WRITERPRlS " In addition to typewriter type any prirfer s job type can be used if desired; thus display lines and other forms of type und in advertising can be used as easily as ordinary type. In the same manner a (ut or engraving can be placed any where in the type form and printed with le other copy. Electrotypes of any form can be made to order, thus holding j form for future use when additional copies of that particular circular may be retired. The print itself is made from an inke ribbon which automatically moves across the surface of the type form, the i tensity of shade being regulated by means of impression screws. When set uj the machine can be operated by an office boy. CHAPTER XLIV ADDRESIXG MACHINES Four Machines Mentioed and Illustra CLOSELY related to the multignij \mg machine! machines, used where a firm has a ocular list oi suitable for addressing papers in a mvspaper office of the machines will often do the wck of twenty Such a machine is of great use in listng n.- in a ing envelopes, for any firm having a-egular correspoai When they are applicable, addresing machine- repi time and labor, at the same time prducinr a maximum from error. In such cases they are tvery essential foat.uk The " Addressograph " is one macrine which makes a s It is assembled in two ways one T ith a chain attachmen^ names rapidly to the printing centre, ind the other known Addressograph, where the printing isdone by me - of a rubl plates that have previously passed uder the ink pads. The (Sail is best adapted for short lists; whilethe card index form is esp< i;. where the number of addresses reaoes five hundred or more. Th show the general way in which the} work. The mechanism is sum takes very little practice or skill to oltain good results. As in most Tin. chines, motor power may be used, in.vhirh case a maximum of threr tli complete addresses an hour can be pinted. The addresses are easily Iron or new ones inserted, and the whole se are filed in metal drawers and kept n f tor use at any time. The "Addressograph" is often user. in pay departments for listing employee names, numbers, and rates on pay shcts. and printing the same on time cards. pay envelopes, etc. The "Dupligraph" is a machine fc producing imitation typewritten letters. It prints a complete letter, each withi different address, and sinns a l ;n--simile signature in different colored ink at on impression. It is used only with the chain form i the "Addressograph " shown. The ! ,udy of the letter is set with sliding type, th type merely sliding from the setting :ajj into the type-holder, the length of theietter line. In addition to producing cir- 372 FACTORY ORGANIZATION AND COSTS " ADDRESSOGRAPH " (MACHINE) " ADDRESSOGRAPH " (METAL PLATE) ADDRESSING MACHINES 373 " ADDRESSOGRAPH " (OPERATING MACHINE) Albany Belting & Supply Co., 1375 Washington Ave., Albany, N.Y " ADDUESSOGRAPH (SLIDING PLATE) 374 FACTORY ORGANIZATION AND COSTS DUPLIGRAPH cular letters, the "Dupligraph" can be used in printing price lists, blank forms, instruction sheets, specifications, insurance forms, etc., etc. Any portion can be changed without disturbing the balance of the form. It runs either by foot treadle or motor, and attains a speed of from eight hundred to twelve hundred copies an hour. The "Office Graphotype," operated by motor, is a simple machine for making names and addresses on metal plates to be used in connection with the "Metal Card Index Addressograph." The average operator will make from four to five hundred plates per day on this machine. The "Belknap" is a stencil form of addressing machine which has been suc cessfully used. The stencil plates themselves are not expensive, and it costs from one-quarter to one-half a cent to do the actual stencilling. The machine is capable of great rapidity, reaching from 4,000 per hour by foot-power to 6,000 and 7,500 by a one-tenth horse-power fan motor. The stencil cards are trans- ADDRESSING MACHINES 375 BELKNAP ferred from the cabinet to the distributing box of the machine; and as each card is automatically passed through the machine it is dropped in the receiving box in its original order. The card cannot, without intention, be duplicated or skipped. CHAPTER XLV TIME CLOCKS Eight Devices Mentioned and Eight Cuts Shown. THERE is no class of mechanical devices more necessary in a factory than the time-recording instruments. The importance of the time element in the cost of production has been previously emphasized, and the consequences foreseen if the rules relating to beginning work in the morning or at noon and quitting at night are either slack in themselves or loosely enforced. This has always been a ground of dispute the employer feeling keenly the cumulative effects of repeated tardiness on the part of several workmen, and they in turn feeling that the few minutes they lost personally were of no importance and that the protests from the office were prompted by pure hoggishness. To put this recording of time on a business basis, it was long the custom to hire a set of timekeepers whose duty it was to register the men as they passed in and out; and this manner of timing the men is even in large vogue to-day. The whole system contains two faults which make it ineffective to produce the results desired. First, it adds a wholly indirect expense to the cost of produc tion; and, second, it is inaccurate. Even with the best of intentions a timekeeper will make mistakes; and the whole ground is left open to favoritism or negligence of duties in small things. That the timekeeper system is unsuitable to modern business conditions must be the conclusion from whatever aspect it is examined. It was the invention of time clocks with mechanical means of registering the coming and going of men that solved the difficulty relating to tardiness and lost time in factories. There are several varieties of clocks now on the market which provide for the making of records automatically anyw r here from a day to a week, without the slightest attention beyond that of winding. Their records are sure and indisputable; and an employer can now know just what the records of his men are with respect to promptness. The registering arrangement is naturally applied to the making of the pay-roll, which is greatly simpl fied by this means. The records may be so arranged for a week that the time worked is at once ap parent, and the pay itself a matter of simple computation or reference to wage tables. The use of these clocks has also been extended to the several departments TIME CLOCKS 377 where they record the beginning and end of workmen s jobs. The advantage of this is at once apparent. If a workman has to register on his card the " time begun" and the "time finished" of a job, he knows that the records will be a matter of inspection and any unusual delay on his part will need explanation. The period between the "time finished" record on one job and the "time begun" record on the next measures the time not devoted to working; and as this will be shown by a comparison of cards the whole time of a man under the super vision of the management. By a comparison with previous jobs and with other men s work, his exact status in the factory is easily determined. Naturally such a condition of affairs will lend no encouragement to "soldiering" and wasting of time. The time so recorded is made the means of finding exact labor costs of arti cles, and is of inestimable value in establishing an effective cost system. This method of cost finding also serves to bring out the efficiency or lack of efficiency of foremen. One of their duties is to keep the work laid out in advance in such a way that each man will be kept busy all the time. If he has not planned this out correctly the interval between jobs, as shown by the time cards, will tell the story. It is either the fault of the workman or the foreman, and an impartial judgment is very easily obtained. To accomplish these results the instruments themselves must be accurate, and they must be practically installed in each department. Accuracy is best ob tained by synchronizing the whole system of clocks, the time being corrected hourly from a master clock. This is comparatively easy to do and the expense is slight. A greater number of clocks can then be installed, the ct>st of each being slight, as very expensive clocks are unnecessary except in the case of the master clock. It also permits the workman to record his "time in" and "time out" in his own department, and not at the door of the factory. Altogether it may be said that the registering time-clock in some form is one of the essential devices for the proper organizing of a factory, and is one of the first steps to be taken in determining of actual costs. There are several makes of clocks for the purpose of automatic time-recording and cost keeping differing only in particulars. Because of this similarity it has been thought unnecessary to insert cuts of all the different kinds of clocks, and only a few are given for the sake of illustration. The "International," for instance, provides for nearly every phase of the subject. The registering "In" and "Out" is done by means of cards, one for each man. The cards are all in one rack the "Out" rack each in its particu lar place, when the shop is empty. As a man comes in he takes his card out of the "Out" rack, places it in the proper part of the clock, records the time, and 378 FACTORY ORGANIZATION AND COSTS iimmmmmmiiiu IIIIIHIIIMIMilllllllll 9991991991919919911911991 TIME CLOCKS 379 TIME CLOCK REGISTERING No NA DEP T. ^ *3 OUTt U M 1 Pit ar4. lllhU Mm MMM I. him rt llUlfc U M4 > H< ~ JftA*Z,.~t No. NAMB ty** j{ J{cu(& DAY MORNING AFTERNOON OvERTlML o IN OUT IN OUT IN OUT MOM ffr rut <7 fi- MO f j m {Q fRl -rfr IAT X SUN TOTAi Tl 4 ^7 _M,^ (.% O TOTAL WAGES FO WICK.. ./L /..yCv.._ No. nun Ib , < TIME CARDS 380 FACTORY ORGANIZATION AND COSTS then puts it in its place in the "In" rack. The same routine is followed as he goes out, when he changes his card again to the "Out" rack. Thus, by a glance at the racks, the superintendent can tell who are at work and who have not yet come in. The cards themselves are so arranged that the time records are easily summed up, and from them is obtained the data from which the pay-roll is made out, Each employee can register as fast as they can pass in single file. Provision is thus made for an indefinite number of employees, a great number simply necessitating a large rack. If there are so many men that time is lost in the process, two or more clocks are used. The cuts show the International clock, together with the racks on either side for the records of jobs "started" and "finished." There is also a foreman s job- filing case, filled with jobs ahead for the different men. As the cards in the pock ets on the "jobs ahead" rack are used up, the foreman distributes new jobs from his filing-case, taking care to see that no man has a blank pocket which might be the cause of lost time. When a workman takes a job out of his "job ahead" rack pocket, he stamps the time on it by means of the clock mechanism and places it in his numbered pocket in a rack on the opposite side of the clock called "jobs in operation." This shows he has a job in hand. When he completes his job he stamps his card and drops it into a finished job receptacle, and at once takes another job from his "job ahead" rack pocket. The advantages of this method have been pre viously shown. There is also a rack which records suspended jobs, such as those lasting over night or placed one side by rush orders. Of course the time of stopping and renewing work are stamped on this card as in the other case. An arrangement is also added providing for the automatic use of a two-color ribbon to indicate "Lates" or "Irregulars" at a glance. The machine automatically lifts the card to the proper day and indicates its initial when an employee registers. The "Bundy Key Recorder" follows the same general method, except that in registering "In" and "Out" the employee uses a key which records the time, with his number, on a slip of paper inside of the clock. The arrangement of the keys on racks is similar to that of the cards, there being an "In" rack and "Out" rack. Afternoon time is marked by underlining the figures, and time going out is marked by a star. There is also a " Bundy Autograph Recorder," which is useful if the establish ment is not too large. It provides a place for an employee to write his name and stamp the time directly by the side of it. The " Dey Time Register" is of the same class as drum-dial registers. A glance at the cut will show the general reason of this name. On these machines the employee presses the pointer in the hole TIME CLOCKS 381 opposite his number to register the time of arrival or departure, and a bell rings indicating that the hour and minute of the day have been printed on the record inside the register. This record is securely locked up inside and is accessible only to the party in charge of the machine. The records are made in any form, suitable for nearly all kinds of work. They may be registered by the day, two days, or the week, at two, four, six, or even more, records a day. The records are arranged conveniently in consecutive num bers, and in a form handy for making out the pay-roll. The "Dey Machine" also utilizes the two-color ribbon in making its records. " DEY TIME REGISTER " A separate machine, known as the "Dey Cost Keeper/ is used in conjunction with the "Dial Machine" for cost purposes. The paraphernalia accompanying 382 FACTORY ORGANIZATION AND COSTS this machine for use in the departments for cost finding is similar to those already described, consisting of racks with pockets, with cards to record the time of dif ferent jobs. The "W. H. Bundy Card Time Recorder" is another make of clock fitted to fulfil the functions described in the foregoing pages. As shown in the cut, the arrangement of the "In" rack and the "Out" rack is the same as the Inter national. In registering a card with a bevelled corner is used, which ensures the correct way of inserting the card, so that errors such as registering on the wrong side or upside down are impossible. There is also an indicator on the clock dial to show when winding is necessary. Attachments for marking tardy registrations with red ink, and also for ringing bells at certain specified hours in the various departments of the factory, are provided, thus making it useful as a programme clock. "W. H. BUNDY TIME RECORDER" The "Simplex Time Recorder" carries this idea still further. There is a but ton for each employee, and all that is necessary for him to do is to press this button as he passes the clock. The pressure of the button operates a lever having a steel recording point, which makes an indelible perforation on the time sheet inside the recorder. The time sheet is fastened around a vertical cylinder which revolves in unison with the clock. The employee cannot make a record without ringing the bell, which rings with each and every record. Two records cannot be made with one ring of bell. An unlimited number of registrations can be made by any employee with abso lutely no setting of recorder for "In" and "Out." TIME CLOCKS 383 Any number of employees may be ringing "Out" while others are ringing "In." The "Hawley Time Register" differs from the preceding ones by using a sensitized paper on which individual markers trace continuous lines during the time "In." The rate is adjusted to move the paper one inch per hour. It is so arranged that at the right a space remains at the end of the week, in which the number of hours appear graphically on the sheet instead of in figures; the rate and the wages due may be calculated. It is especially adapted for the time method of paying wages. The "Morse Time Recorder" registers the time by means of knobs instead of keys or cards, each employee having his own knob. As he comes in he turns his knob down towards the right, and his record is registered inside. On going out he merely throws the knob back to its former position. This clock has the merit of time saving, for as many men can register at once as can come in reach of the plate on the front of the clock. "In actual service one of these machines has recorded ninety-six people out in forty-six seconds." While the employees register in the order of their arrival, the records come out of the clock as if they had registered in their regular number order one, two, three, etc. Many of the machines described, in fact most of them, have "Motor Drive" attachments which may be purchased with the machine. The purpose of these attachments is to lessen the actual work of operating the keys. They are ar ranged so that they may be connected or disconnected with the machine at will. Among other functions performed by clocks the ringing of bells at different times in different places should be mentioned. This is accomplished by a dial at tachment in the main clock case, which revolves and so brings a series of metal pegs in contact with one of a set of paralleled wires. An electric circuit is thus com pleted and the bell connected therewith rung until the peg passes on. The pegs are adjustable, and the clocks may be fitted to give any system of signals, how ever complex. Automatic cut-outs stop the signals during the night or over Sunday. An automatic calendar switch is furnished when the programme varies from day to day. These provide for every day of the year, even including Feb ruary 29th of leap year. Such clocks are known as "Programme Clocks." The "Frick Programme Clock" is a well-known example of this class. There is a small clock face called the detector clock, which for running requires a current a trifle stronger than is necessary to ring the signal bell. When the current grows dangerously weak, this clock stops, and automatically rings a different-toned bell to give warning that the batteries need attention. The Programme Clock can be used at the same time as a master clock for synchroniz ing the clocks of a plant. One of the contacts may release the throttle of the whistle at the time of beginning or stopping work. Altogether it is very useful 384 FACTORY ORGANIZATION AND COSTS in automatically and correctly performing many duties that would otherwise be a course of labor, and would always be questionable as to accuracy. WATCHMAN DETECTORS When night watchmen are employed in or about a plant, time-registering appliances designed to keep an exact record of the time at which a night watch man passes certain points again prove of valuable aid as time detectors. WATCHMAN S TIME DETECTOR The recorder is placed in a security lock in the office, and connected by care fully insulated wires to stations by which the watchman is supposed to pass. As he passes he operates each station in turn, and this causes a record to be made on a sheet in the detector at the office. The record is generally made on a paper dial, which revolves by a clock movement and is lined so as to divide the sheet into hours and minutes. It is also divided into concentric circles, each of which is devoted to one man. Thus several men with different keys may rec ord their visits to a single station. The record itself is made by needles, each punching a hole as it is operated from its own separate station. If the station is not visited, no record appears. The wires are carefully insu lated to prevent intentional short circuits, which might be made by an unscrupu- TIME CLOCKS 385 Ions watchman. The mechanism is either actuated by an electric current from batteries, in which case the watchman s action at each station is merely to close the circuit, or, as is often the case, each station consists of a magneto which is operated by the watchman to produce a current which will affect the registration on the office dial. Where the magnetos are used there is of course no need of batteries. The "Simplex" and "Watchman s Time Detector" are examples of the magneto type. The most familiar applications of the watchman detector device are the uses made of it in connection with the telephone by the police in our cities. CHAPTER XLVI TIME STAMPS Six Different Makes Illustrated by Ten Cuts. ONE of the mechanical devices with a particular use relating to time is the time-stamping machine. These machines are made to accurately stamp the time in indelible ink on a card or paper. They are particularly useful in a factory for the stamping of time cards of the jobs given to the employees. In this way they perform the function of the clock time recorders just described. When it is un desirable or unnecessary to have the clock installed, these time stamps perform the same office in collecting the time spent on the several jobs, and the records are STANDARD TIME STAMP 387 made with such certainty that their use is advantageous. There is no appeal from the records, for they speak for themselves as to the record of time. The essential features of a time stamp are a clock that either keeps correct time or is synchronized with a group; a stamp and a changeable plate connected with the clock mechanism, which records the time shown by the clock. The accompanying cut of the "Standard" time stamp shows how these may be arranged. A shock-absorbing mechanism partly obviates the injurious effects on time-keeping caused by the repeated jars of the stamp. A locking mechanism is also contained, which prevents shifting while the impressions are being taken. AUTOMATIC TIME STAMPS 388 FACTORY ORGANIZATION AND COSTS The "Follett" time stamp is of the same general appearance, with the differ ence that the clock itself does not turn the hour, minute, and meridian wheels. A special motor actuates them and the clock merely releases these wheels at cor rect intervals, and is thus relieved of .much of the strain. The "Automatic" time stamp is another kind, which, in addition to indicat ing the date and time, in hours and minutes or tenths of hours, may be so ar ranged that individual printing plugs may be inserted between the dating device and the dial plug, the imprint showing the name or number of the plug used at the time. This permits the particular transaction to be characterized by a word or number, under which it can be referred to at any subsequent time. The same company manufactures a modified form of this time stamp, called the "Duragraph." The time cards or job tickets used with this have a repre sentation of a clock dial with any desired subdivisions of the hours, together with printed forms for summing up the time denoted on the dial and the wages earned. The dial face is so divided that the elapsed time may usually be deter mined at a glance without any subtraction of hours and minutes. Only the counting and addition of the fractional hour divisions indicated by the imprints remain to be done. The "Commercial" time stamp differs from others because it does not in itself contain the clock, but is controlled electrically by a master clock, which may thus synchronize any number of stamps. It is made of fine tool steel and so avoids any charge of being delicate or easily put out of order. Simplicity is its strong point, and there is a corresponding gain in strength. To this end it omits the skipping device which allows for the odd ending of the months and leap year, but requires setting at the beginning of each month. The type wheels are actuated by a spring exerting a pull of fifty pounds a minute, which makes the action so strong that no amount of gumming will prevent the perfect setting of the type. The machine is sold with a guarantee against abusive use for a period of twelve years. The last two cuts of the Commercial Time Stamp shows how a time stamp may be used in a small establishment in place of the more costly time clocks to register the time "in" and "out." They may also be used in the different de partments of a larger factory to record the passing of jobs through such depart ments. The printed forms of the cards herewith illustrated show how the records appear. The card used for recording the jobs in the departments is particularly valuable as a tracer. The "Electric" time stamp closely resembles the "Commercial," and like the "Commercial" is synchronized by a master clock. It can be used as a time recorder for cost keeping in the way described just above. TIME STAMPS 389 COMMERCIAL TIME STAMPS 390 FACTOKY ORGANIZATION AND COSTS COMMERCIAL TIME STAMP No. Name HS. MS. our IN OUT , IN OUT , IN 4 OUT . IN 5 OUT 6 IN NOV 4 2-13 PM 1908 OUT 7 OUT > IN 8 OUT IN 9 OUT 10 IN OUT NOV 4 2-09 PM 1908 Total Hours for week: Ratf npr Knur Wapes rlue for wpplf .^ TIME STAMPS 391 TRACER FOR ORDER NO. For Quan. Dia. Thick Hole Grain Grade DEPT. DATE Time In Dept. ORDER Rec. AUG 27 9-00 AM 1908 Fin. AUG 27 4-35 PM 1908 ELASTIC Rec. AUG 27 10-00 AM 1908 Fin. AUG 27 10-27 AM 1908 cii ir-ATF" Rec. AUG 27 11- 00 AM 1908 Fin. AUG 27 11-40 AM 1908 MIXING Rec. AUG 27 12-00 PM 1908 Fin. AUG 27 12-20 PM 1908 CM A VlVfl Rec. AUG 27 12-26 PM 1908 Fin. AUG 27 1-01 PM 1908 K1I N Rec. AUG 27 1-17 PM 1908 Fin. AUG 27 1-42 PM 1908 TRI7INO Rec. AUG 27 1-59 PM 1908 Fin. AUG 27 2-24 PM 1908 np A niNf; Rec. AUG 27 2-30 PM 1908 Fin. AUG 27 2-55 PM 1908 TITQTIlWtf; Rec. AUG 27 3-00 PM 1908 Fin. AUG 27 3-30 PM 1908 IN^RFT-TION Rec. AUG 27 3-14 PM 1908 Fin. AUG 27 3-27 PM 1908 i> A r~ Kivr; Rec. AUG 27 3-31 PM 1908 Fin. AUG 27 3-49 PM 1908 c MII>P>I Vf^ Rec. AUG 27 3-59 PM 1908 Fin. AUG 27 4-19 PM 1908 Return this sli P TOTAL TIME to Mr Geo. N. Jeppson when order is finished. 392 FACTORY ORGANIZATION AND COSTS The " Calculagraph " is a combination time stamp and time calculator. It actually subtracts automatically the elapsed time between the beginning and end of a period, provided it be less than twelve hours. In this way it acts as a stop watch, printing its own results ; and bears the same relation to time stamps that the totalizer does to a billing-typewriting machine. It avoids all error in the sub traction of one time of day from another. This makes it a valuable device in many different businesses, and one that applies directly to the timing of a workman on a job. It does away entirely with the pencil and card method, and avoids the errors of mental subtraction in the office. The machine itself looks like the cut. To register the beginning of a job, the workman puts his card under the plate and pushes the right-hand lever. This "CALCULAGRAPH" 8: 1$ --^ CM- j4* "^ i" (1 *^ 3 & i r\^ ^ X /? i e> xCb T ^"A""^ TIME EMPLOYED COMMENCED Date Job No. MACHINE SHOP Workman No Boring Drilling Grinding Planing Time Allowed Tapping Chipping Facing Milling Roughing Premium Credit Threading Cutting Off Filing Mounting Shaping Foreman Turning Quantity Total Time^ . . Rate Cost.. .... TIME STAMPS 393 leaves an impression as shown on the card printed. When he is through, he again inserts the card and pulls back the left-hand lever. This prints the number of hours and minutes elapsed on the dial faces, already printed on the cards. Its use and value in the factory is thus apparent. One of its most prominent features is that it can be used for an indefinite num ber of workmen at the same time, because the printing mechanism is in two parts, the dial and the arrow. The dials only are first printed by the lever at the right. During the interval between any tw r o records, both the dials and arrows revolve with the clock. Now, the arrows alone are printed, and since their position is recorded on the old prints of the dial faces, the elapsed time is automatically indi cated on the face of the card. In cost-finding work it saves time, avoids inaccuracy, and makes the construc tion of the pay roll very easy indeed, as the time is already calculated and the whole time is simply the sum of the different items. CHAPTER XLVII WAGE TABLES CHECK STAMPS THE "PHONOGRAPH" COUNTING MACHINES Four Different Devices Illustrated by Six Cuts. WAGE TABLES have been mentioned before, but it is well to emphasize the time saved by their use in making out a large pay roll. They come arranged to record the total wages of any number of days or hours at any reasonable rate per day or hour, and cover practically the whole field of the time method of pay ing wages. A little practice will give a clerk sufficient skill to cut the usual time occupied at this work in half. "Brain s" tables, and others of a similar char acter, are widely used in plants having a great many employees. In the " Brain s" tables the time, rate, and amount are all in one square and are printed in different- colored inks, thus avoiding the following of lines with the eye in their use. CHECK STAMPS There are any number of devices on the market for protecting stamps. Some of them merely ink the check with indelible ink, some punch holes in the paper, and some shred the paper, or roughen it, making the raising of checks a doubly diffi cult matter. CHECK STAMP LINE STAMPED ACROSS CHECK WAGE TABLES CHECK STAMPS, ETC. 395 The cut shows a machine, the "Protectograph," which stamps over the face of the check a form, "Not good for more than fifty dollars, $50$," if that is the face of the check. The dial is turned to the numeral desired and the lever pressed down. The stamp is made of steel with a surface divided into hundreds of sharp little teeth, the effect of which is, when the check is stamped, to cut each letter and figure into minute shreds and to force indelible ink into the very fibre of the document, rendering successful alteration impossible. THE PHONOGRAPH Among the most modern applications of devices for business uses the " Edison Business Phonograph," as utilized for dictating and transcribing correspondence, should be mentioned. It seems to save considerable time, for the person dictat ing can answer directly as he reads the letters without having to call a stenog rapher. Indeed, it does away with this intermediate step, as the operator tran scribes directly from the instrument to the typewriter; and it appears to make the work more accurate and satisfactory in many respects, since the dictator may speak as rapidly as he wishes and need not be interrupted by a stenographer who is trying to take notes at a speed over which she has no control. At the other end the typewriter can transcribe as slowly as she wishes, modifying the speed of the cylinder to keep pace with the typewriter. The wax cylinder is started and stopped either by the fingers or by a foot- trip, so that space on the cylinder need not be wasted. The " Phonograph" can always be set back to pick up the threads of an interrupted dictation. The records are kept in individual boxes, each numbered and accompanied with an ingenious correction sheet or sheet of direction to the operator, which facilitates the finding of the letter when wanted. The cut of the "dictation index" shows how this is accomplished. The length of different letters is checked off to correspond with the position of the pointer on the " Phonograph." Lines are then drawn from any point of the dictation, so checked by the pointer, to the several directors below as, "Listen for correc tions," "Carbon papers," etc. which act as instructions to the operator who transcribes the letter to the typewriter. This use of the index really saves con siderable time for the dictator, as he need not wait for the stenographer to turn back in her notebook and make corrections and additions. It also allows several persons to dictate on the same cylinder. Each cylinder lasts eight minutes, allowing the dictator to speak some twelve hundred words. When once used they can be shaved in an auxiliary machine by the office boy. The cylinders can stand from one hundred to one hundred and twenty-five shavings before being rendered useless. 396 FACTORY ORGANIZATION AND COSTS " PHONOGRAPH IWrVTI/T T* 1 * " PATENTED SEPT. 3. IfOT , OTHER FA TENTS PENDING. It MM! NOT W r RIM A*fi pr^htc^l ..tkoai ,r ml .o W tit. EDISON BUSINESS PHONOGRAPH CO, Or****. N. H THC 101 COHrO O 5^-10 1 1 nxii 1 1 1 1 35 40 ^K 30 1 1 1 1 I.KI 1 1 1 1 1 ni 1 1 1 1 ixr 1 1 in 1 1 1 1 IIL6MM IISTE FOII COCCTIOII5 C1NCE1. EDISON BUSINESS PHONOGRAPH WAGE TABLES CHECK STAMPS, ETC- 397 The "Phonograph" is now being used by a considerable number of large offices, and its application will become more general as time goes on. It is a time saver and convenience to the business man and is therefore an economy. One instrument is adaptable to any one of the twelve commercial currents in any part of the world through a universal electric motor with variable resistance which may be instantly changed by the operator at will. COUNTING MACHINES Counting machines are of practical use in factories for the counting of small articles in groups. They work by a ratio. In looks they resemble a scale with two scoops, or a platform and a scoop. In fact, they are a modification of two scales. To obtain the count of the contents of a box or other package, first set out the tare of the package on one of the weighing beams. From the contents of the package, place in the ratio-pan on the counting bar the number of pieces required, as indicated upon the particular side of the bar in use. Move pan along bar until the beam is in balance. The indicator above pan will then rest upon the figure corresponding with the exact number of pieces contained in the package. To obtain a given number of pieces, say 10,000, set out tare of box or package, if one is used; set pointer upon the 10,000 mark; place the required number of pieces in the ratio-pan; fill package until the beam is in balance, and 10,000 will be the number of pieces in the package. COUNTING MACHINE 398 FACTORY ORGANIZATION AND COSTS Where weight is required in addition to count, same is obtained in the same manner as upon any scale. The position of the ratio-pan when empty does not interfere with weighing; but when any material is in the pan, it must either be removed or pan set at zero. With pan at zero it may be empty or rilled, or may be removed entirely, without affecting the balance. It should be noted that piece-weights are not required to obtain the count, a handful or more of articles serving as the common measure. The bars are graduated to count on either units, dozen, or gross, or a combination of these measures. The cut of the "Standard Counting Machine 7 will illustrate the description of the method of using it. CHAPTER XLVIII FILING AND LOOSE-LEAF DEVICES Fifteen Cuts Illustrating Various Devices. OFFICE management in the last decade has made no greater progress in any direction than in the system of handling and recording letters, accounts, etc. The day of the old-fashioned set of bookkeepers journals, day books, ledgers, etc., is fast passing away; and in its place are coming the new and more con venient as well as more effective methods of conducting this end of a business. To discover the value of modern office methods it might be well to consider the features desired by an office manager. In the first place he wants the rec ords, letters, and price quotations at hand for some time back, perhaps four or five years in some cases. Further, he wants these where he can lay hold of them at once, without a long and irritating search. This need has led to the invention of the modern filing systems. Again, he wants every detail of his business to be at his fingers ends, ready for immediate reference. The numerous card systems are the result of the en deavor to meet this want. The accounts, too, he wants kept up to date, freed from the deadwood of closed or worthless accounts, and kept in such a shape that new accounts will fall easily into their proper place in the books. The loose-leaf and card systems of ledgers, sales books, etc., have been devised to this end. Perhaps the greatest need is the saving of time. It has dawned upon man agers that lost time in the office is quite as great a loss as in the factory, if not greater. The manager s time is surely more important than any employee s, and it seems strange that this feature has not always been so generally recognized as it is to-day. And if a bookkeeper s time is not as important as the time of the manager, at least it is too important to be wasted over ponderous ledgers, full of closed and long-standing accounts, with long indexes necessary to find the several accounts. The double postings, trial balances, etc., are consumers of valuable time when there are other methods by which the same ends may be reached without all the trouble and delay incident upon the older methods. Accessibility may be said to be the key-word or central idea in the organization of office management according to modern methods. 400 FACTORY ORGANIZATION AND COSTS Hosts of improvements have been made from time to time; but the greatest progress has been made along four leading lines, as shown in four particular fea tures of office detail. These four features are filing devices, loose-leaf systems, binders, and card systems. FILES To discuss or describe the uses and advantages of filing devices as a whole would be nothing less than gratuitous. However, it is pertinent to the subject to mention a few details characteristic of particular methods. In general, there are three forms in which letters, papers, and documents may be filed, which may be designated as "flat filing," "arch filing," and "vertical filing." The flat files consist of moderate-sized cases divided by leaves catalogued alphabetically, between which letters and papers are inserted flat and held ready for reference. The arch files consist of two hollow uosts mounted on a small board, together with two movable arches which fit inside the hollow posts and are thrown back FILING AND LOOSE-LEAF DEVICES J01 for the purpose of filing papers on the posts. This method necessitates the punch ing of two holes in the papers, but afterward allows of freer reference, as the papers cannot be disarranged when once they are in order on the posts. The vertical files are used for filing letters and papers on edge, inside of guides or folders which are arranged and catalogued by projecting tips on the folders. Illustrations of the different kinds of filing devices in connection with cabinet holders are given through the courtesy of the Yawman & Erbe and Globe- Wer- nicke companies. CABINETS Many firms market cabinets for filing purposes, especially the vertical files. When these are arranged in a drawer and catalogued, as in the card cases of a library, they are particularly handy for reference, being taken out and replaced easily and without disturbing the other folders. These folders may be classified either by subject, names of correspondents, geographically, chronological!} , or in any other way desired. Different parts of the large cabinet can be reserved for different items, such as bills, letters, receipts, etc. One of the most useful devices connected with the keeping of office books is the loose-leaf system, which allows the removal or insertion of different accounts 402 FACTORY ORGANIZATION AND COSTS as desired. Thus, if an account is closed or becomes dead in any way, it can be transferred to another binder, and is no longer in the way of the bookkeeper as he deals with the live accounts. As new accounts are opened they can be entered on their individual pages in alphabetical order, or in any way desired. This system may also be used to avoid the transcription of bills and accounts. For instance, the leaves of the Sales Book can be printed by carbon paper, at the same time as the bills, on the typewriter or billing machine. When the sheet is full, it is merely put in its place in the Sales Book; and the work is then completed in one stroke, as it were. It is true that loose-leaf methods are not necessarily adapted to every busi ness. Whether they will prove to be the thing needed depends on the business, its size, and many of the circumstances in the particular office. FILING SYSTEM These loose-leaf forms necessitate binders for holding them, and of these there are many different styles. One feature common to nearly all of them is a lock and key, by the use of which the manager can be sure that no leaves are inserted or removed without the knowledge of the party in charge of them. Several cuts are given here of different forms of binders. Some of them employ locking rings and others a form of clutch, of which there are many varie ties. Possibly the most used is the "post" form of binders. The following cuts to illustrate the loose-leaf ledgers are given through the courtesy of the Samuel Tatum Company and the Twinlock Company. The cuts will show the prominent features of each. Some of the post binders are automatic, but most are accompanied by a key which serves both to bind the leaves closer and to lock the binding mechanism at the same time. Some of the FILING AND LOOSE-LEAF DEVICES 403 LOOSE-LEAF LEDGERS clutch books are so finely adjusted that they will hold firmly a single leaf, as in the Kalamazoo binder. The card system devices are at once the most used and abused of the present set of devices mentioned. Much has been written about the general convenience of card systems so much, perhaps, that an exaggerated idea of their value has been impressed upon the public. Card systems are adapted to business practices in general when the business is complex, and when there are many separate elements to be continuously kept in mind. In almost any business there is room for a certain amount of card- indexing with advantage. Almost every firm has more or less of a list of persons to whom it sends circular letters, advertising, etc. A card index of these names and addresses is of material advantage. They may be catalogued under the head of "Mail Order" cards, and the list of prospective customers could be kept apart in a section of "Follow Up" cards. "Quotation Made" and "Quotation Re ceived" cards are also a matter of convenience, and prevent errors that may lead to misunderstanding and disputes. Another series might be designated as "Col lection" cards, "Credit" cards, "Stock" cards, "Indexing" cards; and still others for particular purposes. The use of cards in collecting of time "In" and "Out" of employees and of the time spent on jobs has already been described. These files are generally long, narrow drawers in a cabinet, and may have one rod or a duplex rod for the retaining of the cards in the drawers in case of acci dent. Very often there is no rod at all. The general use of these cards resembles the library catalogues with which almost every one is familiar. Referring again to the statement concerning the abuse of card systems and their general suitability for complex or widely distributed interests, it might be 404 FACTORY ORGANIZATION AND COSTS added that, the smaller a business is, the less use in general the management has for a card system. Card systems are so adapted to detail that they form a perpetual temptation to make "red tape." The danger connected with their use lies in this tendency. They are very apt to be overestimated through the enthusiasm aroused over the work already satisfactorily performed. It should be borne in mind that the introduction of any of the mechanical office devices mentioned in this chapter will be successful if it meets the four-fold divisions of advantages previously given. Nothing is gained by receiving an advantage in one way and then having it nullified by some disadvantage con nected with the device in another way. It may be stated again, for emphasis, that the proper devices to be purchased and the methods to be used can only be determined by careful study of particular conditions. These conditions will not vary to meet the methods; therefore the methods must meet the conditions. GENERAL INDEX Accountant and Manufacturer (Wherein Fault), 65. Accounts, Classification of, 203. Accounts, Departmental, 267. Accounts Payable, Register of, 186, 264, 330. Accounts Payable Voucher, 182, 328. Accuracy of Yearly Profits, 8. Actual Costs, 28. Actual Cost System, Principles of, 61. Adding Machines, 365. Adding Machines with Typewriter Attachments, 362. Addressing Machines, 371. Administrative and Selling Expenses not In cluded in Factory Cost, 28. Administrative Expenses, 207. Analysis of Cost Accounting, 28. Analysis of Cost Accounting, Central Idea or Base, 29. Analysis of Cost Accounting, Indirect, 29. Analysis of Cost Accounting, Labor, 29. Analysis of Cost Accounting, Material, 29. Analysis of Cost of Sales, 178, 234. Analysis of Factory Expenditures, 167, 283, 319. Analysis of Labor, 131, 240, 250, 260, 280, 297, 313, 337. Appliances, Mechanical Office, 345. Article, Profit on, 164. Assets (Balance Sheet), 229, 254, 303. B Balance Sheet (Comparative), 229, 254, 304. Bank Columns, Use of in Cash Book, 198. Basic Principles of Distributing Indirect Ex penses, 30, 39. Best Method of Distributing Indirect Expenses, 48. Billing System, 175, 284, 324. Bill of Material, 104, 258. Blanket Method of Distributing Indirect Ex penses, 39. Bonus Plan, Method of, 25. Bonus Plan of Wages, 24. Bonus Plan, Summary of, 26. Borrowing a System, 6. Broken Line in Forms, 65. Burden (see Indirect Expense). C Calculating Machines, 349. Cash Books (Register of Receipts and Disburse ments), 193, 288. Cash Systems, 193, 288. Cash Voucher, 193, 196. Changes in Conditions of Manufacture, 5. Changes in System, 5. Check Stamp, 394. Check Vouchers, 191, 331, 343. Classification of Accounts, 203. Classification of Elements of Estimated Costs, 238. Clock Stamp, 386. Clock Tickets, 115, 119. Clocks, Time, 376. Comparative Balance Sheet, 229, 254, 305. Comparative Profit and Loss Statement, 228. Computing Machines, 349. Contract Records, 214. Consignment Accounts, 205. Controlling Accounts, 205. Co-operation of Employer and Employee, 12. Cost Accounting, Analysis of, 28. Cost Accounting, Lack of Knowledge of, 28. Cost by Department, 152, 153, 154. Cost Keepin^ Principles, 61. Cost of Lost Time bv Hours for 600 Workmen, 16. Cost of Lost Time by Minutes for 100 Workmen, 15. Cost of Production, Illustrating Wage Rates, 21, 24. Cost of Sales, Analysis of, 233, 239, 246, 287, 326, 342. Cost of Sales, Estimated, 234, 239, 246. Cost of Sales, Register of, 178. Cost Records, 148, 262, 276, 297, 315, 340. Cost Records, Estimated, 233, 238, 244. Cost Records, Process, 155, 297. Cost Sheet, 148. Cost Sheet, Comparative, 157, 158. Cost System, Actual, General Introduction to, 60. Cost System, Departmental, 256. Cost System, Estimated, Based on an An nual Verification of Departmental Charges for Labor, Material and Indirect Expenses, 237. Cost System, Estimated, Based on an Annual Verification of Material, Labor and Indirect Charges, 232. 406 GENERAL INDEX Cost System, Estimated, Based on Monthly or Annual Verification of Estimated Cost of Class of Product according to Departmental Ma terial, Labor and Indirect Charges, 244. Cost System, Estimating, General Introduction to, 59. Cost System, Product System, according to the Process Cost Method, 334. Cost System, Product System, according to the Productive Labor Method of Cost Finding, 306. Cost System, Special Order, according to the Pro cess or Machine Cost Method of Cost Finding, 291. Cost System, Special Order, of Cost Keeping ac cording to Productive Labor Method, 269. Cost Systems, Effect on Organization, 5. Cost Systems, Objections to, 6. Costs and Production, 225. Costs, Cupola, 161. Costs, Departmental, 31. Costs, Diagram of, 30. Costs, Elements of, 29. Costs, Estimated, 162, 233, 238. Costs, Factory, 30. Costs, Machine, 155. Costs, Partial, 28. Costs, Power, 156. Costs, Prime, 30. Costs, Relation to Wage Systems, 10. Counting Machines, 397. Credit Certificate, 175, 284, 324. Cupola Production Report, 138. Currency, Deposit of, 198. Currency, Distribution Forms for Pay Roll, 197. Customers Ledger, showing Profits or Losses, 200. Customers Records, Forms for, 200. Customers Records, Relating to Foundries, 201. Cutting Rates of Wages, 11. D Day Rate, applicable to certain class only, 15. Day Rate, Beginning of, 13. Day Rate, Lost Time, value of five minutes per day, 15. Day Rate, Lost Time, value of one hour per day, 16. Day Rate, places good and poor workmen on same level, 14. Day Rate, quality of work, 14. Day Rate, removes incentive, 14. Day Rate System of Wages, 13. Defective Work Report, 165, 317. Department Accounts, 267. Departmental Cost Systems, 256. Departmental Indirect Expenses, 31. Department Costs, 152, 153, 154. Departments, Costs, 32. Departments, Operating, 31. Deposit of Currency, 198. Depreciation, 34, 51. Designs, General Introduction to, 58. Diagram of Factory Costs, 30. Differential Rate Plan, 20. Differential Rate Plan, conditions where to ap ply, 21. Differential Rate Plan, effect on employer and workmen, 20, 21. Differential Rate Plan, Method of, 20. Differential Rate Plan, relation to piece work, 20. Differential Rate Plan, summary of advantages, 22. Differential Rate Plan, table showing results, 21. Differentiating between Good and Poor work men, 21. Dissatisfaction of Workmen, 17. Distribution of Indirect Expenses, 38. Distribution of Indirect Expenses, Blanket Method, 39. Distribution of Indirect Expenses, Introductory, 38. Distribution of Indirect Expenses, on Direct Labor, 40, 41. Distribution of Indirect Expenses, on Direct Labor and Material, 41, 47. Distribution of Indirect Expenses, on Direct Labor Hours, 41, 44. Distribution of Indirect Expenses, on Fixed Ma chine Rate, 41, 53. Distribution of Indirect Expenses, on New Ma chine Rate, 41, 49. Distribution of Indirect Expenses, on New Pay Rate, 41, 55. Distribution of Indirect Expenses, on Old Ma chine Rate, 41, 48. Distribution of Pay Roll Currency, 197. Distribution of Power Cost, 156. Division of the Element of Estimated Costs, 238. Drawing Record, 212. Drawings, Patterns, and Equipment Records, 212. Duplicating Machines, 365. E Earnings, Monthly, 231. Effect of Cost Systems on Organization, 5. Effect on Employer of Differential Rate Plan, 21. Effect on Production of Fair Rate of Wages, 20. Effect on Workmen of Differential Rate Plan, 20. Elements of Costs, 29. Employee and Employer, Co-operation of, 12. Envelope, Pay, 196. Errors in Designing Forms, 64. Estimating Cost Systems, based on an annual verification of Departmental Charges for Labor, Material and Indirect Expenses, 237. Estimating Cost Systems, based on an annual verification of Material, Labor and Indirect Expenses, 232. GENERAL INDEX 407 Estimating Cost Systems, based on a monthly or annual verification of estimated cost of class of product according to departmental Material, Labor and Indirect Expenses, 244. Estimating Cost Systems, Verification of, 235, 241, 250. Estimating Records, 213. Expenditures, Report of, 194. Expense, Indirect, 38. Expense, Overhead, 7-38. Experience and Theory, 1. Factory Account, 205. Factory Costs, 30. Factory Departments, 31. Factory Expenditures, Statement of, 167, 282, 319. Fair Rate of Wages and Effect on Production, 21. Filing Systems, 399. Finished Product, Stock Record of, 144, 281, 317, 339. Fixing Rate of Wages, 12, 19. Floor Space, 51. Forms, Errors in Designing and Selection of, 6l Forms, General Introduction to, 58. F/jrms, List of, used in System, 63. Forms, Principles used in Designing, 64. Forms, Right Use of, 6. Forms, Secondary to Principles, 6. Forms, Size of, 65. Forms, Special Introduction to, 64. Forms, Wrong Use of, 6. G General Expense, Distribution of, 38. General Ledgers, 203. Good and Poor Workmen, 21. Gross Profit, 242. Growth of Business, Necessity of System, 4. H Handling of Raw Material, 266. Hours Lost, Cost of, 16. How Classification of Accounts are Charged and Credited in Ledger, 267. How to Distribute Depreciation, 51. How to Distribute Floor Space Cost, 51. How to Distribute Insurance, 51. How to Distribute Interest on Investment, 33, 50. How to Distribute Power Cost, 163. How to fix Rate of Wages, 12, 19. How to Install Department System, 244, 256. How to Select Forms, 64. How to Treat Returned Goods and Allowances in a Cost System, 284. How to Verify Estimated Costs, 232, 237, 244. Human Element in Installing Wage Systems, 27. Incentive, Lack of, 14. Indirect Expenses, Classification of, 33. Indirect Expenses, Criticism of Distribution on Direct Labor, 43. Indirect Expenses, Criticism of Distribution of on Direct Labor and Material, 47. Indirect Expenses, Criticism of Distribution on Direct Labor Hours, 46. Indirect Expenses, Departmental, 33. Indirect Expenses, Distribution of, 38. Indirect Expenses, Distribution of, according to Factory Conditions, 39. Indirect Expenses, Distribution of, on Direct Labor and Material, 41, 47. Indirect Expenses, Distribution of on New Ma chine Rate, 48. Indirect Expenses, Distribution of on New Ma chine Rate, Method of, 41, 49. Indirect Expenses, Distribution of on New Pay Rate, 55. Indirect Expenses, Distribution of on New Pay Rate, Method of, 41, 55. Indirect Expenses, Distribution of on New Pay Rate, Saving of Time, 56. Indirect Expenses, Distribution of on Old Ma chine Rate, Criticism of, 48. Indirect Expenses, Distribution of on Old Ma chine Rate, Method of, 41, 48. Indirect Expenses, Distribution on Direct Labor, 41. Indirect Expenses, Distribution on Direct Labor Hours, 44. Indirect Expenses, Distribution on Fixed Ma chine Rate, 53. Indirect Expenses, Distribution on Fixed Ma chine Rate, Method of, 41, 53. Indirect Expenses, Elements Comprising, 33. Indirect Expenses, Elements of, 33. Indirect Expenses, General Outline of, 38. Indirect Expenses, Introductory to Distribution, 38. Indirect Expenses, "Ratio," 31. Indirect Expenses, the most worrying problem, 7. Indirect Expenses, where Distribution is wrong in principle, 32. Indirect Expenses, where Fairly Accurate, 57. Indirect Expenses, where Plan of Distribution of on Direct Labor and Material may be used, 48. Individuality of Workmen, 12. Ingenuity in Devising Systems, 8. Inspection, 22. Insurance, How to Distribute, 51. Interest on Investment, 33, 50. 40S GENERAL INDEX Introduction, General, to Actual Cost Systems, 60. Introduction, General, to Forms, 58. Introduction, General, to Systems, 58. Introduction, Special, to Actual Cost Systems, 256, 269, 291, 306, 334. Introduction, Special, to Estimating Cost Sys tems, 232, 237, 244. Introduction, Special, to Forms, 64. Introduction, Special, to Mechanical Office Ap pliances, 345. Introduction to Estimating Cost Systems, 59. Introduction to Wage Systems, 10. Inventory Closing of Books, 9. Inventory of Material, 217, 232, 237, 245, 332. Invoice (Billing System), 175, 284, 324. Labor, Distribution of, 124, 240, 250, 260, 281, 314, 338. Labor, Pay Roll, 122, 240, 250, 260, 281, 297, 313 337 Labor, Workmen s Reports of, 110, 249, 259, 278, 295, 313, 337. Lack of Knowledge of Cost Accounting, 28. Leaks, 5. Ledger, Customers , showing Profit and Loss, 200. Ledger, Operating, 171, 321. Less Opposition to Premium Plan, 22. Liabilities (Balance Sheet), 229, 254, 305. Light, Heat, and Power, 33. Listing Machines, 356. List of Forms used in Systems, 63. Loose-leaf Methods, 399. Loss and Gain (Statement of Profit and Loss), 226, 252, 302. Lost Time by 100 Workmen, 15. Lost Time by 600 Workmen, 16. M Machine Costs, 155, 301, 340. Machine or Process System of Costs, 291, 340. Manufacturers and Accountants (where in fault), 65. Material, Bill of, 104, 258. Material, Inventory of, 217, 232, 237, 245, 268, 332. Material, Raw, Stock Record of, 82, 274, 307. Material, Report of Delivered, 104, 312. Material, Report of Received, 74, 272, 307. Material Requisition, 104, 247, 277, 294, 311. Mechanical Office Appliances, 345. Mills, Departments of, Machine Works, 32. Mills, Departments of, Stove Manufacture, 32. Mills, Departments of, Textile, 31. Minutes Lost, Cost of, 15. Modern Methods, Value of, 2. Monthly Profits, 9. Monthly Reports (Financial), 225. Moulders Production Report, 142. N Necessity of Fair Rate of Wages, 21. New Method of Sharing Profits with Workmen, 27. New Profession, 12. Objections to Cost Systems, 2. Office Appliances, Mechanical, 345. Operating Departments, 31, 32. Operating Departments of Foundry and Stove Works, 32. Operating Departments of Machine Works, 33. Operating Departments of Textile Mills, 31. Operating Ledger, 171, 321. Order and Sales, 223. Order, Production, 91, 257, 275, 293, 309, 335. Order, Purchase, 70, 272. Organization, 1. Overhead Charges (see Indirect Expenses) Partial Costs, 28. Pattern Costs, Customers Record of, 201. Pattern Record, 212. Pay Envelope, 196. Pay Roll, 129, 240, 249, 260, 281, 297, 313, 337. Pay Roll (Distribution of Currency), 197. Phonograph, The, 395. Piece Work, 16. Piece Work, Comparison to Day Rate, in Figures, 24. Piece Work, Increased Production, 16. Piece Work, Inspection, 18. Piece Work, Rate Fixing, 12, 19. Plant Card, 210. Power, 33, 51. Power Costs and Distribution, 156. Premium Plan of Wages, 22. Premium Plan of Wages, Comparison, in Fig ures, 24. Premium Plan of Wages, Method of, 22. Premium Plan of Wages, more Popular with . Workmen, 22. Premium Plan of Wages, Summary of, 23. Premium Plan of Wages, Table in Comparative Form, with all Plans, 24. Price Record, 214. Prime Costs, 30. Principles of Cost Keeping, 61. Printing Machines, 365. Process Cost Record, 155. Process Cost System, 291, 334. GENERAL INDEX 409 Product System, 306, 334. Production and Costs, 135, 225. Production, Cost of, Illustrated in Wage Rates, 24. Production, Effect on, due to Fair Rate of Wages, 21. Production Orders, 91, 257, 275, 293, 309, 335. Production Report, 132, 261, 316, 339. Production Report, Brass Foundry, 139. Production Report, Cupola, 138. Production Report, Moulders , 142. Productive Labor System of Costs, 269, 306. Profession, New, 12. Profit and Loss, Statement of, 226, 252, 302. Profit Sharing and Stock Distributing Plan of Wages, 26. Profit Sharing and Stock Distributing Plan of Wages, seldom used, 26. Profit Sharing and Stock Distributing Plan of Wages, only Plan where Practical, 27. Profits, Monthly, 9. Profits, Yearly, 8. Purchase Journal, 190, 239, 247. Purchase Orders, 70, 272, 307. Purchase Requisition, 67, 270, 294, 307. Purchasing Agent, 73, 79. Q Quality of Work under Differential Rate Plan, 21. R Rate, Day, 13. Rate, Differential, 20. Rate, Premium, 22. Rates, Bonus, 24. Rates of Wages, Fixing of, 12, 19. Rates, Piece Work, 16. Raw Material, Stock Record of, 82, 274, 307. Records, Cost, 148, 261, 275, 293, 297, 314, 340. Records, Cost, Estimated, 233, 238, 246. Red Tape, too much of, 6. Register of Accounts Payable, 186, 263, 330. Register of Sales and Costs, 178, 265, 287, 326, 342. Register of Sales and Costs, Estimated, 232, 237, 244. Relation of Production Orders to Costs, 102. Report, Defective Work, 165, 319. Report of Material Delivered, 104, 312. Report of Material Received, 74, 272, 307. Reports, Production, 132, 261, 316, 339. Reports, Time, 110, 249, 258, 278, 295, 313, 336. Requisition, Material, 104, 247, 277, 294, 311. Requisition, Purchase, 63, 270, 307. Right Use of Forms, 6. S Sales and Cost, Estimated, 232, 237, 244. Sales and Cost, Register of, 178. Sales and Costs, Register of, 287, 326, 342. Sales and Orders, 223. Sales and Selling Costs, 222. Sales by Territory, 221. Sales Department, Value of Costs to, 3. Salesmen s Costs, 222. Salesmen s Report, 221. Sales, Register of, 265. Sales Report and Analysis, 221. Sales Sheet, 175, 284, 324. Saving in Cost of Production, Illustrated by Wage Rates, 24. Selecting Forms and Designs, 64. Selling Expenses, 28, 207. Selling Expenses not Included in Factory Costs, 28. Sharing Profit with Workmen, New Method of, 26. Size of Forms, 65. Soldiering, 15. Special Order Systems, 291. Stamps, Time, 386. Statement of Factory Expenditures, 167, 282, 319. Stock Distribution Relating to Workmen, 26. Stock Records, Finished Product, 144, 281, 317, 339. Stock Records, Raw Material, 82, 274, 307. Stock Systems, 62. Stove Manufacturing, Operating Departments, 32. Study, Course of, 58. System, Changes in, 5. System, Details Necessary to Management, 4. System Forms, List of used in Systems, 63. System, too much of, 6. System, Value to Management, 4. System, when Necessary, 4. System, when Not Necessary, 4. Systems, Actual Cost, 256, 269, 291, 306, 334. Systems, Estimating Costs, 232, 237, 244. Systems, General Introduction to Actual Cost Systems, 60. Systems, General Introduction to Estimating Cost System, 59. Systems, Principles used in, 61. Tables, Wage, 394. Territorial Sales, 221. Textile Mills, Department of, 31. Theory and Experience, 1. Time Clocks, 376. Time Clock Tickets. 115. Time Lost under Day Rate of Wages, 15. 410 GENERAL INDEX Time Stamps, 386. Time Stamp Tickets, 118. Time Tickets, 110, 249, 258, 278, 295, 313, 336. Time, Waiting, 15. Tool Record, 211. Too Much System, 6. Typewriter with Adding Attachment, 362. Unit of Measure, 52. U V Value of Costs in Addition to Finding Costs, 3. Value of Costs to Sales Department, 3. Value of Lost Time, 15. Value of Modern Methods, 2. Value of Monthly Profit and Loss Statements, 9. Value of System to Management, 4. Value of Variety of Forms for Reference, 6. Verification of Estimated Cost Systems, 235, 241, 250. Verification of Inventories, 217. Voucher, Accounts Payable, 182, 329. Voucher, Cash, 196. Voucher, Check, 191, 331, 343. W Wage Systems, a New Occupation, 12. Wage Systems, Bonus Plan, 24. Wage Systems, Day Rate, 13. Wage Systems, Differential Rate, 20. Wage Systems, Human Element in Installing, 27. Wage Systems, Piece Work, 16. Wage Systems, Premium Plan, 22. Wage Systems, Profit Sharing and Stock Distrib uting Plan, 26. Wage Systems, Relation to Costs, 24. Wage Tables, 394. Wages, How to Fix Rate of, 12, 19. Waiting Time, 15. Where Profit Ends and Loss Begins, 9. Workman, Effect on, of Differential Rate Plan, 21. Workman, Individuality of, 12. Workman, Lost Time, 15. Workman, No Incentive to, 14. W T orkmen, Good and Poor, 21. Wrong Use of Forms, 6. Yearly Profits, 8. HOME USE CIRCULATION DEPARTMENT MAIN LIBRARY This book is due on the last date stamped below. 1 -month loans may be renewed by calling 642-3405. 6-month loans may be recharged by bringing books to Circulation Desk. Renewals and recharges may be made 4 days prior to due date. ALL BOOKS ARE SUBJECT TO RECALL 7 DAYS AFTER DATE CHECKED OUT. JNTERUBRARY LOAM UNIV. uh CALIF., BERK. 40 V 03 1995 LD21 A-40m-5, 74 (R8191L) General Library University of California Berkeley YE 14563 ii r