Standard 
 
 Costing Principles 
 
 AND 
 
 Practices 
 
 FOR THE 
 
 PLYWOOD INDUSTRY 
 
 PUBLISHED UNDER THE SUPERVISION 
 
 OF THE 
 
 PLYWOOD MANUFACTURERS 
 ASSOCIATION 
 
 1215 MONADNOCK BLDG. 
 CHICAGO 
 
 FOR THE EXCLUSIVE USE OF MEMBERS 
 Revised 1922 
 
 Copyright 1922 by Plywood Manufacturers Association 
 All Rights Reserved 
 
 PRESS OF POWER8-TY80N PTO. CO. 
 GRAND RAPIDS, MICH. 
 

(oSl 
 
 P7Va/ 
 
 General Outline 
 Revised 1922 
 
 •> 
 
 < 
 
 0 
 00 
 
 1 
 
 
 
 -O' 
 
 V 
 
 V 
 
 ' ) 
 
 PREFACE 
 
 The purpose of this Text-Book is to direct and s’ddc members of the National 
 Veneer and Panel Manufacturers Association in the compilation of their costs. 
 
 Following the general plans and principles laid down in these pages will 
 enable each member to arrive at cost figures on any and all articles or goods 
 produced that will be comparable with the costs of all other members making 
 similar products. 
 
 Total computed costs can vary greatly by differences in methods of com- 
 putation, so that members whose manufacturing methods may be identical and 
 whose actual costs are the same, arrive at entirely different results. 
 
 To avoid these discrepancies in cost figuring it is necessary that all mem- 
 bers adopt similar principles for determining their various cost factors. 
 
 Only by knowing costs and arriving at their totals through similar methods, 
 can unintelligent pricing and dangerous competition be eliminated. 
 
 An observance of the Rules and Principles set forth in this Guide will mean 
 that differences in costs, obtained by different members, will be true indications of 
 their individual abilities to produce the different articles of their respective lines. 
 
 The figures obtained will be true guides as to what goods can be best pro- 
 duced by different members, and what, if any, can be more profitably left to 
 other manufacturers whose equipment, location, or other inherent advantages 
 may be especially favorable. 
 
 The principles and rules offered are such as can be adopted by members 
 whose bookkeeping and accounting facilities are necessarily limited, as well 
 as by firms maintaining elaborate systems for cost determination. 
 
 The first section lays the foundation by giving a general outline of the 
 principles of costing and a graphical chart of Cost Analysis. The second subject 
 covers a detailed exposition of the element of Expense and its distribution to 
 product. The section on Material treats of methods of pricing and waste 
 determination; and the treatment of Labor includes the methods for computation 
 best suited to the industry. Section V treats specifically of the relation of the 
 general accounts to cost-keeping and the practical co-ordination of same. 
 Other sections added from time to time will treat specific phases of cost finding. 
 
 Especial acknowledgment is here made of the helpful counsel and con- 
 structive criticisms of Mr! W. L. Churchill in the preparation of the text. To 
 him a large measure of the credit for any accomplishment is due. 
 
 H. D. Potter, 
 
 Cost Engineer, 
 
 Plywood Manufacturers Association. 
 
 (V 
 
 N. 
 
 V 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
4 
 
 KNOW COSTS 
 
 General Outline 
 Revised 1922 
 
 
 
 IMPORTANCE OF THE PROPER KNOWLEDGE OF COSTS 
 
 Someone has said that “Knowledge is Power.” A prominent cost engineer 
 has paraphrased this quotation in its application to industry to read, “Knowledge 
 is Safety.” Certainly the foundation of safety must be laid before the super- 
 structure of power is raised. It is estimated that eighty per cent of business 
 failures are owing to faults or incompetence of one kind or another, and it is 
 safe to assume that a large proportion belongs in the category of those who have 
 not correctly counted the cost — or, perhaps more particularly, have not counted 
 all the cost. 
 
 Most industries are established for the sole purpose of making money; 
 that is to conduct their business so that the receipts will exceed the disburse- 
 ments. In manufacturing, there is but one source of revenue; namely, the sale 
 of product. On the other hand, items of cost are legion. Many of them are 
 easily identified, accounted, and allocated to product. Others may not an- 
 nounce themselves until years of supposedly successful operation shall have 
 passed, when the failure to have anticipated them may prove disastrous. 
 
 It is essential to the success of any manufacturing enterprise that all items 
 of cost be assembled within the limits of the selling price of its product. As 
 hinted above, some of them may be the growth of years and not be felt until 
 the end of the period, but they are nevertheless very real factors and must be 
 dealt with accordingly. 
 
 It is true that correct bookkeeping will show whether a business is being 
 operated at a profit, and it has been argued that, as a periodical financial state- 
 ment will show whether a concern is making money, a cost system is unneces- 
 sary. In the case of a small enterprise engaged in the manufacture of one product 
 as for example artificial ice or common brick, the above argument might hold, 
 although even in such cases a check on departmental costs would tend to control 
 waste and promote efficiency. In industries of a more complex nature, how- 
 ever, it is not only essential to the most economical conduct of the business to 
 know the actual amount of each factor of cost, but imperative also to know the 
 proportion of each of these factors absorbed by each product manufactured. 
 It has been frequently demonstrated in actual practice that without proper cost 
 accounting it is possible and even not improbable that some one or more classes 
 or articles be unwittingly made at a loss. Examples of this could be cited in the 
 Plywood industry and even in our own Association. 
 
 The concern which uses efficient costing methods has a distinct advantage 
 over its competitor who relies solely on experience and the quotations of others 
 for its price-setting policy. However, the too common tendency of the latter 
 class to get business by meeting competition with a shade lower price reacts 
 upon the former by forcing down the market. The fact that his ignorant com- 
 petitor may not long survive does not add to his potential advantage, as the 
 woods are always full of those ready to experiment at the expense of the whole 
 industry. The story is told of a manufacturer who offered to send his expert 
 accountant at his own expense to teach his competitor correct cost finding, and 
 the comment is made that he was a man of keen business ability and not simply 
 a philanthropist. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
General Outline 
 Revised 1922 
 
 PURPOSE AND AIM 
 
 5 
 
 PURPOSE AND AIM 
 
 The function of any efficient cost system should be two-fold: First, to es- 
 tablish correct costs as a basis for price setting. Second, to portray manufactur- 
 ing conditions clearly. It may also be so designed as to promote efficiency and 
 to form the basis for production planning. 
 
 While cost accounting may be regarded as closely allied to general account- 
 ing, it is not necessarily a part of the general accounting system and tied into the 
 books although this is both feasible and desirable. It differs, however, in that 
 general accounts give a record of actual transactions with the exact amounts 
 involved while the former should be the result of an analysis of these transactions 
 giving the proper distribution of expenditures to product. Owing to the im- 
 possibility of anticipating with mathematical precision the budget of expendi- 
 tures or the amount of labor hours, sales or other units used as a basis for distri- 
 bution to product, it is not possible to exactly balance cost accounts with general 
 accounts; but it may be done with a degree of accuracy sufficient for all prac- 
 tical purposes, and at the same time insure the inclusion of all items of cost, 
 both current and accruing, in correct proportions, the general accounts acting 
 as a check against errors. 
 
 In designing any cost system, the service required of it and the form of cost 
 wanted should be kept constantly in mind. A system may be devised to show 
 costs by departments, by classes of products, by individual jobs, by the square 
 foot or by the piece. It may be planned to give collective costs after completion 
 or it may predetermine costs and set standards of efficiency. After this ques- 
 tion has been answered, the problem is to provide the simplest possible machin- 
 ery for attaining the desired end. There are many headstones erected to the 
 memory of “systems,” beautiful in detail and design, but which were like the 
 whistle of Lincoln’s steamboat — it took all the steam to blow the whistle. The 
 fine deductions which may be made from some cost records are very interesting 
 but unless they may be made practical use of and pay their way, they are super- 
 ficial luxuries. *“When the cost of effort approximates the value of result it 
 is unprofitable to go further.” 
 
 * “Fundamentals of Cost and Prodt Calculations” by Robt. S. Denham. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
6 
 
 COST divisions 
 
 General Outline 
 Revised 1922 
 
 DIVISIONS OF COSTS 
 
 The operation of any efficient costing method involves analysis of the dif- 
 ferent items of expenditure shown by the general accounts and a logical appor- 
 tionment of same to product. They fall into three natural and distinct groups 
 as graphically illustrated below; the proportions shown being approximately 
 correct as applied to Plywood manufacturing. 
 
 < Cost > 
 
 Expense 
 
 Material 
 
 Labor 
 
 Profit 
 
 < 
 
 
 
 
 The order of expenditure is that shown, Expense having to be incurred be- 
 fore a foot of Material is purchased or a hand raised by Labor. Each of these 
 three divisions has in turn its own component factors and reference is made to 
 the chart between pages G and 7, showing graphically the whole structure of 
 Cost. The elements of Cost are also given in tabular form on pages 10 to 12. 
 
 EXPENSE 
 
 The Expense (or Overhead) factor of costs is the element of greatest varia- 
 tion in interpretation and application to total costs. 
 
 It has three main sub-divisions; Manufacturing Expense, Administration 
 Expense and Selling Expense. 
 
 Manufacturing Expense 
 
 Briefly, under Manufacturing Expense will be found sub-divisions pertain- 
 ing to Rent, Equipment Expense, Steam Generation, Power and General. 
 
 Rental Expense covers all items of cost pertaining to the hiring or own- 
 ing of the land and buildings, and, in the case of owned property, includes Taxes, 
 Depreciation, Repairs, Insurance and Interest on Investment in land and build- 
 ings. 
 
 Equipment Expense covers the charges for Depreciation, Repairs, Taxes 
 and Insurance on the machinery and other equipment. 
 
 Steam Generation Expense covers all items of cost pertaining to the 
 generation, and distribution of Steam Heat. It includes the rental charges 
 against the property occupied by the Steam Plant, all expenditure for Fuel and 
 Supplies used for these purposes, and Depreciation, Repairs, Taxes and In- 
 surance on the Steam Plant investment. 
 
 Power charges cover cost of Steam for generating, or cost of purchased 
 power; equipment charges against Power Equipment, and Power Plant supplies. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Digitized by the Internet Archive 
 in 2017 with funding from 
 
 University of Illinois Urbana-Champaign Alternates 
 
 https://archive.org/details/standardcostingpOOplyw 
 
MATERIAL 
 
 LOGS 
 
 lumber , 
 
 VENEERS 
 
 CLUE 
 
 TEtPE 
 
 POKING 
 
 MRTERm 
 
 LABOR 
 
 GEHEHOl. 
 
 INPIEBCT 
 
 LOBOZ 
 
 (PRORATEP TO ) 
 \ peportmehts) 
 
 PtlLLh/RfONTS 
 
 MECMAMICS 
 
 eLEYATOR 
 
 OPERATORS 
 TRUCK PRIYERS 
 EJiOlHEERS 
 PIREMEK 
 WATCHMEN 
 SWEEPERS 
 
 (see dept, labor 
 
 FOR PEPARTMEHTAL 
 
 indirect and 
 
 DIRECT labor) 
 
 MAINTENANCE 
 
 RENT OF REPAIR 
 SHOP 
 
 DEPRECIATION 
 REPAIRS 
 
 TAXES 
 
 REAL AND 
 
 PERSONAL TAXES 
 (SEE’ADMimSTMTIVE 
 EXPENSE* FOR 
 OTHER taxes) 
 
 INSUR/\NCE 
 
 FIRE rORNAOO 
 SPRINKLER LEAKAOE 
 IHTERESr OK IKYCSTMCNT 
 IK SPRJHKLER system 
 (SEE steam’ AHD 
 'ADMIHISTRUr/YB UPEHSEY 
 
 
 
 y ^ 
 
 
 \ — / 
 
 RENT 
 
 eSHT PAIO 
 
 IKTEREST OK IKYESTMEKT 
 tM LAND AHD BIKLDIHSS 
 MAJHTEHAHCE 
 TAXES /HSURAHCE 
 
 EQUIPMENT EXP. 
 
 MAINTEHAHCe 
 
 TAXES 
 
 INSURANCE 
 
 MANUFAC 
 
 
 / \H 
 
 STEAM 
 
 RENTAL CHARCE 
 EQUIPMENT CKARGE 
 FUEL FURCHA5E0 
 REFUSE BURNED 
 BOILER INSURANCE 
 NATER FOR BOILERS 
 
 DC 
 
 HEAT^ LIGHT 
 
 PURCHASeO CURRENT 
 ■ EQUIPMENT CNAROE 
 -STEAM 6ENERAT/0N 
 I CHAROE 
 ^ POWER CHAR6E 
 
 POWER 
 
 RENTAL CHAR6* 
 EQUIPMENT CHARGE 
 PURCNASEO POWER 
 STEAM GENERATIOH CHARGE 
 [ POWER PLANT SUPPLIES 
 
 
 3 
 
 f 
 
 GENERAL EXP. 
 
 /tBMTAL CHAACe 
 eOUIPMEMT CHAROE 
 Hor/RR CHHROe 
 HEAT AHD LIGHT CHARGE 
 r/ME A COST DEPT. SUPPLIES 
 GENERAL PPCTORr SUPPLIES 
 SALARIES FOR SUPERINTEMDEHCE 
 » TIME S COST DEPT. 
 
 URING EXPENSE 
 
 DEPT. EXPENSE 
 
 /HSURAHCE OH lumber 
 HEAT FOR K/LNS 
 OBPT. SUPPLIES 
 
 I 
 
 DEPT. EXPENSE 
 
 DEPT. .SUPPLIES 
 
 I 
 
 DEPT. EXPENSE 
 
 DEPT. SUPPLIES 
 
 
 DEPT LABOR 
 
 INDIRECT, DIRECT 
 
 rOEPT. LABOR 
 
 1 INDIRECT , DIRECT 
 
 X 
 
 t: 
 
 j. 
 
 DEPT. EXPENSE 
 
 DRAYPGE EXPENSE 
 PEP7. SUPPLIES 
 
 G 
 
 I — 
 
 DEPT, LABOR. 
 
 INDIRECT, DIRECT 
 
 I 
 
 DEPT 
 
 INDIRECT 
 
 LABOR 
 
 DIRBCT 
 
 1 
 
 
 T 
 
 r. 
 
 T 
 
 ] 
 
 CONVERSION OR MANUFACTURING COSTI 
 
 ADMIN- 
 
 ISTRA- 
 
 TIVE 
 
 EXPENSE 
 
 OFF/Ci NBNT 
 OFFICE EQUIFNINT cue. 
 OFFICE HEAT blight 
 CORFOR ffTlOH TAX 
 CAPITAL STOCK TAX 
 USt AOCCUFANcr INS. 
 PAYWLL INSURANCE 
 'FORGERY INSURANCE 
 LIABILITY INSURANCE 
 EXECUTIYE LIFE INS. 
 EXEC. S OFFICE SALARIES 
 
 PON AT ms 
 
 MISC. THMELUe EXPEIBE 
 DISCOUNT ON SALES 
 /NTERESr B DISCOUNT 
 COLLECTION A AUPIT EXP. 
 LESRLAFROFESSWMRL EXP. 
 POSTAGE 
 
 TEL EPHOHl A TELESmPN 
 STATIONERY A POSTAGE 
 BAP DEBTS 
 CLUB DUES 
 SUNDRY OFFICE EXP. 
 WELFARE EXPENSE 
 
 SALES 
 
 EXPENSE 
 
 SALARIES OF 
 SALES FORCE 
 
 COMMISSIONS ON 
 SALES 
 
 SALESMENS 
 
 EXPENSES 
 
 ADVERTISING 
 
 catalogs 
 
 PHOTOGRAPHS 
 
 SAMPLE 
 
 EXPENSE 
 
 SALES 
 
 allowances 
 
 SALES POSTAGE 
 
 SALES TELEPHOHE 
 \tANP TELEGRAPH 
 
 , I 
 
 
 1 1 
 
 — j — 
 
 
 
 COST 1 ’ 
 
 ^ . 
 
 
 
 
 1 T" 0 T" 1 
 
 
 1 - 1 
 
 COST 
 
 AM A L. 'T a 1 3 OF 
 P L V W C 
 COS 
 
 ICOWyERSlOK COST t 
 
 ARRANGED BY 
 COST ENGINEER , PLYWOOD Ff, 
 
 I 
 
 M. D. F 
 </UFACTlLk, 
 
 rr 
 
 1 r/KCTORY 
 
 C OST 1 
 
 
 5ALe5 EXPENSE 
 
 IrTER. 
 
 KERB association 
 
 Cx: 
 
 0 T" L_ 
 
 C 0 3 T 1 
 
 V 
 
General Outlxne 
 Revised 1922 
 
 COST DIVISIONS 
 
 7 
 
 Manufacturing Expense (Continued; 
 
 General Manufacturing Expense includes all expenses of a miscellaneous 
 character not directly assignable to any of the foregoing. Any such as are spe- 
 cifically chargeable to a department or product are so distributed. 
 
 Administrative Expense 
 
 Administrative Expense has to do with those items not chargeable ’to manu- 
 facturing, but for which the general management is responsible, although it may 
 be distributed on a basis that parallels labor costs. 
 
 Selling Expense 
 
 Selling Expense comprises those expenditures incident to the marketing 
 of product, any may be apportioned according to the value of Sales, Man-hours 
 of Direct Labor represented, or on some more arbitrary basis according to 
 conditions. 
 
 The differences in these classifications of Expense and advantages through 
 segregation are covered more fully in Section II devoted to “Expense,” and the 
 elements of these factors are also more fully explained therein. 
 
 MATERIAL 
 
 Materials constitute the largest single factor of costs in practically all 
 products of the Plywood Industry. In many products of this industry the 
 lumber, veneers, tape, glue, etc., aggregate more than two-thirds of the total costs . 
 
 Variations in principles used in valuing the lumber, veneers, etc., entering 
 into the different products of members can and do distort their total costs out 
 of all proportion to the actual variation in such costs. This factor being such 
 a large proportion of total costs, variations of but a small per cent affect the 
 total cost much more than similar variations in cost of Labor or Expense. 
 
 Material costs in Plywood manufacturing offer many complex problems to 
 solve, and without common agreement on the proper principles to use in pricing 
 such materials, wide variations in selling prices of similar articles are inevitable, 
 even though there may be no actual difference in their costs. 
 
 In the manufacture of Plywood products there are many opportunities for 
 utilizing lumber, veneers, etc., unsuited for certain articles, as material for other 
 articles. Material that might otherwise be wasted is thus converted into mer- 
 chandise. 
 
 Pricing properly the material derived from a single source, and used for 
 various grades of the same article or for distinctively different products, is a 
 problem that must be solved on the basis of a common agreement, in order 
 that the industry as a whole may not suffer from price-cutting and reprisals 
 due to the different methods of arriving at values of materials used in such 
 various products. 
 
 Section III, devoted to the subject of Costing Materials, covers this phase 
 of pricing materials and explains in more detail the logic and reasoning for using 
 current market prices of materials in making up costs instead of actual purchase 
 price, or average purchase prices. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
8 
 
 COST DIVISIONS 
 
 General Outlini 
 Revised 1922 
 
 Tlie principles agreed upon as sound and representing true material costs 
 are as follows: 
 
 1st: Logs, Lumber, Veneers and other materials used, should be figured 
 into costs at the market value of such materials at time of billing to 
 customer. 
 
 2nd: Choice selected portions of Logs, Lumber, Veneers, etc., should bo 
 priced at higher than the current market prices for average or log run 
 materials, and the droppings, rejects, offal, etc., should bear cor- 
 respondingly lesser values in the cost of the products made from such 
 seconds, etc. 
 
 (Note: Rules for guidance in this variation pricing will be found in the 
 Material Costing section.) 
 
 The reasons for using market prices are numerous, but chiefly that such 
 prices are the only prices that are comparable among members and that the 
 customers will not pay the purchase prices on a decline in market values. 
 
 This feature of costing materials as per market values offers certain account- 
 ing problems that not all members are prepared to handle, and for the benefit 
 of such the Accounting section will explain how this can be simply and thorough- 
 ly cared for without complicated bookkeeping systems. 
 
 Material Wastes are also more thoroughly covered in the Material Costing 
 section. As this is the largest single controlable cost element care must be 
 exercised by all members to insure that all wastes are included in their costs. 
 
 Members whose product varies greatly in sizes should not use an average 
 waste to cover the final trimming of tops, panels, etc., as such averages do not 
 allow sufficient for small articles and penalize the larger ones. 
 
 Thus if a member making panels as small as 12"xl2" and as large as 48"x 
 60", and in both instances makes these panels 1" larger each way, he will. In 
 the 12"xl2", have over 17.3% more material in the unfinished than in the fiin 
 ished panel. In the larger panel the extra material will be less than 4% of the 
 finished panel. Using an average waste of say 8% would be putting too high 
 a cost on the large panel and too low on the small one. Where products do not 
 vary much in size this detail is of less importance, but all will profit by figuring 
 waste as actually produced, rather than by general averages. 
 
 There is a wide variation in the ratio of wastes in different kinds and grades 
 of the same kinds of logs, lumbers and veneers, and the practice of averaging all 
 kinds, or all grades of a kind — unless actual tests indicate that they are the same 
 — is very misleading and dangerous. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
General Ootline 
 Revised 1922 
 
 COST DIVISIONS 
 
 9 
 
 LABOR 
 
 Labor Costs are the most troublesome to accurately allocate to different 
 products where these may be varied in nature, grades, sizes, etc. 
 
 Section IV on determining Labor Costs, covers the complex problems of 
 determining labor costs against the different varieties or articles made simul- 
 taneously from a common lot of logs, lumber, veneers, etc., and indicates methods 
 for arriving at labor costs of the more difficult nature, as well as simpler direct 
 operations. 
 
 The determination and segregation of general indirect labor to the various 
 products in proper proportion are also exemplified, and methods of obtaining 
 total labor costs by members, who may not feel justified in collecting detailed 
 labor costs on all products as produced, are explained more fully in the chapter 
 on Labor Costs. 
 
 It is important that the total of all labor chargeable to each product be fully 
 ascertained, not only because of the importance of this element of costs, but 
 also because it has been agreed that Expense should be distributed on a basis 
 that parallels the labor cost of all products, and any error or omission in the 
 determination of total labor costs is multiplied in amount, by its effect on the 
 Expense element of Cost. For example, if Expense averages 100% on labor, an 
 error of 10% in calculating labor cost becomes twice as great when the Ex- 
 pense is appled. 
 
 To insure against errors in labor cost calculations as a whole, accounting safe- 
 guards of a simple nature can and should be used, and for such members as have 
 not already cared for this detail, the section on Accounting will point out methods 
 by which this may be accomplished without undue red tape or involved book- 
 keeping systems. 
 
 ACCOUNTING 
 
 The proper balancing of Costs with the general bookkeeping procedure is 
 a very important one if costs are to be used as a safe guide in the pricing and 
 selling of products. 
 
 The many differing conditions and classes of product of the Association 
 Members make it expedient to offer suggestions covering the fundamentals of 
 uniform accounting practices for all to follow. 
 
 In Section V, given over to this subject, the essential and necessary features 
 are covered, leaving to individual members their own choice of specific forms and 
 details. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD M AIN UFACTURERS ASSOCIATION 
 
10 COST ANALYSIS I. 
 
 COST ANALYSIS 
 
 TOTAL COST 
 
 FACTORY COST 
 MATERIAL 
 Lumber 
 Veneers 
 Glue 
 Tape 
 
 Packing Materials 
 
 CONVERSION COST 
 LABOR 
 
 General Indirect Labor (prorated to departments) 
 Millwrights 
 Mechanics 
 Elevator Operators 
 Truck Drivers 
 Engineers 
 Firemen 
 Watchmen 
 Sweepers 
 
 Departmental Labor 
 Indirect 
 
 Proration of General Indirect Labor 
 Foremen 
 
 Other Departmental Indirect Labor 
 
 Direct 
 
 All persons handling Materials 
 
 MANUFACTURING EXPENSE (distributed to departments) 
 Rental Expense 
 Rent Paid 
 
 Interest on Investment in Land and Buildings 
 
 Maintenance 
 
 Taxes 
 
 Insurance 
 
 Equipment Expense 
 
 Maintenance 
 
 Taxes 
 
 Insurance 
 
 General Outline 
 Revised 1922 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
General Outline 
 Revised 1922 
 
 COST ANALYSIS 
 
 11 
 
 Manufacturing Expense (Continued) 
 
 Power Expense 
 
 Purchased Power 
 Rental Charge 
 Equipment Charge 
 Steam Generation Charge 
 Power Plant Supplies 
 
 General Manufacturing Expense 
 Rental Charge 
 Equipment Charge 
 Power Charge 
 Heat and Light Charge 
 General Factory Supplies 
 Time and Cost Department Supplies 
 
 Salaries Covering Superintendence, Time and Cost Departments. 
 
 Maintenance 
 
 Rental charge against Repair Shop 
 
 Depreciation 
 
 Repairs 
 
 Replacements 
 
 Taxes 
 
 Real and Personal 
 
 Insurance 
 
 Fire 
 
 Tornado 
 
 Sprinkler Leakage 
 
 Charges against Sprinkler System 
 
 Steam Generation 
 Rental Charge 
 Equipment Charge 
 Boiler Insurance 
 Fuel Purchased 
 Fuel Value of Refuse Burned 
 Water for Boilers 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
12 
 
 COST ANALYSIS 
 
 T General Outline 
 Revised 1922 
 
 Manufacturing Expense (Continued) 
 
 Heat and Light 
 
 Purchased Current 
 Equipment Charge 
 Steam Generation Charge 
 Power Charge 
 
 ADMINISTRATIVE EXPENSE 
 
 Office Rental Charge 
 Office Equipment Charge 
 Office Heat and Light Charge 
 Corporation Taxes 
 Capital Stock Taxes 
 Use and Occupancy Insurance 
 Payroll Insurance 
 Forgery Insurance 
 Liability Insurance 
 Executive Life Insurance 
 Executive and Office Salaries 
 Donations 
 
 Miscellaneous Traveling Expense 
 Discounts on Sales 
 Interest and Discount 
 Collection and Credit Expense 
 Legal and Professional Services 
 Postage, Telephone and Telegraph 
 Stationery and Printing 
 Bad Debts 
 
 Association and Club Dues 
 Welfare Expense 
 Sundry Office Expense 
 
 SALES EXPENSE 
 
 Salaries of Sales Force 
 Commissions on Sales 
 Salesmen’s Expenses 
 Advertising 
 Catalogs 
 Photographs 
 Sample Expense 
 Storage Rental Charge 
 Sales Allowances 
 Sales Postage 
 
 Sales Telephone and Telegraph 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
IL 
 
 Expense 
 Revised 1922 
 
 EX PENSE 
 
 13 
 
 EXPENSE * 
 
 The three major divisions into which costs naturally fall are Expense, 
 Material and Labor. 
 
 This section is devoted to the factor of Expense Costs, as it is the one factor 
 subject to the greatest variation in interpretation and distribution to the different 
 products of members; therefore it is the one factor causing the greatest varia- 
 tions in the total costs and in selling prices as determined by different members 
 of the industry. 
 
 What constitutes Expense Costs? This is an important question and one 
 that should be answered uniformly by all members. If this is not done, differ- 
 ent members will be including in their Expense, or overhead, different cost 
 elements and thereby reach different conclusions even if the actual operations 
 and costs are identical. 
 
 For the present it will suffice to say that the subject of Expense falls into 
 three natural divisions, namely. Manufacturing Expense, Administrative Ex- 
 pense and Sales Expense, each of which will be treated fully under the respective 
 headings. 
 
 DISTRIBUTION OF EXPENSE TO PRODUCT 
 
 Time governs the volume of all expenses. Personal service are renumer- 
 ated at a stipulated rate per week or month. Rent, Interest, Taxes and Insur- 
 ance are all paid for on the basis of time. As time passes, buildings and equip- 
 ment depreciate and require repairs. The amount of power required in the 
 operation of machinery is in direct ratio to the time it is in use. If it costs fifty 
 cents to operate a machine for one hour, it may logically be assumed to cost twice 
 that for two hours. Therefore all methods for the distribution of Expense to 
 product have time as their basis. 
 
 Three mediums for this purpose are commonly in use among manufacturers, 
 namely the Machine-Hour Rate, the Percentage Rate and the Man-Hour Rate. 
 
 The Machine-Hour Rate is made up of all expenses incident to the op- 
 eration of a machine such as Depreciation, Repairs, Insurance and its propor- 
 tion of Taxes, Power and General Expense reduced to a cost per hour. This will 
 vary, of course, with different machines, some requiring more Repairs, Power, 
 etc. than others and for this reason requiring a separate account with each mach- 
 ine. The Machine-Hour Rate is desirable only in manufacturing where the 
 product is varied, and different articles are passed through some, but not all, 
 of the machines used by others, and therefore requiring that the expense of opera- 
 tion of each machine be considered separately. 
 
 ♦ n is suggested to the reader that a clearer uuderstanding of the text may be had by frequent reference to 
 the graphic chart shown between pages 6 and 7 of Section I, and the example of “Determination of Differential 
 Expense Rates” on pages 27 to 42. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
14 
 
 DISTRIBUTION 
 
 Expense 
 • Revised 1922 
 
 In the Plywood Industry this is rarely the case, no machines or equipment 
 used for one product being used for another, each product having its own partic- 
 ular equipment and machines. For this reason, all machines used in the man- 
 ufacture of Veneers, for instance, may be treated as one unit, those used in 
 making Cores as another, and those for Plywood assembling and finishing as an- 
 other. On the whole, the clerical work involved in using the Machine-Hour 
 method of charging e.xpense is not justified by results in this industry and 
 therefore it is not recommended. 
 
 The Percentage Rate is arrived at by comparison of total Expense to the 
 Direct Labor payroll. For instance, if the total conversion cost were $312,500.00 
 of which $187,500.00 is expense, and the Direct Labor payroll $125,000.00, the 
 Expense or Overhead is said to be gjas'orooo 150%. 
 
 The Man-Hour Rate is obtained by dividing the Expense by the Man- 
 Hours of Labor. (By Man-Hours is meant total hours of labor represented. 
 Thus if twm men worked on a job, one ten hours and the other eight, the number 
 of Man-Hours would be 18.) In the example just citied if the plant employs 
 100 men at 2,500 hours each, annually, the Man-Hours of Labor will be 250,000 
 and the rate aso^oohm-h 10.75 per Man-Hour. 
 
 In the Plywood Industry, the Man-Hour Rate for distributing Expense 
 is found to be the most logical and practical. Many manufacturers, however, 
 use the Percentage Rate thinking the results are the same. To show that this 
 is not true the following illustration is given. 
 
 We will assume that for a certain operation, “A” requires one hour of labor 
 and that his wage is $0.60 per hour. “B” requires two hours to do the same work, 
 and being less proficient receives only $0.35 per hour. Using the Expense Rates 
 previously quoted, the result is as follows: 
 
 Percentage Basis. 
 
 “A” “B” 
 
 Labor, 1 hour @ $0.60 Labor, 2 hours @ $0.35 $0.70 
 
 Expense, 150% .90 Expense, 150% 1.05 
 
 Totals $1.50 $1.75 
 
 Difference $0.25 
 
 Man-hour Basis. 
 
 “A” “B” 
 
 Labor, 1 hour @ $0.60 Labor, 2 hours @ $0.35 $0.70 
 
 Expense, 1 hr. @ .75 Expense, 2 hours @ .75 1.50 
 
 Totals $1.35 $2.20 
 
 Difference $0.85 
 
 It will be noted that by using the Percentage Rate on wages, a difference 
 of $0.25 is shown by the records in the cost of the job done by the respective 
 workmen, while the Man-Hour method proves that the operation really costs 
 $0.85 more when performed by “B” than by “A”. This example also illustrates 
 the costliness of “cheap” labor. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
11 . 
 
 Expense 
 Revised 1922 
 
 OPERATING CONDITIONS 
 
 15 
 
 Just here somthing should be said regarding the interpretation of the term 
 “Labor.” 
 
 What is meant by Labor? Here again we find much diversity in interpre- 
 tation as some members include only the direct or so-called “productive” labor 
 which in turn is subject to various interpretations. 
 
 This is treated more fully in Section IV devoted to the subject of Labor, 
 but it should be noted here that all Indirect Labor should be included with Labor 
 and not treated as Expense. 
 
 OPERATING CONDITIONS AND EXPENSE RATES 
 
 The law of supply and demand and its resulting effects upon merchandising 
 reflect comparatively little change in Overhead Expense. While the amount 
 of output may vary, the charges for Interest on Investment, Depreciation, 
 Repairs, Taxes, Insurance, Salaries, etc. go on practically in unchanging volume. 
 When a declining market produces shrunken volume, an increase in expense 
 per unit results. At the same time prices shrink and the shrinkage is practically 
 all in the profit, although the cost of raw material may decline sufficiently to 
 offer some relief. The better the market, the greater the volume and propor- 
 tion of profit, and the less the expense per unit. The poorer the demand, the 
 smaller the volume and profit, and the greater the expense per unit. When there 
 is little demand for a product the buying public, contrary to recognizing in a sub- 
 stantial way the increased expense of manufacture, demands a reduction in 
 price as an inducement to purchase, and in like manner, when the demand is 
 large, is willing to pay a premium for delivery in spite of the fact that the product 
 may actually cost less. This being the case, the manufacturer cannot always 
 base his selling price upon actual, immediate costs, but must decide upon some 
 middle ground as fairly representing normal conditions and determine his 
 normal costs upon them. 
 
 It is esential at the outset to determine upon a certain volume of product 
 and the corresponding expense budget, hours of operation, and number of em- 
 ployes as being representative of normal production. Figures from the records 
 of abnor aal production periods would result in too low a rate, and vice versa, 
 rates based upon records of subnormal times would be too high. 
 
 Assuming for illustration that the figures previously cited, apply to operation 
 of the plant under normal conditions, namely, an annual Expense budget of 
 $187,500.00, and a force of 100 men, each working 2500 hours a year making 
 250,000 man-hours; it will give a rate of or $0.75 per man-hour. 
 
 If, however, business should greatly increase and the company find it possible 
 to swell its volume of output by adding 30 men, using no additional equipment or 
 space and operating the same number of hours, the ratio of man-hours to expense 
 would be reduced and a rate of approximately $0.60 per man-hour would result. 
 But unless the demand for product should continue unabated, due either to mar- 
 ket conditions or ability to reduce price through increased output, it would be 
 unwise, to say the least, to use $0.60 as a normal Expense rate. The temporary 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
16 
 
 OPERATING CONDITIONS 
 
 II. 
 
 Expense 
 Revisee 1922 
 
 gain of $0.15 made by using the rate of $0.75 would be needed to compensate 
 for the loss when the demand falls off, the force is reduced and the actual 
 Expense Rate goes up to $0.90 per man-hour. 
 
 Any change in the number of employees produces little change in the total 
 expense, where the operation of equipment is not affected. However, there 
 are a few items dependent entirely upon the number of persons employed, 
 such as Liability Insurance, and a few others partially affected, like factory 
 supplies, which closely parallel volume. The total expense affected by the 
 number of persons employed only, is less than 4% of the whole, and may be 
 ignored; a reduction of 50% in a working force producing less than 2% reduc- 
 tion in Expense. 
 
 The effect of volume of output upon expense is dependent principally upon 
 the hours of operation of the plant. There are certain expenses which are fixed — 
 that is which are practically unvarying whether the plant is in operation or not — 
 and others which closely parallel the hours of operation. The following tabu- 
 lation gives the principal items of expense and their classification 
 
 Fixed Expenses 
 
 Parallel Expenses 
 
 Rent 
 
 Fuel 
 
 Interest on Investment 
 
 Purchased Current 
 
 Taxes 
 
 Water Rent 
 
 Depreciation 
 
 Factory Supplies 
 
 Property Insurance 
 
 Freight on Supplies 
 
 Boiler Insurance 
 
 Equipment Repairs 
 
 Executive Life Insurance 
 
 Cartage Expense 
 
 Sprinkler Insurance 
 
 *Bonuses on Salaries 
 
 Credit Insurance 
 
 Welfare Expense 
 
 Building Repairs 
 
 Industrial Life Insurance 
 
 Salaries of Executives 
 
 Employers’ LiabiUty Insurance 
 
 Salaries of Clerks 
 
 Discount on Sales 
 
 Office Supplies 
 
 Plywood Association Dues 
 
 Telephone and Telegraph 
 
 Salesmen’s Commissions 
 
 Postage 
 
 Sales Allowances 
 
 Adverl ising 
 
 Freight and Express on Sales 
 
 Sundry Office Expense 
 
 
 Legal Expense 
 
 
 Club Dues 
 
 
 Interest and Discount 
 
 
 Traveling Expense 
 
 
 Bad Debts 
 
 
 Salesmen’s Salaries 
 
 
 Salesmen’s Expense 
 
 
 fA careful analysis of the expenses of fourteen representative concerns, 
 manufacturing Plywood, shows that the Fixed Expenses are 52% of the total 
 and the expenses which parallel hours of plant operation, 48%. A further 
 analysis shows that there is only 3% variation in these proportions between 
 those who manufacture both Veneers and Plywood, and those who make Plywood 
 only. 
 
 * Bonuses on salaries are usually based upon volume or profit. Bonuses on wages depend upon individual or 
 departmental production or efficiency and are therefore treated as a part of wages, and included in Labor Cost. 
 
 tin making this analysis, costs have been considered as f . o. b. factory and freight and express on sales have therefore 
 been omitted. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Expense 
 • Revised 1922 
 
 APPORTIONMENT 
 
 17 
 
 Therefore, it may be assumed that in the average Plywood plant, a reduc- 
 tion in the hours of operation will have one-half the corresponding effect upon 
 Expense; a 50% reduction in the operating hours reducing Expense 25%, and a 
 shut-down of the plant, cutting Expense in half. However there is considerable 
 variation in the proportions of the two classifications of Expense among mem- 
 bers and a careful analysis in each individual case should be made before assum- 
 ing that the average percentages apply. 
 
 IMPORTANCE OF PROPER APPORTIONMENT 
 OF EXPENSE 
 
 In a manufacturing business where more than one class of articles is produced 
 it is vitally important to charge each class with its just share of costs. Not- 
 withstanding the fact that in the Plywood industry the cost of Expense usually 
 exceeds the cost of Labor, it is common practice to distribute Expense or “Over- 
 head” uniformly over all products while it would be thought the height of folly 
 to make any such arbitrary distribution of wages paid. In fact, many plants 
 using a common overhead expense rate for all departments, currently make a 
 very respectable expenditure for time-keeping on individual orders that a correct 
 (?) record of cost may be obtained. 
 
 The following table gives the proportionate amount of each kind of expense 
 incurred in the manufacture of Rotary Veneer, Lumber Cores and Plywood. 
 These figures were complied from the expense analysis of 25 concerns and may 
 be regarded as fairly representative. (For comparisons read across the page.) 
 
 
 Rotary 
 
 Lumber 
 
 
 
 Veneer 
 
 Cores 
 
 Plywood 
 
 Rent. 
 
 7.0% 
 
 9.0% 
 
 12.6% 
 
 Power, Heat and Light. 
 
 38.3 
 
 34.4 
 
 16.4 
 
 Charges Against Equipment 
 
 10.5 
 
 12.7 
 
 8.0 
 
 General Manufacturing Expense 
 
 21.6 
 
 20.8 
 
 31.0 
 
 Administration and Sales 
 
 22.6 
 
 23.1 
 
 32.0 
 
 Total Expense 
 
 100.0% 
 
 100.0% 
 
 100.0% 
 
 No manufacturer operating a veneer mill in Mississippi, a core plant in 
 Wisconsin and a plywood factory in Vermont and marketing the respective 
 products independently, would think of pooling the expenses of the three plants 
 and using a uniform rate for all three. Yet this is the effect of the practice 
 commonly followed. 
 
 The fact that veneers and panels may be made under the same roof is 
 merely incidental and does not alter the fact that the costs of the two products 
 are in no way comparable. 
 
 The following actual example, taken from the cost analysis of one of our mem- 
 bers, is cited to show how deceiving a uniform distribution of Expense may prove. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
18 
 
 APPORTIONMENT 
 
 Expense 
 • Revised 1922 
 
 EXAMPLE 
 
 Synopsis of Expense Analysis of the Blank Mfg. Co., manufacturing and 
 marketing Rotary Veneer and Panels. 
 
 Rotary Veneer Manufacturing. 
 
 Manufacturing Expense 
 
 Rental Charge, 8,500 sq. ft. @ $0.20. $ 1,700.00 
 
 Equipment Charge $35,000.00 @ 17% 5,950.00 
 
 Power, Heat and Light 28,800.00 
 
 General Expense 6,000.00 
 
 Administrative and Sales Expense 6,000.00 
 
 Total Expense $48,450.00 
 
 Labor, 24 employes @ 2,500 hours per annum, 60,000 man-hours. 
 Expense rate, = $0.8075 per man-hour. 
 
 Plywood Manufacturing 
 
 Manufacturing Expense 
 
 Rental Charge 38,000 sq. ft. @ $0.20. $ 7,600.00 
 
 Equipment Charge, $25,000 @ 17%. 4,250.00 
 
 Power, Heat and Light 4,800.00 
 
 General Expense 13,200.00 
 
 Administrative and Sales Expense 12,000.00 
 
 Total Expense $41,850.00 
 
 Labor, 48 employes @ 2,500 hours per annum, 120,000 man-hours. 
 Expense Rate, x2o'ooo m- ' h ^ $0.3488 per man-hour. 
 
 Combined Departments 
 
 Expense Rate, 
 
 Combined Expense, 890,300.00 
 Combined Labor, 180,000 m-h 
 
 = $0.5017 per man-hour. 
 
 Comparative Results 
 
 Rotary Veneer Manufacturing 
 
 60,000 m-h @ actual rate, $0.8075 per m-h... 
 60,000 m-h @ average rate, 0.5017 per m-h._. 
 
 Undercharge (Annual Loss).__ 
 
 Annual output of Rotary Veneer, 8,000,000 sq. ft. 
 
 Soon. -$2.29 per 1,000 ft. loss. 
 
 Plywood Manufacturing 
 
 120,000 m-h @ average rate, $0.5017 per m-h. 
 120,000 m-h actual rate, 0.3488 per m-h. 
 
 Overcharge (Annual Penalty) 
 
 Annual Output of Plywood, 2,500,000 sq. ft. 
 
 SSir=»7.34per 1,000 ft. penalty. 
 
 $48,450.00 
 . 30,102.00 
 
 $18,348.00 
 
 $60,204.00 
 . 41,856.00 
 
 $18,348.00 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
11 . 
 
 Expense 
 Revised 1922 
 
 APPRAISALS 
 
 19 
 
 A casual comparison of the two sets of figures will disclose the following 
 facts: 
 
 Rotary Veneer Manufacturing occupies less than one-fourth the floor 
 space used by Plywood Manufacturing, is responsible for less than half as much 
 General Expense, and one-half the Administrative and Sales Expense. However, 
 these differences are largely offset by the fact that the amount of money tied 
 up in Rotary Veneer equipment is 40% more, and the Power, Heat and Light 
 required for operation is six times that consumed by the Plywood Department. 
 
 As the total expense is to be divided by the labor hours, and as the number 
 of employees and yearly man-hours of labor in the Rotary Veneer Manufacturing 
 Department are only half those in the Plywood Department, the resulting man- 
 hour rates show a contrast of over one hundred percent. 
 
 Referring to the figures for the combined departments, we find an average 
 rate of SO. 5017 per rffan-hour. By using this average rate (which has been the 
 common practice hitherto) and the actual rates, it is shown in the paragraphs 
 immediately following that the annual charges against Rotary Veneer were 
 $18,348.00 less than they should have been, and that Plywood has been penalized 
 to the same extent. As this member’s annual output of Veneer was eight million 
 feet, his cost records fell short to the extent of $2.29 per thousand feet, and if 
 his sales prices were based upon recorded costs, he failed to invoice about 
 $20,000.00 of actual value that he was entitled to, and under market conditions 
 prevailing at the time, could have been collected. 
 
 On the other hand, the output of Plywood was about two and one-half million 
 feet, and the penalty imposed was therefore about $7.34 per thousand. Con- 
 sequently prices based upon cost records were approximately $8.00 per thousand 
 too high, which in normal or subnormal times would have exerted a negative 
 influence in meeting competition and contributed to restricted sales and product- 
 ion as well as an increase in burden. It might be mentioned in passing that this 
 member expended a great deal of care in procuring correct labor costs, yet the 
 discrepancy resulting from using a uniform expense rate amounted to 68% of 
 the total productive payroll in the Rotary Veneer Department and 39% in the 
 Plywood Department. 
 
 Observation of practices in many Plywood plants discloses the fact that 
 much more attention is commonly given the matter of correct Labor costing 
 than to the subject of Expense, although the latter is the greater item in nearly 
 every case. It is suggested that while Labor costs should not be neglected. 
 Expense should by all means be just as carefully analyzed, determined and 
 charged. 
 
 EVALUATION OF PROPERTY 
 
 As the coi’rect determination of cost must be founded upon knowledge 
 of actual conditions, and as some of the factors of cost are based upon the valu- 
 ation of land, buildings and equipment, it is essential that a fair appraisal of 
 plant be available. Approximated valuations are better than no appraisal 
 at all but members are urged to have evaluations made and maintained on the 
 most approved basis. In addition to the advantage of a careful appraisal 
 in costing, it is invaluable in case of loss by fire. 
 
 STANDARD COSTING PRINCIPLES 
 .PLYWOOD MANUFACTURERS ASSOCIATION 
 
20 
 
 MANUFACTURING EXPENSE INTEREST 11. 
 
 Expense 
 Revised 1922 
 
 MANUFACTURING EXPENSE 
 
 We now come to a consideration of the expense factors themselves, beginning 
 with the first major division, Manufacturing, or Conversion Expense, and its 
 elements. As previously noted, it is important that each department or product 
 be charged with its just proportion of expense. The correct amounts of some 
 manufacturing expense elements are easily calculated by departments, such 
 as Rental charges based upon the space occupied; Depreciation, Repairs, In- 
 surance, etc. on the particular equipment used, and the Power consumed by each 
 department. These are called Departmental Expenses. There are other, gen- 
 eral, manufacturing expenses, such as the cost of Superintendence, Costing, 
 Planning, etc., in which all departments share, and which must be divided and 
 charged into Departmental Expenses according to the proportion for which each 
 department is responsible. 
 
 On the pages which follow will be found a discussion of each expense factor, 
 the elements which enter into it and the method of apportionment to departments. 
 
 INTEREST ON INVESTMENT 
 
 The question of whether Interest on Investment should be regarded as a 
 part of profits or as an element of cost has been much debated, and it is recognized 
 that both sides have been ably championed by accountants and engineers 
 high in their professions. 
 
 It is essential to uniform costing that standards covering all phases be adopted, 
 and as there are tenable reasons for treating as Cost, Interest on Investment in 
 Land, Buildings, Power equipment. Cartage Equipment, Sprinkler Systems and 
 Fire-fighting Apparatus only, this principle is recommended as standard in the 
 Plywood industry. The following reasons are offered for this stand; 
 
 Land and Buildings may be owned by the operating concern or rented from 
 others. In the one case the operator is acting as his own landlord and as such 
 is entitled to the same returns from the investment that he would receive if the 
 land and buildings were rented to another concern. He not only pays for De- 
 preciation, Taxes, Insurance and Repairs but must withdraw capital from a 
 going business normally making good returns and invest it in housing. He 
 is in direct competition with manufacturers who may find it more profitable 
 or practical to use property belonging to others and who pay rent which covers 
 the owner’s loss in depreciation, repairs, etc., and a fair return on his investment. 
 
 The same argument applies to Power. One company may buy all its power 
 in the form of electric current from a corporation who makes a business of gener- 
 ating and selling it for profit. Another concern may have its own power plant, 
 but nevertheless pays in the form of Depreciation, Repairs, Taxes, Insurance, 
 Wages, Fuel, etc. and, as in the case of owned buildings, must realize on the 
 capital invested in plant in the form of a charge against product to offset what 
 it would otherwise realize if invested in additional material, labor or manufac- 
 turing equipment. 
 
 If all cartage were performed by contract with others, a profit on the use 
 of capital would be included in the charge made, and so an investment charge 
 should be made against owned cartage equipment. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
11 . 
 
 Expense 
 Revised 1922 
 
 MAINTENANCE 
 
 21 
 
 Sprinkler Systems and Fire-fighting Apparatus are installed to reduce the 
 cost of insurance as well as to offer better protection, and so interest on the 
 capital withdrawn from manufacturing for the purpose should be charged into 
 the cost of product in the form of insurance. 
 
 If, in the Plywood Industry, as in some others, it were a common, or even 
 occasional practice to rent manufacturing equipment, then it would be logical 
 for those who own their manufacturing equipment to charge interest on the 
 amount invested. As, in this industry, all equipment is owned by the operating 
 companies, no further account may be made of this item in determining expense. 
 
 A prolonged discussion of the topic might be indulged in, presenting the vari- 
 ous views commonly held by opposing camps for and against considering 
 ' interest on all invested capital as a part of cost, but the above position as out- 
 
 lined is based upon conditions as they exist in Plywood manufacturing and 
 fairly represents a logical middle ground. It should be noted, however that the 
 United States Government does not recognize interest on invested capital as 
 a part of cost except when actually paid out for loans, and it will therefore be 
 necessary in making out federal tax returns to treat such charges as income. 
 
 The Replacement Value of buildings and equipment should be used in 
 figuring interest on investment. Some will contend that the facts do not 
 support this view. However, the difference between the sound or depreciated 
 values and replacement or new values is tied up in a Replacement Reserve, 
 and it is merely a question of form and not of amount of investment. If the 
 \ reserve is invested, the interest realized should be treated as income. 
 
 MAINTENANCE 
 
 Depreciation. This factor of Expense, termed by some a contingency 
 rather than an expense, must be reckoned with in connection with the ownership 
 of buildings, equipment, and even good will and patents. In ordinary practice, 
 however, only buildings and equipment need be considered. Depreciation is 
 commonly regarded as covering wear and tear not offset by ordinary repairs, 
 and, in the case of equipment, obsolescence due to the introduction of improved 
 types, and in some cases, inutility due to changes in methods of manufacture or 
 character of product. 
 
 A machine costs money. It must be paid for. It will not last forever. It 
 is used up in the manufacture of product, is therefore a part of the cost of pro- 
 duct and must be so treated. 
 
 It will be seen from the foregoing that the basis for determining the correct 
 charge for depreciation is the number of years representing the useful life of the 
 property in which the capital is invested, and at the end of which it is without 
 value as a manufacturing asset — in other words, the active life of the investment. 
 
 The amount included in the Maintenance Reserve for Depreciation should 
 be based upon this principle, and two methods are commonly followed for ac- 
 complishing it. One is to set aside annually an amount equal to the purchase 
 price, less the estimated scrap value, divided by the estimated life in years. 
 This is called the “straight line method.” To illustrate; A machine is pur- 
 chased for -11,000.00. It is anticipated that it will be worn out at the end of 
 
 STANDARD COSTING PRINCIPEES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
22 
 
 MAINTENANCE 
 
 Expense 
 • Revised 1922 
 
 10 years, and that the scrap value will be $50.00. One tenth of the difference or 
 $95.00 is therefore set aside in reserves each year, amounting at the end of the 
 period, together with the amount realized from the sale of the machine as scrap, 
 to the original purchase price, for which a new machine may presumably be pur- 
 cha.sed. 
 
 The other plan is to charge depreciation against the “diminishing line of 
 values.” In other words, a uniform percentage rate is deducted each year from 
 the depreciated values of the previous year, which will leave approximately 
 the scrap value at the end of the period. For example, in the case of the ma- 
 chine just cited, instead of deducting $100.00 each year, 25% of the inventory 
 value would be set aside annually in the reserve. The first year it would amount 
 to 25% of $1,000.00 or $250.00. The second year 25% of $750.00 ($1,000.00 
 less $250.00), or $187.50, and so on, leaving $56.32 as scrap value at the end 
 of the 10th year. 
 
 While each plan has its champions, the method of figuring depreciation by 
 the “straight line method” is recommended for use by the Plywood Manufacturers 
 Association as standard, as it is simpler and for some reasons more satisfactory. 
 
 Obsolescence. The contingency of a piece of equipment having to be retired 
 when still in good physical condition because of the introduction of an improved 
 tj^pe which would make the further operation of the older machine unprofitable 
 is purely a matter of conjecture and can not be determined with any assurance 
 of accuracy. However, this is sometimes a very large item of cost and must not 
 be entirely ignored; in fact it should be rather liberally provided for, as the Ply- 
 wood Industry is still in its infancy and definite plans are in operation for trade 
 extension looking to the use of the product in, heretofore, undeveloped fields. 
 
 Repairs. It will be found that the expenditures for repairs will vary greatly 
 with different years, owing, perhaps, not so much to immediate necessities as to 
 other conditions making the doing of such work more logical and convenient at 
 some periods than at others. Therefore it is found practical to charge into manu- 
 facturing cost an amount fairly representing the average cost of repairs rather 
 than to charge the actual amounts expended. 
 
 Maintenance Reserve. (Reserve for Depreciation, Obsolescence and 
 Repairs.) It is common practice among accountants to treat Depreciation and 
 Repairs separately. Some go further and make a subdivision of Obsolescence. 
 It is often difficult to know just where to draw the line between these different 
 classifications of Expense. In the end they all amount to the same thing — cost 
 of Maintenance. A machine may be repaired by the replacement of a bolt or a 
 screw or some other insignificant part, or the occasion may call for a new pulley, 
 or perhaps some large casting. It may even in time become like the old jack 
 knife which had new blades and a new handle but was still the same old knife. 
 It requires just so much money to maintain equipment at efficiency whether it 
 be expended in Repairs or Replacements, or both. As far as cost accounting is 
 concerned it is not necessary to draw any line. However, there is no possible 
 objection to keeping separate Depreciation and Repair accounts when a sepa- 
 ration is for any reason desired — indeed some may prefer to keep separate ac- 
 counts with each machine, or building. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
11 . 
 
 Expense 
 Revised 1922 
 
 TAXES INSURANCE 
 
 23 
 
 For the reasons set forth, consolidated Maintenance figures covering De- 
 preciation, Obsolescence and Repairs are recommended, and the percentages 
 shown in the following table are also recommended for use in setting up reserves 
 for this purpose. All expenditures for Repairs and Replacements should be 
 made from this Maintenance Reserve, and it should be credited with the pro- 
 ceeds from the sale of equipment, but any expenditures for additional equip- 
 ment or buildings should be made from current funds, and these amounts added 
 to the values used as a basis in setting up the reserve. It should be noted that 
 the percentages given in the table are to be taken on the Replacement Values. 
 
 RECOMMENDED ANNUAL MAINTENANCE RATES 
 
 Covering Depreciation, Obsolescence and Repairs 
 
 Buildings, 
 
 Brick or Concrete 5% 
 
 Frame 9 
 
 Kilns (Buildings only), 
 
 Brick, Tile or Concrete 10% 
 
 Frame 25 
 
 Equipment, 
 
 Automobiles and Trucks. .-25% 
 
 Belting.— 20 
 
 Cauls 20 
 
 Fire Fighting Apparatus ...20 
 Mfg. Mchy. and Equipm’t..l5 
 Steam and Power Equip ’t . 15 
 
 Railroad Sidings 15 
 
 Sprinkler Systems 5 
 
 Teams and Vehicles 25 
 
 TAXES 
 
 According to the view of the United States Government, Income, and 
 Excess Profits Taxes are not a part of the cost of doing business but must be 
 paid out of the profits. However, this should not prohibit the setting aside of a 
 reserve for this purpose by those who wish to do so. 
 
 Corporation and Capital Stock Taxes should be charged to Administrative 
 Expense as the economical operation of plant is in no way responsible for them. 
 
 Real Estate and Personal Taxes are properly charged against the prop- 
 erty and divided according to valuations of buildings and equipment. 
 
 INSURANCE ^ 
 
 Property Insurance, such as Fire, Sprinkler Leakage, Tornado, etc., should 
 be charged and distributed according to the use made of the property insured. 
 
 Included with Property Insurance should be the charges against Sprinkler 
 Equipment and Fire Fighting Apparatus, comprising Interest on Investment, 
 Maintenance and Taxes. 
 
 Boiler Insurance should be charged directly against Steam Generation. 
 
 Insurance upon the lives of executives. Employers Liability, Payroll, Use 
 and Occupancy, and other strictly “economic” Insurance should be charged 
 against Administrative Expense. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
24 
 
 EQUIPMENT RENT POWER STEAM 11. REvf8'’E‘ir®i922 
 
 EQUIPMENT CHARGES 
 
 Under “Equipment” is classed all machinery and other fixed assets used 
 in production aside from Land and Buildings. Thus piping for kilns, as well 
 as trucks, saws, sanders, etc., would be treated under this head. The charges 
 against equipment are Maintenance, Taxes and Insurance which have been 
 discussed in the preceeding paragraphs. As previously noticed, some equipment, 
 is also charged with interest on investment. Any expenditures for royalties or 
 leases of equipment should also be included. 
 
 Distribution is made to product for which equipment is used, the charge 
 having been reduced to a percentage rate on the valuation of the equipment. 
 
 RENT 
 
 In the case of buildings owned by others, rental charges would be covered 
 by the rent paid, plus any repairs or other expense which the owner does not as- 
 sume. 
 
 Where the property is owned by the operating company, the charges would 
 include Taxes and Interest on Investment in land and buildings, together with 
 Maintenance and Insurance on Buildings. 
 
 Distribution of rent to departments is usually made on the basis of area 
 occupied. The plant may be made up of buildings of different constructions 
 and character but if this is only incidental and any construction could be used as 
 well for one department as another then the particular department occupying a 
 brick or concrete building should be charged no more in proportion than the depar- 
 ment occupying a frame building, and all the charges against all the buildings 
 may be pooled and divided according to area occupied by each department. 
 If, however, a particular department requires and occupies a special building 
 or specially constructed portion of same, the charge should be against the actual 
 valuation. 
 
 Charges against Land are distributed on the basis of area occupied, similarly 
 to the method used in apportioning building rent. 
 
 In figuring the rental charges for buildings, however, the charges against 
 the land occupied by same must not be overlooked but must be included in the 
 total Building Rental Charge before distribution. 
 
 STEAM GENERATION 
 
 This should include Fuel Purchased, Steam Power Plant Supplies, Water 
 Tax, Boiler Insurance and the proportionate Rental and Equipment Charges. 
 Steam Generation should also be charged with the Fuel Value of Waste Burned, 
 and a corresponding credit made to Material. 
 
 The wages of Engineers and Firemen are included in Labor and are more 
 fully treated in Section IV. 
 
 Distribution of charges should be made on the basis of the Boiler Horse 
 •Power consumed by each department. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Expense 
 • Revised 1922 
 
 POWER H. & L. GENERAL EXPENSE 
 
 25 
 
 POWER 
 
 When generated on the premises, this should include its share of the Steam 
 Generation Expense ; the Equipment Charges against Power equipment ; and lubri- 
 cating oils and other power plant supplies. Equipment charges against line, and 
 counter shafting, pulleys, belts, motors, starting boxes and power wiring, should 
 be included under departmental manufacturing expense and not under Power. 
 
 Distribution should be made to departments on the basis of the amount of 
 power consumed. 
 
 HEAT AND LIGHT 
 
 Under this heading, “heat” is intended to represent only that part of it 
 which is used to heat the buildings for the comfort of employes and does not 
 include that employed for drying, etc.; which comes under “Steam Generation.” 
 It will be found that in most cases the consumption of both building heat and 
 light will very nearly parallel the number of employes in each department, and 
 that therefore these two elements of expense may be considered jointly and 
 distributed on the basis of the Man-hours of Labor. For this reason, it may be 
 included in General Manufacturing Expense, as this is distributed on a Man-hour 
 basis, also. The charges against Heat and Light include the cost of Purchased 
 Light Current; Equipment charges against heat and light equipment; the pro- 
 portionate cost of Steam used for heat, and the charge for Power consumed in 
 generating light. 
 
 GENERAL EXPENSE 
 
 It will be^ noted by the foregoing that whenever it is possible to identify 
 an expenditure as belonging to a particular department or product it should be 
 charged directly against same. There are many items of manufacturing ex- 
 pense, however, for which no particular department is responsible, but through 
 which the whole operation benefits. These items are, the Salaries of the Super- 
 intendent and Assistants, personnel of the factory office, cost, time-keeping, and 
 planning departments; Supplies and Sundry Expense of the factory office; Rental 
 charges against the factory office and any space used for general purposes or 
 vacant; charges against unused equipment and Equipment used for general 
 purposes; Power, Heat and Light for purposes not strictly departmental; Sundry 
 Factory Supplies and Expense; Industrial Life Insurance for wage earners and 
 Cartage Expense. 
 
 General Indirect Labor such as watchmen, millwrights and other help not con- 
 nected with departments, also Departmental Indirect Labor including foremen, 
 truckers, etc, should be treated as Labor and is discussed fully in Section IV. 
 
 However, for the benefit of those who are collecting Direct Labor only, by 
 orders or departments, it may be stated here that a rate per man-hour to cover 
 all Indirect Labor may be added to the Direct Labor Wages to show the whole 
 Labor Cost. 
 
 The total of General Expense is apportioned to departments according to 
 the man-hours of labor in each, and to the amount thus determined as charge- 
 able against each department, is added any miscellaneous expense for which the 
 department is directly responsible. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
26 
 
 ADMINISTRATION AND SALES 
 
 Expense 
 • Revised 1922 
 
 Shipping 
 
 Labor and equipment are required in the preparation of crates, and delivery 
 to cars or trucks; and in small plants these are customarily furnished by manu- 
 facturing departments. Plywood Shipping is therefore commonly under factory 
 supervision and will be treated in Association costing as a part of Manufacturing 
 Cost, the shipping labor and material being taken care of under these respective 
 heads, and the items of expense included under General Expense. 
 
 ADMINISTRATIVE EXPENSE 
 
 As stated in Section I, “Administrative Expense has to do with those items 
 not chargeable to manufacturing, but for which the general management is 
 responsible.” By referring to the chart and tabulations of Expense Analysis, 
 it will be noted that included under this heading are Office Rental Charge, Office 
 Equipment Charge, Office Heat and Light Charge, Corporation Taxes, Capital 
 Stock Taxes, Use and Occupancy Insurance, Payroll Insurance, Forgery In- 
 surance, Liability Insurance, Executive Life Insurance, Executive and Office 
 Salaries, Donations, Miscellaneous Traveling Expense, Discounts on Sales, 
 Interest and Discount, Collection and Credit Expense, Legal and Professional 
 Services, Postage, Telephone and Telegraph, Stationery and Printing, Bad 
 Debts, Association and Club Dues, Welfare Expense, Sundry Office Expense. 
 
 Administrative Expense should be distributed to departments on a basis 
 of man-hours of labor in each. 
 
 SALES EXPENSE 
 
 Sales Expense has to do with those expenditures incurred in the marketing 
 of product, such as Salesmen’s Salaries, Commissions and Expenses; Advertis- 
 ing, and its fair proportion of charges for Telephone, Telegraph, Postage, Sup- 
 plies, Clerical Help, etc. 
 
 Freight and Express Allowed and Prepaid on Sales shipments are a part 
 of Sales Expense. However it is a matter of policy whether the total amount 
 so expended shall be included in the budget from which the man-hour rate is figur- 
 ed. To do so would result in including transportation charges in the cost of 
 all shipments whether quoted f. o. b. factory or delivered, and would also 
 make no distinction in cost between goods delivered within a 50-mile zone and 
 those sold 1000 miles away. In figuring the cost of transportation on shipments 
 where it is included in the price, it is recommended that the actual cost apply- 
 ing to each individual case be used. 
 
 The sale of Product means the sale of Labor from which a profit, the profit 
 of manufacturing, is derived. The profit from manufacturing is the profit from 
 converting raw material into finished product. The fundamental factor of con- 
 version is labor. The more labor employed, the more selling effort is required 
 to provide an outlet for its product; so that the sale of Product means the sale 
 of Labor, and it matters little whether that labor is in the office, the veneer 
 department or the glue room, as a certain amount of sales effort is required 
 to keep a normal force employed. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
11 . 
 
 Expense 
 Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 27 
 
 For the reasons stated, Sales Expense should be distributed to product on 
 the basis of man-hours of labor employed on each. In special cases where a Ply- 
 wood concern also manufactures other lines requiring special sales effort, such 
 special lines should bear their own sales burden.. 
 
 In most member organizations the functions of Administration and Selling 
 are performed by the same persons and may be treated under the combined 
 head of Administrative and Sales Expense, although a separation may be made 
 where deemed advisable. 
 
 DETERMINATION OF DIFFERENTIAL EXPENSE RATES 
 
 On the following pages will be found the actual steps necessary in determin- 
 ing Differential Man-Hour Expense Rates, the figures used being hypothetical. 
 A study of this example in connection with the reading of the text will be found 
 greatly to facilitate a thorough understanding of the principles underlying Ex- 
 pense Analysis and the practical application of same. 
 
 DATA REQUIRED 
 
 The data required from which to determine the differential Expense Rates 
 is indicated on the following form. Budgeted figures based upon full operation 
 should be used. All valuation figures should represent the replacement value of 
 buildings or equipment as the case may be. 
 
 Property Valuations 
 
 Land $8,000.00 
 
 Buildings ' 
 
 Office Building (construction? Frame ) $4~000.00 
 
 Power Plant Building (construction? see below ) 0 
 
 Manufacturing Buildings, brick None 
 
 Manufacturing Buildings, concrete None 
 
 Manufacturing Buildings, frame.. 110,000.00 
 
 Garage and Misc. Bldgs, (construction? frame ) 2,000.00 
 
 Kiln Buildings, not including piping or equipment 
 
 Brick. What used for? Core Lumber 4,500.00 
 
 Frame. What used for? 
 
 Other Buildings. What used for? 
 
 (Power Plant is part of Manufacturing bldg.) 120,600.00 
 
 Equipment 
 
 Sprinkler System $ 16,000.00 
 
 Fire Fighting Apparatus None 
 
 Steam Plant Equipment... 11,100.00 
 
 Power Equipment. 7,000.00 
 
 Refuse Blower System 2,800.00 
 
 General Office Equipment 2,150.00 
 
 Factory Office Equipment 700.00 
 
 Shipping Room Equipment 960.00 
 
 Auto Trucks and Accessories... 3,400.00 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
28 
 
 DIFFERENTIAL RATE DETERMINATION IL 
 
 Expense 
 Revised 1922 
 
 Property Valuations — (Continued) 
 
 Equipment — (Continued) 
 
 Horses, Wagons and Harness None 
 
 Other Stable Equipment None 
 
 Miscellaneous Manufacturing Equipment. 8,000.00 
 
 Lumber luln Piping and Equipment 3,200.00 
 
 Veneer Kiln Piping and Equipment.- 700.00 
 
 Panel Kiln Piping and Equipment. None 
 
 Rotary Veneer Manufacturing Equipment 19,900.00 
 
 Sliced Veneer Manufacturing Equipment 8,940.00 
 
 Sawn Veneer Manufacturing Equipment W, 400.00 
 
 Lumber Manufacturing Equipment 185.00 
 
 Lumber Core Manufacturing Equipment 17,300.00 
 
 *Veneer Preparation (Taping Room) Equipment 0 
 
 Plywood Assembling and Finishing Equipment.- 23,700.00 
 
 Other Equipment 
 
 $132,435.00 
 
 Total Value of all Property $260,935.00 
 
 *Unle33 separate costs are desired on Taped Faces, this should be included under “Plywood Assembling and 
 Finishing”. 
 
 Areas Occupied 
 
 Land — Total Area 
 
 110,000 sq. ft. 
 
 Occupied by 
 
 General Office Building 2,000 sq. ft. 
 
 Steam Plant Building 2,000 
 
 Fuel Storage 1,000 
 
 Kilns (State what used for) 
 
 Core Lumber 5,000 
 
 Manufacturing Buildings 43,500 
 
 Garage and Miscellaneous Buildings 1,000 
 
 Log Storage for Rotary Veneers 7,400 
 
 Log Storage for Sliced Veneers 5,500 
 
 Log Storage for Sawn Veneers.— 1,500 
 
 Log Storage for Lumber 10,000 
 
 Lumber Storage for Cores 18,000 
 
 Driveways, General Purpo.ses and Vacant 13,100 
 
 Other Purposes 
 
 110,000 sq. ft. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
II 
 
 Expense 
 Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 29 
 
 Areas Occupied — (Continued) 
 
 Buildings 
 
 Factory Buildings, Total Floor Area 70,000 sq. ft . 
 
 Occupied by 
 
 General OflBce.__ 2,000 sq. ft. 
 
 Factory Office 1,200 
 
 Steam Plant 1,400 
 
 Power Plant None 
 
 General Purposes and Vacant 8,700 
 
 Rotary Veneer Manufacturing 9,600 
 
 Sliced Veneer Manufacturing 14,700 
 
 Sawn Veneer Manufacturing 7,100 sq ft. 
 
 Lumber Manufacturing.— 600 
 
 Lumber Core Manufacturing 4,700 
 
 *Veneer Preparation (Taping Room) ..._ 0 
 
 Plywood Assembling and Finishing 20,000 
 
 Other Purposes 
 
 - - . , TOfiOO^sq. ft. 
 
 ♦Unless separate costs are desired on Taped Faces, this should be included under “Plywood Assembling and 
 Finishing’’. 
 
 Expenses 
 
 Taxes 
 
 State and County $ 1,046.00 
 
 City Included above 0 
 
 Corporation 409.00 
 
 Other Taxes ^ S 1,464.00 
 
 Forward 
 
 $1,464.00 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
30 
 
 DIFFERENTIAL RATE DETERMINATION IL 
 
 Expense 
 Revised 1922 
 
 Expenses — (Continued) 
 
 Insurance t(Annual Premiums) 
 
 Brought Forward. 
 
 Fire $ 843.75 
 
 Sprinkler Leakage None 
 
 Tornado 286.60 
 
 BoiIer._ 28.30 
 
 Use and Occupancy.— None 
 
 Paymaster.— 16.20 
 
 Riot and Civil Commotion 4^6.00 
 
 Credit Indemnity ^ 757.50 
 
 Workmen’s Compensation 3,713.00 
 
 Public Liability 14-30 
 
 Elevator 7.60 
 
 Life (On Executives).— None 
 
 Industrial Life (On Employees) None 
 
 Other Insurance 
 
 tWhere premium payments cover more than one year, report proportionate cost of one year only. 
 
 Steam Generation 
 
 Fuel Purchased $ 5,635.00 
 
 Fuel Value of Refuse Burned 6,635.00 
 
 Purchased Water (for Power Plant). 129.35 
 
 Other Items 
 
 Electric Power and Light 
 
 Power Current Purchased S 4,315.00 
 
 Lubricating Oils and other Power Plant Supplies 441-36 
 
 Other Expenditures.- 
 
 Forward. 
 
 $1,454-00 
 
 $6,141.26 
 
 11,399.35 
 
 $4.766.35 
 
 $23,750.95 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
IL 
 
 Expense 
 Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 31 
 
 Expense — (Continued) 
 
 Brought Forward. 
 
 $23,750.96 
 
 General Manufacturing Expense 
 
 Salaries of Superintendent and Assistants, Factory Office 
 Clerks, including Cost and Planning Departments (State 
 
 number 3 ) : $ 12,662.00 
 
 Sundry Factory Office Supplies. — 38.59 
 
 Sundry Factory Office Expense 72.00 
 
 Sundry Factory Supplies 1,428.00 
 
 Sundry Factory Expense 724.00 
 
 Water for General Purposes 14-30 
 
 Cartage Expense None 
 
 Sundry Shipping Department Supplies (not including crating 
 
 material) 32. 60 
 
 Sundry Shipping Department Expenses 1 48.40 
 
 Purchased Light Current 361.40 
 
 Rent paid for manufacturing purposes. 
 
 15,481.29 
 
 None 
 
 Departmental Supplies. (Enumerate by Departments) 
 
 Plywood Department, Sand Paper $ 2,238.00 
 
 2,238.00 
 
 *Repairs 
 
 Repairs to Buildings $ 4,^17.60 
 
 Repairs to Machinery and Equipment 4,635.23 8,852.73 
 
 Forward $50,322.97 
 
 ♦The furnishing of figures on Repairs is optional as a percentage covering Repairs is included in recommended 
 Maintenance rates. Any figures on repairs should represent a fair average covering a period of years. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
32 
 
 DIFFERENTIAL RATE DETERMINATION II. 
 
 Expense 
 Revised 1922 
 
 Expense — ^(Continued) 
 
 Brought Forward... $60,322.97 
 
 Administrative Expense 
 
 Salaries of Executive Officers and Clerks $ 27,206.00 
 
 Legal and Professional Services 300. (X) 
 
 Interest Paid (net) None 
 
 Discount Paid (net) 26.67 
 
 Discounts allowed on Sales 8,962.00 
 
 Association and Club Dues and Assessments 760.00 
 
 Donations to Charities, etc 130.00 
 
 Office Stationery and Supplies 3,107.66 
 
 Sundry Office Expense 967.60 
 
 Postage, Telephone and Telegraph. 376.00 
 
 Welfare Expense 600.00 
 
 Miscellaneous Traveling Expense 261.13 
 
 Sundry Administrative Expense 123.66 
 
 Other Items — — 
 
 42,709.60 
 
 Rent paid for Office None 
 
 Sales Expense 
 
 Salaries of Sales Manager and Salesmen $ 4,000-00 
 
 Commissions of Salesmen. 8,819.49 
 
 Expenses of Salesmen None 
 
 Clerical salaries. Sales Department None 
 
 Postage, Telephone, Telegraph, Sales Department None 
 
 Sundry Sales Expense 4,667.24 
 
 Advertising 2,160.00 
 
 Other Items 
 
 %19,636.73 
 
 Total Annual Expense $1 12,669.30 
 
 DISTRIBUTION OF POWER, HEAT AND LIGHT 
 
 Department 
 
 Rotary Veneer. 
 
 Steam Gen- 
 eration 
 
 37% 
 
 Power 
 
 26% 
 
 Sliced Veneer 
 
 16 
 
 12 
 
 Sawn Veneer 
 
 7 
 
 19 
 
 Lumber 
 
 None 
 
 6 
 
 Lumber Cores 
 
 30 
 
 18 
 
 *Veneer Preparation 
 
 0 
 
 0 
 
 Plywood 
 
 None 
 
 20 
 
 General Purposes.. 
 
 10 
 
 None 
 
 Other Purnoses 
 
 
 
 
 
 100% 
 
 100% 
 
 ♦Unless separate costs are desired on Taped Faces, this should be included under "Plywood Assembling and 
 Finishing". 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
II 
 
 Expense 
 Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 33 
 
 LABOR 
 
 General Indirect Labor 
 
 
 No. 
 
 Men 
 
 Hours 
 
 Worked 
 
 Man- 
 
 Hours 
 
 Distribution 
 
 Rotary 
 
 Veneer 
 
 Sliced 
 
 Veneer 
 
 Sawn 
 
 Veneer 
 
 Lumber 
 
 Lumber 
 
 Cores 
 
 Veneer 
 
 Prep. 
 
 Ply- 
 
 wood 
 
 Totals 
 
 Watchmen 
 
 1 
 
 JiSSO 
 
 4380 
 
 % 
 
 26 
 
 % 
 
 10 
 
 % 
 
 6 
 
 % 
 
 1 
 
 % 
 
 20 
 
 % 
 
 0 
 
 % 
 
 39 
 
 % 
 
 100 
 
 Millwrights.... 
 
 1 
 
 3300 
 
 3300 
 
 6 
 
 10 
 
 15 
 
 6 
 
 15 
 
 0 
 
 60 
 
 100 
 
 Engineer 
 
 1 
 
 3300 
 
 3300 
 
 26 
 
 12 
 
 19 
 
 5 
 
 18 
 
 0 
 
 20 
 
 100 
 
 Firemen 
 
 4 
 
 4380 
 
 17620 
 
 41 
 
 18 
 
 8 
 
 0 
 
 33 
 
 0 
 
 0 
 
 100 
 
 Elevator Op... 
 
 None 
 
 
 
 
 
 
 
 
 
 
 100 
 
 Truckers 
 
 2 
 
 2860 
 
 6720 
 
 20 
 
 10 
 
 0 
 
 0 
 
 20 
 
 0 
 
 60 
 
 100 
 
 Sweepers 
 
 None 
 
 
 
 
 
 
 
 
 
 
 100 
 
 Shipping 
 
 None 
 
 
 
 
 
 
 
 
 
 
 100 
 
 Totals 
 
 ( 9 ) 
 
 
 (34220) 
 
 See “D 
 
 epartm 
 
 ental 
 
 Labor 
 
 ” belo 
 
 w 
 
 
 
 *Departniental Labor 
 
 P 
 
 §Unless separate costs are desired on Taped Faces, this should be included under “Plywood Assembling 
 and Finishing”. 
 
 Department 
 
 Number 
 
 Men 
 
 Hours 
 
 Operated 
 
 Man-Hours 
 
 Percent 
 
 Departmental 
 
 tGeneral 
 
 Indirect 
 
 Total 
 
 Rotary Veneer 
 
 25 
 
 2.860 
 
 71,600 
 
 10.446 
 
 81.945 
 
 23% 
 
 Sliced Veneer 
 
 16 
 
 2.860 
 
 42.900 
 
 4.890 
 
 47.790 
 
 14% 
 
 Sawn Veneer 
 
 9 
 
 2.860 
 
 26.740 
 
 2.743 
 
 28.483 
 
 8% 
 
 Lumber 
 
 2 
 
 2.860 
 
 6.720 
 
 374 
 
 6.094 
 
 2% 
 
 Lumber Cores 
 
 18 
 
 2,860 
 
 51,480 
 
 8.890 
 
 60.370 
 
 17% 
 
 § Veneer Preparation 
 
 0 
 
 
 
 
 
 0% 
 
 Plywood 
 
 42 
 
 2,860 
 
 120,120 
 
 6.878 
 
 126.998 
 
 36% 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 General Indirect 
 
 ( 9 ) 
 
 
 
 See above 
 
 
 
 Totals ’ 
 
 120 
 
 
 317,460 
 
 34,220 
 
 351,680 
 
 100% 
 
 ♦Include foremen and all other Departmental Indirect Labor. 
 tSee “General Indirect Labor”. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
34 
 
 DIFFERENTIAL RATE DETERMINATION II. 
 
 SOLUTION 
 
 Taxes 
 
 Corporation (To Administrative and Sales Expense) $ 409.00 
 
 Real and Personal (See Distribution below). 1,045.00 
 
 Distribution of Real and Personal Taxes (on basis of Valuations) : 
 
 
 Valuations 
 
 Ratio 
 
 To 
 
 Taxes 
 
 Land 
 
 $ 8,000.00 
 
 3% 
 
 Rent 
 
 $ 31.35 
 
 Buildings 
 
 116,000.00 
 
 4,500.00 
 
 45% 
 
 2% 
 
 Rent 
 
 470.25 
 
 Kiln Bldgs., Core Lumber 
 
 Rent 
 
 20.90 
 
 Total to Rent 
 
 
 50% 
 
 
 $ 522.50 
 
 Equipment: 
 
 Sprinkler System 
 
 ..$ 16,000 00 
 
 6% 
 
 Equip. Exp. 
 
 $ 
 
 62.70 
 
 Power Equipment 
 
 .... 7,000.00 
 
 3% 
 
 Equip. Exp. 
 
 
 31.35 
 
 Automobile Trucks. .. 
 
 .... 3,400.00 
 
 1% 
 
 Equip. Exp. 
 
 
 10.45 
 
 Other Equipment 
 
 .... 106,035.00 
 
 40% 
 
 Equip. Exp. 
 
 
 418.00 
 
 Total to Equipment Expense 
 
 50% 
 
 
 $ 
 
 522.50 
 
 Grand Totals 
 
 ....$260,935.00 
 
 100% 
 
 
 $1,045.00 
 
 Insurance 
 
 Boiler (to Steam Generation) 
 
 Paymaster .$ 16.20 
 
 Riot and Civil Commotion 475.00 
 
 Credit Indemnity 757.50 
 
 Workmen’s Compensation 3,713.00 
 
 Public Liability 14.30 
 
 Elevator 7.60 
 
 28.30 
 
 (To Administrative and Sales 
 
 Expense 
 
 4,983.60 
 
 Fire $ 
 
 843.75 
 
 
 Tornado 
 
 285.60 
 
 
 Equipment Charges on 
 
 
 
 Sprinkler System 
 
 1,822.70 
 
 
 Total Propertv Insurance (See Distribution below).. 
 
 
 $2,952.05 
 
 Distribution of Propertv Insurance (on basis of Valuations): 
 
 
 
 Valuations 
 
 Ratio 
 
 To 
 
 Insurance 
 
 Buildings 
 
 $116,000.00 
 
 49% 
 
 Rent 
 
 $1,446.50 
 
 Kiln Buildings ... 
 
 4,500.00 
 
 2% 
 
 Rent 
 
 59.04 
 
 Total to Rent 
 
 
 51% 
 
 
 $1,505.54 
 
 Equipment : 
 
 
 
 
 
 Power Equipment 
 
 .$ 7,000.00 
 
 3% 
 
 Equip. Exp. 
 
 $ 88.56 
 
 Automobile Trucks 
 
 3,400.00 
 
 1% 
 
 Equip. Exp. 
 
 29.52 
 
 Other Equipment 
 
 . 106,035.00 
 
 45% 
 
 
 1,328.43 
 
 Total to Equipment Expense.- 
 
 49% 
 
 
 $1,446.51 
 
 Grand Totals 
 
 $236,935.00 
 
 100% 
 
 
 $2,952.05 
 
 Expense 
 Revised 1922 
 
 SI, 454.00 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
II 
 
 Expense 
 Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 35 
 
 Equipment Expense — 
 
 To Insurance 
 
 Valuation of Sprinkler System $ 16,000.00 
 
 Interest on Investment—, 6% 
 
 Maintenance— — . 5% 
 
 11 % 
 
 Taxes 
 
 To Power 
 
 Valuation of Power Equipment $ 7,000.00 
 
 Interest on Investment— 6% 
 
 Maintenance. 15% 
 
 21 % 
 
 Taxes 
 
 Insurance 
 
 $1,760.00 
 
 62.70 $1,822.70 
 
 $1,470.00 
 
 31.35 
 
 88.56 $1,589.91 8% 
 
 *To General Expense 
 
 Valuation of Automobile Trucks $ 3,400.00 
 
 Interest on Investment— 6% 
 
 Maintenance. 25% 
 
 31% 
 
 Taxes.. 
 
 Insurance 
 
 $1,054.00 
 
 10.45 
 
 29.52 $1,093.97* 
 
 Other Equipment 
 
 $15,905.25 
 
 418.00 
 
 1,328.43 
 
 17,651.68 
 
 $22,158.26 
 
 Distribution (on basis of Valuations) 
 Equipment 
 
 Steam Generation 
 
 *General Expense 
 
 Administrative and Sales Expense.. 
 
 Rotary Veneer Manufacture 
 
 Sliced Veneer Manufacture 
 
 Sawn Veneer Manufacture. 
 
 Lumber Manufacture 
 
 Lumber Core Manufacture 
 
 Plywood Assembling and Finishing 
 
 $106,035.00 100% $17,651.68 
 
 Valuation 
 
 Ratio 
 
 Charge 
 
 
 11,100.00 
 
 10% 
 
 $1,765.17 
 
 8% 
 
 12,460.00 
 
 12% 
 
 2,118.20* 
 
 2,150.00 
 
 2% 
 
 353.03 
 
 2% 
 
 20,600.00 
 
 20% 
 
 3,530.34 
 
 17% 
 
 8,940.00 
 
 9% 
 
 1,588.65 
 
 8% 
 
 6,400.00 
 
 6% 
 
 1,059.10 
 
 5% 
 
 3,385.00 
 
 3% 
 
 529.55 
 
 3% 
 
 17,300.00 
 
 16% 
 
 2,824.27 
 
 14% 
 
 23,700.00 
 
 22% 
 
 3,883.37 
 
 19% 
 
 Valuation $106,035.00 
 
 Maintenance.,, 15% 
 
 Taxes 
 
 Insurance 
 
 (See Distribution Below) 
 
 *To General Expense, $1,093.97 plus $2,118.20 equals $3,212.17. 
 
 16% 
 
 100 % 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
36 
 
 DIFFERENTtAL RATE DETERMINATION II. 
 
 Revised 1922 
 
 Rental Expense 
 
 Land 
 
 Occupied by 
 
 Buildings- 48,500 sq. ft. 
 
 General Purposes and Vacant 13,100 
 
 Fuel Storage 1,000 
 
 Log Storage for Rotary Veneer._ 7,400 
 
 Log Storage for Sliced Veneer 5,500 
 
 Log Storage for Sawn Veneer 1,500 
 
 Log Storag^e for Lumber.. 10,000 
 
 Kilns for Core Lumber 5,000 
 
 Storage for Core Lumber 18,000 23,000 
 
 110,000 
 
 Valuation of Land $8,000.00 
 
 Charges Against Land 
 
 Interest on Investment— 6% $ 
 
 Taxes 
 
 Distribution of Charges, (See distribution of Areas) 
 
 To Building Rental Expense 44 % $ 
 
 To General Manufacturing Expense 12 
 
 To Steam Generation 1 
 
 To Rotary Veneer Manufacturing 7 
 
 To Sliced Veneer Manufacturing 5 
 
 To Sawn Veneer Manufacturing,. 1 
 
 To Lumber Manufacturing 9 
 
 To Lumber Core Manufacturing 21 
 
 100 % 
 
 110,000 sq. ft. 
 
 44% 
 
 12 
 
 1 
 
 7 
 
 5 
 
 1 
 
 9 
 
 21 
 
 100 % 
 
 480.00 
 
 31.35 
 
 $511.35 
 
 225.00 
 
 61.36 
 
 5.11 
 
 35.79 
 
 25.57 
 
 5.11 
 
 46.02 
 
 107.39 
 
 $511.35 
 
 Buildings 
 
 Areas, Floor Total 70,000 sq. ft. 
 
 Occupied by 
 
 General Office 
 
 Factory Office 1,200 sq. ft. 
 
 General Purposes.. 8,700 
 
 Steam Plant 
 
 Rotary Veneer Manufacturing 
 
 Sliced Veneer Manufacturing 
 
 Sawn Veneer Manufacturing 
 
 Lumber Manufacturing 
 
 Lumber Core Manufacturing 
 
 Plywood Manufacturing... 
 
 . 2,000 sq. ft. 
 
 3% 
 
 9,900 
 
 14 
 
 . 1,400 
 
 2 
 
 . 9,600 
 
 14 
 
 .14,700 
 
 21 
 
 . 7,100 
 
 10 
 
 . 600 
 
 1 
 
 . 4,700 
 
 7 
 
 20,000 
 
 28 
 
 70,000 
 
 100% 
 
 Valuation of Buildings, not including Kilns 
 
 $116,000.00 
 
 Charges against Buildings 
 
 Maintenance... 9% 
 
 Interest on Investment... 6% 
 
 15% $17,400.00 
 
 Taxes 470.25 
 
 Insurance 1,446.50 
 
 Land Rental Charge (See Land). 225.00 $19,541.75 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
11 . 
 
 Expense 
 Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 37 
 
 Rental Expense — (Continued) 
 
 Distribution of Charges (See Distribution of Areas) 
 
 To Administrative and Sales Expense 
 
 3% 
 
 » 586.25 
 
 
 To General Manufacturing Expense 
 
 14 
 
 2,735.85 
 
 
 To Steam Generation 
 
 2 
 
 390.84 
 
 
 To Rotary Veneer Manufacturing 
 
 14 
 
 2,735.85 
 
 
 To Sliced Veneer Manufacturing 
 
 21 
 
 4,103.77 
 
 
 To Sawn Veneer Manufacturing. 
 
 10 
 
 1,954.17 
 
 
 To Lumber Manufacturing 
 
 1 
 
 195.41 
 
 
 To Lumber Core Manufacturing 
 
 7 
 
 1,367.92 
 
 
 To Plywood Assembling and Finishing 
 
 28 
 
 5,471.69 
 
 
 
 100% 
 
 
 $19,541.75 
 
 Valuation of Kiln Buildings, for Core Lumber.. 
 
 
 S 4,500.00 = 
 
 
 Charges Against Kiln Buildings 
 
 
 
 
 Maintenance. 
 
 10% 
 
 450.00 
 
 
 Taxes._ 
 
 
 20.90 
 
 
 Insurance 
 
 
 59.04 
 
 
 
 
 529.94 
 
 
 Total Building Rental Expense.-- 
 
 
 
 $20,071.69 
 
 Summary of Rental Charges 
 
 
 
 
 To Administrative and Sales Expense 
 
 
 
 
 Building Rental Charge only.— 
 
 
 $ 586.25 
 
 3% 
 
 To General Manufacturing Expense 
 
 
 
 
 Land Rental Charge 
 
 .. $ 61.36 
 
 
 
 Building Rental Charge 
 
 .. 2,735.85 
 
 2,797.21 
 
 14% 
 
 To Steam Generation 
 
 
 
 
 Land Rental Charge 
 
 ..$ 5.11 
 
 
 
 Building Rental Charge 
 
 390.84 
 
 395.95 
 
 2% 
 
 To Rotary Veneer Manufacturing 
 
 
 
 
 Land Rental Charge 
 
 ..$ 35.79 
 
 
 
 Building Rental Charge 
 
 .. 2,735.85 
 
 2,771.64 
 
 14% 
 
 To Sliced Veneer Manufacturing 
 
 
 
 
 Land Rental Charge 
 
 ...$ 25.57 
 
 
 
 Building Rental Charge 
 
 ... 4,103.77 
 
 4,129.34 
 
 20% 
 
 To Sawn Veneer Manufacturing 
 
 
 
 
 Land Rental Charge 
 
 ...$ 5.11 
 
 
 
 Building Rental Charge 
 
 ... 1,954.17 
 
 1,959.28 
 
 9% 
 
 To Lumber Manufacturing 
 
 
 
 
 Land Rental Charge 
 
 ...$ 46.02 
 
 
 
 Building Rental Charge 
 
 195.41 
 
 241.43 
 
 1% 
 
 To Lumber Core Manufacturing 
 
 
 
 
 Land Rental Charge 
 
 ..$ 107.39 
 
 
 
 Building Rental Charge 
 
 ... 1,367.92 
 
 
 
 Kiln Rental Charge. 
 
 529.94 
 
 2,005.25 
 
 10% 
 
 To Plywood Assembling and Finishing 
 
 
 
 
 Building Rental Charge only. 
 
 
 5,471.69 
 
 27% 
 
 Total Rental Expense.- 
 
 
 $20,358.04 
 
 100% 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
38 
 
 DIFFERENTIAL RATE DETERMINATION 11. 
 
 Expense 
 Revised 1922 
 
 Steam Generation 
 
 Charges 
 
 Equipment Charges S 1,765.17 
 
 Rental Charges 395.95 
 
 Boiler Insurance. 28.30 
 
 *Other Expenses per schedule 11,399.35 
 
 Total 
 
 Distribution of Charges (on basis of B. T. U. u.sed) 
 
 To General Expense (heat for general purposes) 10% $ 1,358.89 
 
 To Rotary Veneer Manufacturing 37 5,027.78 
 
 To Sliced Veneer Manufacturing 16 2,174.22 
 
 To Sawn Veneer Manufacturing.- 7 951.22 
 
 To Lumber Core Manufacturing 30 4,076.66 
 
 100 % 
 
 ♦Credit Material with Fuel Value of Refuse Burned. 
 
 Power 
 
 Charges 
 
 Equipment Charges $ 1,589.91 
 
 Other Charges per schedule 4,756.35 
 
 Total 
 
 Distribution of Charges (on basis of H. P. used) 
 
 To Rotary Veneer Manufacturing 26% .$ 1,650.03 
 
 To Sliced Veneer Manufacturing 12 761.55 
 
 To Sawn Veneer Manufacturing.. 19 1,205.79 
 
 To Lumber Manufacturing 5 317.31 
 
 To Lumber Core Manufacturing 18 1,142.33 
 
 To Plywood Assembling and Finishing 20 1,269.25 
 
 100 % 
 
 General Manufacturing Expense 
 
 Charges 
 
 Equipment Charge.s $ 3,212.17 
 
 Rental Charges 2,797.21 
 
 Steam Generation Charges 1,358.89 
 
 Other Expenses per .schedule.. 15,481.29 
 
 Total 
 
 Distribution of Charges (on basis of Man-hours of Labor) 
 
 To Rotary Veneer Manufacturing 23% 
 
 To Sliced Veneer Manufacturing 14% 
 
 To Sawn Veneer Manufacturing.. 8% 
 
 To Lumber Manufacturing 2% 
 
 To Lumber Core Manufacturing 17% 
 
 To Plj'wood Assembling and Finishing 36% $8,225.84 
 
 Departmental Supplies (Sand Paper).. 2,238.00 
 
 100 % 
 
 Total General Expense 
 
 $13,588.77 
 
 13,588.77 
 
 $ 6,346.26 
 
 $ 6,346.26 
 
 $22,849.56 
 
 $ 5,225.40 
 3,198.94 
 1,827.96 
 456.99 
 3,884.43 
 
 10,463.84 
 
 $25,087.56 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Expense 
 • Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 39 
 
 Administrative and Sales Expense 
 
 Charges 
 
 Equipment Charges. $ 353.03 
 
 Rental Charges 586.25 
 
 Corporation Taxes.__ 409.00 
 
 Insurance per schedule 4,983.60 
 
 Administrative Expenses per schedule.- 42,709.60 
 
 Sales Expenses per schedule 19,536.73 
 
 Total $68,578.21 
 
 Distribution of Charges (on basis of Man-hours of Labor) 
 
 To Rotary Veneer Manufacturing 23% 
 
 To Sliced Veneer Manufacturing 14% 
 
 To Sawn Veneer Manufacturing.. 8% 
 
 To Lumber Manufacturing 2% 
 
 To Lumber Core Manufacturing 17% 
 
 To Plywood Assembling and Finishing 36% 
 
 100 % 
 
 SUMMARIES 
 
 Rotary Veneer Manufacturing 
 
 Annual Expense 
 
 
 *Man-hour Rates 
 
 Equipment Charges 
 
 $ 3,530.34 
 
 $0,043 
 
 Rental Charges 
 
 2,771.64 
 
 .034 
 
 Steam Generation Charges 
 
 5,027.78 
 
 .061 
 
 Power Charges 
 
 1,650.03 
 
 .020 
 
 General Manufacturing Expense 
 
 5,255.40 
 
 .064 
 
 Total Manufacturing Expense 
 
 $18,235.19 
 
 $0,222 
 
 Administrative and Sales Expense..... 
 
 15,772.99 
 
 .193 
 
 Total Departmental Expense 
 
 $34,008.18 
 
 $0,415 
 
 ♦To find these Man-hour Rates, the Annual Expense is 
 department, or 81,945. 
 
 divided by the Man-hours of 
 
 Labor for the year in this 
 
 Sliced Veneer Manufacturing 
 
 Annual Expense 
 
 
 *Man-hour Rates 
 
 Equipment Charges 
 
 $ 1,588.65 
 
 $0,033 
 
 Rental Charges. 
 
 4,129.34 
 
 .086 
 
 Steam Generation Charges 
 
 2474.22 
 
 .045 
 
 Power Charges 
 
 761.55 
 
 .016 
 
 General Manufacturing Expense 
 
 3,198.94 
 
 .067 
 
 Total Manufacturing Expense 
 
 $11,852.70 
 
 $0,247 
 
 Administrative and Sales Expense 
 
 9,600.95 
 
 .201 
 
 Total Departmental Expense 
 
 $21,453.65 
 
 $0,448 
 
 $15,772.99 
 
 9,600.95 
 
 5,486.26 
 
 1,371.56 
 
 11,658.30 
 
 24,688.15 
 
 $68,578.21 
 
 ♦To find these Man-hour Rates, the Annual Expense is divided by the Man-hours of Labor for the year in this 
 department, or 47,790. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
40 
 
 DIFFERENTIAL RATE DETERMINATION II 
 
 Expense 
 Revised 1922 
 
 Sawn Veneer Manufacturing 
 
 Annual Expense 
 
 *Man-hour Rates 
 
 Equipment Charges 
 
 Rental Charges 
 
 Steam Generation Charges 
 
 Power Charges 
 
 General Manufacturing Expense 
 
 Total Manufacturing Expense 
 
 Administrative and Sales Expense 
 
 Total Departmental Expense 
 
 J 1,059.10 
 
 $0,037 
 
 . 1,959.28 
 
 .069 
 
 951.22 
 
 .033 
 
 . 1,205.79 
 
 .042 
 
 . 1,827.96 
 
 .064 
 
 .$ 7,003.35 
 
 $0,245 
 
 . 5,486.26 
 
 .193 
 
 $12,489.61 
 
 $0,438 
 
 *To find these Man-hour Rates, the Annual Expense is divided by the Man-hours of Labor for the year in this 
 department, or 28,483. 
 
 Lumber Manufacturing 
 
 Annual Expense 
 
 *Man-hour Rates 
 
 Equipment Charges 
 
 Rental Charges 
 
 Power Charges 
 
 General Manufacturing Expense 
 
 Total Manufacturing Expense 
 
 Administrative and Sales Expense 
 
 Total Departmental Expense 
 
 .$ 529.55 
 
 $0,087 
 
 241.43 
 
 .040 
 
 317.31 
 
 .052 
 
 456.99 
 
 .075 
 
 .$ 1,545.28 
 
 $0,254 
 
 . 1,371.56 
 
 .224 
 
 $ 2,916.84 
 
 $0,478 
 
 *To find these Man-hour Rates, the Annual Expense is divided by the Man-hours of Labor for the year in this 
 department, or 6,094. 
 
 Lumber Core Manufacturing 
 
 Annual Expense 
 
 
 *Man-Hour Rates 
 
 Equipment Charges 
 
 Rental Charges 
 
 $ 2,824.27 
 
 $0,048 
 
 2,005.25 
 
 .033 
 
 Steam Generation Charges 
 
 4,076.66 
 
 .067 
 
 Power Charges 
 
 1,142.33 
 
 .019 
 
 General Manufacturing Expense 
 
 3,884.43 
 
 .064 
 
 Total Manufacturing Expense.- 
 
 $13,932.94 
 
 $0,231 
 
 Administrative and Sales Expense 
 
 11,658.30 
 
 .193 
 
 Total Departmental Expense 
 
 $25,591.24 
 
 $0,424 
 
 *To find these Man-hour Rates, the Annual Expense is 
 department, or 60,370. 
 
 divided by the Man-hours of 
 
 Labor for the year in this 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
II 
 
 Expbnsb 
 Revised 1922 
 
 DIFFERENTIAL RATE DETERMINATION 
 
 41 
 
 Plywood Assembling and Finishing 
 
 Annual Expense *Man-hour Rates 
 
 Equipment Charges 
 
 Rental Charges 
 
 Power Charges 
 
 General Manufacturing Expense. 
 
 Total Manufacturing Expense.... 
 
 Administrative and Sales Expense 
 
 Total Departmental Expense. 
 
 .$ 3,883.37 
 
 $0,031 
 
 . 5,471.69 
 
 .043 
 
 . 1,269.25 
 
 .010 
 
 10,463.84 
 
 .083 
 
 .$21,088.15 
 
 $0,167 
 
 . 24,688.15 
 
 .194 
 
 $45,776.30 
 
 $0,361 
 
 *To find these Man-hour Hates, the Annual Expense is divided by the Man-hours of Labor for the year in this 
 department, or 126,998. 
 
 PROOF 
 
 Interest on Investment in 
 
 Land $ 8,000.00 
 
 Buildings..- 116,000.00 
 
 Sprinkler System 16,000.00 
 
 Power Equipment 7,000.00 
 
 Auto Trucks 3,400.00 
 
 $150,400.00 
 
 Maintenance Charges on 
 
 Buildings. $1 16,000.00 
 
 Kilns (Buildings only) 4,500.00 
 
 Sprinkler System 16,000.00 
 
 Auto Trucks 3,400.00 
 
 Other Equipment 113,035.00 
 
 Other Expenses per schedule $112,569.30 
 
 Deduct actual Repairs per schedule 8,852.73 
 
 @ 
 
 6%$ 
 
 9,024.00 
 
 @ 
 
 9% 
 
 10,440.00 
 
 @ 10% 
 
 450.00 
 
 @ 
 
 5% 
 
 800.00 
 
 @25% 
 
 850.00 
 
 @ 15% 
 
 16,955.25 
 
 
 
 103,716.57 
 
 Total 
 
 $142,235.82 
 
 Rotary Veneer Manufacturing 
 
 @ M. H. Rates 
 
 Actual 
 
 81,945 Man-hours @ $0.415 
 
 $ 34,007.18 
 
 $34,008.18 
 
 Sliced Veneer Manufacturing 
 
 47,790 Man-hours @ $0.448 
 
 21,409.92 
 
 21,453.65 
 
 Sawn Veneer Manufacturing 
 
 28,483 Man-hours @ $0.438 
 
 12,475.55 
 
 12,489.61 
 
 Lumber Manufacturing 
 
 6,094 Man-hours @ $0.478 
 
 2,912.93 
 
 2,916.84 
 
 Lumber Core Manufacturing 
 
 60,370 Man-hours @ $0.424 
 
 25,596.88 
 
 25,591.24 
 
 Plywood Assembling and Finishing 
 
 126,998 Man-hours @ $0.361 
 
 45,846.28 
 
 45,776.30 
 
 351,680 
 
 Absorbed in decimal extensions.. 
 
 142,248.74 
 
 12.92 
 
 $142,235.82 
 
 $142,235.82 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
42 
 
 DIFFERENTIAL RATE DETERMINATION II. ReviYed'' 1922 
 
 The foregoing analysis is based upon operating the plant full time with a full 
 force, and consequently the resulting rates are lower than they would be under 
 only ordinary normal operation. To use these minimum rates in costing would 
 be to disregard contingencies such as unavoidable shut-downs and decreased 
 production due to falling off in orders. To “play safe” it is necessary to take 
 low production as well as high production periods into consideration and de- 
 termine upon figures which represent actual operation over a period of years. 
 While this is a matter for individual analysis and decision, the experiences and 
 practices of other are worth noting. 
 
 Members of the Plywood Manufacturers Association were recently asked this 
 question: “In the light of your experience, what per cent of full capacity produc- 
 tion do you consider representative of the average plant operation over a period of 
 years?” ■■ 
 
 The following is a synopsis of the replies received. 
 
 2 consider 90 % of “capacity” as representative of normal. 
 
 1 considers 85 % of “capacity” as representative of normal. 
 
 4 consider 80 % of “capacity” as representative of normal. 
 
 5 consider 75 % of “capacity” as representative of normal. 
 
 1 considers 73 % of “capacity” as representative of normal. 
 
 2 consider 70 % of “capacity” as representative of normal. 
 
 1 considers 66%% of “capacity” as representative of normal. 
 
 1 considers 65 % of “capacity” as representative of normal. 
 
 An average of the above experiences gives a composite rate of about 77%. 
 
 The natural tendency, however, is to over-rate operation rather than to 
 under-estimate it, and as most of the percentages given above are based upon 
 recollection and judgment and only a few upon actual records, the average is no 
 doubt high to say the least. Indeed, experienced industrial engineers are in- 
 clined to regard average normal operation as nearer 66% per cent of capacity. 
 
 As the hourly Expense rates must be in inverse ratio to the rate of operation, 
 it is necessary to take, on these basis, or respectively of the rates estab- 
 lished for full operation. Therefore, one-third or one-half should be added to 
 the rates found in the above example to give “recommended rates,” as follows: 
 
 75% Operation 
 
 Rotary Veneer Manufacturing $0.56 per man-hour. 
 
 Sliced Veneer Manufacturing 0.60 per man-hour. 
 
 Sawn Veneer Manufacturing 0.59 per man-hour. 
 
 Lumber Manufacturing 0.64 per man-hour. 
 
 Lumber Core Manufacturing 0.57 per man-hour. 
 
 Plywood Assembling and Finishing,... 0.48 per man-hour. 
 
 66%% Operation 
 $0.62 per man-hour 
 0.67 per man-hour 
 0.66 per man-hour 
 0.72 per man-hour 
 0.64 per man-hour 
 0.54 per man-hour 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
III. 
 
 Material 
 Revised 1922 
 
 WHAT CONSTITUTES MATERIAL 
 
 43 
 
 MATERIAL 
 
 Every Plywood manufacturer is in business to make money. To make 
 money a business must take in more than it pays out. Income is through the 
 medium of sales and before one can be assured that receipts will exceed expendit- 
 ures, these expenditures must be accurately apportioned to product and 
 standards of selling prices determined upon same. 
 
 In Plywood manufacture, Material costs average over three times as much as 
 either labor or expense. It is of major importance that this cost element of mate- 
 rial be correctly determined and evaluated in setting up costs. 
 
 The method of collecting material costs is of minor importance, but it is very 
 essential that the actual facts, whatever they are, be accurately determined. No 
 amount of accounting will change the facts as they exist. The first step in cost- 
 ing the material in product is to determine just what constitutes “Material.” 
 In other words, to draw the line between “Material” and supplies, the latter 
 being an element of “Expense.” This is especially necessary among Associa- 
 tion members, that a true comparison of costs may be had. 
 
 What constitutes “Material?” In general it might be said that under 
 this head should be classed all materials which are in the finished and packed 
 product, the waste produced in manufacture, and all material directly consumed 
 in producing each unit. Thus, while tape does not constitute a component 
 part of most finished panels, it is consumed in production and varies in quantity 
 with different products and should be included in the “material” cost. The 
 same principle applies to newspapers used in some plants as cauls in laying up. 
 
 Sand paper is used up in the course of the sanding process but not in the 
 initial use and may be classed as a department supply. By being charged to 
 the ‘ ‘ expense ’ ’ of the finishing department every panel which goes through that 
 department absorbs a part of the cost of sand paper. 
 
 Crating lumber, nails, steel strapping, wrapping paper and twine for pack- 
 ing are often treated as shipping room supplies but are properly classed with 
 ‘ ‘ material ’ ’ and may be more accurately distributed to product under this head. 
 
 Classifying material under the three recognized commercial divisions of 
 Veneers, Lumber Cores, and Plywood, we have the following schedule: 
 
 Veneers 
 
 Logs 
 
 Lumber Cores 
 
 Lumber 
 
 Glue 
 
 Veneers 
 Lumber Cores 
 Glue 
 Tape 
 
 Paper Cauls 
 Packing Materials 
 
 Plywood 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
44 
 
 PRICING 
 
 III. 
 
 Material 
 Revised 1922 
 
 PRICING 
 
 Two methods of pricing raw materials are followed in the Plywood industry 
 in common with others, but in actual practice only one can logically be used with 
 any degree of success in determining the proper selling prices for finished product. 
 In fact this result is inevitable regardless of any costing principles theoretically 
 observed. 
 
 The first method is to price at actual cost. This is possible only where such 
 records are maintained as will identify each lot of purchases from the time it is 
 received until it leaves the plant in the finished product. In theory this method 
 appears on the surface to be ideal but those who have attempted to put it into 
 every day practice will testify to the insurmountable difficulties which beset its 
 workings, to say nothing of the amount of clerical labor involved. 
 
 In costing manufactured veneers by this method, not only each log 
 must be given some mark which will identify it as belonging to a particular pur- 
 chase, but if logs from two or more lots are cut in the same day it is necessary 
 that the separate blocks cut also carry this mark else their identity will be lost 
 when they are put through the vats. Logs, and even parts of logs, which 
 are not suited for veneers are often culled out and sawn into lumber, some 
 of which finds its way into piles used eventually for cores and some goes into 
 packing crates. Obviously, if not beyond the possibility of human ingenuity to 
 maintain a correct record under such conditions (which are not uncommon), it is 
 safe to say that no one having such a system in vogue feels that his records are very 
 reliable when it comes to the point of laying his finger upon an order of finished 
 panels and saying “this order was manufactured from such purchase lots of 
 veneers and lumber, ’ ’ or “such a lot of lumber went into such and such orders. ’ ’ 
 
 Again, looking at it from the standpoint of the purchaser of finished product, 
 it is illogical to price the raw materials in such product at actual purchase prices, 
 because of the fluctuations in the market between the time of purchase and the 
 time of sale, and the wide differences in ages of the stocks of competing manu- 
 facturers. 
 
 This fact has been emphasized by conditions brought about by the war. Those 
 manufacturers who were so fortunate as to have laid in a large stock of raw 
 material at ante-bellum prices were not expected by their customers to sell the 
 finished product made from this cheap material on a basis of such costs when 
 the market rose. If any producer were so foolish as to follow this principle at that 
 time, he must find himself in the “heads I lose, tails you'wdn'’ class, when the 
 pendulum swings in the opposite direction, as the purchaser who will pay for 
 product made from war-time stock at prices based upon actual costs has not yet 
 been heard from. 
 
 Disagreements among competitive manufacturers as to the cost of product 
 are often traceable to this cause, as one may be using the invoice prices of six 
 months previous while the other is figuring on current market. 
 
 The latter method — that of using current market prices, — is the only one 
 which is recognized by the customer in a declining market in making his pur- 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
III. Material 
 
 
 Revised 1922 
 
 VALUE VARIATIONS 
 
 45 
 
 chases and should be followe^y the manufacturer in a rising market. Current 
 costs make the market ' 
 
 This being true, and the function of costing in which the Association is pri- 
 marily interested being to provide the proper basis for pricing, it is logical to follow 
 the same rule in costing which forms the unwritten law of the market. If this 
 method is followed by all plywood manufacturers, there will be a decided 
 tendency toward more uniform pricing, and a consequent stabilizing of the mar- 
 ket. This is the goal of the whole “Costing” program of the Association and 
 it cannot be attained until this principle is recognized in actual practice by every 
 member. 
 
 The principal objection which is raised to using current market quotations 
 as the basis of costing is that such practice makes it difficult to check cost by the 
 figures shown by the general accounts — in other words to strike a balance. Section 
 V on “Accounting” will give a clear portrayal of how this feature is easily and 
 simply adjusted in a logical and accurate way without disarranging establish- 
 ed accounting systems or entailing complicated and laborious clerical detail. 
 
 As long as it is attempted to put the principle of using invoice costs into 
 practice, the variations in material costs will be measured largely by the diff- 
 erences in ages of the respective stocks, and our endeavor to reach the goal of a 
 stabilized market will be frustrated to that extent. 
 
 VALUE VARIATIONS 
 
 A fact commonly overlooked by manufacturers in all lines who buy raw 
 material which is afterward sorted for grades and sizes, is that while a common or 
 average price is paid for an entire lot, the purchase is really a collection of materials 
 of varying values. For instance, in buying mahogany veneers, several logs may 
 be purchased at a flat price but in drawing on this stock for orders, a selection 
 is made both for figure and size, and a corresponding differentiation is made in 
 pricing the finished product although an actual invoice cost would show no differ- 
 ences in material values. It is true that the so called “figured woods” are 
 usually bought from sample and paid for according to quality, but even where 
 this is done and a corresponding charge made into the costs, no I'ecognition is 
 usually made of the fact that the large pieces of veneers cut from a certain log 
 are worth more than the small pieces. 
 
 However, if the manufacturer who sold the material were asked for quota- 
 tions on veneers from which a lot of selected large sizes could be cut and a sep- 
 arate quotation on veneers to be cut into small sizes, quite a difference in values 
 would appear. 
 
 The following extract from a report on “Variation in Costing Principles” 
 presented by W. L. Churchill at a meeting of the Plywood Manufacturers Asso- 
 ciation, March 9, 1920 and adopted by it is cited. 
 
 MATERIAL COSTS 
 
 In computing the costs of veneers and veneer products, the value of materials entering 
 into such products, as a rule, are very much greater than the labor element of such costs. 
 
 As a rule the larger the article produced, the smaller the ratio of labor to total costand 
 conversely, the smaller the article the greater the proportion of labor costs. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
46 
 
 VALUE VARIATIONS 
 
 Material 
 • Revised 1922 
 
 This is especially true to veneers and veneer panels, tops and other glued up products of 
 veneer plants. 
 
 Despite the fact that the larger the panel or top of a given construction, the less its labor 
 cost, the Association has adopted the principle that the value to customers increases per square 
 foot with increase in sizes of such panels and tops. 
 
 This means that the material value in veneer products increases with increased dimensions 
 and at greater ratio than the reduction in labor costs. 
 
 A panel 84" x 40" co.sts much less for labor per square foot than a similar panel 12" x 12". 
 The selling price for the larger panel is usually very much higher per square foot than the small- 
 er one, despite the fact of its much lower labor cost, thus recognizing that the material must be 
 worth a great deal more per square foot. 
 
 Few manufacturers attempt to place different valuations on the material used in different 
 sizes of the same construction. 
 
 Material costs, as a rule, are computed at the same rate per square foot regardless of the 
 sizes of the resultant product. 
 
 A few manufacturers arbitrarily deduct from purchase price a deffnite amount per square 
 foot to arrive at a valuation on what they consider by-product that would otherwise be waste. 
 
 Even in this latter practice, there is lack of uniformity, thus making it possible for disastrous 
 competition, due to differences in computation of costs instead of actual differences in such costs. 
 
 To enable all members to arrive at comparable costs in different sizes of the same construction 
 on same grades of product, all should use a similar rule or principle in determining the different 
 material values occasioned by differences in sizes of the resultant period. 
 
 Logs bought at $50.00 per M ft. and cut into veneers 24" long will not bring as large a return 
 to the veneer manufacturer as if cut into 85" lengths, even though grading the same in quality. 
 
 Quarter-sawed 1/20" oak is purchased at prices ranging from $50.00 for 6"-9" widths to 
 $75.00 for 12" widths. To select flitches that will make 60" panels without blemish with 
 good figure is much more difficult than to find suitable stock for 24" panels. Consequent!)', the 
 stock used for 60" panels must be regarded as worth more than the market price given above. 
 
 Since the buying public indicates that the longer the material of a given grade or quality, 
 the more they are wilfing to pay for it, this difference in material values should be recognized in 
 determining costs. 
 
 It is not merely a question of having costs justify the variable minimum cost prices estab- 
 lished by the Association. The public automatically indicates differences in value by its willing- 
 ness to pay more for the larger sizes and its insistence on smaller sizes being sold for lower price 
 per 1,000 square feet. 
 
 The Association should adopt a rule or principle that will enable all members to compute in 
 comparable manner the material value of the various sizes of product turned out. 
 
 As a suggestion for such a rule, the accompanying chart is offered in the hope that it will 
 enable the Association to at once put into effect a means for helping all members to remedy the 
 existing difficulty in determining material values in their various sizes of product. 
 
 The chart represents the range in prices from 12" or less in length to 108" in length. The 
 scale was determined after collecting and plotting prices that had to be paid for regular log runs 
 and for selected lengths of clear material; prices at which droppings and short lengths of similar 
 material were also plotted. 
 
 After collecting the figures on various veneers such as quarter-sawed and rotary oaks, birch, 
 walnut, mahogany, etc., and on lumber used for cores, it was found that a line drawn through 
 the approximate prices tended to focus at one general point equal to minus thirty inches. 
 
 Use of Chart for Determining Values of Regular Stock. 
 
 In using the chart 48" was established as the basis length for regular priced materials. This 
 means that if 1 /20" oak is quoted at $50.00 per 1,000 square feet, that 48" is the average length 
 of material expected to be obtained from it. 
 
 Placing a point where the 48" vertical lines cross the 50 horizontal line and then ruling a 
 straight line from minus 30" through this point to the vertical 108" line, enables the value per 
 1,000 square feet for any length to be determined. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Material 
 • Revised 1922 
 
 VALUE VARIATIONS 
 
 47 
 
 Value of Selected Stock. 
 
 If stock is purchased selected to average 60" length at $75.00 a point where the 60 vertical 
 hne crosses the 75 horizontal line is made and a line ruled from 30 minus through this point. The 
 value of any length of this stock is readily indicated. 
 
 Value of Short Stock. 
 
 Short stock purchased to average 24" in length at $15.00 a point is placed where the ver- 
 tical 24 line crosses the horizontal 15 line and a line from thirty minus ruled through this point 
 will give value of the different lengths of this material. 
 
 General Comment on Use of Chart. 
 
 This chart can be used for any grade of material, it only being necessary to know its purchase 
 price or average value and whether regular, selected or cull, or any other classification may be 
 added. 
 
 The simphcity with which the rule can be applied commends itself, and if generally used 
 would clear up many misunderstandings occasioned by variations in valuation procedure of 
 different members and by using a common valuation for all sizes. 
 
 FIQ. 4 RELATION BETWEEN AVERAGE PRICE OF VENEER IN DOLLARS PER M SQUARE FEET 
 AND LENGTH OF VENEER IN INCHES 
 
 To determine the value of any length of veneer by means of the chart, take the price 
 of the purchased material and refer to the vertical line corresponding to grade and the 
 horizontal line corresponding to price. Next draw a sloping line through the inter- 
 section of the grade line and value lines with a focal point equal to 30 in. to the left 
 of the zero on the horizontal scale. Along this line will be found the values of all 
 lengths of stock obtained from this material. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
48 
 
 VALUE VARIATIONS, BY-PRODUCTS 
 
 III. 
 
 Material 
 Revised 1922 
 
 What has been said with reference to the material cost factors of Plywood 
 applies quite as truly to the manufacture of Rotary Veneer. Veneers of the same 
 variety bring various prices depending upon the character and size of the sheets. 
 Several lots of veneer of as many different values may be cut from a single lot of logs 
 bought at a flat price. Not only should the correct prices be realized for the 
 veneers but the logs from which they were cut should be evaluated fairly when 
 charged into the cost. The setting of a correct value upon the logs will also 
 show the real yield in dollars and cents and so determine whether the purchase 
 was well made, and whether the logs are being advantageously cut. 
 
 The following illustration is taken from an article recently contributed to 
 “Management Engineering’’ by Mr. Churchill. 
 
 As illustrating the wide range of possible values between different logs the following examples 
 are quoted: 
 
 Log No. 1 Containing 1000 Board Feet at $40 
 
 300 ft. No. 1 Veneers at $150 $45 
 
 100 “ “ 3 “ “ 60 6 
 
 100 “ “ 5 “ “ 20 2 
 
 250 “ Crating “ 12 3 
 
 250 “ Fuel “ 8 : 2 
 
 1,000 ft $58 
 
 Log No. 2 Containi.ng 1000 Board Feet at $40 
 
 100 ft. No. 1 Veneers at $150.. $15 
 
 200 “ “ 3 “ “ 60 12 
 
 200 ““ 5 “ “ 20,. 4 
 
 250 “ Crating “ 12 3 
 
 250 “ Fuel “ 8 2 
 
 1,000 ft. $36 
 
 BY-PRODUCTS 
 
 Where culls or waste from material purchases are utilized in any way by 
 which some value is directly or indirectly realized, such material value should be 
 credited to the cost of that material. In manufacturing rotary veneers, the 
 centers of logs remaining after the veneer has been cut are usually sawn into 
 crating material and sometimes a portion is converted into lumber used for cores. 
 A credit to the logs should be made which will represent the material value of the 
 by-product. By “material value’ ’ is meant the market value of the by-product 
 less conversion cost and profit. 
 
 The same rule applies to refuse burned under boilers which takes the place 
 of coal or other fuel commonly used in that locality for the production of steam. 
 Steam Heat and Power should be charged with the fuel value of this waste and 
 a corresponding credit made to “Material.’’ 
 
 In determining the price at which to charge material into cost, freight, 
 express, etc., on same should be included as a part of the material cost, and not 
 charged into “Expense.” 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Material 
 • Revised 1922 
 
 YIELD 
 
 49 
 
 YIELD - WASTE 
 
 In manufacturing either one of the component parts of plywood — veneers or 
 lumber cores — or the plywood itself, a very considerable proportion of the raw 
 material is rejected as refuse, and it is very important that a careful determination 
 be made of the proportion of finished product yielded by the raw materials from 
 which it is constructed if the real cost is to be computed. This will vary of course 
 with the grades of materials purchased and the quality of output. A careful 
 study of the subject will frequently show that "cheap” grades of stock are not 
 always the most advantageous buys, and in fact it is possible to establish definite 
 standards of relative quality and price to serve as reliable guides in purchasing. 
 
 YIELD BASED UPON GROSS SIZES 
 
 As pointed out in Section I, the computation of waste made in the final trim- 
 ming of panels to size should be- made a separate accounting, as this element 
 depends solely upon the standards set for trimming allowances and does not vary 
 with the character, quality or thickness of the product, but it does vary with 
 size and shape. Where the product of a plant is fairly uniform as to shape and 
 area per unit or where units of varying sizes and shapes are sold in .sets such as 
 those for pianos or phonographs, this feature of material costing does not consti- 
 tute a serious factor, but the occasion is likley to arise at any time and with those 
 whose product is varied it is a very important item. 
 
 The following illustration is based upon a trimming allowance of one inch 
 width and length: 
 
 Size before trimming 
 Size after trimming 
 Trimming Waste 
 
 13"xl3"— Area 169 Sq. In. 
 
 12"xl2"— Area 144 Sq. In. 
 
 25 Sq. In. — 17.3% of net size 
 
 Size before trimming 49"x61" — -Area 2989 Sq. In. 
 
 Size after trimming 48"x60" — Area 2880 Sq. In. 
 
 109 Sq. In. — 3.8% of net size 
 Difference in Trimming Waste 13.5% 
 
 Assuming that the average size of panels will have a trimming waste of 8% 
 the error in using the average in estimating the cost of the 12x12 panels would 
 amount to 9.3% which at $100.00 per thousand for material would make a cost 
 miscalculation against the manufacturer and in favor of the customer of $9.30 per 
 thousand feet of panels. 
 
 To further emphasize the error in using average percentages for waste based 
 upon net sizes, the following illustration is given showing the influence of pro- 
 portion of width to length. It will be noted that the two pieces of plywood in 
 the example have exactly the same net areas, but that the bed rail, on account of 
 its shape suffers 4.5% more waste in trimming. 
 
 Bed rail after trimming 9"x68" 594” 
 
 Panel “ “ 23^"x25” .594” 
 
 No difference in net area 
 
 Bed rail before trimming 10”x67” 670” 
 
 Panel “ “ 24^"x26” 643” 
 
 Difference in gross area 4.5% 27” 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
50 
 
 YIELD 
 
 Matbuial 
 • Revised 1922 
 
 The proportion of waste although varying with different materials, is fairly 
 uniform for all sizes and shapes up to the trimming operation. Logically, gross 
 dimensions — size before final trimming — should constitute the basis for costs. 
 It is fair to all and its adoption would be another step toward the goal of a 
 stabilized plywood market. 
 
 Attention is also called to the fact that the percentage of yield or waste 
 should be figured on the basis of gross dimensions and not on net sizes. This 
 is another variation in practice which occasions an appearance of difference in 
 cost, even though the actual costs may closely parallel. It should also be 
 noted that if 1,000 ft. of material yield 720 ft. of gross dimension product, the 
 percentage of waste to be added to gross area is not or 28%, but m or 39%. 
 (See footnote). 
 
 Whatever has been said with reference to the yield or waste in woods used 
 in plywood, applies with equal force to glue, tape and paper cauls. 
 
 It is essential to uniform costing that similar methods be followed in all 
 fundamentals, and the following ba.ses for the determination of yield are suggested 
 for common observance among members of the industry: 
 
 Veneers 
 
 Raw Material 
 
 Feet of logs purchased 
 
 Lumber Cores 
 
 Feet of lumber purchased 
 Pounds of Glue used 
 
 Plywood 
 
 Sq. ft. Face Veneers used 
 Sq. ft. Backs used 
 Sq. ft. Cross Bands used 
 Sq. ft. Lumber Cores used 
 Lin. ft. or lbs. of Tape used 
 Waste paper Cauls used 
 
 Yield 
 
 Board Feet of Dry Veneers obtained 
 
 Feet of finished cores produced. 
 Board feet of cores glued. 
 
 Sq. ft. (Gross dimensions) in Plywood produced 
 
 it it (( (( (i (t 
 
 
 a 
 
 (( u 
 
 ti 
 
 a a 
 
 u 
 
 a <i 
 
 n 
 
 of Veneer taped 
 of Plywood produced. 
 
 Where the determination of the amount of material used is made by calcu- 
 lation rather than through the medium of records of actual issues from stock, care 
 should be exercised to see that the allowance made for trimming conforms to 
 actual practice. For example, an order calling for panels 21" x 36" would ordi- 
 narilybe figured on the basis of 22"x37" gross dimensions. The face stock select- 
 ed for the job may be of such widths that it is impossible to keep within the limit 
 specified and that the actual material used will exceed the estimate by a substan- 
 tial margin. Lack of care in the selection of cross bands and backs or the sizes 
 in stock may cause a similar over-measurement, and altogether the actual waste 
 in trimming will often be found to considerably over-reach the theoretical 
 proportion. 
 
 Those who collect costs on material actually used on orders automatically solve the problem of waste calcu- 
 lation but care should be observed in estimating on new business that the errors cited above are not made. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
IV. 
 
 Labor 
 
 Revised 1922 
 
 WHAT CONSTITUTES LABOR 
 
 51 
 
 LABOR 
 
 To produce a manufactured article there must be a place to work, tools 
 to work with, material to work upon, and, last but not least, persons to do the 
 work. We have discussed the first two factors under “Expense” and have con- 
 sidered the subject of “Material” and now come to a discussion of that part of 
 the cost which links the other two together and converts raw materials into 
 finished product. 
 
 Labor would seem to be one of the simplest factors to determine and account 
 for and yet appreciable differences in the methods of treatment observed by 
 respective manufacturers materially affect the conclusions reached regarding 
 Labor costs although the real cost may be identical. 
 
 • 
 
 What Constitutes “Labor”? It is the practice of many to figure as 
 “Labor” only the time expended by those whose time can be readily apportioned 
 to the article produced; that is, the so-called “Direct Labor” (sometimes termed 
 “Productive Labor” although all labor is productive), figuring the cost of 
 Indirect Labor (such as foremen, millwrights, truckers, etc., whose time cannot 
 be readily apportioned to each lot or article produced) in Expense or “Burden.” 
 Others ratio Indirect Labor to Direct Labor and include all under one head as 
 “Labor.” This is the practice recommended for the Plywood Industry as 
 explained in Section 11. In this industry this difference in practice may easily 
 make a difference of from ten to twenty-five percent in Labor costs and, in 
 extreme cases, over sixty percent. It can readily be appreciated, therefore, 
 how misleading any conclusions may be which are reached by a comparison of 
 Labor costs between those who follow different practices. To illustrate: One of 
 our members has a “Yard and Kiln Department” in which there are 11 direct 
 laborers at a yearly wage of $14,750.00. In that department, there are also a 
 foreman and one general laborer receiving $2,980.00 and the millwright spends 
 10% of his time there at $1,800.00 a year, making a total Indirect Labor cost of 
 $3,160.00 per annum or 21.4% of Direct Labor. The average wage of the 
 Direct Labor is $0,506 per hour. If this member were to collect the cost of 
 departmental labor on product turned out in a week of 55 hours and were to 
 consider the Direct Labor only, the cost shown would be 11 men at 55 hours each 
 at $0,506 per hour or $306.13. If on the other hand he were to include the 
 Indirect Labor the labor cost would be $371.64 or 21.4% greater. This dif- 
 ference alone in practice accounts for many of the arguments and misunder- 
 standings among members of the industry regarding proper Labor costs. As 
 stated before, real costs may be identical and yet radical differences appear 
 between the respective factors, owing to such difference in accounting principles. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
52 
 
 LABOR, INDIRECT AND DIRECT 
 
 Labob 
 
 • Revised 1922 
 
 “INDIRECT” AND “DIRECT” LABOR 
 
 It is therefore important at the outset to determine just what constitutes 
 “Labor.” We may define the term by stating that it includes all plant employees 
 except the general superintendent, assistant superintendent and clerks. Theo- 
 retically there should be some exceptions to this rule and it may be rightly held 
 that the wages of the firemen and other employes of the boiler plant should be 
 charged to Steam Generation; the engineer, oilers, etc., to Power; the mill- 
 wrights and mechanics to Maintenance, and the watchmen to Administrative 
 Expense. However, accounting is simplified and the same results are obtained 
 by apportioning the wages of these persons to departments or products respec- 
 tively according to the amount of steam or power consumed, repairs required 
 and territory traversed. By treating General Indirect Labor in this way — 
 that is by including it with Department Labor — the costing practice will tally 
 with the logical and recommended practice of including all general salaries 
 in one account charged to Expense, and all wages, including department 
 foremen and all general and departmental labor, in the factory payroll which is 
 charged to Labor and balanced with Production as shown by separate cost 
 records. This feature is more fully treated in Section V on “Accounting.” 
 
 Any methods used for finding the cost of Labor expended in manufacturing 
 must begin with the Direct Labor as a foundation. This may be determined by 
 keeping records of the total time actually spent on orders — “Collected” or “His- 
 torical” costs — or may be pre-determined according to established standards 
 based upon past records, time studies and tests — “Pre-determined” or “Engi- 
 neering” costs. By any of these methods the records will show the amount of 
 Direct Labor required to produce. It then remains to determine how much 
 must be added to cover the Indirect Labor. 
 
 “General” and “Departmental” Indirect Labor. This Indirect 
 Labor is divided into two groups, viz.: General Indirect and Departmental 
 Indirect Labor. Under the first heading belong those who serve all departments 
 such as employees of the steam and power plants, general mechanics and mill- 
 wrights, watchmen, etc. The Departmental Indirect Labor includes depart- 
 ment superintendents or foremen, sweepers and other Indirect Labor confined to 
 individual departments. 
 
 The following example will serve to illustrate how the Indirect Labor 
 may be apportioned and included in cost of product. The supposititious case 
 is that of a plant manufacturing Rotary Veneers, Lumber Cores and Plywood, 
 and these divisions are treated as costing departments. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
IV, 
 
 Labor 
 
 Revised 1922 
 
 ANALYSTS OF LABOR 
 
 53 
 
 ANALYSIS OF LABOR 
 
 GENERAL INDIRECT LABOR 
 
 PRORATION 
 
 Persons 
 
 Hours Wages 
 
 % 
 
 Hours 
 
 Wages 
 
 % Hours 
 
 Wages 
 
 % Hours 
 
 Wages 
 
 *2 Watchmen.... 
 
 5,000 
 
 $2,000 
 
 30 
 
 1,500 
 
 $ 600.00 
 
 20 
 
 1,000 
 
 $ 400.00 
 
 50 
 
 2,500 
 
 $1,000.00 
 
 1 Millwright.... 
 
 3,000 
 
 1,950 
 
 25 
 
 750 
 
 487.50 
 
 50 
 
 1,500 
 
 975.00 
 
 25 
 
 750 
 
 487.50 
 
 1 Carpenter.... 
 
 3,000 
 
 1,500 
 
 25 
 
 750 
 
 375.00 
 
 50 
 
 1,500 
 
 750.00 
 
 25 
 
 750 
 
 375.00 
 
 1 Blacksmith.. 
 
 3,000 
 
 1,800 
 
 35 
 
 1,050 
 
 630.00 
 
 35 
 
 1,050 
 
 630.00 
 
 30 
 
 900 
 
 540.00 
 
 1 Saw Filer 
 
 3,000 
 
 1,800 
 
 25 
 
 750 
 
 450.00 
 
 30 
 
 900 
 
 540.00 
 
 45 
 
 1,350 
 
 810.00 
 
 1 Oiler 
 
 3,000 
 
 1,200 
 
 30 
 
 900 
 
 360.00 
 
 35 
 
 1,050 
 
 420.00 
 
 35 
 
 1,050 
 
 420.00 
 
 1 Yd. Foreman 
 
 3,000 
 
 1,800 
 
 50 
 
 1,500 
 
 900.00 
 
 
 
 
 50 
 
 1,500 
 
 900.00 
 
 1 Teamster 
 
 3,000 
 
 1,350 
 
 50 
 
 1,500 
 
 675.00 
 
 
 
 
 50 
 
 1,500 
 
 675.00 
 
 6 Laborers 
 
 18,000 
 
 5,400 
 
 50 
 
 9,000 
 
 2,700.00 
 
 
 
 
 50 
 
 9,000 
 
 2,700.00 
 
 t2 Hog Op’rs.... 
 
 6,000 
 
 2,100 
 
 45 
 
 2,700 
 
 945.00 
 
 35 
 
 2,100 
 
 735.00 
 
 20 
 
 1,200 
 
 420.00 
 
 t4 Firemen 
 
 14,400 
 
 5,760 
 
 45 
 
 6,480 
 
 2,592.00 
 
 35 
 
 5,040 
 
 2,016.00 
 
 20 
 
 2,880 
 
 1,152.00 
 
 §1 Engineer 
 
 3,600 
 
 2,340 
 
 22 
 
 792 
 
 514.80 
 
 33 
 
 1,188 
 
 772.20 
 
 45 
 
 1,620 
 
 1,053.00 
 
 22 Persons 
 
 68,000 $29,000 
 
 
 27,672 $11,229.30 
 
 
 15,328 
 
 $7,238.20 
 
 
 25,000 $10,532.00 
 
 Percent of 
 
 
 
 
 
 
 
 
 
 
 
 
 Total 
 
 100% 
 
 100% 
 
 
 ‘41% 
 
 39% 
 
 
 22% 
 
 25% 
 
 
 37% 
 
 36% 
 
 
 
 DEPARTMENTAL INDIRECT LABOR 
 
 
 
 
 Person 
 
 
 
 No. 
 
 Hours 
 
 Wages 
 
 No. 
 
 Hours 
 
 Wages 
 
 No. 
 
 Hours 
 
 Wages 
 
 5 Foremen. 
 
 
 
 1 
 
 3,000 
 
 $2,400 
 
 1 
 
 3,000 
 
 $1,920 
 
 3 
 
 9,000 
 
 $5,400 
 
 1 Ast. Fore’n . 
 
 
 
 1 
 
 3,000 
 
 1,800 
 
 
 
 
 
 
 
 1 TCnife G’nd’r 
 
 
 
 1 
 
 3,000 
 
 1,500 
 
 
 
 
 
 
 
 3 Mechanics 
 
 
 
 
 1 
 
 3,000 
 
 1,800 
 
 2 
 
 6,000 
 
 3,600 
 
 1 Storekeeper 
 
 
 
 
 
 
 
 
 
 1 
 
 3,000 
 
 1,200 
 
 2 Glue Mixers . 
 
 1 
 
 
 
 
 
 
 
 
 2 
 
 6^000 
 
 3,600 
 
 1 Sweeper 
 
 
 
 
 
 
 
 
 
 1 
 
 3,000 
 
 900 
 
 
 
 
 
 
 
 
 
 
 
 
 1 Kiev. Opr. 
 
 
 
 
 
 
 
 
 
 1 
 
 3,000 
 
 1,050 
 
 
 
 
 
 
 
 
 
 
 
 • 
 
 15 Persons.- 
 
 
 
 3 
 
 9,000 
 
 $5,700 
 
 2 
 
 6,000 
 
 $3,720 
 
 10 
 
 30,000 
 
 $15,750 
 
 37 Persons 
 
 TOTAL INDIRECT LABOR 
 
 36,673 $16,929.30 21,328 $10,958.20 
 
 DIRECT LABOR 
 
 266 Persons 56 168,000 $77,280.00 64 192,000 $84,480.00 
 
 55,000 $26,282.00 
 
 146 438,000$ 179,580.00 
 
 TOTAL LABOR 
 
 303 Persons 204,672 $94,209.30 213,328 $95,438.20 493,000$205,862.00 
 
 Indirect Per 
 
 Cent of Direct 21.8% 21.9% 11.1% 13% 12.6% 14.6% 
 
 Average 
 
 Hourly Wage $0,460 $0,447 $0,418 
 
 ♦Apportioned according to area traversed. 
 tApportioned in same ratio as Steam Generation. 
 
 §Apportioned in same ratio as Power. 
 
 Other General Indirect Labor apportioned according to time spent in each department. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
54 
 
 INDIRECT LABOR 
 
 IV. 
 
 Labor 
 
 Revised ]922 
 
 Treatment of Indirect Labor. By the foregoing, it will be seen that the 
 money paid for Indirect Labor in the respective departments amounts to the 
 following percentages of that paid for Direct Labor: Rotary Veneer, 21.9%; 
 Lumber Cores 13%; Plywood, 14.6%. Therefore, if a system of “collecting” 
 the cost of the Direct Labor only is followed, the cost of the Direct Labor 
 reported should be increased by these respective percentages in order to account 
 for all of the Labor. 
 
 If, however, the time only is recorded (not the cost of the Direct Labor) 
 and an average departmental wage rate is used, then the percentages indicating 
 the proportion of the time of Indirect Labor to Direct Labor should be used as 
 noted, viz.: Rotary Veneers, 21.8%; Lumber Cores, 11.1%; Plywood, 12.6%. 
 In this case the average wage rates used must not be the averages of the Direct 
 Labor wages only but the averages of all the wages in the respective depart- 
 ments found by dividing the sum of the costs of the Direct and Indirect Labor 
 by the sum of the corresponding hours of labor. 
 
 Under the first plan, if the Direct Labor expended upon a certain lot of 
 panels (Plywood) amounts to $1,428.71, we must add to it 14.6% or $208.59 
 making in all $1,637.30 for labor. 
 
 Under the second plan, 3,479 Direct Labor hours would be reported. In 
 order to account for the Indirect Labor incurred we must add to this 12.6% or 
 438 hours making a total of 3,917 labor hours or “Man-Hours,” which at the 
 average wage rate of $0,418 for the department gives the same total, viz.: 
 $1,637.30. The fact that all, or part, of the workmen may be paid on some basis 
 other than a rate per hour does not complicate the determining of the average 
 rate per hour for a department or the percentage to add to cover Indirect 
 Labor. All that need be considered are the hours worked and the compensation 
 received. This compensation may be based upon a straight per hour wage, 
 piece rate or some system of bonuses, or a combination of all of them. The fact 
 will still remain that so many men worked so many hours and received so much 
 pay. 
 
 Where a “collecting” cost system is followed, (that is, a system where a 
 record is made of the time actually, or estimated as, spent upon particular lots 
 or orders by the workmen through whose hands the materials pass) all labor 
 not reported on time cards must be treated as Indirect. Under such a system, 
 it is practically impossible to account for what is really Direct Labor spent on 
 some of the operations involved. For example, in making panels it is necessary 
 at the first operation, that of selecting and cutting the dry veneers, to work on 
 two or more lots at a time in order that the veneers in the flitch may be utilized 
 to the best advantage by cutting various lengths of pieces from them. A 
 timekeeper with nothing else to do but watch this one operation would find it a 
 well nigh impossible task to report the amount of time expended upon each 
 order correctly and it is manifestly too much to expect the operative himself 
 to keep track of it. The same could be said of cutting the lumber used in 
 Cores, cutting Veneers from logs, and numerous other operations. Attempts 
 are made to do this, however, in the various forms of collecting cost systems 
 commonly in use with varying degrees of completeness. Where the engineering 
 type of costing is used, the time required for every operation may be accurately 
 pre-determined, and, therefore, it is necessary to consider as Indirect Labor only 
 the time of those who do not specifically work upon individual orders in process. 
 Under any system it is best to consider as Indirect Labor only that which cannot 
 be accounted for with a reasonable degree of accuracy as Direct Labor. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
IV. Revwed°1922 departmentizing and influence of sizes 
 
 55 
 
 DEPARTMENTIZING 
 
 Costing Departments may or may not correspond to the geographical 
 departments of a plant but should correspond to marketable products of the 
 plant, although all of those products may not be sold as such. A Plywood top, 
 for example, is made up of Lumber Cores and Veneers, and, while a particular 
 manufacturer may make all of the veneers and cores which he uses and may 
 not sell any as distinct products, it is nevertheless true that these component 
 parts are articles of trade themselves and may be purchased as such. The 
 assembling of these parts into Plywood products constitutes a separate manu- 
 facturing process, and there are members of the industry who do this part of 
 the work only, using purchased veneers and cores. These three groups of 
 manufacturing may be easily followed in Plywood costing and give oppor- 
 tunity for observing whether high or low total costs are attributable to one or 
 the other of these processes, and also make it possible to compare costs with the 
 market prices of these separate commodities. Cases are not rare whei’e the 
 change from keeping total costs to group costing has disclosed the fact that 
 component parts were costing more to manufacture than they could be pur- 
 chased for from others. The failure to make the proper distribution of Labor 
 costs may also be responsible for this condition, particularly where an arbitrary 
 apportionment is made based upon judgment rather than a study of the real 
 facts. 
 
 INFLUENCE OF SIZES UPON LABOR COST. 
 
 Many manufacturers of Plywood figure the cost of Labor at a uniform 
 rate per 1,000 sq. ft. regardless of sizes of product. This does not reflect true 
 cost as there is hardly an operation from the time the raw materials are first 
 cut until the finished product is crated that does not require more labor per 1,000 
 sq. ft. of small sizes than large sizes because of the greater number of pieces 
 to be handled and worked upon. Any Plywood producer will concede that it 
 costs more to make panels 12" x 12" (even in multiples) than it does panels 
 30" X 60". Therefore, all who estimate the labor on various sizes at an average 
 rate commit error, and the degree of error depends solely upon the range of 
 sizes of product and the volume of output. 
 
 For example, it has been found to require 156 hours of labor to produce 
 1,000 ft. of 5 ply blocks of certain specifications 8" x 12", but only 78 hours per 
 1,000 ft. of the same specifications 40" x 84" — a ratio of 2 to 1. Obviously it 
 would be very misleading to use an average of 117 hours of labor for all sizes. 
 To do so would be to penalize the sizes which swell production and increase the 
 volume of profits, and assuming that prices are based upon these average costs 
 the tendency would be to invite orders for the sizes which cost most to produce. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
56 
 
 COST BASES 
 
 IV. 
 
 Labob 
 
 Revised 1922 
 
 It is not difficult to perceive why manufacturers who attempt to compare 
 Labor costs on panels of extreme dimensions (some following the one method 
 and some the other) arrive at no definite or informative conclusions. If any 
 Plywood manufacturer prefers to price uniformly at a rate per 1,000 sq. ft., let 
 it be done as a matter of deliberate fyolicy and not as a result of misinformation or 
 lack of knowledge. KNOW COSTS. 
 
 “COLLECTED” OR “HISTORICAL” COSTS 
 
 In Section I under “Labor” it was intimated that methods would be de- 
 scribed in this chapter “for obtaining Labor Costs by members who may not 
 feel justified in collecting detailed Labor Costs.” 
 
 A discussion of the subject involves somewhat of a comparison of costing 
 methods as a whole and, therefore, the factors of Expense and Material are 
 touched upon as well as Labor but the chief differences lie in the methods of 
 determining and accounting for the latter and it is therefore treated under this 
 head. 
 
 It is not thought necessary to take up space with explanations and illus- 
 trations of methods for collecting Labor costs as these consist in collecting 
 such historical records as is practicable of work already performed and vary 
 little except in the procedure and forms used. The value of “Collected Costs” 
 may be realized to the fullest extent only where a sufficient number of records of 
 jobs similar in specifications, sizes and quantity have been collected to form a 
 basis for judgment as to what should constitute a normal cost for future similar 
 orders. However, because of the variations in materials, workmen, wage rates 
 and conditions a comparison of costs between different lots is, more often than 
 not, disappointing and as often leaves the estimator in the dark as to just what 
 basis he should use for pricing. A long period of time must elapse before a 
 sufficiently large number of records of similar jobs can be collected and recorded 
 to form a real asset and not infrequently the demand meanwhile changes in 
 character and the records are found to be of questionable value. Where it is 
 necessary to estimate the value of product different in specifications from any 
 previously made, even though the difference may be slight, it is often difficult 
 under this method to calculate what influence this change will have upon the 
 labor cost and the result arrived at is, after all, very much in the nature of an 
 appraisal based upon judgment. There are men in this as well as other industries 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
IV. 
 
 Labor 
 
 Revised 1922 
 
 ENGINEERING COST 
 
 57 
 
 whose judgment based upon years of experience is remarkable for its accuracy 
 but they carry their judgment with them and it is unwise, to say the least, to 
 depend too largely upon a source of information which today is here and to- 
 morrow is gone — if only on a vacation. 
 
 “ENGINEERING” OR “PRE-DETERMINED” COSTS 
 
 Notwithstanding the advantages realized by “Collecting” cost systems over 
 the old rule-of-thumb methods the need was felt for some system by which 
 costs could be pre-determined. The “Engineering Costs” of today are the 
 result of careful study along these lines based upon sound scientific principles and 
 practical tests in many and varied lines of industry. In addition to pre-deter- 
 mining costs. Engineering costs do not entail the clerical labor, especially by 
 factory wage earners, of the collecting cost systems and are more nearly com- 
 plete and reliable when it comes to establishing standards of costs. As this 
 method of costing is not so well known among members of the Plywood Industry, 
 some space will be given over to an outline of the principles and practices 
 involved. 
 
 Engineering, or Pre-determined costs consist of the assembled, analyzed 
 and tested standards of Expense, Materials and Labor involved in any process. 
 
 The man who must set a price upon his product is not so much concerned 
 with what his cost records may show as with the cost facts themselves. To go a 
 little further, he is not so much concerned with what the actual costs of specific 
 jobs may be as with what constitutes a normal cost in his plant for any lot or 
 article of any specifications, as this will form the real basis of pricing in 
 competition with other manufacturers. The problem which Engineering 
 Costing seeks to solve is what will constitute normal or standard cost under 
 any set conditions. 
 
 Expense Standards. The method for arriving at standards for Expense 
 rates has already been fully explained in Section II and needs no further comment 
 except to call attention to the fact that expense cost in this industry is best 
 reduced to a rate per man-hour so that it may be applied parallel to Labor 
 Cost. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
58 
 
 ENGINEERING COST 
 
 IV. 
 
 Labor 
 
 Revised 1922 
 
 Material Standards. In setting up material standards for the manufac- 
 ture of Veneers, the number of feet of logs required to produce 1,000 ft. of dried 
 veneers of each kind is ascertained. This information is arrived at by taking 
 tests covering good, bad and indifferent qualities of logs of each grade and 
 kind, and checking these tests from time to time by a perpetual inventory. 
 
 In Lumber Core making, material standards are set up by recording the 
 feet of lumber of the respective kinds, grades and thicknesses required to produce 
 1,000 ft. of finished cores. 
 
 Similar standards for thin centers, cross-bands, backs and face veneers are 
 established; also for glue, tape, etc., used in the various processes. It is recom- 
 mended that material pricing in Engineering Costing be based on “current 
 market” as explained on pages 44 and 45 and that a variable scale of values 
 should be followed as set forth on pages 46 and 47. The prices of materials should 
 be reduced by the proper credit for matei’ial used in by-products such as fuel. 
 
 Labor Standards. Standards of labor are established by careful studies of 
 the minimum time required for each operation, both of direct and indirect 
 nature. “Operation” is not to be construed to mean process as one process 
 is likely to be composed of several operations. Veneer cutting is a process but is 
 composed of the following operations : (a) removing core from lathe and locking 
 new block in position; (b) turning down new block to point where good veneer 
 cutting is begun; (c) cutting veneer. 
 
 The lathe crew acts as one unit, therefore the time required in each of the 
 three operations is multiplied by the number of the lathe operatives to arrive 
 at the labor hours or man-hours of labor. The cycle of time is divided into three 
 parts according to the elements affecting the length of time required for each. 
 In the first operation the governing factor is the number of blocks, as it re- 
 quires practically as long to handle a small block as a large one. The length 
 of time for the second operation depends upon the size of the block, as it takes 
 longer to turn the irregularities of a large block down to a smooth cylinder than 
 it does those of a small one. The third operation depends upon the amount of 
 veneer yielded by the block. 
 
 After the time studies for the several operations are taken on a represent- 
 ative run of blocks of various sizes and qualities, the whole is reduced to a 
 standard of time required per 1,000 ft. of veneer. 
 
 Wherever the time required depends solely upon the will and ability of 
 the operative, the ideal time (that is the actual shortest time required, or the 
 operation itself) is increased by 50% to provide for average human inefficiency. 
 This percentage has been established as representative after exhaustive study 
 by leading engineers, covering many industries. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Labor 
 
 • Revised 1922 
 
 ENGINEERING COST 
 
 59 
 
 As all calculations are based upon a unit of 1,000 ft. of finished product, 
 (in Plywood, that is panel and top manufacturing, this would be 1,000 ft. before 
 final trimming as set forth on page 49) it is necessary in figuring the amount of 
 labor at each operation to use as a basis the amount of material which is handled 
 at that operation to produce 1,000 ft. by the last operation. In other words, 
 if it requires 1,300 ft. of a certain kind and grade of lumber to produce 1,000 
 ft. of finished cores, the first operation requires the handling of 1,300 ft. of 
 lumber instead of 1,000 ft., and the next operation the amount remaining from 
 the first, and so on down to the last operation. 
 
 After the man-hours of direct labor are determined, a percentage represent- 
 ing the indirect labor is added. 
 
 This description of Engineering Costs as applied to Plywood manufacturing 
 is intended only to set forth the principles upon which they are based and to 
 outline in brief the procedure used. Therefore, space will not be requisitioned 
 to demonstrate the setting up of standards for all of the operations involved in 
 the manufacture of a product, but the following illustration covering the ripping 
 of lumber for cores will be given as representative: 
 
 LABOR STANDARDS 
 Ripping 4/4 Chestnut. 
 
 Machine Falls No. 103, continuous automatic feed. 
 
 Crew Operator and one helper. 
 
 Study Truck load of 615 board feet 431^" long. 
 
 Operation (a.) Changing Trucks 
 
 615 ft., 2 men @ 1.00 Min 2.00 min. 
 
 Operation (b.) Sorting and Ripping 
 
 615 ft., 2 men @ 31.38 min 62.76 min. 
 
 64.76 min. 
 
 Indirect Labor 15% 9.71 min. 
 
 Total Ideal Labor 74.47 min. 
 
 Inefficiency, 50%.. 37.23 min. 
 
 Total Standard Labor (615 ft.)._ 111.70 min. 
 
 1,350 ft. of lumber required at this operation to 
 produce 1,000 ft. of finished cores, therefore 
 standard Labor per 1,000 ft. of cores for this 
 operation equals: 
 
 X 111.70 min. or 245.20 min. or 4.09 man-hours per 1,000 ft. of cores. 
 
 615 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD manufacturers ASSOCIATION 
 
60 
 
 ENGINEERING COST 
 
 IV. 
 
 Labor 
 
 Revised 1922 
 
 The time required to perform each operation is determined in a similar 
 manner and reduced to terms of man-hours per thousand square feet. As the 
 labor varies in some cases with the length and in others with the width it is 
 necessary to differentiate between sizes and not use a common factor for all 
 sizes. As a basis for standards, four lengths and three widths covering the 
 extreme and mean dimensions are generally adopted and the time set up for 
 each operation in each size. The labor man-hours for all operations are then 
 totaled for each size to give the whole labor for all of the operations of manufacture. 
 
 To make it possible to arrive at the labor for making any size, these man- 
 hour quantities for the basic sizes are “spotted” on a graphic chart and lines 
 drawn through all points common to each width. Separate charts may be used 
 for the separate component parts of Plywood and for the assembling and finishing 
 
 'R.Y.y^dhD 
 
 
 /OQO Oig 
 
 
 G Ui^J C 7 fi£ 
 
 24C 
 
 1*0 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Labor 
 
 ■ Revised 1922 
 
 ENGINEERING COSTS 
 
 61 
 
 process. In using these separate charts the labor for making cores would be 
 taken from one chart, that for preparing faces from another, cross bands from 
 another, backs from another, and the work of assembling, gluing, trimming, 
 sanding, inspecting, packing and shipping from still another. The total of these 
 separate quantities would give all of the labor. It simplifies the work of costing, 
 however, to combine the various operations for all into single charts for each 
 specification, thus making it possible to arrive at all of the labor by a single 
 reference and calculation. 
 
 A chart of this kind giving all of the labor for making five-ply tops with gum 
 cores and butt walnut faces is shown on the opposite page. The vertical gradua- 
 tions of the chart indicate the man-hours of labor per thousand square .feet. The 
 horizontal graduations indicate the lengths running from 10-inches to 100 inches. 
 Each of the curved lines indicates a certain width, the three principal lines having 
 been “spotted” and the others located between them by calculation. If desired, 
 a line may be drawn for each inch of width, but in most cases this is neither 
 necessary nor feasible as the positions of intermediate widths may be easily 
 determined and lines drawn too closely together make reading difficult. 
 
 When it is desired to ascertain the labor required to make a top of any 
 size the vertical line corresponding to the length is followed upward to the point 
 where it intersects the curved line of width, and the horizontal line on which 
 the point of intersection falls is then followed to the margin where the man- 
 hours of labor per thousand square feet is given. For example, the labor on a 
 top 44 inches by 20 inches is found to be 112 man-hours per thousand. We have 
 shown the point of intersection of these length and width lines by a small circle 
 on the chart, and it will be found that this point is on the horizontal line of 
 112 man-hours. 
 
 The standard hours times the average hourly wage rate give the standard 
 cost of Labor. Likewise, the standard hours times the hourly rate of Expense 
 gives the standard cost of Expense. It then remains only to add the Material 
 cost to complete the total. 
 
 Checking Costs. If Engineering Costs consisted merely in the setting 
 up of standards of Expense, Material and Labor without providing any means 
 of checking them for correctness, the criticism might justly be made that they 
 represent what normal costs should be and not what normal costs really are, 
 and that it is therefore unsafe to use them. This contingency is provided for, 
 however, so that Engineering Costs may be depended upon to give actual 
 current costs. 
 
 As a foundation, all invoices of shipments are analyzed to show the Man- 
 Hours of Labor represented, and the amount of Materials contained, according 
 to the standards set up for each department. The checking of the Material 
 Costs is a matter of comparison with the inventories and General Accounts, as 
 will be shown later under “Accounting.” 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
62 
 
 ENGINEERING COSTS 
 
 IV. 
 
 Labob 
 
 Revised 1922 
 
 In determining the cost of Labor, the Man-Hours delivered by each de- 
 partment as shown by the analysis of the invoices, is added to the total of the 
 Man-Hours delivered by that department over a given period (say 12 months) 
 and the amount of the Labor payroll for that department for the period is added 
 to the total of the department payrolls for the corresponding 12 months. The 
 figures for the corresponding period of the previous year are then deducted, and 
 the remaining sum of the payrolls is divided by the corresponding remaining 
 sum of Labor Man-Hours, and this gives the actual average cost per man-hour 
 of standard Labor Hours delivered in twelve months and furnishes the rate to use 
 for the following costing period. The Expense rate is found in the same way by 
 dividing the Labor hours into the Expense Cost. These rates may be compared 
 with the Standard rates based upon budgeted payrolls and expenses respectively, 
 and budgeted hours of Labor, and the efficiency of operation determined. It is 
 recommended that the Standard rates be used as a basis for pricing rather 
 than actual cost rates, as the latter may reflect abnormal or subnormal condi- 
 tions while the former are intended to represent normal conditions. 
 
 TYING COST SYSTEM TO GENERAL ACCOUNTS 
 
 The remaining operation, and an essential one to make any costing system 
 complete and of the greatest value, is that of tying the costs into the general 
 accounts. This will be treated under “Accounting.” 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V. 
 
 Accounting 
 Revise 1922 
 
 REQUIREMENTS 
 
 63 
 
 ACCOUNTING 
 
 The prime purpose of any cost system is to obtain the cost of specific products. 
 We are, of course, interested to know whether the ljusiness as a whole is profi- 
 table and can obtain this information from the general accounts, but if we wish 
 to insure a profit on each article we make, we must take the steps necessary to 
 keep currently informed on the cost of each article. General accounting cannot 
 give this information; hence “costing systems.” However, with whatever 
 methods are used for obtaining costs, there must be provided some means for 
 checking cost records with the general accounts, else “costs” will be simply esti- 
 mates or approximations. We may feel sure of the theoretical correctness of our 
 methods and yet not be able to satisfy even ourselves of the certainty of it. If 
 we have no means of proving that our costs are correct our cost system is 
 misnamed and we should call it our “estimating system.” 
 
 A case of this kind was recently brought to the attention of the writer. 
 According to the cost figures of a certain veneer manufacturing concern it was 
 making a certain definite percentage of profit on every sale — a percentage which 
 had been determined upon as a part of the sales policy of the company. The 
 plant was operating at a fairly uniform rate of production, close to capacity, and 
 so the management felt quite well assured of a predetermined amount of profit 
 on the year’s operations; in round numbers between $35,000.00 and .$40,000.00. 
 It was not until the inventory was taken at the end of the twelve months and 
 the books balanced, however, that the real condition was known, and the melan- 
 choly fact disclosed that the year’s labor had netted $12.00. Is it any wonder 
 that the “cost system” was kicked out the back door? 
 
 It is not the intention of this text to convey the impression that any system 
 of costing may be brought to the state of perfection where totals as shown by 
 the cost records will check absolutely with the totals of actual expenditures for 
 Expense, Materials and Labor as given by the general accounts, but if any cost 
 system is to be safe and efficient, it must be possible to draw accurate com- 
 parisons periodically and so keep the balance reasonably uniform. 
 
 Although costs must be tied into the books to be of the greatest value, this, 
 fortunately, does not necessitate a particular system of accounting. Any 
 accounting system may be made to harmonize sufficiently with the costing 
 methods to give the desired results and, as a rule, few changes are necessary to 
 bring this about. The observance of the fundamental principles of correct 
 costing and accounting by all meml^ers of an industry is essential to harmony, 
 mutual understanding, stability and success, but variations in the methods of 
 application of these principles are not necessarily a detriment although uni- 
 formity is of course to be desired in so far as is practicable. 
 
 The essential requirements of any accounting system as regards costing in 
 the Plywood industry may be summed up in furnishing the totals of expenditures 
 for Expense, Materials and Labor for each costing department at regular 
 stated intervals. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
64 
 
 EXPENSE 
 
 V. 
 
 Accountino 
 Revised 1922 
 
 The term “Costing Department” must not be confused with the word 
 department as commonly applied to geographical divisions of a plant which 
 may not coincide with processes. A plywood plant making its own veneers 
 may have the dryers for wet veneers and the re-dryers for purchased or other 
 dry veneers in the same room, but the former are used in the manufacture of 
 veneers, a product by itself, while the latter form part of the equipment used in 
 the manufacture of plywood. In costing, departments are recognized by their 
 functions or products. Some may be termed indirect, such as the power plant, 
 while others are direct or productive like the department which makes cores for 
 example, and it is the aim to distribute, directly or indirectly, the cost of each 
 department to the respective finished products. In a plywood plant, beginning 
 its processes with logs and lumber as raw materials, these products would be 
 Veneers, Lumber Cores and Plywood, while in the case of a concern which 
 purchases its veneers and cores and merely assembles them into Plywood, there 
 would be only the one product. 
 
 Whether there be one product or several, the cost of each is made up of the 
 factors of Expense, Material and Labor, and these in turn are composed of 
 elements which have been distributed from larger accounts representing the sums 
 of numerous transactions. So the whole problem in co-ordinating the book- 
 keeping system with the costing system is that of making it possible to make 
 certain groupings of expenditures which are comparable with similar groupings 
 in the cost records, that the cost of each product as shown by the latter may 
 be certified. 
 
 It is the purpose of this chapter simply to outline from a cost engineer’s 
 standpoint what may be expected of any system of general accounting rather 
 than to attempt to give detailed examples of any specific methods, and the 
 illustrations which will be given are not intended to serve any purpose beyond 
 that of exemplifying fundamental principles. 
 
 EXPENSE 
 
 Taking up the treatment of the different elements of cost as set forth in 
 proceeding pages, we may consider first the general subject of Expense with its 
 sub-divisions. For convenience of comparison we will use the figures from the 
 example given on page 27 to 42 inclusive. While the figures there shown repre- 
 sent budgeted annual expenses, they may be used to represent the actual 
 monthly entries. 
 
 In studying this chapter the Expense Analysis referred to should be kept 
 before the reader, as the principles of distribution are the same, also the pro- 
 portions used. 
 
 Beginning with Taxes, it will be seen that Corporation Taxes are charged to 
 Administrative and Sales Expense and that Real and Personal Taxes are dis- 
 tributed to Insurance, Rent, and Equipment Expense, on the basis of the valua- 
 tions of Land and Buildings, Sprinkler Equipment, and Manufacturing Equipment 
 respectively. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V. 
 
 Accounting 
 Revised 1922 
 
 EXPENSE 
 
 65 
 
 Dr. TAXES Cr. 
 
 Corporation Taxes $ 409.00 
 
 Real and Personal Taxes 1,045.00 
 
 Administrative and Sales Exp $ 409.00 
 
 Insurance, 6% of R. & P. Tax 62.70 
 
 Rent, 50% of R. & P. Tax 522.50 
 
 Equip. Ex. 44% R. & P. Tax 459.80 
 
 $1,454.00 
 
 $1,454.00 
 
 The account with Insurance would appear as follows, the total of Fire and 
 Tornado Insurance and charges against Sprinkler System being apportioned 
 to Rent, and Equipment Expense on the basis of the valuation of Buildings and 
 Equipment (not including Sprinkler System) : 
 
 Dr. 
 
 INSURANCE 
 
 Cr. 
 
 Rent, 51% of $2,952.05 $ 1,505.54 
 
 Fire Insurance $ 843.75 
 
 Tornado Insurance 285.60 
 
 Int. on Inv. in Sprinkler System.... 960.00 
 
 Taxes on Sprinkler System 62.70 
 
 Maintenance, Sprinkler System 800.00 
 
 (Total above $2,952.05.) 
 
 Boiler Insurance 28.30 
 
 Paymaster Insurance 16.20 
 
 Riot and Civil Commotion Ins 475.00 
 
 Credit Indemnity Insurance 757.50 
 
 Workmen’s Compensation Ins 3,713.00 
 
 Public Liability Insurance 14.30 
 
 Elevator Insurance 7.60 
 
 (Total above $4,983.60.) 
 
 $ 7,963.95 
 
 Eqmp. Exp., 49%, of $2,952.05 1,446.51 
 
 Steam Generation 28.30 
 
 Admin, and Sales Expense 4,983.60 
 
 $ 7,963.95 
 
 In like manner. Interest on Investment is charged against Rent and certain 
 Equipment (a corresponding credit being made to Profit and Loss), and dis- 
 tributed according to valuation of same as follows; 
 
 Dr. INTEREST ON INVESTMENT Cr. 
 
 Int. on Inv. in Bldgs and Land $ 7,440.00 
 
 Int. on Inv. in Sprinkler System 960.00 
 
 Int. on Inv. in Elec. P. and L. Eq.. 420.00 
 
 Int. on Inv. in Auto Trucks 204.00 
 
 Rent $ 7,440.00 
 
 Insurance 960.00 
 
 Equipment Expense 624.00 
 
 $ 9,024.00 
 
 $ 9,024.00 
 
 It is recommended that a Maintenance Reserve Account be set up. This 
 account would be charged with budgeted amounts covering estimated Depre- 
 ciation and Obsolescence, and actual expenditures for Repairs. The latter should 
 cover cost of Materials for Repairs and Replacements and outside Labor only for 
 same, the labor by employees on the payroll being taken care of under “Labor” 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
66 
 
 EXPENSE 
 
 V. 
 
 AcCOUNTINa 
 Revised 1922 
 
 as shown later. The account is credited with amounts carried to Rent, Insurance, 
 and Equipment Expense and which are based upon predetermined percentages of 
 valuation calculated to represent normal Maintenance Expense; and with pro- 
 ceeds from the sale of obsolete and wornout equipment. The following example 
 of such an account is given by way of illustration. 
 
 Dr. 
 
 MAINTENANCE RESERVE 
 
 Cr. 
 
 Balance forward $ 1,100.00 
 
 Depreciation of Buildings 5,800.00 
 
 Repairs to Buildings 1,374.00 
 
 Depreciation of Kilns 315.00 
 
 Repairs to Kilns 265.00 
 
 Depreciation of Sprinkler System.... 480.00 
 
 Repairs to Sprinkler System 22.00 
 
 Depreciation of Auto Trucks... 680.00 
 
 Repairs to Auto Trucks 263.50 
 
 Depreciation of Other Equipment.. 11,303.50 
 Repairs to Other Equipment 4,726.35 
 
 Sale of Discarded Equipment.. $ 325.00 
 
 Building Rent 10,440.00 
 
 Kiln Rent 450.00 
 
 Insurance 800.00 
 
 Equipment Expense 17,805.25 
 
 Equipment Replacements 2,325.00 
 
 Balance forward 1,165.90 
 
 $29,820.25 
 
 $29,820.25 
 
 Following are shown the charges to Rent and its distribution. It will be 
 noted that the debits originate in the preceeding accounts. The distribution 
 is made on the basis of a percentage schedule made up from the summary of 
 Land and Building Rental charges as shown on page 37, these having been 
 based upon areas occupied by departments, variable rates of depreciation, etc. 
 
 Dr. 
 
 RENT 
 
 Cr. 
 
 Int. on Inv. in Land and Bldgs $ 7,440.00 
 
 Taxes on Land and Bldgs 522.50 
 
 Insurance on Buildings... 1,505.54 
 
 Maintenance of Mfg. Bldgs.. 10,440.00 
 
 Maintenance of Kiln Bldgs 450.00 
 
 $20,358.04 
 
 Admin, and Sales Expense 
 General Expense 
 
 - 3% 
 ...14% 
 
 $ 610.74 
 
 2,850.13 
 
 Steam Generation 
 
 ... 2% 
 
 407.16 
 
 Rotary Veneer Mfg... 
 
 ...14% 
 
 2,850.13 
 
 Sliced Veneer Mfg.. 
 
 ...20% 
 
 4,071.61 
 
 Sawn Veneer Mfg 
 
 ... 9% 
 
 1,832.22 
 
 Lumber Mfg 
 
 ... 1% 
 
 203.58 
 
 Lumber Core Mfg 
 
 ...10% 
 
 2,035.80 
 
 Plywood 
 
 ...27% 
 
 5,496.67 
 
 
 100% 
 
 $20,358.04 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 Accountino 
 Revised 1922 
 
 EXPENSE 
 
 67 
 
 In distributing the charges against Equipment Expense, the proportions 
 shown by the analysis on pages 33 and 34 are reduced as nearly as practicable to 
 percentages of the whole, and the account would appear as follows, the charges 
 being taken from the accounts just reviewed: 
 
 Dr. EQUIPMENT EXPENSE Cn 
 
 Tavfts 
 
 .f 4.59.80 
 
 Steam Generation 
 
 .... 8% $1,626.84 
 
 Insurance 
 
 l,446..'il 
 
 Power 
 
 .... 8% 
 
 i;626.84 
 
 Interest nn Tnv''st,ment, 
 
 'fi24.no 
 
 General Expense 
 
 16% 
 
 3,253.69 
 
 Maintenance 
 
 17,805.25 
 
 Admin, and Sales Expense.. 
 
 .... 2% 
 
 406.71 
 
 
 
 Rotary Veneer 
 
 ....17% 
 
 3,457.05 
 
 
 
 Sliced Veneer 
 
 .... 8% 
 
 1,626.84 
 
 
 
 Sawn Veneer. 
 
 .... 5% 
 
 1,016.78 
 
 
 
 Lumber 
 
 .... 3% 
 
 610.07 
 
 
 
 Lumber Cores 
 
 ....14% 
 
 2,846.98 
 
 
 
 Plywood 
 
 ....19% 
 
 3,863.76 
 
 
 
 
 100% 
 
 
 
 $20,335.56 
 
 
 $20,335.56 
 
 The various items making up the cost of Steam Generation are collected 
 under that account and distributed on a predetermined basis according to the 
 amount of steam used by each department as follows: (See page 38.) 
 
 Dr. STEAM GENERATION Cr. 
 
 Equipment Expense $ 1,626.84 
 
 General Expense 10% $ 1,346.17 
 
 Rent, .. 407.16 
 
 Rotary Veneer 37% 4,980.81 
 
 Fuel Purchased 5,635.00 
 
 Rpfn.sse Riirned .5,6.3.5.00 
 
 Sliced Veneer 16% 2,153.86 
 
 Sawn Veneer 7% 942.32 
 
 Water for Roilera 129.3.5 
 
 Lumber Cores 30% 4,038.49 
 
 Boiler Insurance 28.30 
 
 
 $13,461.65 
 
 100% $13,461.65 
 
 
 
 The cost of Power is collected and distributed in the same way as that of 
 Steam Generation. 
 
 Dr. POWER Cr. 
 
 Equipment Expense $ 1,626.84 
 
 Rotary Veneer. 26% $ 1,659.63 
 
 Purchased Current 4,315.00 
 
 Shced Veneer 12% 765.98 
 
 Power Plant Supphes 441.35 
 
 Sawn Veneer 19% 1,212.81 
 
 
 Liunber 5% 319.16 
 
 Lumber Cores 18% 1,148.97 
 
 Plywood 20% 1,276.64 
 
 $ 6,383.19 
 
 100% $6,383.19 
 
 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
68 
 
 EXPENSE 
 
 V. 
 
 Accounting 
 Revised 1922 
 
 The cost of General Manufacturing Expense is distributed to product on 
 the basis of the number of man-hours of Labor in each costing department, the 
 proportions being reduced to percentages to facilitate division and distribution. 
 
 Dr. GENERAL MANUFACTURING EXPENSE Cr. 
 
 Rent $ 2,850.13 
 
 Equipment Expense 3,253.69 
 
 Steam Generation 1,346.17 
 
 Salaries (Plant) 12,662.00 
 
 Factory Office Supplies 38.59 
 
 Factory Office Expense 72.00 
 
 Factory Supplies 1,428.00 
 
 Factory Expense 724.00 
 
 Water, General Purposes 14.30 
 
 Shipping Department Supplies 32.60 
 
 Shipping Department Expense 148.40 
 
 Purchased Light Current 361.40 
 
 $22,931.28 
 
 Rotary Veneer 23% 
 
 Sliced Veneer 14% 
 
 Sawn Veneer 8% 
 
 Lumber 2% 
 
 Lumber Cores .....17% 
 
 Plywood 36% 
 
 5,274.19 
 
 3,210.38 
 
 1,834.50 
 
 458.63 
 
 3,898.32 
 
 8,255.26 
 
 100 % 
 
 $22,931.28 
 
 This completes the collection and apportionment of Manufacturing Expense, 
 Following is shown the account with Administrative and Sales Expense, some- 
 times termed “Commerical Cost. ’Tt is distributed on the same basis as General 
 Manufacturing Expense, namely the man-hours of Labor in each department. 
 
 Dr. ADMINISTRATIVE AND SALES EXPENSE Cr. 
 
 Taxes.. 409.00 
 
 Insurance 4,983.60 
 
 Rent 610.74 
 
 Equipment Expense 406.71 
 
 Salaries (Exec, and Clerical) 27,205.00 
 
 Legal and Professional Service 300.00 
 
 Discounts Paid 26.67 
 
 Discounts allowed on Sales 8,952.00 
 
 Association and Club Dues 760.00 
 
 Donations 130.00 
 
 Office Stationery and Supplies 3,107.65 
 
 Sundry Office Expense 967.50 
 
 Postage, Telephone and Telegraph. 376.00 
 
 Walfare Expense 500.00 
 
 Miscellaneous Traveling Expense... 261.13 
 
 Sundry Administrative Expense 123.65 
 
 Sales Salaries 4,000.00 
 
 Sales Commissions 8,819.49 
 
 Sundry Sales Expense 4,567.24 
 
 Advertising.. 2,150.00 
 
 $68,656.38 
 
 Rotary Veneer Mfg 
 
 23% 
 
 $15,790.97 
 
 Sliced Veneer 
 
 14% 
 
 9,611.89 
 
 Sawn Veneer. 
 
 8% 
 
 5,492.51 
 
 Lumber 
 
 2% 
 
 1,373.13 
 
 Lumber Cores 
 
 17% 
 
 li;671.58 
 
 Plywood 
 
 36% 
 
 24,716.30 
 
 
 100% 
 
 
 $68,656.38 
 
 The foregoing accounts cover all Expenses and it will be noted that the 
 grouping of the various items and their redistribution has progressed toward 
 the point where they may be distributed to the several products, and the Ex- 
 pense accounts with these products will now be shown, the entries on the debit 
 side having been collected from the accounts just reviewed. The “Inven- 
 tory” entries cover the amounts of Expense represented in work in process and 
 in finished goods in stock at the beginning and end of the period. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 A.CCOUNTINO 
 
 Revised 1922 
 
 EXPENSE 
 
 69 
 
 Dr. ROTARY VENEER, EXPENSE Cr. 
 
 Inventory $ 425.60 
 
 Equipment Expense 3,457.05 
 
 Rent 2,850.13 
 
 Steam Generation 4,980.81 
 
 Power and Light. 1,659.63 
 
 General Mfg. Expense 5,274.19 
 
 Administrative and Sales Expense.. 15,790.97 
 
 $34,438.38 
 
 Summary Account Rotary Veneer.. ..$34, 132.28 
 
 Inventory 306.10 
 
 $34,438.38 
 
 Equipment Expense 1,626.84 
 
 Steam Generation 2,153.86 
 
 Power 765.98 
 
 General Mfg. Expense 3,210.38 
 
 Administrative and Sales Expense.. 9,611.89 
 
 $21,816.98 
 
 Summary Account Sliced Veneer. ...$21,552.76 
 
 Inventory 264.22 
 
 $21,816.98 
 
 Dr. SLICED VENEER, EXPENSE Cr. 
 
 Inventory $ 376.42 
 
 Rent 4,071.61 
 
 Dr. SAWN VENEER, EXPENSE Cr. 
 
 Inventory 
 
 Rent 
 
 Equipment Expense 
 
 Steam Generation 
 
 .$ 822.42 
 
 1,832.22 
 1,016.78 
 942.32 
 
 Summary Account Sawn Veneer.. 
 
 ...$13,054.80 
 
 Power 
 
 General Mfg. Expense.. 
 
 Administrative and Sales Expense. 
 
 . 1,212.81 
 1,834.50 
 . 5,492.51 
 
 Inventory 
 
 98.76 
 
 
 $13,153.56 
 
 
 $13,153.56 
 
 Dr. 
 
 LUMBER, 
 
 EXPENSE 
 
 Cr. 
 
 Inventory 
 
 .$ 76.24 
 
 Summary Account Lumber 
 
 $ 2,978.44 
 
 Rent 
 
 Equipment Expense 
 
 Power 
 
 General Mfg. Expense 
 
 203.58 
 
 610.07 
 
 319.16 
 
 458.63 
 
 Inventory 
 
 62.37 
 
 Administrative and Sales Expense 
 
 . 1,373.13 
 
 $ 3,040.81 
 
 0 
 
 $ 3,040.81 
 
 Dr. 
 
 LUMBER CORES, EXPENSE 
 
 Cr. 
 
 Inventory $ 72.22 
 
 Rent 2,035.80 
 
 Equipment Expense 2,846.98 
 
 Steam Generation 4,038.49 
 
 Power 1,148.97 
 
 General Mfg. Expense 3,898.32 
 
 Administrative and Sales Expense.. 11,671.58 
 
 $25,712.36 
 
 Summary Account Lumber Cores...$25,647.45 
 
 Inventory 64.91 
 
 $25,712.36 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
70 
 
 EXPENSE 
 
 V. 
 
 Accounting 
 Revised 1922 
 
 Dr. 
 
 PLYWOOD EXPENSE 
 
 Cr. 
 
 Inventory $ 723.76 
 
 Rent 0,496.67 
 
 Equipment Expense 3,863.76 
 
 Power and Light 1,276.64 
 
 General Mfg. Expense 8,255.26 
 
 Department Supplies (Sandpaper).. 2,238.00 
 Administrative and Sales Expense.. 24,716.30 
 
 $46,570.39 
 
 Summary Account Plywood $45,926.44 
 
 Inventory 643.95 
 
 $46,570..39 
 
 This completes the collection and distribution of all the Expense items. It 
 will be seen that the figures given in the Expense Analysis on pages 27 to 42 have 
 been used for the purpose of illustrative comparison, and that the entries cover 
 the transactions for a period of twelve months. Whatever is the period of 
 distribution used, the same principle should be followed with whatever charges 
 have been made during the interval since the last distribution, including propor- 
 tionate amounts of contingent, reserve and annual charges such as those for 
 insurance, depreciation, taxes and interest on investment. 
 
 MATERIAL 
 
 We now come to the subject of Material accounting. In this industry, 
 materials ordinarily fall under three heads as noted on page 43, viz.: Veneers, 
 Lumber Cores and Plywood. That the proper distribution of material costs 
 to the various products be made, it is recommended that the material accounts 
 correspond to the divisions of product. Where distinct classes of these main 
 groupings are made or other lines are manufactured, corresponding material 
 accounts should exist. Referring again to the example used in Expense Analysis, 
 we would have accounts with Rotary Veneer, Sliced Veneer, Sawn Veneer, Lum- 
 ber, Lumber Cores and Plywood. There are also cases where the same kind of 
 raw material is used for two or more products, and under such conditions it is 
 most practical to carry a separate account with this item, making the necessary 
 distribution to the others. Logs are cited as an illustration, they being used in 
 the manufacture of Rotary Veneer, Sliced Veneer, Sawn Veneer and Lumber. If, 
 however, certain kinds of logs are used exclusively for certain products, no 
 division of their cost is necessary and so no separate account is required. For 
 example: oak may be purchased and used exclusively in the manufacture of 
 quarter-sawn veneers; gum may be used only in rotary-cut cross-banding, and 
 chestnut in lumber. It might be, however, that walnut logs are used both in 
 lumber and in sliced veneers, and if the raw material for both products comes 
 from the same lot a division must be made. 
 
 Following the outline of our original example, we would have the following 
 material accounts. The “Inventory” entries cover material stocks, and mater- 
 ials in work-in-process and in finished goods on hand at the beginning and end 
 of the period. 
 
 Dr. 
 
 LOGS 
 
 Cr. 
 
 Inventory 
 
 Purchases 
 
 $15,421.00 
 
 88,684.25 
 
 Rotary Veneer 
 
 Sliced Veneer 
 
 Sawn Veneer. 
 
 $47,864.55 
 
 33,762.80 
 
 10,372.60 
 
 Inventory Adjustment 
 
 3,427.60 
 
 Lumber 
 
 Inventory 
 
 4;276.50 
 
 11,257.00 
 
 
 $107,533.45 
 
 
 $107,533.45 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 Accounting 
 Revised 1922 
 
 MATERIAL 
 
 71 
 
 « 
 
 Dr. 
 
 ROTARY VENEER, MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 416.25 
 
 Summary Account Rotary Veneer. .$47,640.00 
 
 Logs — 
 
 47,864.55 
 
 Inventory Adjustment 
 
 27.55 
 
 
 
 Inventory 
 
 613.25 
 
 
 $48,280.80 
 
 
 $48,280.80 
 
 Dr. 
 
 SLICED VENE 
 
 ER, MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 215.45 
 
 Summary Account Sliced Veneer.. 
 
 ..$34,197.35 
 
 Logs._ 
 
 33,762.80 
 
 Inventory 
 
 143.65 
 
 Inventory Adjustment 
 
 362.75 
 
 
 
 
 $34,341.00 
 
 
 $34,341.00 
 
 Dr. 
 
 SAWN VENEER, MATERIAL 
 
 Cr. 
 
 Inventory 1 
 
 $ 628.95 
 
 Summary Account Sawn Veneer.... 
 
 ..$10,770.30 
 
 Logs.. 
 
 10,372.60 
 
 Inventory 
 
 496.25 
 
 Inventory Adjustment 
 
 265.00 
 
 
 
 
 $11,266.55 
 
 
 $11,266.55 
 
 Dr. 
 
 LUMBER, ? 
 
 MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 135.50 
 
 Summary Account Lumber 
 
 ..$ 4,638.25 
 
 Logs. 
 
 4,276.50 
 
 Inventory 
 
 98.75 
 
 Inventory Adjustment 
 
 325.00 
 
 
 
 
 $ 4,737.00 
 
 
 $4,737.00 
 
 Dr. 
 
 LUMBER CORES, MATERIAL 
 
 Cr. 
 
 Inventory 
 
 Lumber 
 
 Glue._ 
 
 Inventory Adjustment 
 
 $ 672.34 
 
 60,254.70 
 
 3,752.25 
 
 640.15 
 
 Summary Account Lumber Cores 
 
 Inventory 
 
 -..$64,781.17 
 
 538.27 
 
 
 $65,319.44 
 
 
 $65,319.44 
 
 Dr. 
 
 PLYWOOD, 
 
 MATERIAL 
 
 Cr. 
 
 Inventory 
 
 Veneers 
 
 Lumber Cores 
 
 Glue.__ 
 
 Tape 
 
 Pap^ Cauls 
 
 Paclmg Materials.- 
 
 $ 2,176.50 
 
 60,120.05 
 
 33,271.50 
 
 25,752.40 
 
 2,204.45 
 
 126.50 
 
 4,722.75 
 
 Inventory Adjustment 
 
 Inventory Adjustment 
 
 Summary Account Plywood. 
 
 ...$ 222.45 
 
 176.50 
 .$126,509.00 
 
 Inventory Adjustment 
 
 Inventory Adjustment 
 
 325.50 
 
 57.65 
 
 Inventory 
 
 ... 1,849.35 
 
 
 $128,757.30 
 
 
 $128,757.30 
 
 
 
 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
72 
 
 LABOR 
 
 V, 
 
 Accountino 
 Revised 1922 
 
 LABOR 
 
 The factor of Labor costs may be taken care of in the books by charging the 
 respective costing department Summary Accounts with the amounts shown by 
 the payroll to be chargeable to these departments. To facilitate this, the 
 Labor payroll should be divided into one group for General Indirect Labor and 
 one group each for the respective costing departments. The proportion of 
 General Indirect Labor assignable to each costing department may be carried 
 forward and added to the Departmental Labor in each case to show a total for 
 all Labor for each department. The following illustration is given, no attempt 
 being made to incorporate irrelevent details. 
 
 LABOR PAYROLL 
 General Indirect Labor 
 
 Name 
 
 HOURS 
 
 DAILY 
 
 Total 
 
 Rate 
 
 Amount 
 
 Watchman 
 
 12 
 
 12 
 
 12 
 
 12 12 12 12 84 
 
 
 S35.00 
 
 Millwright 
 
 8 
 
 8 
 
 10 
 
 10 10 12 
 
 58 
 
 
 60.00 
 
 Engineer 
 
 10 
 
 8 
 
 8 
 
 8 10 12 
 
 56 
 
 
 60.00 
 
 Fireman. 
 
 10 
 
 10 
 
 10 
 
 10 10 10 
 
 60 
 
 .40 
 
 24.00 
 
 Fireman. 
 
 10 
 
 10 
 
 10 
 
 10 10 10 
 
 60 
 
 .40 
 
 24.00 
 
 Fireman. 
 
 10 
 
 10 
 
 10 
 
 10 10 10 
 
 60 
 
 .40 
 
 24.00 
 
 Fireman. 
 
 10 
 
 10 
 
 10 
 
 10 10 10 
 
 60 
 
 .40 
 
 24.00 
 
 Trucker 
 
 8 
 
 8 
 
 8 
 
 8 8 8 
 
 48 
 
 .30 
 
 14.40 
 
 Trucker 
 
 0 
 
 8 
 
 8 
 
 8 8 4 
 
 36 
 
 .30 
 
 10.80 
 
 Totals (See below) 
 
 
 
 
 
 522 
 
 
 $276.20 
 
 
 
 Distribution to Departments 
 
 
 
 To Rotary Veneer 
 
 
 
 
 31% 
 
 162 
 
 
 $85.62 
 
 To Shced Veneer 
 
 
 
 
 14% 
 
 73 
 
 
 38.67 
 
 To Sawn Veneer 
 
 
 
 
 8% 
 
 42 
 
 
 22.10 
 
 To Lumber 
 
 
 
 
 1% 
 
 5 
 
 
 2.76 
 
 To Lumber Cores 
 
 
 
 
 26% 
 
 136 
 
 
 71.81 
 
 To Plywood 
 
 
 
 
 20% 
 
 104 
 
 
 55.24 
 
 Totals 
 
 
 
 
 100% 
 
 522 
 
 
 $276.20 
 
 Departmental Labor 
 
 Rotary Veneer 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $60.00 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 48.00 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .50 
 
 24.00 
 
 
 
 
 * * * 
 
 * 
 
 ♦ * 
 
 ♦ ♦ 
 
 
 
 Laborer 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .35 
 
 16.80 
 
 General Indirect Labor (See above).— 
 
 
 
 162 
 
 
 85.62 
 
 Totals 
 
 
 
 
 
 
 1639 
 
 
 
 Sliced Veneer 
 
 
 
 
 
 
 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $60.00 
 
 Operative 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .60 
 
 28.80 
 
 Operative 
 
 . 8 
 
 8 
 
 8 8 
 * 3): % 
 
 8 
 
 ♦ 
 
 8 
 
 ♦ * 
 
 48 
 
 ♦ ♦ 
 
 .40 
 
 19.20 
 
 Laborer 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .30 
 
 14.40 
 
 General Indirect Labor (See above).— 
 
 
 
 73 
 
 
 38.67 
 
 Totals 
 
 
 
 
 
 
 956 
 
 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 Accountino 
 Revised 1922 
 
 LABOR 
 
 73 
 
 
 
 LABOR PAYROLL— 
 
 Continued 
 
 
 
 
 
 
 Departmental Labor- 
 
 —Continued 
 
 
 
 
 Sawn Veneer 
 
 
 
 
 
 
 
 
 
 
 Name 
 
 HOURS DAILY 
 
 Total 
 
 Rate 
 
 Amount 
 
 
 Foreman 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $55.00 
 
 
 Operative 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .55 
 
 26.40 
 
 
 Operative 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .40 
 
 19.20 
 
 
 
 
 * * * 
 
 * 
 
 * ♦ 
 
 * * 
 
 
 
 
 Laborer 
 
 . 0 
 
 8 
 
 8 8 
 
 8 
 
 0 
 
 32 
 
 .30 
 
 9.60 
 
 
 General Indirect Labor (See above)... 
 
 
 
 42 
 
 
 22.10 
 
 
 Totals 
 
 
 
 
 
 
 570 
 
 
 
 $193.80 
 
 Lumber 
 
 
 
 
 
 
 
 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .50 
 
 $24.00 
 
 
 Laborer 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .30 
 
 14.40 
 
 
 General Indirect Labor (See above)— 
 
 
 
 5 
 
 
 2.76 
 
 
 Totals 
 
 
 
 
 
 
 101 
 
 
 
 41.16 
 
 Lumber Cores 
 
 
 
 
 
 
 
 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $50.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .50 
 
 24.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .40 
 
 19.20 
 
 
 
 
 4c 
 
 * 
 
 * * 
 
 * ♦ 
 
 
 
 
 Laborer 
 
 0 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 40 
 
 .35 
 
 14.00 
 
 
 General Indirect Labor (See above)—. 
 
 
 
 136 
 
 
 71.81 
 
 
 Totals 
 
 
 
 
 
 
 1207 
 
 
 
 422.45 
 
 Plywood 
 
 
 
 
 
 
 
 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $60.00 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 55.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .60 
 
 28.80 
 
 
 
 
 * ^ * 
 
 ♦ 
 
 ♦ * 
 
 9|c 4: 
 
 
 
 
 Laborer 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 0 
 
 40 
 
 .35 
 
 14.00 
 
 
 General Indirect Labor 
 
 ("See above!. 
 
 
 
 104 
 
 
 55.24 
 
 
 
 
 
 
 
 
 
 
 
 Totals 
 
 
 
 
 
 
 2540 
 
 
 
 843.28 
 
 Grand Totals 7013 $2,363.56 
 
 The ledger account with Labor* would then appear as follows, the “Inven- 
 tory” entries covering labor represented by work-in-process and in finished goods 
 on hand at the beginning and end of the period : 
 
 Dr. LABOR Cr. 
 
 Inventory $ 2,690.27 
 
 Pa3ToUs._ 118,090.40 
 
 Rotary Veneer. $26,270.00 
 
 Sliced Veneer 16,873.50 
 
 Sawn Veneer 9,690.00 
 
 Lumber 2,058.00 
 
 Lumber Cores 21,122.50 
 
 Plywood 42,164.40 
 
 Inventory 2,602.27 
 
 $120,780.67 
 
 $120,780.67 
 
 * It is recommended that separate Labor accounts be kept with each costing department. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
74 
 
 SUMMARY 
 
 V Accountinq 
 • Revised 1922 
 
 SUMMARY 
 
 We have taken all of the items of cost, have classified them and grouped 
 them into their proper accounts, whether of Expense, Materials or Labor, and 
 have divided each of these factors in turn according to the proper proportions 
 chargeable to each class of product. It now remains to collect the three factors 
 of cost of each product as follows, the "Inventory” entries covering material 
 stocks, and Material, Labor and Expense in goods in process and in finished 
 goods on hand at the beginning and end of the period: 
 
 Dr ^ ROTARY VENEER, Summary Account Cr. 
 
 Expense 
 
 $34,132.38 
 
 Sales $132,835.20 
 
 Material 
 
 Labor 
 
 Profit and Loss 
 
 47,640.00 
 
 26,270.00 
 
 24,792.92 
 
 $132,835.20 
 
 $132,835.20 
 
 Dr. 
 
 SLICED VENEER, Summary Account 
 
 Cr. 
 
 Expen.se 
 
 Material 
 
 Labor 
 
 Profit and Loss. 
 
 .$21,552.70 
 34,197.35 
 16,873.50 
 . 16,087.56 
 
 Sales 
 
 .$88,711.17 
 
 $88,711.17 
 
 $88,711.17 
 
 Dr. 
 
 SAWN VENEER, Summary Account 
 
 Cr. 
 
 Expense 
 
 Material 
 
 Labor 
 
 Profit and Loss. 
 
 $13,054.80 
 . 10,770.30 
 . 9,690.00 
 . 7,060.04 
 
 Sales 
 
 $40,575.14 
 
 $40,575.14 
 
 $40,575.14 
 
 Dr. 
 
 LUMBER, Summary Account 
 
 Cr. 
 
 Expense 
 
 Material 
 
 Labor. 
 
 Profit and Loss. 
 
 2,978.44 
 
 4,638.25 
 
 2,058.00 
 
 1,821.68 
 
 Sales 
 
 .$11,496.37 
 
 $11,496.37 
 
 $11,496.37 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
PLYWOOD COST BALANCE RECORD 
 
 
 
 EXPENSE 
 
 
 
 LABOR 
 
 
 
 MATERIAL 
 
 
 
 COST 
 
 
 SALES 
 
 PROFIT 
 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 
 
 Delivered, January 
 
 $ 3,862.70 
 
 $ 3,807.60 
 
 $ 65.10 
 
 $ 3,513.70 
 
 $ 3,501.72 
 
 $ 11.98 
 
 $ 10,541.10 
 
 $ 10,550.75 
 
 $9.65 
 
 $ 17,917.50 
 
 $ 17,860.07 
 
 57.43 
 
 $ 19,680.50 
 
 $ 1,763.00 
 
 Totals to date 
 
 3,862.70 
 
 3,807.60 
 
 55.10 
 
 3,513.70 
 
 3,501.72 
 
 11.98 
 
 10,541.10 
 
 10,550.75 
 
 9.65 
 
 17,917.50 
 
 17,860.07 
 
 57.43 
 
 19,680.50 
 
 1,763.00 
 
 Delivered, February 
 
 3,785.60 
 
 3,752 . 55 
 
 33.05 
 
 3,342 . 50 
 
 3,350.27 
 
 7.77 
 
 10,027.50 
 
 10,102.50 
 
 75.00 
 
 17,155.60 
 
 17,205.32 
 
 49.72 
 
 19,080.90 
 
 1,925.30 
 
 Totals to date 
 
 7,648.30 
 
 7,560.15 
 
 88.15 
 
 6,856.20 
 
 6,851.99 
 
 14.21 
 
 20,568.60 
 
 20,653.25 
 
 84.65 
 
 35,073.10 
 
 35,065.39 
 
 7.71 
 
 38,761.40 
 
 3,688.30 
 
 Delivered. March 
 
 3,787.40 
 
 3,732.35 
 
 55.05 
 
 3,176.42 
 
 3,180.25 
 
 3.83 
 
 9,529.26 
 
 9,605.27 
 
 76.01 
 
 16,493.08 
 
 16,517.87 
 
 24 . 79 
 
 18,042.70 
 
 1,549.62 
 
 Totals to date 
 
 11,435.70 
 
 11,292.50 
 
 U3.20 
 
 10,032.62 
 
 10,032.24 
 
 0.38 
 
 30,097.86 
 
 30,258.52 
 
 160.66 
 
 51,566.18 
 
 51,583.26 
 
 17.08 
 
 56,804 . 10 
 
 5,237.92 
 
 Delivered, April 
 
 Inventory Adjustment 
 
 3,382.55 
 
 3,362.60 
 
 19.96 
 
 3,243.54 
 
 3,240.66 
 
 2.88 
 
 9,730.62 
 
 222.45 
 
 9,735.65 
 
 5.03 
 
 222.45 
 
 16,356.71 \ 
 222.45 / 
 
 16,338.91 
 
 240.25 
 
 18,205.05 
 
 1,625.89 
 
 Totals to date 
 
 14,818.25 
 
 14,655.10 
 
 163.16 
 
 13,276.16 
 
 13,272.90 
 
 3.26 
 
 40,050.93 
 
 39,994.17 
 
 56.76 
 
 68,145.34 
 
 67,922.17 
 
 223.17 
 
 75,009. 15 
 
 6,863.81 
 
 Delivered, May 
 
 3,272.40 
 
 3,260.25 
 
 12.15 
 
 3,250.60 
 
 3,178.27 
 
 72.33 
 
 9,751.80 
 
 9,757.60 
 
 5.80 
 
 16,274.80 
 
 16,193.12 
 
 78.68 
 
 18,170.30 
 
 1,895.50 
 
 Totals to date 
 
 18,090.65 
 
 17,915.35 
 
 176.30 
 
 16,526.76 
 
 16,451 . 17 
 
 75.59 
 
 49,802.73 
 
 49,751.77 
 
 60.96 
 
 84,420.14 
 
 84,118.29 
 
 301.85 
 
 93,179.45 
 
 8,759.31 
 
 Delivered, June 
 
 Inventory Adjustment 
 
 3,262.40 
 
 3,250.25 
 
 12.16 
 
 3,125.72 
 
 3,122.29 
 
 3.43 
 
 9,377.16 
 
 325.60 
 
 9,382.17 
 
 5.01 
 
 325.50 
 
 15,765.28 \ 
 325.50 1 
 
 15,754.71 
 
 314.93 
 
 17,652.00 
 
 2,212.22 
 
 Totals to date 
 
 21,353.05 
 
 21,165.60 
 
 187.45 
 
 19,652.48 
 
 19,573.46 
 
 79.00 
 
 58,854.39 
 
 59,133.94 
 
 279.55 
 
 99,859.92 
 
 99,873 . 00 
 
 13.08 
 
 110,831.45 
 
 10,971.53 
 
 Delivered, July 
 
 3,310.15 
 
 3,325.20 
 
 15.05 
 
 3,270.56 
 
 3,276.90 
 
 6.34 
 
 9,811.68 
 
 9,827.35 
 
 15.67 
 
 16,392.39 
 
 16,429.45 
 
 37 . 06 
 
 18,335.75 
 
 1,943.36 
 
 Totals to date 
 
 24,663.20 
 
 24,490.80 
 
 172.40 
 
 22,923.04 
 
 22,850.36 
 
 72.68 
 
 68,666.07 
 
 68,961.29 
 
 295.22 
 
 116,252.31 
 
 116,302.45 
 
 50.14 
 
 129,167.20 
 
 12,914.89 
 
 Delivered, August 
 
 3,527.20 
 
 3,516.25 
 
 10.95 
 
 3,340.76 
 
 3,351.63 
 
 10.87 
 
 10,022.28 
 
 10,116.35 
 
 94.07 
 
 16,890.24 
 
 16,984.23 
 
 93.99 
 
 18,900.25 
 
 2,010.01 
 
 Totals to date 
 
 28,190.40 
 
 28,007.05 
 
 183.35 
 
 26,263.80 
 
 26,201 . 99 
 
 61.80 
 
 18,688.35 
 
 79,077.64 
 
 389.29 
 
 133,142.55 
 
 133,286.68 
 
 144.13 
 
 148,067.45 
 
 14,924.90 
 
 Delivered, September 
 
 Inventory Adjustment 
 
 3,527.60 
 
 3,562.60 
 
 35.00 
 
 3,460.72 
 
 3,452.90 
 
 7.82 
 
 10,382.16 
 
 176.50 
 
 10,398.23 
 
 16.07 
 
 176.60 
 
 17,370.48 \ 
 176.50 / 
 
 17,413.73 
 
 133.26 
 
 19,425.60 
 
 1,878.62 
 
 Totals to date 
 
 31,718.00 
 
 31,569.65 
 
 148.36 
 
 29,724.52 
 
 29,654.89 
 
 69.63 
 
 89,247.01 
 
 89,475.87 
 
 228.86 
 
 150,689.53 
 
 150,700.41 
 
 10.88 
 
 167,493.05 
 
 16,803.52 
 
 Delivered, October 
 
 4,070.60 
 
 4,091.70 
 
 21.10 
 
 3,725.40 
 
 3,716.63 
 
 8.77 
 
 11,176.20 
 
 11,207.60 
 
 31.40 
 
 18,972.20 
 
 19,015.93 
 
 43.73 
 
 21,092.65 
 
 2,120.45 
 
 Totals to date 
 
 35,788.60 
 
 35,661.35 
 
 127.25 
 
 33,449.92 
 
 33,371.52 
 
 78.40 
 
 100,423.21 
 
 100,683.47 
 
 260.26 
 
 169,661.73 
 
 169,716.34 
 
 54.61 
 
 188,585.70 
 
 18,923.97 
 
 Delivered, November. 
 
 4,186.25 
 
 4,198.20 
 
 11.95 
 
 4,272.28 
 
 4,270.92 
 
 1.36 
 
 12,816.84 
 
 12,872.28 
 
 55.44 
 
 21,275.37 
 
 21,341.40 
 
 66.03 
 
 23,870.65 
 
 2,036.30 
 
 Totals to date 
 
 39,974.85 
 
 39,859.55 
 
 115.30 
 
 37,722.20 
 
 37,642.44 
 
 79.76 
 
 113,240.05 
 
 113,555.75 
 
 315.70 
 
 190,937.10 
 
 191,057.74 
 
 120.64 
 
 212,456.35 
 
 21,519.25 
 
 Delivered, December 
 
 Inventory Adjustment 
 
 5,951.59 
 
 6,375.74 
 
 424.15 
 
 4,442.20 
 
 4,422.16 
 
 20.04 
 
 13,326.60 
 
 67.65 
 
 13,412.96 
 
 86.36 
 
 57.65 
 
 23,720.391 
 57.65 f 
 
 24,210.86 
 
 518.12 
 
 24,832.55 
 
 1,169.81 
 
 Totals for Year 
 
 $45,926.44 
 
 $46,235 . 29 
 
 $308.85 
 
 $42,164.40 
 
 $42,064.60 
 
 %99.80 
 
 $126,509.00 
 
 $126,968.71 
 
 $ 459.71 
 
 $214,599.84 
 
 $215,268.60 
 
 t $668.76 
 
 $237,288.90 
 
 § $22,689.06 
 
 t Pro6t on Costing. §Total Net Profit. Italics indicate deductions which would appear in Red. 
 
Accounting 
 • Revised 1922 
 
 CHECKING COSTS 
 
 75 
 
 Dr. 
 
 LUMBER CORES, 
 
 Summary Account 
 
 Cr. 
 
 Expense 
 
 647.45 
 
 Sales 
 
 113,732.34 
 
 Material 
 
 64,781.17 
 
 
 
 Labor 
 
 21,122.50 
 
 
 
 Profit and Loss 
 
 . 2,181.22 
 
 
 
 
 $113,732.34 
 
 
 $113,732.34 
 
 Dr. 
 
 PLYWOOD, Su 
 
 mmary Account 
 
 Cr. 
 
 
 $45,926.44 
 
 ‘Sales 
 
 $237,288.90 
 
 * Material 
 
 126,509.00 
 
 
 
 *Labor 
 
 42,164.40 
 
 
 
 ‘Total Cost 
 
 214,599.84 
 
 
 
 ‘Profit and Loss 
 
 22,689.06 
 
 
 
 
 $237,288.90 
 
 
 $237,288.90 
 
 * See Cost Balance Record. 
 
 CHECKING COSTS 
 
 These entries complete the records in the general accounts as far as the 
 requirements of costing are concerned, and furnish the totals of actual expen- 
 ditures for Expense, Materials and Labor for each costing department. It now 
 remains to compare these actual expenditures with the corresponding totals on 
 the cost records. 
 
 The accompanying “Cost Balance Record” is that used in connection with 
 Engineering Costs, but a similar form may be used with any cost system which 
 furnishes records of actual and charged costs of Expense, Materials and Labor 
 by departments. A separate sheet is used for each class of product, the one 
 given in the example showing the record for Plywood. If desired “Manu- 
 facturing Expense” and “Administrative and Sales Expense” may be kept 
 separate instead of being combined under the general head of “Expense” as 
 shown on this sample sheet. 
 
 Under the columns headed “Actual,” appear the figures taken from the 
 books, and under “Standard,” those from the cost records. The variations 
 between actual, and figured costs appear in the “Balance” column. The foot- 
 ing of the balance column under “Total Cost” gives the total net difference 
 which is the profit or loss (as the case may be) on costing. The total net profit 
 or loss is shown in the last column, which gives the difference between selling 
 price and actual cost. 
 
 The “Inventory Adjustments” noted on this balance sheet and in the 
 ledger accounts are those occasioned by the necessity of bringing inventory 
 values up to date, and may be owing to discrepancies in quanities revealed by 
 actual inventories of stock or fluctuations in market values. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V. 
 
 AcConNTINQ 
 Revise 1922 
 
 REQUIREMENTS 
 
 63 
 
 ACCOUNTING 
 
 The prime purpose of any cost system is to obtain the cost of specific products. 
 We are, of course, interested to know whether the Imsiness as a whole is profi- 
 table and can obtain this information from the general accounts, but if we wish 
 to insure a profit on each article we make, we must take the steps necessary to 
 keep currently informed on the cost of each article. General accounting cannot 
 give this information; hence “costing systems.” However, with whatever 
 methods are used for obtaining costs, there must be provided some means for 
 checking cost records with the general accounts, else “costs” will be simply esti- 
 mates or approximations. We may feel sure of the theoretical correctness of our 
 methods and yet not be able to satisfy even ourselves of the certainty of it. If 
 we have no means of proving that our costs are correct our cost system is 
 misnamed and we should call it our “estimating system.” 
 
 A case of this kind was recently brought to the attention of the writer. 
 According to the cost figures of a certain veneer manufacturing concern it was 
 making a certain definite percentage of profit on every sale — a percentage which 
 had been determined upon as a part of the sales policy of the company. The 
 plant was operating at a fairly uniform rate of production, close to capacity, and 
 so the management felt quite well assured of a predetermined amount of profit 
 on the year’s operations; in round numbers between $35,000.00 and $40,000.00. 
 It was not until the inventory was taken at the end of the twelve months and 
 the books balanced, however, that the real condition was known, and the melan- 
 choly fact disclosed that the year’s labor had netted $12.00. Is it any wonder 
 that the “cost system” was kicked out the back door? 
 
 It is not the intention of this text to convey the impression that any system 
 of costing may be brought to the state of perfection where totals as shown by 
 the cost records will check absolutely with the totals of actual expenditures for 
 Expense, Materials and Labor as given by the general accounts, but if any cost 
 system is to be safe and efficient, it must be possible to draw accurate com- 
 parisons periodically and so keep the balance reasonably uniform. 
 
 Although costs must be tied into the books to be of the greatest value, this, 
 fortunately, does not necessitate a particular system of accounting. Any 
 accounting system may be made to harmonize sufficiently with the costing 
 methods to give the desired results and, as a rule, few changes are necessary to 
 bring this about. The observance of the fundamental principles of correct 
 costing and accounting by all members of an industry is essential to harmony, 
 mutual understanding, stability and success, but variations in the methods of 
 application of these principles are not necessarily a detriment although uni- 
 formity is of course to be desired in so far as is practicable. 
 
 The essential requirements of any accounting system as regards costing in 
 the Plywood industry may be summed up in furnishing the totals of expenditures 
 for Expense, Materials and Labor for each costing department at regular 
 stated intervals. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
64 
 
 EXPENSE 
 
 Accountiko 
 • Revised 1922 
 
 The term “Costing Department” must not be confused with the word 
 department as commonly applied to geographical divisions of a plant which 
 may not coincide with processes. A plywood plant making its own veneers 
 may have the dryers for wet veneers and the re-dryers for purchased or other 
 dry veneers in the same room, but the former are used in the manufacture of 
 veneers, a product by itself, while the latter form part of the equipment used in 
 the manufacture of plywood. In costing, departments are recognized by their 
 functions or products. Some may be termed indirect, such as the power plant, 
 while others are direct or productive like the department which makes cores for 
 example, and it is the aim to distribute, directly or indirectly, the cost of each 
 department to the respective finished products. In a plywood plant, beginning 
 its processes with logs and lumber as raw materials, these products would be 
 Veneers, Lumber Cores and Plywood, while in the case of a concern which 
 purchases its veneers and cores and merely assembles them into Plywood, there 
 would be only the one product. 
 
 Whether there be one product or several, the cost of each is made up of the 
 factors of Expense, Material and Labor, and these in turn are composed of 
 elements which have been distributed from larger accounts representing the sums 
 of numerous transactions. So the whole problem in co-ordinating the book- 
 keeping system with the costing system is that of making it possible to make 
 certain groupings of expenditures which are comparable with similar groupings 
 in the cost records, that the cost of each product as shown by the latter may 
 be certified. 
 
 It is the purpose of this chapter simply to outline from a cost engineer’s 
 standpoint what may be expected of any system of general accounting rather 
 than to attempt to give detailed examples of any specific methods, and the 
 illustrations which will be given are not intended to serve any purpose beyond 
 that of exemplifying fundamental principles. 
 
 EXPENSE 
 
 Taking up the treatment of the different elements of cost as set forth in 
 proceeding pages, we may consider first the general subject of Expense with its 
 sub-divisions. For convenience of comparison we will use the figures from the 
 example given on page 27 to 42 inclusive. While the figures there shown repre- 
 sent budgeted annual expenses, they may be used to represent the actual 
 monthly entries. 
 
 In studying this chapter the Expense Analysis referred to should be kept 
 before the reader, as the principles of distribution are the same, also the pro- 
 portions used. 
 
 Beginning with Taxes, it will be seen that Corporation Taxes are charged to 
 Administrative and Sales Expense and that Real and Personal Taxes are dis- 
 tributed to Insurance, Rent, and Equipment Expense, on the basis of the valua- 
 tions of Land and Buildings, Sprinkler Equipment, and Manufacturing Equipment 
 respectively. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
Accountinq 
 • Revised 1922 
 
 EXPENSE 
 
 65 
 
 Dr. 
 
 TAXES 
 
 Cr. 
 
 Corporation Taxes 
 
 $ 409.00 
 
 Administrative and Sales Exp 
 
 ..$ 409.00 
 
 Real and Personal Taxes 
 
 1,045.00 
 
 Insurance, 6% of R. & P. Tax 
 
 62.70 
 
 
 
 Rent, 50% of R. & P. Tax 
 
 522.50 
 
 
 
 Equip. Ex. 44% R. & P. Tax 
 
 459.80 
 
 
 $1,454.00 
 
 
 $1,454.00 
 
 The account with Insurance would appear as follows, the total of Fire and 
 Tornado Insurance and charges against Sprinkler System being apportioned 
 to Rent, and Equipment Expense on the basis of the valuation of Buildings and 
 Equipment (not including Sprinkler System) : 
 
 Dr. INSURANCE Cr. 
 
 Rent, 51% of $2,952.05 $ 1,505.54 
 
 Equip. Exp., 49%, of $2,952.05 1,446.51 
 
 Fire Insurance $ 843.75 
 
 Tornado Insurance 285.60 
 
 Int. on Inv. in Sprinkler System.... 960.00 
 
 Taxes on Sprinkler System 62.70 
 
 Maintenance, Sprinkler System 800.00 
 
 (Total above $2,952.05.) 
 
 Boiler Insurance 28.30 
 
 Paymaster Insurance 16.20 
 
 Riot and Civil Commotion Ins 475.00 
 
 Credit Indemnity Insurance 757.50 
 
 Workmen’s Compensation Ins 3,713.00 
 
 Public Liability Insurance.- 14.30 
 
 Elevator Insurance 7.60 
 
 (Total above $4,983.60.) 
 
 $ 7,963.95 
 
 Steam Generation 28.30 
 
 Admin, and Sales Expense 4,983.60 
 
 $ 7,963.95 
 
 In like manner. Interest on Investment is charged against Rent and certain 
 Equipment (a corresponding credit being made to Profit and Loss), and dis- 
 tributed according to valuation of same as follows: 
 
 Dr. INTEREST ON INVESTMENT Cr. 
 
 Int. on Inv. in Bldgs and Land $ 7,440.00 
 
 Int. on Inv. in Sprinkler System 960.00 
 
 Int. on Inv. in Elec. P. and L. Eq.. 420.00 
 
 Int. on Inv. in Auto Trucks 204.00 
 
 Rent $ 7,440.00 
 
 Insurance 960.00 
 
 Equipment Expense 624.00 
 
 $ 9,024.00 
 
 $ 9,024.00 
 
 It is recommended that a Maintenance Reserve Account be set up. This 
 account would be charged with budgeted amounts covering estimated Depre- 
 ciation and Obsolescence, and actual expenditures for Repairs. The latter should 
 cover cost of Materials for Repairs and Replacements and outside Labor only for 
 same, the labor by employees on the payroll being taken care of under “Labor” 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
66 EXPENSE V- 
 
 as shown later. The account is credited with amounts carried to Rent, Insurance, 
 and Equipment Expense and which are based upon predetermined percentages of 
 valuation calculated to represent normal Maintenance Expense; and with pro- 
 ceeds from the sale of obsolete and wornout equipment. The following example 
 of such an account is given by way of illustration. 
 
 Dr. MAINTENANCE RESERVE Cr. 
 
 Sale of Discarded Equipment.- $ 325.00 
 
 Building Rent 10,440.00 
 
 Balance forward $ 1,100.00 
 
 Depreciation of Buildings 5,800.00 
 
 Repairs to Buildings 1,374.00 
 
 Depreciation of Kilns 315.00 
 
 Repairs to Kilns 265.00 
 
 Depreciation of Sprinkler System.... 480.00 
 
 Repairs to Sprinkler System 22.00 
 
 Depreciation of Auto Trucks. 680.00 
 
 Repairs to Auto Trucks 263.50 
 
 Depreciation of Other Equipment.. 11,303.50 
 Repairs to Other Equipment.— 4,726.35 
 
 Equipment Replacements 2,325.00 
 
 Balance forward 1,165.90 
 
 $29,820.25 
 
 Kiln Rent 450.00 
 
 Insurance 800.00 
 
 Equipment Expense 17,805.25 
 
 $29,820.25 
 
 Following are shown the charges to Rent and its distribution. It will be 
 noted that the debits originate in the preceeding accounts. The distribution 
 is made on the basis of a percentage schedule made up from the summary of 
 Land and Building Rental charges as shown on page 37, these having been 
 based upon areas occupied by departments, variable rates of depreciation, etc. 
 
 Dr. 
 
 RENT 
 
 
 Cr. 
 
 Int. on Inv. in Land and Bldgs. 
 
 7,440.00 
 
 Admin, and Sales Expense 
 
 - 3% 
 
 $ 610.74 
 
 Taxes on Land and Bldgs 
 
 F,9.?. .f;n 
 
 General Expense 
 
 14% 
 
 2,850.13 
 
 Insurance on Buildings. 
 
 l,.5n5..54 
 
 Steam Generation 
 
 - 2% 
 
 '407.16 
 
 Maintenance of Mfg. Bldgs 
 
 10,440.00 
 
 Rotary Veneer Mfg.._ 
 
 -14% 
 
 2,850.13 
 
 Maintenance of Kiln Bldgs 
 
 450.00 
 
 Shced Veneer Mfg._ 
 
 -20% 
 
 4,071.61 
 
 
 
 Sawn Veneer Mfg 
 
 - 9% 
 
 1,832.22 
 
 
 
 Lumber Mfg 
 
 - 1% 
 
 203.58 
 
 
 
 Lumber Core Mfg 
 
 -10% 
 
 2,035.80 
 
 
 
 Plywood 
 
 -27% 
 
 5,496.67 
 
 
 $20,358.04 
 
 
 100% 
 
 $20,358.04 
 
 - 
 
 
 
 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 Accounting 
 Revised 1922 
 
 EXPENSE 
 
 67 
 
 In distributing the charges against Equipment Expense, the proportions 
 shown by the analysis on pages 33 and 34 are reduced as nearly as practicable to 
 percentages of the whole, and the account would appear as follows, the charges 
 being taken from the accounts just reviewed: 
 
 Dr. EQUIPMENT EXPENSE Cr. 
 
 Tavps 
 
 $ 459.80 
 
 Steam Generation 
 
 .... 8% $1,626.84 
 
 Insurance 
 
 1,446.51 
 
 Power 
 
 .... 8% 1,626.84 
 
 Interest op Tpvf^stmpnt 
 
 '624.00 
 
 General Expense 
 
 16% 3;253.69 
 
 Mnintpnnnpp 
 
 17,805.25 
 
 Admin, and Sales Expense.. 
 
 .... 2% '406.71 
 
 
 $20,335.56 
 
 Rotary Veneer 
 
 Sliced Veneer 
 
 Sawn Veneer. 
 
 Lumber 
 
 ’ Lumber Cores 
 
 Plywood 
 
 ♦ 
 
 ....17% 3,457.05 
 8% 1,626.84 
 5% 1,016.78 
 .... 3% 610.07 
 
 ....14% 2,846.98 
 ....19% 3,863.76 
 
 100% 
 
 $20,335.56 
 
 The various items making up the cost of Steam Generation are collected 
 under that account and distributed on a predetermined basis according to the 
 amount of steam used by each department as follows: (See page 38.) 
 
 Dr. 
 
 STEAM GENERATION 
 
 Cr. 
 
 Equipment Expense $ 1,626.84 
 
 Rent 407.16 
 
 Fuel Purchased 5,635.00 
 
 Refuse Burned 5,635.00 
 
 Water for Boilers 129.35 
 
 Boiler Insurance 28.30 
 
 General Expense 10% $ 1,346.17 
 
 Rotary Veneer 37% 4,980.81 
 
 Sliced Veneer 16% 2,153.86 
 
 Sawn Veneer 7% 942.32 
 
 Lumber Cores 30% 4,038.49 
 
 $13,461.65 
 
 100% $13,461.65 
 
 The cost of Power is collected and distributed in the same way as that of 
 Steam Generation. 
 
 Dr. POWER Cr. 
 
 Equipment Expense $ 1,626.84 
 
 Rotary Veneer. 26% $ 1,659.63 
 
 Purchased Current 4,315.00 
 
 Sliced Veneer 12% 765.98 
 
 Power Plant Supplies 441.35 
 
 Sawn Veneer , 19% 1,212.81 
 
 
 Lumber 5% 319.16 
 
 Lumber Cores 18% 1,148.97 
 
 Plywood 20% 1,276.64 
 
 $ 6,383.19 
 
 100% $6,383.19 
 
 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
68 
 
 EXPENSE 
 
 V. 
 
 Accounting 
 Revised 1922 
 
 The cost of General Manufacturing Expense is distributed to product on 
 the basis of the number of man-hours of Labor in each costing department, the 
 proportions being reduced to percentages to facilitate division and distribution. 
 
 Dr. GENERAL MANUFACTURING EXPENSE Cr. 
 
 Rent $ 2,850.13 
 
 Equipment Expense 3,253.69 
 
 Steam Generation 1,346.17 
 
 Salaries (Plant) 12,662.00 
 
 Factory Office Supplies 38.59 
 
 Factory Office Expense 72.00 
 
 Factory Supplies 1,428.00 
 
 Factory Expense 724.00 
 
 Water, General Purposes 14.30 
 
 Shipping Department Supplies 32.60 
 
 Shipping Department Expense 148.40 
 
 Purchased Light Current 361.40 
 
 $22,931.28 
 
 Rotary Veneer 
 
 23% 
 
 $ 5,274.19 
 
 Sliced Veneer 
 
 14% 
 
 3,210.38 
 
 Sawn Veneer. __ 
 
 8% 
 
 1,834.50 
 
 Lumber 
 
 2% 
 
 458.63 
 
 Lumber Cores 
 
 17% . 
 
 3,898.32 
 
 Plywood 
 
 36% 
 
 8,255.26 
 
 
 100% 
 
 
 $22,931.28 
 
 This completes the collection and apportionment of Manufacturing Expense, 
 Following is shown the account with Administrative and Sales Expense, some- 
 times termed “Commerical Cost. ’Tt is distributed on the same basis as General 
 Manufacturing Expense, namely the man-hours of Labor in each department. 
 
 Dr. ADMINISTRATIVE AND SALES EXPENSE Cr. 
 
 Taxes.. 409.00 
 
 Insurance 4,983.60 
 
 Rotary Veneer Mfg 23% $15,790.97 
 
 Sliced Veneer 14% 9,611.89 
 
 Rent '610.74 
 
 Sawn Veneer. 8% 5,492.51 
 
 Equipment Expense 406.71 
 
 Lumber 2% 1,373.13 
 
 Salaries (Exec, and Clerical) 27,205.00 
 
 Lumber Cores 17% 11,671.58 
 
 Legal and Professional Service 300.00 
 
 Discounts Paid 26.67 
 
 Discounts allowed on Sales 8,952.00 
 
 Association and Club Dues 760.00 
 
 Donations 130.00 
 
 Office Stationery and Supplies. __ . 3,107.65 
 
 Sundry Office Expense 967.50 
 
 Postage, Telephone and Telegraph. 376.00 
 
 Walfare Expense 500.00 
 
 Miscellaneous TraveUng Expense... 261.13 
 
 Sundry Administrative Expense 123.65 
 
 Sales Salaries 4,000.00 
 
 Sales Commissions 8,819.49 
 
 Sundry Sales Expense 4,567.24 
 
 Advertising.. 2,150.00 
 
 Plywood 36% 24,716.30 
 
 100% 
 
 $68,656.38 
 
 $68,656.38 
 
 The foregoing accounts cover all Expenses and it will be noted that the 
 grouping of the various items and their redistribution has progressed toward 
 the point where they may be distributed to the several products, and the Ex- 
 pense accounts v/ith these products will now be shown, the entries on the debit 
 side having been collected from the accounts just reviewed. The "Inven- 
 tory” entries cover the amounts of Expense represented in work in process and 
 in finished goods in stock at the beginning and end of the period. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 Accounting 
 Revised 1922 
 
 EXPENSE 
 
 69 
 
 Dr. ROTARY VENEER, EXPENSE Cr. 
 
 Inventory 
 
 .$ 425.60 
 
 Summary Account Rotary Veneer.. 
 
 .$34,132.28 
 
 Equipment Expense 
 
 . 3,457.05 
 
 
 
 Rent 
 
 . 2,850.13 
 
 
 
 Steam Generation 
 
 . 4,980.81 
 
 
 
 Power and Light. 
 
 . 1,659.63 
 
 
 
 General Mfg. Expense 
 
 . 5,274.19 
 
 Inventory 
 
 306.10 
 
 Administrative and Sales Expense. 
 
 . 15,790.97 
 
 
 
 
 $34,438.38 
 
 
 $34,438.38 
 
 Dr. 
 
 SLICED VENEER, EXPENSE 
 
 Cr. 
 
 Inventory $ 376.42 
 
 Rent 4,071.61 
 
 Equipment Expense 1,626.84 
 
 Steam Generation 2,153.86 
 
 Power 765.98 
 
 General Mfg. Expense 3,210.38 
 
 Administrative and Sales Expense.. 9,611.89 
 
 $21,816.98 
 
 Summary Account Sliced Veneer....$21, 552.76 
 
 Inventory 264.22 
 
 $21,816.98 
 
 Dr. 
 
 SAWN VENEER, EXPENSE 
 
 Cr. 
 
 Inventory $ 822.42 
 
 Rent 1,832.22 
 
 Equipment Expense 1,016.78 
 
 Steam Generation 942.32 
 
 Power 1,212.81 
 
 General Mfg. Expense... 1,834.50 
 
 Administrative and Sales Expense.. 5,492.51 
 
 Summary Account Sawn Veneer $13,054.80 
 
 Inventory 98.76 
 
 $13,153.56 
 
 $13,153.56 
 
 Dr. 
 
 LUMBER, 
 
 EXPENSE 
 
 Cr. 
 
 Inventory 
 
 Rent 
 
 Equipment Expense 
 
 $ 76.24 
 
 203.58 
 610.07 
 
 Summary Account Lumber 
 
 $ 2,978.44 
 
 Power 
 
 General Mfg. Expense 
 
 Administrative and Sales Expense 
 
 319.16 
 458.63 
 . 1,373.13 
 
 Inventory 
 
 62.37 
 
 
 $ 3,040.81 
 
 
 $ 3,040.81 
 
 Dr. 
 
 LUMBER CORES, EXPENSE 
 
 Cr. 
 
 Inventory $ 72.22 
 
 Rent 2,035.80 
 
 Equipment Expense 2,846.98 
 
 Steam Generation 4,038.49 
 
 Power 1,148.97 
 
 General Mfg. Expense 3,898.32 
 
 Administrative and Sales Expense.. 11,671.58 
 
 Summary Account Lumber Cores...$25,647.45 
 
 Inventory 64.91 
 
 $25,712.36 
 
 $25,712.36 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
70 
 
 EXPENSE 
 
 Accouktino 
 • Revised 1922 
 
 Dr. 
 
 PLYWOOD 
 
 EXPENSE 
 
 Cr. 
 
 Inventory 
 
 .* 723.76 
 
 Summary Account Plywood 
 
 $45,926.44 
 
 Rent 
 
 5,496.67 
 
 
 
 Equipment Expense 
 
 3,863.76 
 
 
 
 Power and Light 
 
 1,276.64 
 
 
 
 General Mfg. Expense 
 
 8,255.26 
 
 
 
 Department Supplies (Sandpaper). 
 
 2,238.00 
 
 
 
 Administrative and Sales Expense 
 
 . 24,716.30 
 
 Inyentory 
 
 643.95 
 
 
 $46,570.39 
 
 
 $46,570.39 
 
 This completes the collection and distribution of all the Expense items. It 
 will be seen that the figures given in the Expense Analysis on pages 27 to 42 have 
 been used for the purpose of illustrative comparison, and that the entries cover 
 the transactions for a period of twelve months. Whatever is the period of 
 distribution used, the same principle should be followed with whatever charges 
 have been made during the interval since the last distribution, including propor- 
 tionate amounts of contingent, reserve and annual charges such as those for 
 insurance, depreciation, taxes and interest on investment. 
 
 MATERIAL 
 
 We now come to the subject of Material accounting. In this industry, 
 materials ordinarily fall under three heads as noted on page 43, viz.; Veneers, 
 Lumber Cores and Plywood. That the proper distribution of material costs 
 to the various products be made, it is recommended that the material accounts 
 correspond to the divisions of product. Where distinct classes of these main 
 groupings are made or other lines are manufactured, corresponding material 
 accounts should exist. Referring again to the example used in Expense Analysis, 
 we would have accounts with Rotary Veneer, Sliced Veneer, Sawn Veneer, Lum- 
 ber, Lumber Cores and Plywood. There are also cases where the same kind of 
 raw material is used for two or more products, and under such conditions it is 
 most practical to carry a separate account vv'ith this item, making the necessary 
 distribution to the others. Logs are cited as an illustration, they being used in 
 the manufacture of Rotary Veneer, Sliced Veneer, Sawn Veneer and Lumber. If, 
 however, certain kinds of logs are used exclusively for certain products, no 
 division of their cost is necessary and so no separate account is required. For 
 example: oak may be purchased and used exclusively in the manufacture of 
 quarter-sawn veneers; gum may be used only in rotary-cut cross-banding, and 
 chestnut in lumber. It might be, however, that walnut logs are used both in 
 lumber and in sliced veneers, and if the raw material for both products comes 
 from the same lot a division must be made. 
 
 Following the outline of our original example, we would have the following 
 material accounts. The “Inventory” entries cover material stocks, and mater- 
 ials in work-in-process and in finished goods on hand at the beginning and end 
 of the period. 
 
 Dr. 
 
 LOGS 
 
 Cr. 
 
 Inyentory 
 
 Purchases 
 
 Inyentory Adjustment 
 
 $15,421.60 
 
 88,684.25 
 
 3,427.60 
 
 Rotary Veneer 
 
 Shced Veneer 
 
 Sawn Veneer.- 
 
 Lumber 
 
 Inyentory 
 
 $47,864.55 
 
 33,762.80 
 
 10,372.60 
 
 4,276.50 
 
 11,257.00 
 
 
 $107,533.45 
 
 
 $107,533.45 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 Accounting 
 Revised 1922 
 
 MATERIAL 
 
 71 
 
 Dr. 
 
 ROTARY VENEER, MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 416.25 
 
 Summary Account Rotary Veneer. .$47,640.00 
 
 Logs.- 
 
 47,864.55 
 
 Inventory Adjustment 
 
 27.55 
 
 
 
 Inventory 
 
 613.25 
 
 
 $48,280.80 
 
 
 $48,280.80 
 
 Dr. 
 
 SLICED VENE 
 
 ER, MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 215.45 
 
 Summary Account Sliced Veneer.. 
 
 ....$34,197.35 
 
 Logs.- 
 
 33,762.80 
 
 Inventory 
 
 143.65 
 
 Inventory Adjustment 
 
 362.75 
 
 
 
 
 $34,341.00 
 
 
 $34,341.00 
 
 Dr. 
 
 SAWN VENl 
 
 EER, MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 628.95 
 
 Summary Account Sawn Veneer.. 
 
 ...$10,770.30 
 
 Logs 
 
 10,372.60 
 
 Inventory 
 
 496.25 
 
 Inventory Adjustment 
 
 265.00 
 
 X 
 
 
 
 $11,266.55 
 
 
 $11,266.55 
 
 Dr. 
 
 LUMBER, T 
 
 MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 135.50 
 
 Summary Account Lumber 
 
 ...$ 4,638.25 
 
 Logs— 
 
 4,276.50 
 
 Inventory 
 
 98.75 
 
 Inventory Adjustment 
 
 325.00 
 
 
 
 
 $ 4,737.00 
 
 
 $4,737.00 
 
 Dr. 
 
 LUMBER CORES 
 
 !, MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 672.34 
 
 Summary Account Lumber Cores 
 
 ...$64,781.17 
 
 Lumber 
 
 60,254.70 
 
 
 
 Glue.- 
 
 3,752.25 
 
 
 
 Inventory Adjustment 
 
 640.15 
 
 Inventory 
 
 538.27 
 
 
 $65,319.44 
 
 
 $65,319.44 
 
 Dr. 
 
 PLYWOOD, 
 
 MATERIAL 
 
 Cr. 
 
 Inventory 
 
 $ 2,176.50 
 
 Inventory Adjustment 
 
 $ 222.45 
 
 Veneers 
 
 60,120.05 
 
 Inventory Adjustment 
 
 176.50 
 
 Lumber Cores 
 
 33,271.50 
 
 Summary Account Plywood 
 
 $126,509.00 
 
 Glue. 
 
 25,752.40 
 
 
 
 Tape 
 
 2,204.45 
 
 
 
 Paper Cauls 
 
 126.50 
 
 
 
 Packing Materials 
 
 4,722.75 
 
 
 
 Inventory Adjustment 
 
 325.50 
 
 
 
 Inventorv Adiustment 
 
 57.65 
 
 Inventorv 
 
 1 .849 S.fJ 
 
 $128,757.30 
 
 $128,757.30 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
72 
 
 LABOR 
 
 Accounting 
 • Revised 1922 
 
 LABOR 
 
 The factor of Labor costs may be taken care of in the books by charging the 
 respective costing department Summary Accounts with the amounts shown by 
 the payroll to be chargeable to these departments. To facilitate this, the 
 Labor payroll should be divided into one group for General Indirect Labor and 
 one group each for the respective costing departments. The proportion of 
 General Indirect Labor assignable to each costing department may be carried 
 forward and added to the Departmental Labor in each case to show a total for 
 all Labor for each department. The following illustration is given, no attempt 
 being made to incorporate irrelevent details. 
 
 LABOR PAYROLL 
 General Indirect Labor 
 
 Name 
 
 HOURS DAILY Total 
 
 Rate 
 
 Amount 
 
 
 Watchman 
 
 12 
 
 12 
 
 12 12 12 
 
 12 12 
 
 84 
 
 
 $35.00 
 
 
 Millwright 
 
 8 
 
 8 
 
 10 10 10 
 
 12 
 
 58 
 
 
 60.00 
 
 
 Engineer 
 
 10 
 
 8 
 
 8 8 10 
 
 12 
 
 56 
 
 
 60.00 
 
 
 Fireman 
 
 10 
 
 10 
 
 10 10 10 
 
 10 
 
 60 
 
 .40 
 
 24.00 
 
 
 Fireman. 
 
 10 
 
 10 
 
 10 10 10 
 
 10 
 
 60 
 
 .40 
 
 24.00 
 
 
 Fireman. _ 
 
 10 
 
 10 
 
 10 10 10 
 
 10 
 
 60 
 
 .40 
 
 24.00 
 
 
 Fireman 
 
 10 
 
 10 
 
 10 10 10 
 
 10 
 
 60 
 
 .40 
 
 24.00 
 
 
 Trucker 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 .30 
 
 14.40 
 
 
 Trucker 
 
 0 
 
 8 
 
 8 8 8 
 
 4 
 
 36 
 
 .30 
 
 10.80 
 
 
 Totals (See below) 
 
 
 
 
 
 522 
 
 
 $276.20 
 
 
 
 
 Distribution to Departments 
 
 
 
 
 To Rotary Veneer 
 
 
 
 31% 
 
 
 162 
 
 
 $85.62 
 
 
 To SUced Veneer 
 
 
 
 14% 
 
 
 73 
 
 
 38.67 
 
 
 To Sawn Veneer 
 
 
 
 8% 
 
 
 42 
 
 
 22.10 
 
 
 To Lumber 
 
 
 
 1% 
 
 
 5 
 
 
 2.76 
 
 
 To Lumber Cores 
 
 
 
 26% 
 
 
 136 
 
 
 71.81 
 
 
 To Plywood 
 
 
 
 20% 
 
 
 104 
 
 
 55.24 
 
 
 Totals. 
 
 
 
 100% 
 
 
 522 
 
 
 $276.20 
 
 
 
 
 
 Departmental Labor 
 
 
 
 
 
 Rotary Veneer 
 
 
 
 
 
 
 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 
 $60.00 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 
 48.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 .50 
 
 24.00 
 
 
 
 
 
 * ♦ ♦ ♦ 
 
 * * * 
 
 * 
 
 
 
 
 Laborer 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 .35 
 
 16.80 
 
 
 General Indirect Labor (See above).- 
 
 
 162 
 
 
 85.62 
 
 
 Totals 
 
 
 
 
 
 1639 
 
 
 
 $ 525.40 
 
 Sliced Veneer 
 
 
 
 
 
 
 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 
 $60.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 .60 
 
 28.80 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 .40 
 
 19.20 
 
 
 
 
 
 * * * * 
 
 * ♦ * 
 
 ♦ 
 
 
 
 
 Laborer 
 
 8 
 
 8 
 
 8 8 8 
 
 8 
 
 48 
 
 .30 
 
 14.40 
 
 
 General Indirect Labor (See above).. 
 
 
 73 
 
 
 38.67 
 
 
 Totals 
 
 
 
 
 
 956 
 
 
 
 337.47 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
V, 
 
 Accounting 
 Revised 1922 
 
 LABOR 
 
 73 
 
 LABOR PAYROLL— Continued 
 Departmental Labor— Continued 
 
 Sawn Veneer 
 
 Name 
 
 HOURS DAILY 
 
 Total 
 
 Rate 
 
 Amount 
 
 
 Foreman 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $55.00 
 
 
 Operative 
 
 . 8 
 
 8 
 
 ,8 8 
 
 8 
 
 8 
 
 48 
 
 .55 
 
 26.40 
 
 
 Operative 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .40 
 
 19.20 
 
 
 
 
 * ♦ * 
 
 ♦ 
 
 
 * ♦ 
 
 
 
 
 Laborer 
 
 . 0 
 
 8 
 
 8 8 
 
 8 
 
 0 
 
 32 
 
 .30 
 
 9.60 
 
 
 General Indirect Labor (See above).-. 
 
 
 
 42 
 
 
 22.10 
 
 
 Totals 
 
 
 
 
 
 
 570 
 
 
 
 $193.80 
 
 Lumber 
 
 
 
 
 
 
 
 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .50 
 
 $24 . 00 
 
 
 Laborer 
 
 . 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .30 
 
 14.40 
 
 
 General Indirect Labor (See above)... 
 
 
 
 5 
 
 
 2.76 
 
 
 Totals 
 
 
 
 
 
 
 101 
 
 
 
 41.16 
 
 Lumber Cores 
 
 
 
 
 
 
 
 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $50.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .50 
 
 24.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .40 
 
 19.20 
 
 
 
 
 « « « 
 
 * 
 
 ♦ ♦ 
 
 * * 
 
 
 
 
 Laborer 
 
 0 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 40 
 
 .35 
 
 14.00 
 
 
 General Indirect Labor (See above).—. 
 
 
 
 136 
 
 
 71.81 
 
 
 Totals 
 
 
 
 
 
 
 1207 
 
 
 
 422.45 
 
 Plywood 
 
 
 
 
 
 
 
 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 $60.00 
 
 
 Foreman 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 
 55.00 
 
 
 Operative 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 8 
 
 48 
 
 .60 
 
 28.80 
 
 
 
 
 ♦ * * 
 
 ♦ 
 
 * ♦ 
 
 * ♦ 
 
 
 
 
 Laborer 
 
 8 
 
 8 
 
 8 8 
 
 8 
 
 0 
 
 40 
 
 .35 
 
 14.00 
 
 
 General Indirect Labor 
 
 ISee abovel. 
 
 
 
 104 
 
 
 55.24 
 
 
 
 
 
 
 
 
 
 
 
 Totals 
 
 
 
 
 
 
 2540 
 
 
 
 843.28 
 
 Grand Totals 
 
 
 
 
 
 
 7013 
 
 
 
 $2,363.56 
 
 The ledger account with Labor* would then appear as follows, the “Inven- 
 tory” entries covering labor represented by work-in-process and in finished goods 
 on hand at the beginning and end of the period : 
 
 Dr. 
 
 LABOR 
 
 Cr. 
 
 Inventory. 
 
 2,690.27 
 
 Payrolls 
 
 118,090.40 
 
 Rotary Veneer. 
 Sliced Veneer... 
 Sawn Veneer.... 
 
 Lumber 
 
 Lumber Cores. 
 
 Plywood 
 
 Inventory 
 
 .$26,270.00 
 . 16,873.50 
 . 9,690.00 
 . 2,058.00 
 . 21,122.50 
 . 42,164.40 
 . 2,602.27 
 
 $120,780.67 
 
 $120,780.67 
 
 • It is recommended that separate Labor accounts be kept with each costing department. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 
74 
 
 SUMMARY 
 
 V Accountino 
 • Revised 1922 
 
 SUMMARY 
 
 We have taken all of the items of cost, have classified them and grouped 
 them into their proper accounts, whether of Expense, Materials or Labor, and 
 have divided each of these factors in turn according to the proper proportions 
 chargeable to each class of product. It now remains to collect the three factors 
 of cost of each product as follows, the “Inventory” entries covering material 
 stocks, and Material, Labor and Expense in goods in process and in finished 
 goods on hand at the beginning and end of the period: 
 
 Dr. ROTARY VENEER, Summary Account Cr. 
 
 Expense 
 
 $34,132.38 
 
 Sales $132,835.20 
 
 Material 
 
 47,640.00 
 
 Labor 
 
 26,270.00 
 
 
 Profit and Loss 
 
 24,792.92 
 
 
 
 $132,835.20 
 
 $132,835.20 
 
 Dr. 
 
 SLICED VENEER, 
 
 Summary Account 
 
 Cr. 
 
 Expense 
 
 $21,552.76 
 
 Sales 
 
 $88,711.17 
 
 Material 
 
 Labor 
 
 Profit and Loss 
 
 34,197.35 
 
 16,873.50 
 
 16,087.56 
 
 $88,711.17 
 
 
 $88,711.17 
 
 Dr. SAWN VENEER, Summary Account Cr. 
 
 Expense $13,054.80 
 
 Sales $40,575.14 
 
 Material 10,770.30 
 
 Labor 9,690.00 
 
 Profit and Loss 7,060.04 
 
 
 $40,575.14 
 
 $40,575.14 
 
 
 
 Dr. 
 
 LUMBER, Summary Account 
 
 Cr. 
 
 Expense 
 
 $ 2,978.44 
 
 Sales. L 
 
 $11,496.37 
 
 Material 
 
 Labor— 
 
 Profit and Loss 
 
 4,638.25 
 
 2,058.00 
 
 1,821.68 
 
 $11,496.37 
 
 
 $11,496.37 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION 
 

 
PLYWOOD COST BALANCE RECORD 
 
 
 
 EXPENSE 
 
 
 
 LABOR 
 
 
 
 MATERIAL 
 
 
 
 COST 
 
 
 SALES 
 
 PROFIT 
 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 ACTUAL 
 
 STANDARD 
 
 BALANCE 
 
 
 
 Delivered, January 
 
 $ 3,862.70 
 
 $ 3,807.60 
 
 $ 66.10 
 
 $ 3,513.70 
 
 $ 3,501.72 
 
 $ 11.98 
 
 $ 10,541.10 
 
 $ 10,550.75 
 
 $9.65 
 
 $ 17,917.50 
 
 $ 17,860.07 
 
 67.43 
 
 $ 19,680.. 50 
 
 $ 1,763.00 
 
 Totals to date 
 
 3,862.70 
 
 3,807.60 
 
 66.10 
 
 3,513.70 
 
 3,501.72 
 
 11.98 
 
 10,541 . 10 
 
 10,550.75 
 
 9.65 
 
 17,917.50 
 
 17,860 . 07 
 
 67.43 
 
 19,680.50 
 
 1,763.00 
 
 Delivered, February 
 
 3,785.60 
 
 3,752.55 
 
 33.06 
 
 3,342.50 
 
 3,350.27 
 
 7.77 
 
 10,027.50 
 
 10,102.50 
 
 75,00 
 
 17,155.60 
 
 17,205.32 
 
 49.72 
 
 19,080.90 
 
 1,925.30 
 
 Totals to date 
 
 7,648.30 
 
 7,560.15 
 
 88.16 
 
 6,856.20 
 
 6,851.99 
 
 14.21 
 
 20,568.60 
 
 20,653.25 
 
 84.65 
 
 35,073.10 
 
 35,065.39 
 
 7.71 
 
 38,761.40 
 
 3,688.30 
 
 Delivered, March 
 
 3,787.40 
 
 3,732.35 
 
 66.06 
 
 3,176.42 
 
 3,180.25 
 
 3.83 
 
 9,529.26 
 
 9,605.27 
 
 76.01 
 
 16,493.08 
 
 16,517.87 
 
 24 . 79 
 
 18,042.70 
 
 1,549.62 
 
 Totals to date 
 
 11,435.70 
 
 11,292.50 
 
 H3.20 
 
 10,032.62 
 
 10,032.24 
 
 0.38 
 
 30,097.86 
 
 30,258.52 
 
 160.66 
 
 51,566.18 
 
 51,583.26 
 
 17.08 
 
 56,804.10 
 
 5,237.92 
 
 Delivered, April 
 
 Inventory Adjustment 
 
 3,382.55 
 
 3,362.60 
 
 19.96 
 
 3,243.54 
 
 3,240.66 
 
 2.88 
 
 9,730.62 
 
 222.45 
 
 9,735.65 
 
 5.03 
 
 222.46 
 
 16,356.71 \ 
 222.45 / 
 
 16,338.91 
 
 240.26 
 
 18,205.05 
 
 1,625.89 
 
 Totals to date 
 
 14,818.25 
 
 14,655.10 
 
 163.16 
 
 13,276.16 
 
 13,272.90 
 
 3.26 
 
 40,050.93 
 
 39,994.17 
 
 66.76 
 
 68,145.34 
 
 67,922.17 
 
 223.17 
 
 75,009.15 
 
 6,863.81 
 
 Delivered, May 
 
 3,272.40 
 
 3,260.25 
 
 12.16 
 
 3,250.60 
 
 3,178.27 
 
 72.33 
 
 9,751.80 
 
 9,757.60 
 
 5.80 
 
 16,274.80 
 
 16,196.12 
 
 78.68 
 
 18,170.30 
 
 1,895.50 
 
 Totals to date 
 
 18,090.65 
 
 17,915.35 
 
 176.30 
 
 16,526.76 
 
 16,451.17 
 
 76.69 
 
 49,802.73 
 
 49,751.77 
 
 60.96 
 
 84,420.14 
 
 84,118.29 
 
 SOI . 86 
 
 93,179.45 
 
 8,759.31 
 
 Delivered, June 
 
 Inventory Adjustment 
 
 3,262.40 
 
 3,250.25 
 
 12.16 
 
 3,125.72 
 
 3,122.29 
 
 3.43 
 
 9,377.16 
 
 326.60 
 
 9,382.17 
 
 5.01 
 
 325.50 
 
 15,765.28 \ 
 326.60 1 
 
 15,754.71 
 
 314.93 
 
 17,652.00 
 
 2,212.22 
 
 Totals to date 
 
 21,353.05 
 
 21,165.60 
 
 187.46 
 
 19,652.48 
 
 19,573.46 
 
 79.00 
 
 58,854.39 
 
 59,133.94 
 
 279.55 
 
 99,859.92 
 
 99,873.00 
 
 13.08 
 
 110,831.45 
 
 10,971 . 53 
 
 Delivered, July 
 
 3,310.15 
 
 3,325.20 
 
 15.05 
 
 3,270.56 
 
 3,276.90 
 
 6.34 
 
 9,811.68 
 
 9,827.35 
 
 15.67 
 
 16,392.39 
 
 16,429.45 
 
 37 . 06 
 
 18,335.75 
 
 1,943.36 
 
 Totals to date 
 
 24,663.20 
 
 24,490.80 
 
 172.40 
 
 22,923.04 
 
 22,850.36 
 
 72.68 
 
 68,666.07 
 
 68,961.29 
 
 295.22 
 
 116,252,31 
 
 116,302.45 
 
 50.14 
 
 129,167.20 
 
 12,914.89 
 
 Delivered, August 
 
 3,527.20 
 
 3,516.25 
 
 10.96 
 
 3,340.76 
 
 3,351.63 
 
 10.87 
 
 10,022.28 
 
 10,116.35 
 
 94.07 
 
 16,890.24 
 
 16,984.23 
 
 93.99 
 
 18,900.25 
 
 2,010.01 
 
 Totals to date 
 
 28,190.40 
 
 28,007.05 
 
 183.36 
 
 26,263.80 
 
 26,201 . 99 
 
 61.80 
 
 18,688.35 
 
 79,077.64 
 
 389.29 
 
 133,142.55 
 
 133,286.68 
 
 144.13 
 
 148,067.45 
 
 14,924.90 
 
 Delivered, September 
 
 Inventory Adjustment 
 
 3,527.60 
 
 3,562.60 
 
 35 00 
 
 3,460.72 
 
 3,452.90 
 
 7.82 
 
 10,382 . 16 
 176.50 
 
 10,398.23 
 
 16.07 
 
 176.60 
 
 17,370.48 \ 
 176.50 / 
 
 17,413.73 
 
 133.26 
 
 19,425.60 
 
 1,878.62 
 
 Totals to date 
 
 31,718.00 
 
 31,569.65 
 
 148.36 
 
 29,724.52 
 
 29,654.89 
 
 69.63 
 
 89,247.01 
 
 89,475.87 
 
 228.86 
 
 150,689.53 
 
 150,700.41 
 
 10.88 
 
 167,493.05 
 
 16,803.52 
 
 Delivered, October 
 
 4,070.60 
 
 4,091.70 
 
 21.10 
 
 3,725.40 
 
 3,716.63 
 
 8.77 
 
 11,176.20 
 
 11,207,60 
 
 31 40 
 
 18,972.20 
 
 19,015.93 
 
 43.73 
 
 21,092.65 
 
 2,120.45 
 
 Totals to date 
 
 35,788.60 
 
 35,661.35 
 
 127.26 
 
 33,449.92 
 
 33,371.52 
 
 78.40 
 
 100,423.21 
 
 100,683.47 
 
 260.26 
 
 169,661 .73 
 
 169,716.34 
 
 54.61 
 
 188,585.70 
 
 18,923.97 
 
 Delivered, November.. 
 
 4,186.25 
 
 4,198.20 
 
 11.95 
 
 4,272.28 
 
 4,270.92 
 
 1.36 
 
 12,816.84 
 
 12,872.28 
 
 55 . 44 
 
 21,275.37 
 
 21,341 40 
 
 66.03 
 
 23,870.65 
 
 2,036.30 
 
 Totals to date 
 
 39,974.85 
 
 39,859.55 
 
 116.30 
 
 37,722.20 
 
 37,642.44 
 
 79.76 
 
 113,240.05 
 
 113,555.75 
 
 315.70 
 
 190,937.10 
 
 191,057.74 
 
 120.64 
 
 212,456.35 
 
 21,519.25 
 
 Delivered, December 
 
 Inventory Adjustment 
 
 5,951.59 
 
 6,375.74 
 
 424.15 
 
 4,442.20 
 
 4,422.16 
 
 20.04 
 
 13,326.60 
 
 67.66 
 
 13,412.96 
 
 86.36 
 
 57.65 
 
 23,720.391 
 67.66 J 
 
 24,210.86 
 
 518.12 
 
 24,832.55 
 
 1,169.81 
 
 Totals for Year 
 
 $45,926.44 
 
 $46,235.29 
 
 $308.85 
 
 $42,164.40 
 
 $42,064.60 
 
 %99.80 
 
 $126,509.00 
 
 $126,968.71 
 
 $ 459.71 
 
 8214,599.84 
 
 $215,268 eO 
 
 t $668. 76 
 
 $237,288.90 
 
 1 ■ ® 
 
 § $22,689.06 
 
 t Profit on Costing. §Total Net Profit. Italics indicate deductions which would appear in Red. 
 
Accounting 
 • Revised 1922 
 
 CHECKING COSTS 
 
 75 
 
 Dr. 
 
 LUMBER CORES, 
 
 Summary Account 
 
 Cr. 
 
 Expense 
 
 $25,647.45 
 
 Sales 
 
 113,732.34 
 
 Material 
 
 Labor 
 
 Profit and Loss 
 
 64;781.17 
 
 21,122.50 
 
 2,181.22 
 
 $113,732.34 
 
 
 $113,732.34 
 
 Dr. PLYWOOD, Summary Account Cr. 
 
 ♦Sales $237,288.90 
 
 $237,288.90 
 
 ^ See Cost Balance Record. 
 
 *Expense $45, 926.44 
 
 ♦Material 126,509.00 
 
 ♦Labor 42,164.40 
 
 ♦Total Cost 214,599.84 
 
 ♦Profit and Loss 22,689.06 
 
 $237,288.90 
 
 CHECKING COSTS 
 
 These entries complete the records in the general accounts as far as the 
 requirements of costing are concerned, and furnish the totals of actual expen- 
 ditures for Expense, Materials and Labor for each costing department. It now 
 remains to compare these actual expenditures with the corresponding totals on 
 the cost records. 
 
 The accompanying “Cost Balance Record” is that used in connection with 
 Engineering Costs, but a similar form may be used with any cost system which 
 furnishes records of actual and charged costs of Expense, Materials and Labor 
 by departments. A separate sheet is used for each class of product, the one 
 given in the example showing the record for Plywood. If desired “Manu- 
 facturing Expense” and “Administrative and Sales Expense” may be kept 
 separate instead of being combined under the general head of “Expense” as 
 shown on this sample sheet. 
 
 Under the columns headed “Actual,” appear the figures taken from the 
 books, and under “Standard,” those from the cost records. The variations 
 between actual, and figured costs appear in the “Balance” column. The foot- 
 ing of the balance column under “Total Cost” gives the total net difference 
 which is the profit or loss (as the case may be) on costing. The total net profit 
 or loss is shown in the last column, which gives the difference between selling 
 price and actual cost. 
 
 The “Inventory Adjustments” noted on this balance sheet and in the 
 ledger accounts are those occasioned by the necessity of bringing inventory 
 values up to date, and may be owing to discrepancies in quanities revealed by 
 actual inventories of stock or fluctuations in market values. 
 
 STANDARD COSTING PRINCIPLES 
 PLYWOOD MANUFACTURERS ASSOCIATION