THE UNIVERSITY OF ILLINOIS LIBRARY Lt l V). | o COMMERCE READING ROOM THE LIBRARY OF BUSINESS PRACTICE VOLUME X Digitized by the Internet Archive in 2017 with funding from University of Illinois Urbana-Champaign Alternates https://archive.org/deta1ls/libraryofbusines10unse THE LIBRARY OF BUSINESS PRACTICE VOLUME X COSTS AND STATISTICS A. W. SHAW COMPANY CHICAGO NEW YORK LONDON THE LIBRARY OF BUSINESS PRACTICE (Trademark Registered) Copyright, 1914, by A. W. Shaw Company Copyright, Canada 1914, by A. W. Shaw Company Entered at Stationers’ Hall, London A. W. Shaw Company, Ltd. 65 ^ LQ 1 U. 1 0 COSTS AND STATISTICS I— PLANNING YOUR COST SYSTEM Editorial by John S. Lawrence . • . • . I Finding the Cost Facts in Your Business . By Neil M. Clark II Making Workmen Partners in Cost Cutting B y Vernon Hoxie, Vice-President, Peerless Wire Fence Company III Where to Save in Cost Keeping . • . By N. P. Pritchard IV Managing a Cost System • . . . By J. M. Butler V Keeping Tab on Expense . . • . By Daniel V. Casey 7 9 21 31 42 51 II— FINDING AND RECORDING COSTS Editorial by F. N. Doubleday 63 VI Assembling Costs in a Small Shop ... 65 By A. B. Campbell, Jr., Assistant Superintendent, Duval Planing Mill Company VII How to Find What Small Parts Cost . . 75 By J. Earle Riley VIII Keeping Labor Records by Machinery . . 85 By W. B. Jadden, District Sales Manager, Felt and Tarrant Manufacturing Company IX How to Apportion “Overhead” .... 92 By Sterling H. Bunnell X Designing Your Cost Forms 98 By Sumner B. Rogers, Production Manager, Sangamo Electric Company III— COST SYSTEMS THAT PROVED EFFECTIVE Editorial by A. M. Glossbrenner •••••• 105 XI How to Get Office Costs • . . . 107 By Marshall D. Wilber, President, Wilber Mercantile Agency 6 CONTENTS XII Finding the Cost to Sell • • • . » By Percival Richards XIII Planning a Retail Store Expense Sheet . By E. J. Bliss, Managing Director, Regal Shoe Company XIV Records That Safeguard Printing Estimates • By Neil M. Clark XV Costs in a Professional Office . • • # By O. M. Biggar XVI How a Banker Figured His Costs By Harry N. Grut 114 120 126 132 141 IV— USING GRAPHS AND STATISTICS IN BUSINESS Editorial by A. D. Brown • • • • • XVII Behind the Figures , By A. E. Andersen XVIII Graphs That Guide Your Business By Kendall Banning XIX How to Control Expense Items . By Edward L. Wedeles Treasurer, Steele Wedeles Company XX Making Clerical Work Automatic • By Henry M. Wood, Of the Lodge & Shipley Machine Tool Company 151 153 170 181 192 SPECIAL ILLUSTRATIONS I cost functions . « • • 11 II WHAT MAKES UP SELLING PRICE . • • • • 19 III HOW THE ORDER BOARD OPERATES • • • • 67 IV HOW COSTS ARE GATHERED . • • • • 71 V EIGHT STANDARD METHODS OF CHARGING “ overhead” • 95 VI GETTING THE ESSENTIALS IN A FACTORY FORM • 101 VII CHARTING A SLUMP IN SALES . • • • 155 VIII SHOWING UP EXPENSES AND PROFITS • • • • 157 IX KEEPING TAB ON MACHINE REPAIRS • • • • 159 X MINIMIZING UNUSUAL EXPENSES . • . • • 165 XI INVENTORY AND “PAST DUE’ FLUCTUATIONS • 167 XII ACTUAL AND “STANDARD” COST COMPARISONS • • 172 XIII GRAPHS THAT PICTURE PRODUCTION • • • • 173 XIV DEPARTMENT PROFITS PER WAGE DOLLAR • • • 174 XV CATCHING LEAKS AT THE WEEK-END • • # • 175 XVI PICTURING STATION COSTS • • • • 178 XVII MAKING COST FLUCTUATIONS GRAPHIC • • • • 179 XVIII HOW THE EXECUTIVE CONTROLS EXPENSE • • 184 PART I— PLANNING YOUR COST SYSTEM Take Your Problem to Pieces out the facts of a case and the conclu- sions are usually self-evident. Many failures are caused by lack of thorough analysis because those responsible are “too busy” to investigate. Practically every subject can be dissected and analyzed. In this way errors and waste are reduced and economic saving made and differences of opinion avoided. Analyze your own problems; if the subject can afford the outlay, have a special department for this purpose. Cultivate a conscious, reasoning analysis of your own work. It is easily acquired and its persistent application rapidly develops its use- fulness. JOHN S. LAWRENCE Of Lawrence & Company I FINDING THE COST FACTS IN YOUR BUSINESS By Neil M. Clark 1 BELIEVE we can make that sheet iron pipe our- selves cheaper than we can get it outside, ” said the foreman of a sheet metal shop making a special line of work. It was the dull season of the year, and the manager told him to go ahead on an order that was just ready to go to another concern. They made it a test lot. The shop had a thorough cost system, and every item of ex- pense entering into the manufacture was carefully recorded. When the foreman came to discuss final re- sults with the manager, they found that the total cost of the home-made product was a fraction less than what they had been paying outside. “It's up to you,” said the manager. “You can have all future orders. And see how much you can beat this first record.” The foreman appreciated the system which made it possible for him to know his costs, and so keep his men busy in a season ordinarily slack, at the same time serv- ing the firm by affording them a considerable economy in materials. This is only one of numerous economies ar- rived at in this shop by the use of an effective cost sys- tem. A good cost system is a telescope which brings every 10 PLANNING TO KNOW COSTS activity of your business to a sharp focus, and makes the abnormal items, wastes and mistakes, stand out in re- lief to catch your eye. It keeps a record of raw ma- terial ; it keeps track of men — the work they do and the work they ought to do; it tells the condition of every article and job in the factory ; it automatically points out where wastes are occurring and what you must do to stop them. A real cost system explains past results, and forms a guide for the future conduct of your business, furnishing a basis on which to make prices, or cut them intelligently to meet competition. You have this in- formation at once, when the leaks are commencing; not months afterwards, when they have had time to grow large and drain off your profits. A cost system does these positive things ; it also gives indirect results. The purchasing agent has a check on his material and a system which brings to light the true and false economies of his purchases. The employees all down the line are constantly on the watch to stop leaks, because they know the results of their work are the basis of daily and monthly comparisons in your office. The salesman on the road knows which of the lines in his sample case bring a big profit, and which sell at a small margin. Instead of working in haphazard fashion, every member of the organization from your desk to the day laborer is working on an assured basis of facts. Your selling price, by which the buying public largely measures you, is made up of the three big elements: Factory Cost, Selling Cost and Profit. An undertaking may be very efficiently organized in the making or selling end, and yet not prove a success, because gains in one department are offset by losses in another. It is, there- fore, essential to know what your office helpers and salesmen are costing you, and clip down wastes in the WHAT FACTS TO GET 11 distributing organization, as well as to know precisely what you are paying for labor, power or material in the factory itself. The ideal of cost keeping is to connect all classes of expenditure with the items on which they are incident. Even the smallest plant, however, finds it impossible to ELEMENTS OF FACTORY COST RAW MATERIAL I OVERHEAD STOCK ROOM SYSTEM OF GETTING COSTS ANALYSIS °F J GENERAL \ FEATURES OF COST SYSTEM CLASSIFIED STANDINGORDERS^ STOCK RECORD9 STOCK REQUISITION PAYROLL SHEETS TIME CARDS / A WORK.QRDER SYSTEM \ INDIVIDUAL PIECE COSTS COST DISTRIBUTION USE OF COSTS < CLASS COSTS ASSEMBLED COSTS UNIT COSTS BASIS OF SELLING LABOR ANALYSIS OPERATING! EXPENSE MATERIAL COSTS JOB COSTS FlGUR&'mjTkis chart outlines the essential features of any cost system , giving the relation between the items which enter into the cost of manufacture and showing the specific means by which facts are collected trace every expenditure to its exact source, to determine which job shall carry the burden of the cigar given by the superintendent to a prospective customer. And even if it were possible, the time and pains spent would not be repaid. It is easy to go too much into details in getting 12 PLANNING TO KNOW COSTS costs when once you become fascinated with the idea of allocating every expenditure. Common sense rules the installation of a cost system as much as anything else. Make the system fit your busi- ness. Do not stop every other leak and ruin yourself collecting top-heavy cost statistics. Ask, first of all, what facts you need to know ; and then devise a system that will get those facts for you in the best and simplest fora?i possible. M ATERIAL and direct labor charges are cost ele- ments •which can be apportioned accurately to the job or specific work on which they are incident. Two factors of the cost of a finished article can, with a high degree of accuracy, be charged to the job causing them. These factors are direct labor and material. Taken together they are commonly known as Prime Cost. The items which can not be charged to specific jobs com- prise power, heat, light and rent, taxes, insurance, de- preciation, interest on investment, repairs or upkeep, in- direct labor, miscellaneous items, and the proportion of office expense allotted to the factory. These items are variously known as burden, overhead, or running ex- penses. Material is the first important element in the order of manufacture. If a mechanic came into your factory office and asked for seventy-five cents, you would de- mand a detailed explanation of his reasons, and record the amount on your books with religious care. Do you exercise the same care when he goes to the stock room and demands material ? In cost terms, material includes only that which be- comes a physical part of the finished product. A scaffold built to assist in the construction of a machine is not WHAT FACTS TO GET 13 technically material, especially if the planks and spikes can be used for succeeding jobs. Wastes and petty thefts of material are very liable to occur, but a little care in devising a satisfactory stock room system serves to stop the leaks and make this item a definite charge against the job into which it goes. The stock room clerk is in charge of all stores and you should hold him responsible for the proper handling of them. The first essential is a stock record, which may, with advantage, take the form of a perpetual stock in- ventory. Each kind of material has its own card, on which the stockkeeper enters the amounts as they are re- ceived from time to time. He issues material only when a requisition properly filled out and signed by a re- sponsible party in the department concerned (generally the foreman) is presented to him. He records on his stock inventory card the amount issued, and makes the charge to the proper department and job. Whenever any material is not used on the job for which it was originally intended, or is diverted to an- other department, your system should provide means by which the stockkeeper receives a record of the fact, in order that no job may be charged with more material than has actually entered into it. Waste can generally be sold and will bring in a small amount to offset the loss. Your chief ally in cutting down the leaks in material is the workman himself. Teach him to realize that you are constantly relying upon him and measuring his effi- ciency, not only by the amount of work which he turns out, but also by the percentage of wasted material charged against him, and your account with wasted ma- terial will rapidly decrease. Direct labor is the second element which can be ac- 14 PLANNING TO KNOW* COSTS curately charged to the proper job. Time clocks record the time of the arrival and departure of employees with more fairness and accuracy than a timekeeper can or will attain. In addition to the time clock it is essential to have a system of time cards on which the number of hours spent by each workman on each job or class of work is recorded. Checked against one another and an- alyzed in the cost department, these records furnish com- plete statistics of the time spent in direct labor on a par- ticular product. Eeduce this to terms of money, and you have the direct labor cost. If you have established a standard cost, you can tell at a glance whether the work was done with more or less than ordinary efficiency. If it compares poorly with former records, instant investi- gation should show the reason. Here is one of the places where a good cost system should prove its value as a check on wasteful expenditures. The costs of direct labor and material are fairly easy to ascertain. But burden is the crux of cost systems, the rock on which many of them split. Not that it is much harder to find the total amount of the incidental factory expense than the total of wages and material, but the difficulty comes in distributing this amount equitably over the product when it is found, so that each job shall bear its proper weight of cost. Manufacturing plants differ so widely that it is im- possible to have a “one best way” of burden distribution for every trade and every plant. Conditions vary and the peculiar circumstances of your factory will determine whether you apportion burden according to the number of direct labor hours or according to the amount of wages paid for this direct labor; whether you will fix machine rates to be charged hourly against every job using the machines, or, finally, whether you decide on a WHAT FACTS TO GET 15 refinement of one or more of these methods. Most manufacturers find either the productive hour plan or the percentage on wages plan detailed and yet simple enough to meet their needs. The former takes the number of direct labor hours as the basis of distri- bution ; the latter, the amount of direct labor wages. As- sume, for instance, that in a certain factory employing two hundred men, the total number of direct labor hours for the month of March is forty thousand, and the full amount of wages paid for this direct labor is $10,000. The total burden for the month amounts to $9,000. Job number thirty-seven is the construction of a heavy ma- chine. The direct labor spent on it amounts to three thousand hours, with a direct labor wage of $900. The material entering into the machine amounts to $1,000. What, according to the two plans outlined above, will be the total Factory Cost of the job ? D ISTRIBUTING overhead charges so that each kind or 'piece of work bears its due proportion is essential in right cost accounting — the four methods. Consider first the productive hour plan. The total amount to be distributed is $9,000*. The total number of direct labor hours worked during the month is forty thousand, giving a charge of $0,225 to be charged against every job for the number of direct labor hours spent on it. Worked out for job number thirty-seven, this gives the following results: Material $1,000 Wages 900 Burden (3,000 hrs. x .225) 675 Total Factory Cost $2,575 When you distribute the burden by the percentage on 16 PLANNING TO KNOW COSTS wages plan results differ considerably. The amount to be distributed remains the same, but it is distributed on the basis of the $10,000 spent for direct wages. Burden being $9,000, you have to add to the cost 90% of direct wages to account for burden. The results follows : Material $1,000 Wages 900 Burden (900 x .90) 810 Total Factory Cost $2,710 A difference of $135 due to different methods, and the question immediately arises, which is more accurate ? If your factory employs a large number of men re- ceiving about the same rate of pay, the hourly burden plan is more accurate. If, on the other hand, your work- men range from skilled mechanics to truck-haulers at $9 a week and your pay roll is greatly diversified, the percentage-on-wages plan will distribute the burden more satisfactorily. For the average shop, especially at the beginning, the percentage plan is the simplest and most practicable. The machine rate plan is designed to meet the needs of factories which maintain a number of expensive ma- chines, where the labor charge is comparatively unim- portant. Under this plan each machine assumes a por- tion of the total burden according to the amount of space it occupies, the amount of light, heat and power it uses, a proportion of the expense of supervision, and so on. This amount is divided by the full number of hours which the shop runs. The resulting hourly rate is charged against every job using the machine. Thus, suppose the piece of machinery whose manufacture was considered above, required use of three machines, A, B, and C, with hourly rates of $0,152, $0,124 and $0.21 re- WHAT FACTS TO GET 17 spectively, and four hundred hours were spent on ma- chine A, one thousand hours on machine B, and twelve hundred hours on machine C. In that case, the cost of the machine, figured on a machine-rate basis would be as follows : Material $1,000.00 Wages 900.00 Machine A (400x0.152) 60.80 Machine B (1,000x0.124) 124.00 Machine C (1,200x0.21) 252.00 Total Factory Cost $2,336.80 It is at once apparent that the machine rate fails to take into consideration time when the machine lies idle. If every machine were running full time, the plan would be almost perfect; but stoppages for repairs or other reasons are unavoidable. The percentage of idle time is not large in the average well-managed shop, but in some cases delays are numerous and large, and then this un- considered and unapportioned burden may become an item of serious importance. Attempting to overcome this difficulty, the scientific machine rate plan is theoretically as nearly perfect as any plan of apportionment can be ; but practically, ex- cept for large or complex shops, it may prove too in- volved to be of great service. Under this plan, the shop is divided into a number of production centers, each of which is a machine with its operator, or the bench of a handworker. Each center pays rent, and assumes all other charges which it can by analysis properly be made to bear, independently of what is paid by other production centers. This forms a charge which is apportioned to every job on an hourly rate. All items, including those which are allocated to 18 PLANNING TO KNOW COSTS production centers as well as those which are not, are gathered together in a monthly shop charge account, which is simply the total amount of burden. The differ- ence between this and the amount charged to specific jobs is distributed as a supplementary rate over the product of the shop by any desired plan : hourly burden, or percentage on wages, as you choose. The ratio of this supplementary rate to the amount charged against jobs by the machine rate is, from month to month, a varying barometer of the shop’s efficiency. In theory the plan, as a refinement on the machine rate plan, is ideal; in practice you may find it unnecessary to make so com- pletely accurate a distribution. M ARKETING an article may cost as much or more than making it — finding the exact amount of this item and charging it to the 'proper class of work . Up to this point we have considered only the cost in- curred in laying the article at the shipping-room door ready for distribution. Selling Cost is a large additional item which must be added to Factory Cost to secure the total Cost to Make and Sell. Its amount varies greatly in different businesses. Some organizations have a large force of salesmen and conduct expensive advertising campaigns. Others are so situated that they do no ad- vertising, have few salesmen or none at all, and conduct their selling with a minimum of correspondence. In one case, selling cost may be more than 100% of Factory Cost; in the other it may not be more than 10%. The simplest and most practical method of distributing Sell- ing Cost is on the basis of Factory Cost. If for example the total cost of a certain product in the shop is $10,000 for the month of March, and the total selling cost is $1,000, 10% of the factory cost of WHAT FACTS TO GET m each article represents the proportion of selling cost it must bear. One article, however, may actually cost again as much as another to sell, though the factory cost of both is nearly the same. In the shop manufacturing a variety of articles, therefore, it is customary to classify the objects with an approximation at the actual amount it costs to put them on the market. Thus, in the above case, one class of machine might require to have 20% added to its Factory Cost to represent the amount ex- pended in selling it ; while in the case of another kind of SELLING PRICE FACTORY COST SELLING COST MATERIAL r DIRECT LABOR INDIRECT LABOR BURDEN < POWER HEAT. LIGHT AND RENT OFFICE TAXES salesmen INSURANCE ESTIMATES DEPRECIATION ADVERTISING UPKEEP TRAVELING INTEREST ON INDIRECT V INVESTMENT EXPENSE ^ PROFIT FIGURE II: Selling price is made up of the three big factors: cost to make, cost to sell , and profit . This chart shows the elements that enter into each factor article the percentage of selling expense — owing to its being a staple and requiring a minimum of advertising and salesmanship — might fall to as low as three or four per cent of its factory cost. 20 PLANNING TO KNOW COSTS The difference between the total cost of any article, which may be called the Cost to Make and Sell, and the final selling price is profit; or if the margin runs the other way, loss. Your cost system tells you what you must know about your business to conduct it on a basis of profit and effi- ciency. It gives you a record of and check on all ma- terials and supplies, it furnishes a record of the day’s work of each producing workman, tells where he worked and what he accomplished; it divides with as much ac- curacy as is possible or necessary the general expense, placing the burden where it belongs; it forms, finally, the basis for an intelligent analysis and comparison of all units of cost. Know your costs and you have in hand the means of stopping blind leaks, of cutting off un- profitable lines of goods and meeting competition in a fair and square way, knowing precisely what you are doing. C$3 T^FFICIENCY means keen self-criticism . It means to go out into the shop and find nothing there that is sacred or fixed. It means that in that shop six months ago shall he ancient history. It means the dropping of tradition , the forgetting of ghosts , the questioning of everything. It means the old Scripture doctrine , “ Prove all things. Hold fast that which is good ” and only that. — William C. Redfield Secretary of Commerce II MAKING WORKMEN PARTNERS IN COST CUTTING By Vernon Hoxie Vice-President, Peerless Wire Fence Company W HEN I was serving my apprenticeship at a me- chanic’s bench, we thought our employer had a perfect cost system, for it took the time of two clerks and required more than a score of bewildering forms and cards. Its operation was an impressive ceremony — so far removed from our conception that we supposed, of course, it must be good. Workmen who were responsible for wastes in material and labor did not understand the method of keeping records and locating leakages. And now I doubt if the manager knew much more. Once a month he would storm about the high cost of manufac- ture, but he would not point out specifically where the costs were running up or why. From my later experi- ence as a factory executive I know that his cost system, like many others, was inefficient because production costs were not rightly distributed and because the men who were responsible for production did not understand the application of the system and how it touched them. A cost system that is actually going to cut down costs must show precisely where wastes of material and labor are occurring and provide some means for checking them at once. And it must be so simple that every employee can understand it and know just how his mistakes will show up in the final figures. 22 PLANNING TO KNOW COSTS But a cost system will not cut down costs. All it can do is to show you where to use the pruning-knife. This I do by taking my foremen and employees into my confidence. When Harry K — is promoted from a loom to foreman of a weaving room I call him into my office and we get together. “It’s up to me, Harry,” I tell the new foreman,, “to produce the best fence at the lowest cost, and I want you to help me do it.” Then with sample time sheets, repair tickets and re- quisition slips I show him just how the timekeeper makes up the cost records for each day. When the new foreman leaves my desk he has a good idea of the im- portance of figures and how his work out there in the weaving room will be reduced to cold hard net facts each night. F REQUENT meeting and daily contact with foremen by the executive puts the men on guard to find hidden leaks and time-saving methods in their work. By distributing the production among the weaving rooms and looms it has been possible to stimulate com- petition between men of the various rooms. When a loom breaks or a wire snarls, the foreman is sure to let me know at once (each department has a ’phone) why the day’s work will show a shortage. If reports were made monthly the average might show up all right, but the smallest delay looms up in the daily report. Know- ing this, the foreman and workers are alike more anxi- ous to get the machine running again as soon as possible, and by having the trouble reported at once I am in a po- sition to render assistance if it be needed. During the day I have conferences with my foremen in the office and in their departments. They are free to WORKMEN WHO HELP TO SAVE 23 come to me at any time or any place. There is absolute harmony between us, and I encourage the men to look upon me as only a fellow worker in the production of wire fence. But I am convinced that our whole co- DAILY TIME. REPORT SHEET MACH I NET SHOP, BLACKSMITH SHOP, DIE ROOM AND PATTERN ROOM NAIVLE NO. - - - - - 1.91 STATE HERE THE KIND OF WORK YOU HOURS HAVE BEEN DOING TOTAL HOURS NOTE: EACH KIND OF WORK MUST BE ITEMIZED O. K FOREMAN FORM I: A daily time report sheet like this is filled out at night by every employee and given to the timekeeper, who compares the figures with the time clock records operative cost system has been built and held together in the bi-monthly meetings of all the foremen. This is probably the most important feature of our system. While it may appear to be far removed from a cost system, I have proved to my own satisfaction that it bears the closest relation to cutting costs and increasing the production efficiency of individuals and departments. The men come over to the factory in the evening for the session. We gather around a big table and turn the meeting into a social and business affair. Everything is 24 PLANNING TO KNOW COSTS so absolutely informal that every man feels like coming right out with his troubles — and experience shows that he actually does so. Jim Brown, Foreman of Warehouse B, for instance, tells us that he believes it is costing too much to get the wire into a certain switch. Immediately we consider the problem and try to draw out a suggestion for cutting down the cost. The foreman of Loom Room 3 is having trouble with a certain loom, and he tells us about that. Probably the foreman of one of the other rooms has been up against this same problem and he tells his fellow worker how to get around the trouble. Thus another cost is cut. I know that these meetings and the whole general co- operative spirit which exists among the men pay our fac- tory in decreased costs, for some of our biggest money- saving policies and operations have been created or sug- gested at these meetings. At one of these meetings our head draftsman suggested the idea of the telpher or monorail system for handling wire. Little did any one think when he suggested it that the idea would ma- terialize into the longest overhead transportation system of its kind in the world. The worth of this suggestion is given particular significance as a cost cutting element when it is known that this system paid for itself in two years, and that it saves us forty per cent of the former cost of handling our finished product. At another cost-cutting conference the machine shop foreman suggested a form of automatic releasing grap- ples for handling the fence in connection with the telpher system. Two months ago, the assistant superintend- ent suggested a wire guide — a simple easting, but an improvement which holds the warp wires of the fence firmly in position to receive the tie or locking wire, and WORKMEN WHO HELP TO SAVE 25 enables us to speed up the looms, and thus make 20 per cent more fence a day. Every meeting contributes some item that cuts down the cost. But even if these meetings did not produce one suggestion, they would be justified by the spirit of cooperation which they have built up, and this spirit of cooperation has passed further down the line to the employees working for these various foremen. The details of the cost system necessarily differ with each line of industry, but the principle is of universal STOCK ROOM 191 DELIVER TO BEARER THE FOLLOWING MATERIAL TO fif CHARGED TO NO. IN LOOM ROOM NO. FOREMAN NO. FROM BIN NO. ABOVE MATERIAL ISSUED BY FORM II: The stock room reports on a form like this the amount of ma- terial issued to each department. These reports also go to the timekeeper 9 who records the cost in time application — - the ultimate way to cut costs is through men. For unless they understand and see clearly how everything they do or fail to do affects the production, the costs cannot be cut to the bone. £6 PLANNING TO KNOW COSTS A cost system is absolutely essential to every manufac- turing business. In experimenting with our cost system, we have concluded that it should have two features: it should be so simple that any employee can understand it and should furnish the production manager with daily, or at least weekly reports of production by departments. S IMPLICITY is the first essential of good cost system ; thoroughness is the second — finding the facts promptly and in detail saves many wastes . The first feature enables the executive to point out to his foremen the reason for his orders and secures active cooperation in cutting down costs in every department. The second feature gives the executive daily and weekly bulletins of this production. An error today is rectified tomorrow. It doesn’t eat up profits for a month before being discovered. Our cost system is so simple that the timekeeper makes it up in his spare time, and every foreman under- stands its operation. It furnishes me with daily bulletins that are the basis of my day-to-day supervision. The records of the previous day ’s work which are laid on my desk each morning enable me to keep my hand on the pulse of every department. The daily costs of manufacture are made from work- men’s time sheets, repair tickets and requisitions in the stock room. At the end of each day every employee must fill out a daily time report sheet (Form I). These are handed to the foremen and then to the timekeeper, who compares them next day with the clock records for the purpose of verifying the time consumed. In the meantime the timekeeper has received from the stock room all the requisitions (Form II) for material issued from the various departments for the previous WORKMEN WHO HELP TO SAVE 27 day. From the machine shop come all repair tickets. The machine shop is run as if a separate institution. When some department requires the services of a ma- chinist, the foreman issues an order on the machine shop, and the machinist’s services are charged against this de- partment. As soon as the timekeeper has received all the time RE lQUISITION Iftl DEPT BY THE FOLLOWING SPECIAL ITEMS:- FOR _______ AT ORDER NO. note: if for any NOT BE FILLED BY T SUPERINTENDENT. SUPT. REASON THIS REQUISITION CAN HE DATE SPECIFIED NOTIFY THE FORM III: This is the form of requisition given to the stock room. The stockkeeper reports each evening to the timekeeper what stock has been issued to each department sheets, repair tickets and requisitions, he spreads these upon an analysis sheet (Form IY) which distributes the costs of manufacturing the previous day’s fence into twelve divisions of fence manufacture. Such costs as oil, waste and general expense are secured from the requisi- 28 PLANNING TO KNOW COSTS tion slips and charged to the proper department. The machinery repairs are secured from the job tickets which the machinist turns in on the completion of each job. F INDING leaks means the careful study of accurately ^ 'prepared reports — expense figures bring to Ugh unnoticed abuses and especially efficient work . On the expense report shown for one month, it may be noted that Loom Room 1, for example, had charged against it a total of $53.89 for machinery repairs, while Loom Rooms 2 and 3 had charges for this work of $11.48 and $14.44. Thus the repair work for the day in Loom Room 1 increased the manufacturing cost to $5.96 per ton because of the expense of repairs and intermittent idle- ness of machines. Loom Room 2 with about one-fifth less repairs turned out nearly five times the work and consequently had a low cost of manufacture — the price per ton in this room being $2.05. Loom Room 3 with $14.44 repairs had a manufacturing cost of $6.17 due to the fact that this room was manufacturing a narrow spaced fence on which there is a corresponding increase in price. With this report on my desk each afternoon I com- pare it carefully with the reports of preceding days and can instantly catch the slightest increase of cost in any process of manufacture. When I see a big repair bill or a charge heavier than usual, I get the foreman in charge on the telephone and learn the reason before he has an opportunity to duplicate the charge on today’s sheet. The men know that I will see these things, and usually they beat the report to me and tell me why the cost per ton is going to be high on the day’s expense report. And this is just what I want them to do, for it shows that they thoroughly understand and appreciate the applica- EXPENSE REPORT WORKMEN WHO HELP TO SAVE 29 FORM IV ( large sheet): On this form cost items are analyzed daily. The information is taken from requisition slips, time sheets and repair tickets. FORM V ( smaller sheet): Warehouse expenses are filled out on this report sheet so PLANNING TO KNOW COSTS tion of the system and want to keep down the costs in their departments. The warehouse expense report is made up from time sheets, repair tickets and requisitions. In addition to the warehouse expense, it shows the daily costs of con- ducting the machine shop, die room, blacksmith shop, pattern room and such charges as are made under the heads of real estate, general expense and advertising. Charges under these heads and the power plant are ap- portioned among the proper departments of the business. This sheet is shown in Form V. How to cut down costs is every factory executive’s problem. And the secret lies, not alone in the cost sys- tem, but in its application — in getting the workers who are responsible for costs into a cooperative spirit, willing to help each other and straining every point to keep down costs in their individual departments. But this cannot be done unless the system is simple and under- standable. TF o man knows what every article he manufactures costs him to produce, and is absolutely certain that not the most insignificant element of that cost has by any chance been omitted , he is in a position to meet competition and to meet i t closely . — Alexander H. Revell President, A. H. Revell Company Ill WHERE TO SAVE IN COST KEEPING By N. P. Pritchard M ANUFACTURERS who use cost systems may be divided into two classes — those who are afraid of the obvious advantages of a cost system because of the expense it will involve,, and those who overdo cost work to an extent which they themselves never realize. The average manufacturer should take the middle ground. You cannot get accurate costs without paying for them, but you must also realize that the cost department can be handled economically just as well as any other de- partment in the factory. Some men believe that comprehensive costs can only be arrived at by an army of clerks. Others are just as sure that simpler methods and fewer clerks give better and quicker results. After ten years’ practice and ex- perience in cost work I believe that the simpler the methods of arriving at costs, the better ; the fewer parts, the less liable is the machine to get out of order; and this fact is equally as applicable to the cost office. To manufacture economically, costs must be known, but how many factory owners know what it costs to get their costs ? I have talked with a great many manu- facturers and have been surprised to learn that though they wanted correct costs they paid very little attention to the details of their cost department beyond com- 32 PLANNING TO KNOW COSTS plaining about the excessive expense of its maintenance. In establishing an economical and accurate cost system the first thing necessary is to fit the system to your business. The organization of the cost department has much to do with the success or failure and the ex- pense of such work. Many systems are inaugurated at a great expense only to be abandoned within a short time because the system runs the factory. *, Such is apt to be the case with that second class of manufacturers who overload their business with records. I know of a manufacturer who thought he needed a new system. He wanted to get costs in great detail and to know quickly the cost of doing work in each department. So he called in an outside man who went over the plant and the system then in use. The expert reported that the new system would not cost him more than five thousand dollars to install. This manufacturer’s old cost system was really doing satisfactory work. Two hours after a lot of machines were completed the costs were known on every piece, and these costs were surprisingly correct for the amount of clerical help on the work. This cost de- partment consisted of a manager and three clerks. The total wages for the three were sixty dollars a week. It cost about one thousand dollars to install the system. F ITTING the cost system to the size and needs of the business is essential if it is not to prove top-heavy and more expensive than it is worth . But because the owner wanted more detail the expert was engaged and the cost force increased to ten men. It now costs this manufacturer seventy-five cents to find the cost on a twenty-one cent article. Of course, on higher priced goods the proportionate cost of finding the costs is not so obviously wrong. I COST DEPARTMENT ECONOMIES 33 In building an organization to take care of the cost [Work of a factory, use care in hiring the man in charge (of the cost department. Give him from one hundred and twenty-five dollars to one hundred and fifty dollars a month if your plant employs from four hundred to five hundred men. Let him take a month or two in get- ting acquainted with factory conditions and so adapt the system he knows about to those conditions. Then after the system is in working order, have him keep it going and make changes which are bound to occur even in the most carefully thought-out system. I was in a plant some time ago where the attitude of the manager was responsible for the high cost of that department. He wouldn’t give the cost man responsi- bility, with the result that his cost department, he told me, cost him $10,000 a year. In another shop in the same line of business where the cost manager had a little more to say, the depart- ment cost $4,732 per year. If my friend had left his cost manager, who was a very capable man, alone he would have had the same, if not better results, and made a great saving. At still another plant, the system was changed about as often as the weather, simply because it was not work- ing in about two weeks after it was installed. Here the manner of operating was to put a system on paper and assume that because it worked theoretically, it should be a success the minute it was put to the test. This firm changed cost managers and systems about four times in a year ; its heads are still surprised at how much money they have spent, and how little authentic information they have. The other extreme was a large shop which employed nine hundred men. This shop had every facility for getting out the work, and the 34 PLANNING TO KNOW COSTS various departments were arranged in rotation, so that if the first operation was done on the first floor, you did not have to send work to the top floor for the next opera- tion. The shop was increasing in size and the firm was going to put in a more comprehensive system that would be in keeping with a strictly up-to-the-minute plant. The secretary told me that he did not expect to have the new system in working order for at least six months, and that the firm was perfectly willing that the man- ager should devote this time to the study of the plant and its particular needs. It simply figured that by so doing it would know exactly what it was about and thereby avoid expensive future changes. I NSTALLING a cost accounting system must be gone about gradually , starting first in the stock room and working from there into all departments. In my own work I find that the most inexpensive way of installing a cost system is to put it in gradually. Take np the stock rooms first. Are they arranged so that the work, both physical and manual, can be done to best advantage? The facts the stock clerk collects determine the accuracy of your data on the amount of material used. Here is one of the points where it is well to study what it costs to get costs. One stock clerk can attend to considerable work if the hour or two that is wasted by the stock boys every day is utilized. Stock boys can check the bills, keep the supplies’ consumption sheet in order and do other routine work for the stock clerk, who will then have time to devote his attention to keeping up the stock on hand. The better arranged the stock room is the fewer clerks are required and the lower the cost of finding the cost of material. COST DEPARTMENT ECONOMIES 35 The cost of handling stock in one shop was cut down, and the number of laborers needed to handle it was greatly reduced, to say nothing of trucking and elevator service. This was taken care of by having a stock room on each floor. These branch stock rooms carried only the material used on this floor for the construction of the machines which these departments built. The third floor was devoted exclusively to the manu- facture of milling machines. All the machinery neces- sary for the production of the finished article was also located on this floor, with the exception of the planers and automatic screw machines. When we wanted to build No. 3 millers, all the raw stock was carried up to this department and distributed among the machines. As soon as the parts were com- pleted they were put in this third floor stock room, instead of being hauled downstairs, to be again returned to the third floor when the assemblers were ready for it. The machine gang was always one lot ahead of the assembling gang. This worked wonders in the way of prompt deliveries, as the finished parts were always ready for assembling. This milling machine department was composed of fifty men. One man kept time, ordered the raw material, and kept the stock room in A-l condition, and he was minus his left hand. The stock office is but one branch of the cost depart- ment and the more uniformly it is laid out the easier it is to get and handle material and the fewer the clerks required to keep track of it. The third man to consider in your cost department is the time clerk. Usually the time clerk’s position is undervalued. Of all clerical positions in the cost office that of timekeeper is the hardest, and more depends 36 PLANNING TO KNOW COSTS upon him than on any other man in the force. Where work is changing continually one timekeeper to every one hundred men is about the limit of capacity. I would rather have one too many than one short, because any spare time a surplus man may have may be used to advantage by a cost manager who is a good executive. The timekeeper should know the products, have a fair idea as to what operations are necessary to complete a piece and about how long each operation should take. M ECHANICAL devices in the timekeeping depart- ment do much to save the cost of clerical labor and help to speed up the machinery of cost-finding . The time-keeping department is one of the most im- portant in assembling costs and ought to be studied care- fully. In one factory time is saved by giving parts and operations numbers instead of names. The time clerk does not have to write on the form, “ J. Adams, boring twenty-four-inch head cap;” he writes instead, the man’s check-number, No. 40, operation No. 3, part H 2, in which designation H stands for the size of the ma- chine on which No. 2 the head cap is to be used. This method not only makes a more legible card, but it takes about a third as long to write. When I first started a time system through the shop, the time was marked on Forms I and II ; Form I was used for machine work and Form II for the assembling. There were two objections to this, however. First,- two cards for the same machines meant double work with a chance of having some of the Form II cards lost. The other objection was caused by not being able to compute the time or cost until the job had been com- pleted, as the card had to remain with the work until the last machine operation had been completed and then COST DEPARTMENT ECONOMIES 2 p 5 z o tc u i 2 < ^ z I- M - X Q O O Ll < z > ^ 2 £L ?*2 * O 5 2 2°£ ^2? 10 QJ O u »- z o o -> z o « h o 5 I- O O 5> Si J § s CD 72 RECORDS OF ESSENTIALS When an order is completed, the order envelope and coupons are removed from the order board and totals of the bench time and the machine time are entered on the envelope. The total amount of materials used is com- puted from the cutting bill, allowance being made for waste, and so forth, and written down with the other items. The total amount of indirect labor and supplies is entered and the portion of overhead expense which this order bears is also noted, with any other miscellane- ous expense which may be charged directly to the job. The overhead expense, which is figured on the direct labor hours basis, includes such items as indirect labor, repairs, maintenance, heating, lighting, rent, taxes, insurance and depreciation* The total factory cost has now been obtained. The cost of materials and direct labor has been accounted for, and all overhead expense has been taken into consideration, so that the figure arrived at represents accurately the cost of the job. F INDING the essential facts from the production data gathered hy means of the order hoard — correct costs on each job which goes through the shop. To better illustrate the workings of this system, as- sume that John Smith has placed an order for some ma- hogany newels of special design, and since the order is special it is of importance to know exactly the quantity of material used and amount of labor expended, the more so that the job is out of the ordinary. The usual shop order and cutting bill are made out and a corresponding envelope is hung on the board. The order, in this case, is, for example, No. 1922-D, and is now ready for the mill. A messenger carries it to the first foreman who is to work on the order. SMALL SHOP COSTS 73 Along with this shop order are the necessary detail drawings. The shipping order is carried to the stock room and the necessary raw material is forwarded to the various departments. Time coupons, 1922-D, are handed in to the office each night attached to the men’s time cards. The first coupons will be pink, indicating that the rough cutters have worked on the order. The next set will be blue, showing that the machine men are busy, while the yellow coupons, which follow, make known the fact that the bench men have been at work on the order and that it will soon be completed. As soon as the job is done the foreman stamps the last coupon (in this case yellow) on the time ticket of the last workman on the job, “Complete,” so that when it is hung on the order board it is definitely known that the job is done. When the newels have been delivered, the envelope and coupons are removed from the board and the actual cost is de- termined,. as explained. There are several features of this system which are worthy of mention: in the first place, it is extremely simple; in the second place, it is known each day just what was done the day before, what operations each man performed and how long it took him to perform them, and how much it cost — and it is possible at any time to tell exactly what any job has cost up to date and how near it is to completion. By using the color scheme, it is only necessary to look at the order board and tell at a glance just what department was last to work on any one order. By comparing the date of the last coupon with the date when shipment is wanted, as shown on the en- velope beside it, a back schedule order may be traced and late shipments reduced to a minimum. The coupons, when the work on an order is completed, may be put in the envelope and filed away for future in- 74 RECORDS OF ESSENTIALS formation. These envelopes will then give a definite basis from which to estimate new or similar work. The other advantage is that it requires little time, on the part of the men or foreman. It greatly reduces the office work and enables the tracing of orders through the mill, comparison of costs, and the centering of responsibility for mistakes. Above all, it produces the necessary figures for determining real costs, $ D ECORD making — building up a team interest in the game — that's the basis of my method of cutting down losses in the shop. Each department holds a definite position in relation to the making of the product. Each takes a pride in the work of his section. And when he sees in black and white the results of his efforts to keep up department efficiency , that score helps hold his interest . — R. B. Wilson President, The Chicago Shipping and Receipt Book Company VII HOW TO FIND WHAT SMALL PARTS COST By J. Earle Riley I T IS possible in every business to keep accurate labor and material costs on each order going through the factory. Yet, very often a manager considers it not advisable because of the great amount of detail and ex- pense attached to building up an accurate system which in itself not only increases that cost, but increases it to no advantage because the final cost, when once obtained, is not worth the extra money and effort. In many kinds of manufacturing this condition is found, but in none to a greater extent than in the jewelry factory. Consequently, a description of the difficulties in such a factory has suggestions for the managers of many other kinds of manufacturing plants. Jewelry is marketed on the basis of 4 ‘ what will it sell for” rather than “what did it cost.” Sometimes a manufacturing jeweler handling a gold and silver line has a gross profit of one hundred or even three hundred per cent. This profit is often greater in the novelty lines. “With this fact in mind what material difference does it make,” says the average manufacturer, “if one order does cost me more or less than my estimated cost f ’ ’ Moreover, jewelry manufacture is one of those busi- nesses in which you can estimate pretty closely, within a 76 RECORDS OF ESSENTIALS few cents, the material and labor cost of any line of goods when the factory is worked under normal condi- tions. But the place in which the jewelry manufacturer fails, is when he under-estimates his general expense. In the jewelry business, as in many other businesses where small parts are made, the items of general expense are very numerous and it often happens that at least one of these items is wrongly charged. P ECULIARITIES which render it difficult for the manufacturer of jewelry to get accurate costs on his product — pitfalls which must he avoided . In manufacturing, the jeweler changes his line at least three times a year. The total number of patterns in this line may run from five hundred to two thousand or over, according to the size of his plant. Each time a line is changed a great many patterns have to be discarded and possibly ten to fifty per cent new patterns added. In adding these new patterns a tool cost must be found for each. This cost is very seldom less than ten and more often is thirty to fifty dollars. The clever manufacturer must keep his tool cost ac- curately, and proportion it against his normal output so that each pattern will carry its burden. Those patterns which do not pay their own tool cost should be discarded or redesigned so that they will. When a pattern is a “good seller” it does pay its tool cost. In a large line it is very seldom that over twenty per cent of the entire line are good sellers any one sea- son. It is evident, therefore, that these good sellers, in addition to offsetting and carrying their own tool costs and showing a profit, must be burdened with the tool cost of the rest of the line. Now, although it may sound strange, the majority of SMALL PART COSTS 77 jewelers are not able to tell which are their best sellers. Within the last few years two jewelers adopted a card system of individual pattern sales. They now use this system entirely in discarding and making up their lines. They found the system necessary because the salesmen disagreed as to which were the best sellers. After the card system had been running a season the men were called in and their opinion asked on the selling possi- marizes costs . FORM III (i back card): This is the production order bilities of each pattern. The result was astounding. Pat- terns which they were willing to wager were great sellers, according to the cost record had not paid their tool cost, and some which each thought were poor sellers 78 RECORDS OF ESSENTIALS were making the profits for the business. These manu- facturers now discard patterns when the records on the sale cards prove that they should do so. In every busi- ness a simple cost system has great value in this one respect of distinguishing between good and bad sellers. The fourth pitfall in estimating small part costs in a jewelry factory is found in the details involved in get- ting the accurate cost of an order. Operations are short and numerous. A bench worker may have on an aver- age, from five to nineteen orders go through his hands in an hour. To keep the cost on each order he would have to make out a time card for each. This would take him an hour and a half each day and thereby much of his production time would be lost. In a shop of one hun- dred men about eight thousand time cards would have to be turned out every day. It would take five or six people working at posting alone to accumulate the costs ; two more would be necessary to get the results together, ready for the accountant. Obviously no manufacturing jeweler can see his way clear to adopt a time card system. With these four conditions,, which are common to many other businesses besides the jewelry line, how can a manufacturer find the cost of what he is doing without paying too much for that privilege? Primarily costs can be estimated by obtaining costs on sample parts and letting these costs stand for all goods in that line. Ma- terial, labor and general expense are the items to be con- sidered in getting these costs. And in the items of gen- eral expense the one of tool costs is most important. This is the way one manufacturer has solved his cost problem. In the first place the job system of handling orders was thoroughly reconstructed. With this job sys- tem as a basis and by an accurate accounting and pro- portioning of general expense and by estimating labor SMALL PART COSTS 79 and material costs on sample parts, this manufacturer obtains nearly all the benefits of a cost system without estimating material and labor records on each order which goes through the plant, once the sample lines have been established. ' On every new pattern an accurate tool cost is obtained first of all. Orders for tools are put in the plant on Form I. This form is printed in duplicate. The orig- EMPLOYES NO* DATE EMPLOYES NAME! DESCRIPTION STRIKING SOLDERING TRIMMING COLORING POLISHING BURNISHING PIN TONGUEING STONE SETTING 7 i 8 T * X TTU iQ-i 11 12 i 1 2 t APPROVED FORM IV: Labor costs on all jobs performed at hour rates are quickly and accurately sumrned up on this form inal is thin paper ; the duplicate is cardboard. The back of the cardboard copy is arranged in columns as shown in Form II. Labor costs on this order are kept on Form IV. In order to fill out each salesman’s line at the be- ginning of the season a number of samples of each pat- tern are made. Accurate costs of both labor and ma- terial are kept on these. A production order is made out similar to that shown in Form III, the back of which is arranged like the back of the cardboard duplicate of 80 RECORDS OF ESSENTIALS Form I. Labor cost is kept on sample manufacturing orders with the same sort of time card as is used in obtaining the labor on the tool costs. Costs so obtained are collected on Form Y so that after TIME NO. MIN. HRS. PER! HR. AMOUNT GOLD DWT@ 1 BENCH WORK BENCH WORK BENCH WORK PRESS WORK POLISHING SETTING LAPPING COLORING STAMPING TOOL MAKING TOTALS DESCRIPTION NAME NO. DATE QUALITY' SHOP EXPENSE STONE GRAND TOTAL NO. OF PIECES PIECES MADE COST PER PIECE BY WHOM MADE FORM V: By checking on this card every item of expense in manufac- turing a sample , a cost standard is set up for that pattern the samples have been run through the factory a cost card is available for each pattern to be used that season. When the orders come in from customers the average quantity of any one pattern is generally about one dozen, except on the first-of-the-season order, when it is gener- ally two of a kind. Therefore, the cost obtained on a trial lot is very close to the cost on every lot. To the labor and material cost are added the tool cost and the general expense, which are figured as percentages on every dollar of labor. By means of the job-order system all detail is cen- tralized so that orders can be pushed through faster, and by systematizing, production costs can be lowered. At the beginning of each season there is a lull in the SMALL PART COSTS 81 business during which all time is devoted to getting out samples. During this period it is very easy for the men to keep accurate costs on their work. From time to time, the cost on any pattern is tested and any difference noted. These test costs do not interfere with the routine or the production to any extent. In billing each order that leaves the factory a dupli- cate is made in a loose-leaf book, which becomes the sales book. This book has one column more than the bill-head. In this) first column the factory cost as ob- tained on the pattern card against each item is carried out. At the end of each month, therefore, the amount of sales and the factory cost is known. An accurate account of all material is kept and the factory charged with that which goes into manufactur- ing. It is also charged with all producing labor and gen- eral expense with the indirect labor. In the general ledger these accounts shape as fol- lows: MATERIAL DR. Inventory. Purchases during the month. CR. Material put into manufac- turing. Balance is material on hand. LABOR DR. CR. Pay Roll (from cash book). Producing labor to manufac- turing. Indirect labor to general expense. This account closes each month. Each season’s tool eost is computed from time cards given in by the tool room, and the tool account is charged with the whole amount. In order to correctly apportion this cost against the season’s output this account is 82 RECORDS OF ESSENTIALS charged off through general expense against manufac- turing. As a season usually runs four months, one- fourth is charged off each month. In this way there is either a debit or a credit balance in general expense each month. If the balance remains a small debit balance, the percentage is correct ; although as this balance increases general expense gains on out- put. This being the case the percentage rate must be increased unless the reason for this increase is known and it is certain that it will go back to normal again. The rule works in the opposite way on the credit side where, if the credit balance is too high, too large a per- centage is charged. These accounts in the general ledger are as follows : DR. Season’s tool cost. TOOL ACCOUNT CR. Offset at one-quarter rate against four months of sea- son so that each season’s output stands its own expense. Posted to general expense. . GENERAL EXPENSE DR. Indirect labor (from labor cost). Superintendence. Rents, insurance, taxes. Light, heat, power. Depreciations. Supplies. Maintenance and replace- ments. Incidental expenses. Tool cost (from tool account) . CR. Offset at fixed percentage to manufacturing. Considerable detail is involved in carrying out this ac- counting but results will repay your labor. In some seasons the general expense is high, in others low. By; SMALL PART COSTS 83 figuring it once a year you strike an average only. As shown above, the rate is corrected each month. The moment any strange condition sets in you know it. A great amount of money is saved in this way which it is not possible to save when on January 1st you fix a rate based on the past year to apply on the coming year, in which conditions may be far different. Most of the detail work has been performed in build- ing up the following : MANUFACTURING OR OPERATING ACCOUNT DR. Material (from material ac- count). Labor (from labor account). General expense (from gen- eral expense account). The balance is work in process. CR. Production at cost obtained from shop orders. PRODUCTION OR FINISHED GOODS ACCOUNT DR. Production at cost from manufacture. The balance is finished goods on hand. CR. Sales at cost from sales book. SALES DR. CR. Cost of sales from sales book. Selling price of sales from sales book. The balance equals gross profits and from this you deduct the selling expense to obtain net profits. The latter are closed into profit and loss. There are many other general ledger accounts which go to build up such a balance sheet but they do not affect the cost accounting. There is only one disadvantage in this method of figuring costs. The system is based on the assumption that the factory is working under conditions of normal 84 RECORDS OF ESSENTIALS or forced production and gives its best results under such conditions only. When business is extremely dull, the workmen know it and in order to keep themselves at work they loaf at what few jobs they get. This upsets the cost of each pattern to some extent, but not enough, to affect profit. C$3 P ET daily condensed records of important statistics — it is difficult for me to understand how some manufacturing executives believe they are speaking authentically when quoting from reports compiled six months or a year ago and are content to refer to these when considering their present condition. This takes time , you say , and money . Yes , but the time to insure against the loss of your ship is not after it reaches mid-ocean. You may have a fighting chance when affairs reach the stage where they attract your attention; still you may not be able to find the leak in time; it may have grown so large as to be past your control. — Edward D. Easton President, Columbia Phonograph Company- VIII KEEPING LABOR RECORDS BY MACHINERY By W. B. Jadden District Sales Manager, Felt and Tarrant Manufacturing Company B Y INSTALLING an adding and computing ma- chine operated by a young woman, the services of three men were done away with in the estimating de- partment of a Kansas City structural steel company. All of their time had been occupied in figuring bills, and even so they were unable to keep up with the volume of work. Not only, however, did she do all the work they had done, but it required only sixty per cent of her time. The other forty per cent she devoted to figuring material for the stock keeping department. Careful in- vestigation of the same sort that accomplished this re- sult brought about the installation of a machine in the timekeeping department; here also a single girl now takes the place of two clerks, and she not only does their work, but obtains results that are absolutely accurate in much less time than was required by them. Analysis of your pay roll methods may show equally surprising results. For, no matter what the size of the plant, the general handling of the labor records is much the same, although details may differ. A profitable method of handling labor statistics in a two-thousand- man factory might be unavailable for the thumb nail records in a two-hundred-man shop. But if the man- agers of both factories were to list chronologically the 86 RECORDS OF ESSENTIALS steps in the handling of their labor records, they would not find them greatly different, one from the other. When such an analysis is made, your opportunities for tying up loose ends and making a better system will probably be found at much the same points as were those in the factory described above. When the labor records were analyzed in this factory, it was found that the operations in handling them could be divided into thirteen parts: (1) records of names of workmen and applicants; (2) records of total time men worked; (3) records of what men spent their time on; (4) checking of 2 and 3; (5) clerical work involved in rating; (6) clerical work involved in computing wages; (7) clerical work involved in classifying labor totals; (8) filing work; (9) making out pay roll; (10) making out pay envelopes; (11) checking envelopes with pay roll; (12) counting out money; and (13) time distribu- tion. L OCATING losses in the work of finding labor cost details — substituting machines for men to save loss in the 'performance of routine clerical work . After the clerical labor situation had been analyzed in this way, the first step was to see where the greatest losses were in handling and how they could be prevented. It was found that much of the clerical work could profitably be done by machinery. Addressing machines, time clocks and records and adding machines were fitted into the routine wherever possible. Records of workmen were first overhauled and in- vestigated. It was found that the names could be set up, rate files printed and pay rolls printed, all on an ad- dressing machine. The routine of this department was rearranged so that this work became the duty of the ad- AUTOMATIC LABOR COSTS 87 dressing machine operator. The balance of the system was changed, so that now„ when a workman enters the plant, he goes first to a rack at the gate and obtains his clock card and then rings in on the clock in the depart- ment in which he works. After so doing, he places his clock card in a rack nearby. This is locked as soon as the whistle blows for commencing work; thus late ar- rivals, in addition to being detained at the entrance a limited time as a penalty for arriving late, are forced to go to the foreman or manager of their departments in order to get their cards in the box. When the time- keeper makes his call at the rack, if the card is not in the box, it is necessary for the foreman to explain why it is not. A few minutes before quitting time the rack is opened to allow employees to secure their cards to ring out, and, after ringing out in the department, the workman de- posits his card at the entrance. Thus is eliminated all possibility of favoritism to late or absent employees, and it is also known just how long each operative was in his department and how long he should have been produc- ing. The investigation was carried into the time-spent rec- ords department. Here everything was formerly done by the most tedious methods. It was found that the time- spent records could be worked up much cheaper and quicker by the use of the addressing machine. The rest of the routine was revised to conform with the installa- tion of this machine, and is now handled as follows : the name and check number of each operative and the date of pay period is printed on each clock card by means of the addressing machine. The clock card is made with a detachable coupon at the top which bears the check number of the operator and the date of the pay period. 88 RECORDS OF ESSENTIALS On the beginning of the pay period, this coupon is de- tached and retained by the worker to be used on pay day as his identification card; he presents this coupon and gives his name. If both check with the pay envelope, he receives his money, and the paymaster retains the coupon. The color of the clock cards is changed each pay period. In determining what each employee did each day, and the time consumed in doing it, it was found that the work was entirely clerical,- and a great deal of time could be saved by the installation of time records. The method of handling this part of the work in conjunction with time records is as follows : a time slip is filled out by a department clerk on which the following items appear : check number of the worker, date, work done and number of units finished,, premium number, premium rate, basic wage rate, total points made and earnings based on a standard number of points allowed, plus a percentage of the premium points. On the day following that on which these slips are filled out, they are checked against the clock cards for total time worked, and also against the production rec- ords. In all cases, without exception, checking on time and production is done by the labor department and never by the foreman or his assistants. Any variance in the records is immediately called to the foreman’s at- tention and corrected at that time. R EVISED routine in the timekeeping and cost de- partments resulted in a large saving of time and clerk hire , and the number of errors was lessened . The time slips, after being cheeked for time and pro- duction, premium number and rate, are sent to the com- puting division to be figured and made ready for pay roll and labor cost records. From now on the work is simple AUTOMATIC LABOR COSTS 89 mathematics and is performed, not mentally or with pencil and paper by clerks with their inaccuracies, as. formerly, but at high speed with absolute accuracy on machines. The first step in the computing division is to rate each time slip, by which is meant filling in the employee’s rate per hour, whether for premium or day work. To facili- tate this, the rate cards are filed consecutively according to check numbers by departments. Any change in the worker’s rate per hour is promptly entered on this rate card, becoming effective only at the beginning of a new pay period. The time slips are passed to adding and computing ma- chines, instead of to the half dozen clerks that were formerly required to do the work. Great care was ex- ercised in the selection of these machines and the results of their work have many times repaid the original out- lay. The adding and computing machines are then so ar- ranged that one operator makes the detail extensions and additions while another operator checks accumulatively. By this method the checking is done with greater speed, and the work is absolutely accurate. With the former 1 clerks, it was never known whether the results were ac- curate or not, and the checking was done in haphazard fashion, if done at all. After the time slips have been figured and checked, all extensions and additions known to be absolutely accu- rate, the time slips are ready for the labor distribution division. Here, again, all the work was formerly done in long hand, but a careful study of the system of dis- tribution pointed out many operations in which a ma- chine could be used and the cost of two or three clerks saved. 90 RECORDS OF ESSENTIALS A clerk places the proper signal after each labor charge. This can be done only by one well acquainted with factory conditions. After this has been done, it is the simplest of operations to collect amounts charged to the various signals by using adding and computing ma- chines, because the operator, without removing her eyes from the time slips, adds the items she is collecting as fast as her eye can pick them out. As a check on this clerk, the aggregate sum of the various charges made during the pay period must balance with the pay roll. The percentage distribution of individual labor charges is secured accurately and easily — which is a most im- portant consideration. These results are also obtained at much less expense and with greater rapidity by means of these machines as against the former “slipshod” method. After the labor distribution has been secured, the time slips are filed according to check numbers, by de- partments, until the end of the pay period, when the total amount due each worker is computed. The labor saving investigation was carried further in the pay roll department. The work of every clerk was analyzed, and wherever any work was found that could be economically done by machines, it was assigned to the duties of a machine operator. The pay due each employee is next determined and checked, and entered on the pay roll sheet. As these sheets have already been run on the addressing machine, the check numbers of the men are in consecutive order and the sheets are arranged according to departments. As the time slips for each man are collected,, and the bunches arranged consecutively by check numbers and by departments, it is not only an easy matter to enter on the pay roll sheet the pay due each employee, but the checking of the posting and the footing of the pay roll AUTOMATIC LABOR COSTS 91 can easily be done on an adding and computing machine. One operator now adds the entries on the pay roll sheets by departments and the other adds the amount due as noted on the reverse side of the last time slip for the pay period for each operative in the department. These two totals must balance. The pay roll is now made up — not by mental labor, but practically all by machinery. A change or denomination sheet is next drawn up. Here, again, mechanical devices supplant mental work. It is easily done by sliding a steel guide over the key- board of an adding machine. This guide leaves ex- posed alternate keys in the machine, which is now used as a counting device. In this manner, the number of twenty, ten, five or one-dollar bills and the fifty, twenty- five, ten, five or one cent pieces required is easily com- puted; the speed of getting the denominations depends entirely on the ability of the operator to analyze cor- rectly an amount into its integral parts. How is the pay roll spent? Are the profit producing employees retained and rewarded according to their merit ? Is there tangible evidence of what is transpiring in the works ? Where are the leakages and what must be done to remove them? These are the questions that the investigation answered. The equipment and the methods at present in use are the mediums of answer to these questions. A JUSTLY discontented force can cost you more directly and indirectly than the most expert and costly super- vision can ever find out . — William C. Redfield Secretary of Commerce IX HOW TO APPORTION “OVERHEAD” By Sterling H. Bunnell LL work performed by a factory organization is JTJl classified as ‘ ‘productive’ ’ or “non-productive.” While other terms are used to define these classes,, the above are fairly satisfactory in indicating the distinc- tion between that part of the work done by the em- ployees which, as it is sold to outsiders, is productive of income to the factory, and the other part of work, which, as it cannot be charged to any unit of manufacture, is not sold, and in a certain sense does not produce in- come. The net cost of the “ productive” division of the fac- tory work consists of material and labor; this is better defined as the 4 ‘ prime’ ’ cost. As the non-productive work brings in no direct income, its cost must be con- sidered a charge on the cost of the productive class, and thus there arises the conception of ‘ 4 gross’ * cost of pro- ductive work, consisting of material, labor, and the “ burden’ ’ of the non-productive work. The manner of apportioning the burden against the several orders in progress for productive work has re- ceived much study and various plans have been devised and used with success in suitable fields. One of the larg- est of these fields is that occupied by factories with labor- saving machinery, and the study of the actual cost of APPORTIONING "OVERHEAD" 93 operating such machines with due regard to the future is of great importance. The data required consists of an accurate expense ac- count ranging over a period of several months of good average business conditions, a plan of the plant with the arrangement of the various tools and spaces for tool hands, and an inventory giving original values of the various tools and the approximate dates of their con- struction. Taking such a plan the investigator must mark off floor spaces about each tool sufficient to ac- commodate the workman and his supply of work in progress. If the shop is well arranged, the spaces not actually covered will not be very great, but just sufficient for convenient access to tools and work. A SSIGNING an hourly rate to each machine , which is distributed 'proportionately over every job using that machine , effectively apportions overhead. The ground plan can thus be laid off in irregular figures, each occupied by a tool and its contingent equip- ment. Similar spaces are laid off to provide for the vari- ous vise hands, erecting men, and so on. Each space with the equipment pertaining to it is a “productive unit.” It is fair to assume that the monthly expense due to the building and real estate should be paid on a basis of square feet of ground occupied. This general rule may be modified so as to assign to spaces next side walls, if much better lighted than the interior of the building, a larger share of the building expense ; while central floor space two stories in height (as in a gallery shop), or spaces having crane service, should be rated higher. The inventory of equipment is next used to set a value on each “productive unit,” whether consisting of 94 RECORDS OF ESSENTIALS a machine and its equipment, a vise and the accompany- ing files, chisels and other shop tools,- or a mere space on the floor where an assembler may work ; in all these cases the unit is considered as lying within a definite area of floor space. In the estimated value of a machine tool, the cost of its foundation if any, of transportation to the works and erection in position, and of countershafts and belting with all other attachments belonging exclusively to this tool, should be included. The tool and equipment must earn interest on its total value, and must also lay up a sufficient amount to replace itself at the end of its natural or probable life. A table is now made in which appears the serial num- ber of each tool in the shop, the name of the tool and, in columns following, the value of tool equipment, and the percentage determined upon for interest and deprecia- tion. The amount to be earned and set aside each month for interest and depreciation is computed and set down in the next column. In making this table, the power house equipment is grouped and its interest and deprecia- tion computed in the same way. Next comes the esti- mated average monthly outlay for repairs, and the monthly expense for the floor space occupied by each tool or other productive unit of space. The proportion of the monthly expense for small tools and supplies which can be readily assigned to the machines direct, as drills purchased for use in drill presses, is next estimated and set down. i The cost of operating the power plant and of lighting and heating the building is next in order. This is ob- tained by first computing the cost of operating the power plant, including space charge, interest and depreciation, fuel and labor cost; then estimating the average horse- APPORTIONING “OVERHEAD 95 /- 1 DIRECT MATERIAL ^A. FIND WHAT PERCENT OF TOTAL OIRECT MATERIAL ENTERS INTO EVERT PRODUCT B. IF A PRODUCT CONSUMES .01 OF MATERIAL. CHARGE IT WITH .01 OF “OVERHEAD" C. USE WHERE THE ENTIRE PRODUCT IS ESSENTIALLY THE SAME. WAGES A. FIND WHAT PER CENT OF TOTAL DIRECT WAGES ENTERS INTO EVERY PRODUCT B. IF A PRODUCT CONSUMES .01 OF WAGES. CHARGE IT WITH .01 OF "OVERHEAD.” C. USE WHERE WAGES ARE AN IMPORTANT PART OF COSTS AND ^ VARY GREATLY. 3 OIRECT LABOR , "a. FIND WHAT PER CENT OF TOTAL DIRECT LABOR HOURS ENTERS INTO EVERY PRODUCT B. IF A PRODUCT CONSUMES .01 OF DIRECT LABOR HOURS. CHARGE IT WITH .01 OF "OVERHEAD." C. USE WHEN ALL WAGES ARE NEARLY UNIFORM. 4 MACHINE RATE . ''a. FIND WHAT EXPENSE EACH MACHINE IS RESPONSIBLE FOR; DIVIDE THIS INTO AN HOURLY RATE. B. IF A JOB USES FOR FIVE HOURS A MACHINE RATED AT *0.13. CHARGE THE JOB SO. 65 FOR "OVERHEAD." C. USEWHERE BULK OF INVESTMENT IS IN MACHINES. AND LABOR COSTS ARE RELATIVELY IMPORTANT 1 METHODS OP ^ CHARGING “OVERHEAD” 8 SUPPLEMENTARY , RATE A. DETERMINE AND USE MACHINE RATE AS IN 4 SUBTRACT TOTAL "OVERHEAD." CHARGED TO SPECIFICJOBS FROMTOTAL ACTUAL "OVERHEAD." DIVIDE REMAINDER. WHICH IS CAUSED BY IDLE TIME, INTO A "SUPPLEMENTARY RATE." 8. IF "SUPPLEMENTARY RATE." FOR ONEMACHINE INMARCH ISS0.02, AND A PRODUCT USES THAT MACHINE P1VE HOURS, ADD SO.IO TO THE AMOUNT ALREADY CHARGED BY MA&HINC RATE. C. USE FOR 4 WHEN IDLE TIME IS IMPORTANT. • "COST NUMBERS'* < A. DETERMINE MACHINE RATE AS IN 4 CONSIDER THIS FOR EACH MACHINE A “COST NUMBER": IF A MACHINE RATE IS S0.T3. ITS "COST NUMBER" IS T5. B. IF ON THIS MACHINE (COST NO. 75) A JOB TAKES SIX HOURS. WHILE TOTAL COST NUMBER HOURS FOR MONTH ARE 18,000 AND TOTAL OVERHEAD IS *20.000 CHARGE JOB 6X *0.75X2Q(1B. C. ’ALTERNATIVE FOR 5 A. OAREFULLY INSPECT YOUR PRODUCT AND DIVIDE INTO CLASSES OF ARTICLES ACCORDING TO AMOUNT OF OIRECT COST WHICH EACH SORT INCURS. 7 INSPECTION 6. JUDGE WHAT PART OF OVERHEAD EACH CLASS OF PRODUCT RE- QUIRES AND CHARGE ACCORDINGLY. 8 MATERIAL AND PERCENTAGE a ON WAGES C. SPECIALLY SUITED TO CHARGING ADMINISTRATIVE AND SELLING COSTS. ''a. FIND WHAT PER CENT OF BOTH TOTAL DIRECT MATERIAL AND TOTAL DIRECT WAGES ENTER INTO EVERY PRODUCT B. IF A PRODUCT CONSUMES .01 OF MATERIAL AND .02 OF WAGES CHARGE IT WITH 1^ (.01 + .02) OF "OVERHEAD ” C. USE WHERE MATERIAL AND WAGES ARE EQUALLY IMPORTANT FACTORS IN COST. FIGURE V: These are the standard methods of charging “overhead.” The aim in every case is to make each job or piece of work bear its due proportions of general expense 96 RECORDS OF ESSENTIALS power required by each machine when running under average conditions. The probable running hours per month for each productive unit is next estimated; this, in the case of vise workers and floor hands, is the total working hours per month multiplied by the number of such men usually employed. Multiplying the horse- power used by the number of hours for each machine, and adding these figures, the total of horsepower hours may be compared with the usual output of the power plant, and the co-efficient of the load then determined. The item of general shop expense remains, comprising expense for small tools not already apportioned, labor of helpers, miscellaneous supplies, loss by defective work and accidents, and expense of office work required for managing shop affairs. This item reduced to a monthly basis seems fairly chargeable to each employee equally as it depends in great measure upon the number of men em- ployed, increasing with a large force and decreasing with a small one. On this basis, therefore, the monthly ex- pense may be divided by the number of men employed, and each productive unit charged with the share belong- ing to the workman or workmen attached to the unit. The table now provides for all the expense which per- tains to the shop itself. There is also an administrative expense, consisting of salaries of the manager and the elected officers and general office expense, with whatever other special accounts of a private nature may be car- ried ; and generally a considerable expense for selling the factory product, consisting of advertising, traveling, salaries and commissions, and entertaining. These ex- penses are not connected with construction, but with ad- ministration ; and are best provided for as percentages on the gross cost of the goods produced by the shop, rather than by inclusion in the table of shop expense. APPORTIONING "OVERHEAD” 97 Carrying across the totals for each productive unit, the total monthly expense of each is obtained ; and divid- ing these amounts by the hours of work per month op- posite, the hourly rate which should be charged for each productive unit is shown. While no two units may figure out to have the same rates, it will be found that the rates can be grouped into two, three, or more classes in which the figures fall more or less closely together. Flat rates in round numbers may be assigned to each of these groups, and substituted for the exact rates, forming a set of two or three burden rates for the whole shop. It may be found that the rates already charged for work agree closely with the figures based on the table of correct burden charges, the calculated rates agreeing closely with unaided judgment. If, however, local cus- toms require rates too low, the fact must be faced and altered, or disaster will overtake the business. It is sel- dom that the combined judgment of practical men is at fault, but variations from average conditions may bring about a state of affairs where judgment based on gen- eral knowledge only fails to appreciate that unusual ac- tion is necessary to avoid loss. 'T'HE system of management is but the tool of the manager A Alone it is useless , may even be dangerous; the manage - ment without it is handicapped , whereas the system bached by an active mind continuously using it, is the effective combination. And labor saving management is a system that forces the executives to manage. — F. G. Coburn Assistant Naval Constructor, U. S. N X DESIGNING YOUR COST FORMS By S. B. Rogers, Production Manager, Sangamo Electric Co, CLERK in the purchasing department of a north- ii ern brass factory ordered a five years’ supply of time cards. By so doing, he thought he was saving con- siderable money for the company, and he did in first cost. But he neglected to figure what this purchase meant in final cost. Whether or not the form was being used efficiently was not considered. Whether or not it was of the best design for the purpose for which it was intended was not thought of. In fact, at the time the order was placed, the production department was plan- ning to supplant this form as soon as the supply of old forms had been exhausted. The purchase clerk, not reckoning with this contingency and thinking only of an efficient purchase, went ahead blindly. Now, if it had been the practice in this concern, as it is in all carefully managed factories, to buy no forms, old ones or much less new ones, without subjecting them to an analysis similar to the accompanying chart, this unwise purchase would have been avoided and money saved. Order your supplies of forms as judiciously as supplies of materials and new equipment. Perhaps the first and most important item to con- sider is the use to which the form will be put — how, where and when it will be used, and by whom. A form FINDING THE BEST FORM 99 used in the drafting room should embody different fea- tures from one employed in the machine shop, and a card used by the erection gang out in the yard, where it is exposed to the weather, should have characteristics that are different from one required in the wood shop. Again, if the form is to be used where there is a great deal of grease and dirt, design it for that purpose. In the pattern room the requirements are not so severe and hence a less durable form may serve the purpose just as satisfactorily. Then, there is the question of how a form will be used — will your man fill it in with pen, pencil, or a punch, and will this information be filled in at the office or out in the shop. The design must embody a consideration of the use ' of a rubber stamp, a time clock, automatic re- cording devices and so on. Carefully consider the amount of clerical work and also the personnel of the clerks who will perform this work. In fact, all possible uses to which a form will be put must be carefully ana- lyzed before the second step, permanency, is considered. M ETHOD of using a form determines the hind of card adopted — need for preservation and rough treat ment in the shop are important considerations . In this connection, will the form be referred to con- stantly ? Must it be preserved for a number of years, or can it be destroyed as soon as it has been used? How many hands must it pass through ? This is a vital point. To prove it, call to memory some filed-away form which, when you pulled it out, was so torn and worn that it was impossible to decipher the information on it. Other things being equal, if the form is to be used only for a limited length of time and then destroyed, there is no necessity for a thick, heavy card with lasting qualities 100 RECORDS OF ESSENTIALS on which the information is filled in with ink. Again, what service must the card perform? The analysis of this question will influence the character of the form considerably. Will the information on it be used in several different departments or will it be confined to one department only ? In either case, these facts must be considered in its make-up. Also, is the information on the form to be taken from other forms, is the card self-contained, or is the information collected on this form to be used in conjunction with other forms ? All of these facts determine the quality and thickness of the paper that will be required. The question of color is another vital point. Is it necessary that a color scheme be used ? Often it is, and in such a case, a definite color scheme must be worked out. Know commercial weights and sizes before you attempt to design a form economi- cally. Then again, how must the form be put up ? Of- tentimes it is necessary to have it perforated. This fact may alter some of the other features that have been considered. Again, if you order thick, heavy cards, they may in the aggregate be too bulky to handle and, on the other hand, if too thin and pliable, difficulty may be en- countered in properly filling them out. A great many forms require duplicates, and in order that clear copies may be obtained, it is often necessary to sacrifice weight and thickness in order to obtain these clear copies. The color, size, weight, kind of paper and number of duplicates are often the result of a compro- mise between various limiting conditions. Yet, within all these limits, there is a one best form under the cir- cumstances, and it is this one best form that you should strive for, because by its use large savings may be ob- tained. This has been thoroughly proved by the many factories that have considered these points in designing FINDING THE BEST FORM 101 and coordinating their various factory forms. A Chicago factory was in the habit of using a very poor grade of paper for production orders. Oftentimes the form, before it had served its purpose, had to be | HOW TO GET TH£ ONE BEST FACTORY FORM | r | f 1 1 l __ _ A USES PERMANENCY' SERVICE. KIND OF PAPER ANO COLOR 4 A —4 INFORMATION ON FORM SEQUENCE OF INFORMATION RELATIVE PROMINENCE OF HEADINGS BALANCE AND APPEARANCE 4 A . . 4 1 NUMBER OF DUPLICATES KIND OF TYPE METHOD OF PREPARING SAMPLE APPROVAL BY DEPARTMENT HEADS A j—— I r RECORD OF STOCK STANDARDIZING FORM STANDARD INSTRUC- TIONS AS TO USE -PERIODIC TESTING OF FORM FIGURE VI: Forms need to be tested before they are used . This chart shows the vital points to be considered in making up the design and deciding on the kind of card to use entirely rewritten. This fact came to the management’s attention and in trying to remedy this condition, they swung clear to the other extreme. The very best and heaviest kind of paper was ordered to replace the old grade. Six duplicates of the production order were re- quired and the new paper was so thick and heavy that it was difficult to obtain a clear sixth copy. The depart- ment which received this last duplicate complained. The result was a compromise between durability and clear- ness and also an investigation to find a kind of paper that would prove still more satisfactory. It is evident that all this trouble could have been avoided by a thor- ough consideration of the subject in the beginning. After you have decided on the kind of paper, the next important consideration is the information that is to go on the form, and this information will determine, to a 102 RECORDS OF ESSENTIALS great extent, the design of the card. If possible, it should be made to conform with standard sizes, but not at a sacrifice of clearness. You should carefully look into the proper width and spacing of lines and columns. Nothing is more aggravating to a clerk or workman than to receive a form on which the space where he is to fill in his information is already crowded with facts filled in by a previous clerk or workman, due to the limited area allotted for the purpose. The headings should be so worded that the least possible work is required in put- ting information on the form. Many factories make it a practice to omit the firm name on all forms that do not go outside of the factory, thereby saving the space required for this purpose and also the work of printing the name. Draw up a list of all the possible information that may be required. Then determine the relative prominence and importance of the various items and make an endeavor to eliminate all in- formation not absolutely essential to the efficient use of the form. Superfluous data is always expensive. It at- tracts the attention of every one who uses the form, and the time thus consumed is evidently wasted. L OGICAL arrangement of information according to the order in which it is gathered in the shop or used in the cost office makes an efficient form . Study also the sequence of operation, endeavoring to arrange the headings and columns in the order in which they will be placed on the form. One factory, for in- stance, found it necessary to copy to a form for perma- nent record several important points from bills of la- ding. The form was first designed for neatness of ar- rangement and looks and with no regard for sequence of operations. FINDING THE BEST FORM 103 The design was changed so that the items were in their correct sequence — in this case, the items started in the upper left-hand corner and ran directly across the form and then down one space and back across the form and down the next space, and so on, until the work was com- plete. After you have decided upon the sequence of informa- tion, the next question of importance is the relative prom- inence of the various headings. Which shall be placed in large, bold print and which may be reduced to small, modest type? This will depend upon several things, such as, which item is referred to the largest number of times, which is the most important for future use, which items will be copied to other forms later, and so on. Then consider such points as the intelligence of the clerks and workmen who use the forms. If they are a non-intelligent class, it is sometimes worth while to play up the item or heading that they must refer to in order that they may become familiar with its prominence rather than its actual wording, and habit will soon auto- matically guide the workman’s pencil to the proper head- ing simply because it is conspicuous. Consider your forms also in the light of balance and general appearance. Unless conditions actually demand otherwise, it is often possible to give the form this essen- tial quality of balance. When lines and columns are used, limit them to those that are absolutely necessary. The fewer the better. In a great many cases the col- umns and spaces should be numbered, as this is of con- siderable aid when referring to the information on a form in a typewritten report or memorandum. In such a case it is only necessary to refer to a certain figure mentioned in column 2, line 4 of report, and so on. All of the points so far discussed should now be drawn 104 RECORDS OF ESSENTIALS up on a sample form. This may be done on an ordi- nary sheet of paper in pencil or on a sample of the paper which will ultimately be selected. The type may be set, printed on ordinary paper and pasted on this form, so that you can get a clear idea of its appearance, or you may fill in headings with ink or pencil. Issue standard instructions explaining in clear, civil English just how these forms should be ordered, dis- tributed, used, collected, filed and kept track of. Also endeavor to collect the common features of all forms and standardize this information. Analyze the uncom- mon or unlike characteristics and make an effort to standardize these. That the results of such studies will be well worth your while has been proved by all fac- tories that have systematically carried out these methods of standardization. O ECORDS before every man from manager to bobbin boy key up the whole mill. They create a sympathetic hustle from the top down and from the bottom up. I keep all — over - seers and second hands alike — interested by showing them how they can do better. Progressive totals of last week and today , showing how wastes and seconds are decreasing , will develop a spirit in the whole mill. — Henry D. Martin General Superintendent, The I. E. Palmer Co. PART III- COST SYSTEMS THAT PROVED EFFECTIVE How Cost Records Guide records should be made not only for the purposes of determining prices and securing efficiency, but also with the objects of discover- ing opportunities for economy and openings for expansion. It is not enough to know how much a job costs. It is most essential that we know why it costs as much as it does and the effects of this cost. If the next job costs more or less than it did the last time it was made, the records should en- able the portion of the work in which the differ- ence exists to be promptly and accurately dis- covered. Indeed, this is the fundamental prin- ciple of a really truthful system of cost keeping. The successful business of today in any line of endeavor has been built by men who have accu- rate knowledge of their affairs secured from keep- ing true records of their experiences and using them in guiding the business to a profitable showing. A. M. GLOSSBRENNER President , United Typothetae of America XI HOW TO GET OFFICE COSTS By Marshall D. Wilber President, Wilber Mercantile Agency S YSTEMS for computing production costs have been adopted in the last decade by all up-to-date factory superintendents and managers who have supervision over “ productive ” work — that is, work employed in contrib- uting to the transformation of raw material into a fin- ished article to be put on sale on the market. But these methods have been applied very little to the determination of the actual costs of office work. In de- termining productive costs, the cost of the office work connected with the production and sale of the article is generally represented by a percentage computed in a more or less arbitrary and inaccurate manner. In some lines of business almost all cost is represented by office labor and office expenses. It follows that any determination of the cost of a specific piece of work turned out, or business operation performed by such a concern, must be procured by determining the cost of the office labor involved. The necessity and value of cost systems in the office is nearly if not quite as great as in the factory itself. An accurate system of office costs requires that each! item of expense be assigned to the proper department and men, and compared with the figures for the same work during other periods as far as possible; also, the 108 EFFECTIVE SYSTEMS income from each employee should be noted, for an in- crease in cost is justifiable if a greater percentage of in- crease in income results. The first thing to learn is precisely what the individual working units of the com- pany are costing and producing — clerks, stenographers and bookkeepers. When you know that, mere addition will tell you what each department is costing in and of itself. Then a careful analysis will show just what pro- portion of the general expense each employee should bear. On the other hand, you can easily credit income to the department and the individual producing it. A comparison of expenses and income, with due considera- tion of all conditions surrounding both, will always tell just what each department and individual is doing, what profit or loss each is showing. Suppose one mail clerk is getting five dollars a week and another six. How are you to know beyond doubt whether the second one is doing twenty per cent more work than the first, unless you possess exact records of the number of pieces of work which each of them turns out? S TENOGRAPHIC costs may be accurately deter- mined by keeping time records , production data and expense statistics on every operator and each machine . It is comparatively simple to obtain cost records of stenographic work. Have your office manager keep a series of work sheets (Form I), on which the name of every stenographer in the office is entered, with her weekly salary opposite. Each night she reports the num- ber of letters she has written, or the mail clerk may check the number as the work is turned in to him, by means of her initials on each letter. These figures are OFFICE COSTS 109 0 Z 5 s u * 111 III 5 c hi < o -J 4-r 4 hi Q > 01 < hi fir NS NS 'i NO -o fN **> rx 1 3 < s° hi ft > U < a. NO * *r> HX *9 IN N X? ‘ NS V> n X> 'n -i < 0 b £ **5 fen X $0 NO > r9 fen V, N3 E U. ns V '4 k> NS Ti > Ns 1 VCn vT D I H NS NS fen V* •J O v V) > fen NS >1 X 5>^ d hi § h*o NO > Vs > fN NO nS NS n3 {*- v> hi D H M nS V. £ ** fen , > NS i *T> 2 O 2 C3 NS £ fN s ^ > NS > c? > E 5 < m $ \ § $ 8 * ^ \ hi § ^3 X NS N3 >. 1 -1 < \b 12 Si- >■ < Q EC hi CL hi a < a iii > < FORM I: This cost sheet is kept by the office manager. It shows the total cost of stenographic work , and the " average per dollar 9 column gives the relative efficiency of different operators 110 EFFECTIVE SYSTEMS entered on the work sheet. When yon keep a daily in- dividual work sheet the figures can be transferred di- rectly from that to the cost sheet. Thus, at the end of each week, by adding the horizontal columns, you know exactly the number of letters written by each stenographer during the week. Adding the per- pendicular columns, you can learn from the first column the week’s expenses for stenographic labor, from the suc- ceeding six columns the daily number of letters writ- ten, and from the final column the total number of letters written by all girls during the course of the week. By dividing the total expenses of stenographic labor by the total number of letters written, you get the aver- age cost of a letter. Compare these figures with the number of letters written and the salary received by each stenographer and you know at once whether she has written above or below the average number. Keep these records accurately month after month, and the results will show you what you are paying, on the average, for the writing of a letter. You thus have a standard, below which you cannot economically allow your stenographers to fall. Any who go above the aver- age for a considerable period of time may be rewarded accordingly. The system thus has the double virtue of giving you the exact cost of each operation and of work- ing perfect justice among the employees. The work done by each kind of typewriter machine and the cost of keeping it in order may well be recorded in the same manner. For these records the office man- ager has the same kind of cost sheet and the machines are listed according to their numbers. Each stenog- rapher in reporting the numbers of letters written, also reports the number of her machine. Whenever a new ribbon is called for or any repairs are done upon her OFFICE COSTS 111 machine, the number of the machine and the amount of expense are recorded. An average cost is struck from records covering a long period of time. This indicates exactly what machines are doing the best work and what machines require the greatest expense for up-keep. Such records will soon bring to light the kind of machines most economical for your use. A PPLICATION of the cost 'principle to all depart- ments of the office keeps a strict tab on the results from pay roll and incidental expenditures . Similar methods of keeping costs may be advanta- geously applied to other routine work in the office in order to ascertain the number of documents handled by billing clerks, the number of papers filed by filing clerks ; even the work of the bookkeepers themselves may be re- corded in such a way as to indicate the number of post- ings each man makes, or the time he consumes in mak- ing journal entries or taking trial balances. The slow men are inevitably singled out, and the fast workers stand in a class by themselves and receive the rewards due them. The system does not demand an office reorganization. Records are made in the ordinary routine of the day’s work at the point where they can be made most easily and quickly, and weekly summaries bring final results to a focus at your desk. In offices where the cost system has received careful trial, its application has gone even further. The work of sub-executives is recorded in the same way as the routine motions of clerks and typists. Record of the daily number of letters dictated by correspondents, the number of calls made by outside men, and so on, through all the grades of producers, up to department man- 112 EFFECTIVE SYSTEMS agers whose business is to oversee and plan, and not to do specific things, give you a hold on office work which enables you to see the leaks at a single glance and econo- mize in places where haphazard management would recognize nothing out of the way, | These examples have taken account of only two items of expense : pay roll, equipment — and a small portion of supplies. In addition to all such costs, there are a large number of items still uncharged — that is, charged not to any one department or job, but to fixed expense, one of the most vague and dangerous terms in business. These weekly cost reports on individuals, when added up, tell the story of the direct expense in each depart- ment, but they tell only half the truth, and are there- fore all the more likely to be deceiving. The depart- ment which shows a comparatively small direct expense may be responsible for a large part of the fixed expense ; it may occupy large office space and so be answerable for a large percentage of the rent,, or the work done in it may require a large amount of bookkeeping and so have a heavy accounting expense chargeable against it. For instance, in an office occupying 6,000 square feet of space, the rent may be $200 a month. Department A in that office is occupying 1,500 square feet every month; therefore department A must be charged with $50 rent — one-quarter of the total — and the other de- partments with their just proportion. The same prin- ciple holds good for every item that is classed under fixed expense, from taxes to ice water. All supplies — like sta- tionery, ink;, or pens — can be charged directly to the department using them. In order to keep track of these items, supplies must be taken from the stock room only on an order showing to what department they are to go and for what purpose they will be used. OFFICE COSTS 113 Finally, each department in your office must be charged with a due proportion of the expense of those departments which are not producing — like the adminis- trative, for instance, the bookkeeping, or the legal. Let each productive department bear this burden in pro- portion to the amount of work each requires from the non-productive, or in proportion to its volume of busi- ness. Having arrived in this way at the total expense for each department or each official, compare the present expense with that of past periods, and with the amount earned in each case, or the amount of work turned out. If the output or earning capacity has increased at a greater rate than the expense, you have a net gain, even though the actual cost figures are higher than before. ctj CTEAM and electricity have made 'possible the develop- ^ ment of the world and these forces have made the great machinery age in which we are now living. Everything is being done on a larger scale , but there never was a time when the smallest details of a business had to be watched so closely as at present. The great problem which now confronts men in industry and commerce , and also in educational , religious and philanthropic work , is one of management and admin - istration . — James Logan Chairman Executive Board, United States Envelope Company XII FINDING THE COST TO SELL By Percival Richards U NINTENTIONALLY, goods are sometimes sold at a loss. The price maker adds a fair gross profit to the cost of manufacturing, and net profits are blindly expected to come from this difference between cost and selling price; whereas, actually, total selling costs vary almost as greatly as manufacturing costs — in fact, the ratio of selling cost often varies inversely to the cost of manufacturing. It is essential, therefore, to figure selling costs as accurately as manufacturing costs. Otherwise you may lose valuable time and energy in selling lines of goods which do not show an adequate profit; no-profit lines may be pushed by your more careless salesmen, in order to make a good showing, where high class goods should be sold; selling expenses on particular goods may be excessive when you consider the volume of trade done. In the average business the cost of selling may be divided broadly into : 1. Traveling salesmen. 2. Agencies. 3. House orders. 4. Overhead expense. It is important that each of these selling costs be kept separate and up-to-date. SELLING COSTS 115 Each day, as orders come in from the salesmen, clerks in your office should work out the invoice amounts and insert selling costs at the same time in order to obtain the total selling price and the total cost price of each customer’s entire order. Copies of orders go to the de- partments concerned and the original order sheets are retained in the office and filed in numerical order, a sep- arate file being kept for each salesman. The results thus obtained are entered on the salesman’s weekly record (Form I). This card places on record a summary of all orders obtained during the week, shows the invoice values, total cost of selling the goods, and a list of new accounts opened. The salesman’s salary and expenses and a rec- ord of percentages are entered on the back of the card (Form II). Figures for the last corresponding trip are also entered for the purpose of comparisons and a monthly summary goes to the summary card (Form III), which, when completed, gives the annual totals. Figures for the previous year are also entered month by month. For convenience in comparisons they are in- serted in red ink above the current figures. It is well also to total the figures in pencil from month to month, so that the results obtained by a salesman for any period of the year are instantly available, together with the cost of obtaining the orders and the percentage of gross profit and expenses. Particulars in regard to agencies have somewhat similar records, the column for expenses including the agent’s commission. House orders or sales made at headquarters to visit- ing customers are recorded under the headings of the different house salesmen. A separate card (Form IV) keeps the record for each individual salesman. Here again, figures inserted in red ink show the record 116 EFFECTIVE SYSTEMS of the corresponding period for the previous year, and a summary of the monthly figures on the salesmen’s cards presents the total house sales in each department month SALESMAN’S WEEKLY RECORD NAME GROUND WEEK ENDING CUSTOMERS’ NAMES AND TOWNS TOTAL VALUE OF ORDER TOTAL COST OF SELLING STOCK LINES SPECIAL LINES TOTALS PARTICULARS OF NEW ACCOUNTS OPENED FORM I: This weekly record is kept for every salesman, and shows the net results of his work by month. Other necessary details which are shown on the cards of traveling salesmen and agents are repeated on the house sales card. The totals of department selling SELLING COSTS 117 expenses for the month complete the record on the monthly sales card. Probably the most common error in arriving at the complete selling cost is failure properly to figure in all SALESMAN’S WEEKLY RECORD NAME WEEK ENDING JOURNEY DATE OF LAST JOURNEY ON SAME GROUND TOTAL SALES COST OF GOODS SOLD GOODS RETURNED DURING WEEK COST OF GOODS RETURNED NET SALKS NET COST GROSS PROFIT $ EXPENSES % PERCENTAGE OF ) SALARY S ' GROSS PROFIT > ON NET SALES ] TOTAL $ PERCENTAGE OF ) EXPENSES > ON SALES CORRESPONDING FIGURES FOR LAST JOURNEY ON SAME GROUND FORM II: Printed on the reverse of Form I, this sheet is used to record 'percentages and comparative figures , and becomes a permanent record overhead selling expense. This includes not only the sales manager’s salary and expense and the cost of his immediate office force, but also the rental on the office 118 EFFECTIVE SYSTEMS space he uses, the clerical cost of maintaining records of the sales department, and so on. This total overhead expense, which does not vary greatly from month to month, is apportioned against each salesman and each TRAVELER’S NAI\ n E - I9n NET SALES COST GROSS PROFIT Q. P. % SALARY, COMMISSION ETC. EXP. % LOCAL advertising JANUARY FEBRUARY HOUSE ORDERS SALESMAN NET SALES COST GROSS profit G, P. % SALARY, COMMISSION ETC. % REMARKS JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST SEPTEMBER OCTOBER NOVEMBER DECEMBER TOTALS FORM III (upper sheet): This summary card shows the annual totals , with percentage results of one salesman . FORM IV ( lower sheet): Sales made at headquarters are recorded for each salesman on this card department according to the amount of total sales. For instance, if total sales in all departments for the month are $100,000 and the total overhead expense is $1,000, then 1 per cent of the total invoice of sales in each de- partment and for each salesman is added to the direct selling cost for indirect expense. If sales in one depart- ment or for one salesman should equal $10,000 for the month, $100 represents the indirect selling cost charged SELLING COSTS 119 against him. Failure to figure all overhead expenses and distribute them properly will sometimes explain an otherwise unaccountable dwindling in your profits, a leak all the more dangerous because it is hard to locate. Total sales and selling costs arranged by departments and by individual salesmen and agents, with figures for the corresponding period of the previous year above the current figures in red ink, show you at a glance the total increases and decreases, keep you into the closest possible touch with the profit-bringing quality of your sales department and place in your hands the key which closes the door on slip-shod methods and weak selling campaigns. You have valuable data on which to base future policies, cutting out unprofitable lines and re- ducing sales costs to the minimum. TN ORDER to increase 'production a manager does not A study his plant in a lump sum , hut goes through his shop and analyzes each operation and movement. It often happens that he discovers astonishing possibilities that have hidden themselves for years in the most transparent disguises . — F. C. Cutler Sales Manager, Worcester Pressed Steel Company XIII PLANNING A RETAIL STORE EXPENSE SHEET By E. J. Bliss Managing Director, Regal Shoe Company N OT long ago a department store in the Southwest, after years of apparently profitable business, closed its doors in the middle of a busy season. The store’s strong point had been its stocks. Its advertising slogan was “Everything New While It’s New.” It maintained standing orders for novelties with New York and Chi- cago jobbers. Hardly a day passed that something abso- lutely new was not shown in its store windows. City stores find that not more than 70 per cent of their merchandise moves at regular prices. Seventy-five per cent would be an outside figure. The balance is sold at price concessions ranging from 25 per cent off to perhaps 20 per cent below cost. It is a fundamental principle of modem merchandising that no goods shall be carried over from one season to another. Recog- nized staples are possibly excepted, though in some houses even these are sacrificed. Such radical reduc- tions representing a loss in every sale, must be balanced ; otherwise a store will find itself upon the rocks in short order. This was what undermined the southwestern store. Its volume was large enough. The ratio of sales to pur- chases was not disproportionate. But doing a novelty business, it did not get enough for its goods. Its owners RETAIL COSTS m entirely neglected to figure that their frequent price re- ductions, necessary to move odds and ends or slow lines, amounted to considerable sums which, not taken care of in the overhead charges or selling expense, quickly ab- sorbed the profits. Through this failure to provide for normal deprecia- tion of stocks and necessary price reductions toward the end of the regular seasons, many merchants have come to grief. Mercantile agencies report that a large percentage of retail failures are directly due to the owner’s belief that a business is making a profit, when, as a matter of fact, it is running at a loss. The only way to be sure of making ample net profits in any busi- ness — particularly in a retail business handling a multi- plicity of articles — is to keep close watch on details. There are but twenty-four hours in a day. If an idea strikes the average executive and he has within arm’s reach the means of verifying its value, he settles the matter at once. But if means of verification are not at hand, if they require “digging,.” he will hesitate; and if he thinks the interest is of minor importance he, as a rule, will sidetrack the matter in favor of other interests clamoring for attention. O VERSTOCKING on slow-moving lines often repre- sents a dead loss in the retail store — automatic re- striction of purchases in a chain of shoe houses . The situation of the manager in one of a chain of stores in a big organization is the same. He has just so much vital energy, and there is plenty of selling work to absorb it all. But it is of prime importance that he shall spend some of that energy in studying the entire picture of his establishment as the general management sees it. Unless that picture is plainly painted for him^ 122 EFFECTIVE SYSTEMS however, with the lights and shadows all filled in, and hung where he can see it merely by raising his eyes, he will not study it. Routine duties crowd it out. To paint FORM I: This is the left half of the “ blanket report” The original is fourteen by sixteen inches . The left column in each case represents the current year; the right the corresponding period of the previous year just such a picture for each store manager, the following sales and expense record system was designed. When natural development and expansion had come to RETAIL COSTS 123 the business — had converted a chain of specialty stores handling only one-price men’s shoes into a chain of gen- eral stores selling a comparatively wide variety of mer- FORM I- A: This is the right half of the report shown in Form /. The report brings together monthly and cumulative statistics and compares them with the previous year chandise — it then became necessary to accommodate each store to local conditions, to scan investment figures more closely, to favor the more profitable lines, and in a hun- 124 EFFECTIVE SYSTEMS dred ways to exercise, through the manager, an intelli- gence such as can be exercised only when a comparative bird’s-eye view of condensed details is available. The problem, then, was to supply hundreds of store managers, men who were keen and able, but who had been trained to do or to think of little else than selling goods, with complete information about their own stores — information covering investment, interest charges, de- preciation charges, gross profit, net profit, expense — such information, in short, as a real merchant must have and must use in planning his business moves. Further- more, the information must be furnished in simple, un- derstandable form, without calling for effort which might distract the manager from his more important duties. We solved this problem by providing each manager, not with a set of books, but with a single sheet of vellum paper which lasted for one year, and on which appeared, in detail, all the vital figures of his store from month to month — sales, expenses, inventory, and so on. This sheet is shown in Forms I and 1A. In the left column in each case are entered the detailed figures for each month of the preceding fiscal year, together with a run- ning total (of the main items only) for convenience in making comparisons. Each month the figures on each item for the current month are copied in the column at the right. Thus the practical use of this form is made easy for an untrained mind because the figures on the left-hand side all refer to past performances, while those on the white refer to current business. By this method the store manager has constantly under his eye the source of every dollar of income, the cause of every dollar of outgo, the total investment in stock, in fixtures and in improvements. And he has all these RETAIL COSTS 125 figures placed directly alongside the corresponding , fig- ures for the previous year. In fact, he has before him, what, I think I am safe in saying, not one merchant out of twenty-five has before him at any time. And he has it in such shape and so easy to size up that he can utilize any leisure moment to pick up the sheet and get at facts and tendencies at once. No preliminary digging for data is necessary — no mass of reports and tabulations such as the ordinary bookkeeper loves to furnish but which no ordinary store manager has the patience to labor over, or having labored over can easily understand. TF WE could secure the complete sympathy and cooperation 1 of every person employed in our business operations , it would soon result in the invention , adoption , and complete assimilation of the most up-to-date methods. And without such cooperation , we cannot completely assimilate and economically operate any complete system of modern methods . — A. W. Burritt President, A. W. Burritt Company XIV RECORDS THAT SAFEGUARD PRINTING ESTIMATES By Neil M. Clark E STIMATES are the basis on which the printer secures work. These estimates, if they are ac- cepted, bind you with the force of a contract, and in your bill to the customer you must live up to your first figure. If you were wrong, if your original estimate was too low and a loss is incurred in doing the work, it falls on your own shoulders. You cannot burden the cus- tomer with a charge arising from your own carelessness or ignorance. If you wish to avoid the possibility of grossly wrong estimates, it is essential that you know costs in every department of your business. Simplicity, the provision that each job shall bear its due proportion of overhead, and the means of quickly tracing errors in estimates — these are the points that distinguish the cost system of one large printing con- cern recognized as among the foremost. Actual experi- ence has shown that the principles embodied in this sys- tem can be applied equally well to the smaller business. When the order is received, details are copied on the office job record (Form I). This sheet is the real heart of the cost system, since all items comprised in the cost of the job, as well as the details of its history, are gathered together on it. Wide margins at the left allow the sheets to be bound in book form. They are arranged PRINTER’S COSTS 127 according to order numbers, and immediate reference to any job thus becomes easy. The upper right-hand cor- ner is perforated so that it can be torn off as a sign that the job is finished and posting is completed. A glance through the binder, therefore, shows which orders are finished and billed, and which are still on hand in the shop. Form II is the reverse of this office job record sheet. Details of cost, gathered from day to day, are entered in the proper columns, including the date and, as in the case of the press room, the number of the machine used ; or, as in the composing room, the kind of work done. These details are secured from the time tickets of the various departments. Composing room and press room tickets are shown in Forms III and IV. The workman indicates by a letter the kind of work he is doing, puts the job number in the proper column and crosses out the times of starting and stopping. Other departments have time tickets made up in the same style, differing only in the details. For small shops, it has been found unnecessary to have more than one ticket. Such a ticket can easily be made with special columns, one for the composing room, another for the platen press room, a third for the cylinder press room and a fourth for the bindery, with other columns if they are needed. If your bookkeeping force is small, one form saves time in the office. After all details for the job are complete, the col- umns on Form II are totaled and transferred to the “costs” column of Form I. Other details for this column are obtained from invoices, in the case of work or stock bought on the outside, and from stock re- quisitions. Overhead is also distributed in this “cost” column. 128 EFFECTIVE SYSTEMS PRINTER’S COSTS 129 Percentage on wages is the method used in this dis- tribution. Two percentages are figured in each depart- ment : one for charges which vary ; one for fixed charges. The first percentage includes such items as superintend- ence, all indirect labor, idle time and sundries which vary from week to week. The second percentage is for rent, depreciation, interest on investment and other fixed charges. Thus, if direct wages on a certain job in the composing room are $2.00, and the overhead per- centages for that department have been fixed at 20% and 30% respectively, then $0.40 and $0.60 are charged for composing room overhead. The same process is fol- FORM II: Reverse of Form, 7 , showing how the details of cost are re- corded from day to day for every job , giving finally the totals by headings lowed in press room and bindery, with different per- centages. After total costs for the shop have been collected, two more percentages, figured on the basis of total shop cost, are added to complete the distribution of overhead. First is a small percentage for boxing and shipping, and 130 EFFECTIVE SYSTEMS second a larger percentage which distributes general office, selling and administrative expense. Thus, if the total shop cost on a certain job is found to be $8.00, and the shipping and selling percentages for the current year DAILY PRESS TIME TICKET DATE 19t PRESS NO PRESSMAN FEEDER FOREMAN WILL SEE THAT JOB NUMBERS ARE RIGHT O. K FOREMAN THE NUMBER OF JOB MUST BE ENTERED ON THIS REPORT BEFORE COMMENCING WORK ON SAME COMPOSITOR’S DAILY REPORT FOREMAN MUST SEE THAT TIME IS CORRECTLY REPORTED AND JOB NUMBERS RIGHT UNDER "KIND OF WORK" USE FOLLOWING ABBREVIATIONS: C“COM POSITION. A-A LTE RATIONS. M-MAKE-UP. L-LOCK-UP. E P-CXTRA PROOFS. O-OISTRIBUTION. FORMS III and IV: The former ( front card) is the time ticket used in the composing room. Form IV is the platen press time ticket. Each kind of work has a symbol , which is entered in the last column are 2% and 30% respectively, then $0.16 and $2.40’ are added to the $8.00. Commission, car fare and other in- cidental expenses connected with the job are included, giving the complete cost. A comparison of this figure with the estimate shows how nearly correct the latter was and gives a line on the accuracy of solicitors and the efficiency of operating departments ; comparison with the billed price to the customer shows the amount of gain or loss on the job, and furnishes the immediate basis for bringing together overhead percentages and estimates. As each job is finished, the details are posted from PRINTER’S COSTS 131 the office job record to the journal, in which each job has a line across a large page, and the individual costs for each department and kind of work are posted to the proper columns. In this way it is possible to secure total costs for each department and kind of work for a month, year, or any period desired, and percentages are de- duced which are invaluable in estimating future jobs. Division of overhead has been brought to so nice an adjustment, that actual costs in this concern vary from the amounts charged to specific jobs by not more than 1 or 2% a year. Particularly valuable is the system, also, because of the fact that it fits in with the general accounting system ; is really an essential part of it. The facts collected enable the printer to do away with guess work in his estimates. The shop, in short, is run on a basis of accurate knowledge. Cg3 IV/fODERN scientific management is exactly what the name implies — management based on knowledge — on ascer- tained facts rather than on opinions , however brilliant — of workman , foreman , superintendent or manager . — S. B. Peck Vice-President. Link Belt Company XV COSTS IN A PROFESSIONAL OFFICE By O. M. Biggar P ROFESSIONAL costs are generally kept with little pretense of accuracy. Very often the doctor, law- yer or dentist charges what he thinks the client can af- ford to pay, rather than what the job is actually worth. That the office which carries this to the extreme drives away trade goes without saying. The nearer you can fix charges on a basis of actual cost, and the more equit- ably you apportion them among all your customers, so much the better are your chances of retaining and in- creasing the volume of your business. In establishing a law office on a business foundation, one of the members of a western firm of attorneys de- cided to ascertain the cost of each piece of business in the office and so have a basis for determining what fees each client should pay; not necessarily so that the cost should be the only factor, but so that the cost should be at least one of the factors. The importance and urgency of the business, the amount of money involved, and in many cases the ability of the client to pay, all enter into the final determination of the charge to be made. But while in almost every other business the cost of doing the work is a prime factor in determining the charge, in law the cost is usually altogether unknown, and charges are often made in complete ignorance of it. PROFESSIONAL COSTS 133 Clients are frequently very keen judges of the ease or difficulty with which their affairs can be adjusted and, in the early stages of their connection with a law firm, may be estranged by a charge which seems out of pro- portion with the services rendered. E STABLISHING a system of cost keeping in a law office resulted in better work on the part of employees and more equitable charges to clients. Any one with office experience knows also that clerks and investigators are likely to make much more effective use of their hours if called upon to account for them daily. On this score of individual efficiency alone, a time and cost keeping system is worth more than the expense of operating it and checking up its workings at intervals. Considerations like these led to the abandonment of rule-of-thumb methods in the office in question and brought about the development of a system which not only safeguards the interests of the firm, but also in- sures the placing of equitable charges against clients for services rendered, thus putting the transaction on a bus- iness basis. The first requirement was to provide for a record of original charges. The solution of the problem was a slip that contains a space for the file number — every matter has a file and each is numbered — and spaces for the time at which the work on the particular matter was be- gun and finished. This slip is shown in Form I. Thq rest of the card (which is seven by eight and a half inches in size and is printed on common news print) contains printed matter to facilitate the notation of the work by simply drawing a cross through the proper words, as shown in the accompanying illustration. A blank space at the bottom provides for special memo- 134 EFFECTIVE SYSTEMS randa wherever the task is outside ordinary routine or has been attended with unusual difficulty. These time slips are arranged to care for every indi- vidual in the office, except members of the bookkeeping FORM 1: Each worker in the office keeps a daily record of work done on each case by simply running his pencil through the items that occupied his time and filing staff, and each individual’s slips are distin- guished by his. number. These slips are filled in from moment to moment through the day. The principals keep record of their own time when they are engaged with clients, but the stenographers keep the principals’ time, together with their own, and fill in slips for the principals as well as for themselves while they are en- gaged in taking dictation. These daily time slips thus PROFESSIONAL COSTS 135' containing a record of the whole day’s work, are col- lected by the cost clerk, who first stamps on them the date, and then enters on special monthly cards (Form II) the total time consumed by each individual. A small memorandum is filled in to show how much time each person consumed in accomplishing the tasks of the pre- vious day. These are distributed to the individuals con- cerned and, unless an explanation is called for, he makes a note of how he spent his working hours and destroys them. Should the slip show an error in office record he notifies the cost clerk and the correction is made. After the total time spent by the individual has been entered, the original slips are distributed behind guide NQi D Al LY-R EC Q R D month of DATE HOURS DATE HOURS DATE HOURS DATE HOURS J 9 17 25 2. to 18' 26 ■ TOTAk HOURS due: 3 11 19: 27. 4 12 . 20 28 5 13 21 29 6 14 22 30 HOURS WORKED 7 IS 23 31 8 16 24 rwo. FWD. FWD. TOTAL FORM II: The time of each 'person in the office is entered daily on this card. The number of hours constituting a full month's work is stand- ardized, and continual deficiency or excess results in a rearrangement cards that bear the file numbers. Thus behind each guide card a series of slips contains a complete record of all work done on each case, in the original handwriting of the person who did the work,, with the day and time when, the work was done. Whenever it becomes necessary to 136 EFFECTIVE SYSTEMS render a detailed bill the slips give more information in more convenient shape for reference than the old docket method could possibly furnish. The salary paid to each junior and clerk is of course known, and the members of the firm themselves deter- mine their salary, acting on the assumption that they file no. MONTHLY RECORD CLIENT ftE TO NO. TIME FAC COST DISB. NO. TIMEi FAC. cost r Disaj NO. TIME S FAC. ( COST DISB. 1 FWD A1 2 17 A2 3 MONTHLY SALARY OVERHEAD CALCULATION FOR MONTH OF 191 4 5 6 NO SALARY VALUE TIME WORKED NO. SALARY VALUE TIME WORKED NO, SALARY VALUE TIME WORKED NO. SALARY VALUE TIME WORKED T 8 1 17 Q io 2 18 3 19 12 4 20 13 6 21 22 14 7 23 15 8 24 16 9 25 TOTAL 10 23 11 27 12 28 13 29 14 30 15 31 16 32 FORM III (upper sheet) : The cost of one piece of business is entered monthly on this card. FORM IV (lower sheet): The difference between standard and actual time goes from this card to “ overhead ” are merely hired managers of the business. The time value of every office worker is thus ascertained, and once every month the cost of each piece of business is brought up to date on a card printed especially for the purpose (Form III). The slips collected up to date MONTHLY OVERHEAD CALCULATION FOR MONTH OF PROFESSIONAL COSTS 137 LJ * III w 5 Li ~ c *" FORM V ( upper sheet): Overhead expense items other than indirect labor , are entered on this card every month . FORM VI ( lower sheet): This card when filled out gives the total cost of a case 138 EFFECTIVE SYSTEMS of this card are then filed away until the conclusion of the matter, when reference to them may be necessary. At the end of every month the bookkeeper prepares a salary overhead card (Form IV) from the data shown on Form II. The difference between the time actually charged to each person and the time which would repre- sent a full month’s work is charged to the “overhead” account, and the total is swelled by the salaries of book- keepers, filing clerks, boys and other employees who are not directly engaged on particular pieces of business. This salary overhead is carried to the general monthly overhead card shown in Form Y, which includes a sum- mary of all overhead expenses for the period. The time charged as the work of members to specific matters is written off at once, and allowance is made for bad debts. A percentage of overhead expense is then attained, and provision is made for adding this overhead monthly to the cost of each individual case by entering a due percentage on a special form printed on the back of Form III and illustrated in Form VI. The actual cost is thus known and the total from the last monthly card is brought forward to this card. Having the actual costs of any case always at hand, it is a simple matter to make equitable charges by adding whatever percentage of profit seems fair under the circumstances. If a detailed bill is desired, the itemized material for it is on the orig- inal slips, and although the relations between lawyers and their clients are based essentially on confidence, there is no question but that the reduction of charges to a basis similar to that in use in every commercial busi- ness rivets the faith and good will of clients to the firm. This system has two further advantages: By carry- ing the total of the monthly cards into a loose-leaf record book from month to month, a ‘‘work in process ” account PROFESSIONAL COSTS 139 may be opened in the ledger, and the exact standing of the firm on any balance day thus ascertained. Again, if it appears from this book that nothing has been done in a specific case since the last monthly record card was made up, a “signal” sheet calls attention to the matter. This signal sheet is of red paper to differentiate it from ordinary case sheets. On it appear in rotation the file number, the time cost and disbursements to date, and the announcement, “Nothing has been charged in this file for a month. Please close . 9 9 This is handed to the part- ner in charge, so that the account may be rendered. Sim- TIME AND EXPENSE RECORD FOR WEEK ENDING 191 SEC OTHER feme OWNER OF ORDER M T W T F S OT. HRS. TOTAL AMT. CASH EX. DRYMAt MISC. TOTAL RECEIVED® IN FULL „ FOR TIM E AND CASH EXPENSE SIGNED ( ) FROM JAMES & DAWSON, ARCHITECTS FORM VII: On this card , used by every person in an architect's office , are entered daily reports of time spent , material used and cash expenses . The card covers one week plicity without complication in details forms the basis of the system, and this firm has learned that equitable charges founded on accurate knowledge win the good will of clients to such an extent that the slight extra labor and expense are more than offset. Applied to other professional lines, the same care in 140 EFFECTIVE SYSTEMS cost keeping will show proportionate results. A large architectural firm in the middle west gathers all cost items having to do with labor or materials on a single card (Form VII), which serves also as a receipt for wages and other cash expenses incurred by the worker and chargeable against the business. This compact card is used by every member of the concern — draftsman, building superintendent or stenographer — and covers a period of one week. Items are posted from it to the proper job, wage, material and expense accounts in the ledger. The card forms the basis of an effective cost system, placing every charge where it belongs. Doctor, dentist or lawyer, whatever the nature of the professional services you offer, you can adapt a modified cost system to your needs. Having such a system in satisfactory working order, you may feel assured that the equitable distribution of charges resulting will bring increased satisfaction among your clients, and the nat- ural consequences of better and bigger business. rtj A SPIRIT of cooperation means “team work” and some - *^thing more. It is a real and a great force; it is to the business house what “college spirit” is to a university , esprit de corps to a regiment , civic pride to a city and patri- otism to a nation . — Leslie H. Thompson XVI HOW A BANKER FIGURED HIS COSTS By Harry N. Grut A BANKER telephoned to one of his commercial de- positors, 4 ‘ Drop in when you are going by here to- day or tomorrow. I’ve just been looking over the monthly statement of your balance and want to see you about it. We lost money on your account last month.” The depositor came over post-haste — and brought with him his balance statement for the preceding month. It showed an average daily balance of $20,000. Triumph- antly, he laid it on the banker’s desk. “You were looking over some other man’s account when you called me up/’ he said. “You can’t be losing money on my account. I’ll bet it’s one of the best you’ve got— I carry a balance of $20,000.” Then the banker laid before the depositor an analysis of his account — really a cost sheet — that opened his eyes on the subject of banking ; on what a balance really means and what it costs a bank to do business. What the de- positor really saw was the bank’s cost system — made up of credit and debit items just as is the cost sheet of a factory; based on a tabulation of items, of the cost of handling each account just as a factory’s costs are built on individual time tickets and individual requisition items. And such a system is just as necessary in a bank — to show the banker his cost of doing business, to pre- 142 EFFECTIVE SYSTEMS vent him from losing money, to keep him in profitable lines — as it is for the manufacturer or merchant. As the customer glanced over the sheet, the banker ex- plained his viewpoint. 44 It is true,” he said, 4 4 you had for the past month a daily average balance of $20,000. Nevertheless, this statement shows a loss of $7.13 and an examination of the account for three months shows a loss of from $5 to $10.” The depositor gazed on the statement in bewilder- ment. That he could have a daily average of $20,000 and yet have the bank lose money on the account was in- consistent with his business experience. The president, appreciating how little the average depositor knows of the actual methods and practices of a bank, went on with his explanation : 4 4 The out-of-town items in process of collection or in transit for the month amounted to $10,000. This left a balance of $10,000, and after deducting our legal re- serve fund of 25 per cent, there was a net balance of $7,500. In other words, out of an average balance of $20,000, we have available for loans only $7,500.” 4 4 Even so,” protested the depositor, 44 I don’t see how you can figure a loss of $7.13 — or any loss at all.” 4 4 You will note,” — the banker with pencil in hand was pointing to certain items on the analysis report — 4 4 that we paid you 2 per cent on the $20,000', or $33.38, for the month. Our operating expenses on the account totaled $15.00 so that the actual cost to us of handling the busi- ness was $48.38. 44 Now, for our earnings: We loaned the $7,500 at 5 per cent, which brought us in $31.25 for the month, and $10 more can be added as exchange on collections. You see where the $7.13 loss comes in ? It is a simple matter of subtracting the earnings from the expenses. ’ ’ BANK COSTS 143 The depositor studied the figures in silence for several minutes. “Am I to understand,” he finally asked, “that it will be necessary for me to increase my daily average very materially in order that you may make a profit on my account ? ’ * “Yes — and no. The balance should be increased or it might be possible for you to adopt some method for quickening your transactions; reduce the time now’ re- quired for handling out-of-town items — in a word, crys- tallize your balances more quickly . 9 9 “But how much of a daily balance ought I to carry?” “Well, suppose it were $50,000. Here is the way it would figure out : Deducting the $10,000 in out-of-town items and the 25 per cent reserve would leave $30,000 available for loaning. At 5 per cent it would bring us in $125 for the month and the exchange would easily add $15 more, or $140 earnings.” “The 2 per cent we pay you on the $50,000 amounts to $83.33 and the operating expenses would not exceed $20, or a total of $103.33. You see, we have a net profit on the account of $36,67.” E XCHANGE and operating costs may swallow up the bank's profit on an active account — cost sheets enable the banker to establish a line of safety. The banker cannot take for granted any item or ac- count, no matter how profitable it may look to the out- sider. Like the manufacturer or the merchant, he must know exactly what it costs him to perform a certain service and just what his margin of profit is — and the in- formation must be laid before him at frequent intervals, enabling him to take steps to stop a leakage and help the depositor to quicken up a losing account, so that the 144 EFFECTIVE SYSTEMS bank can afford to handle it on a permanent basis. A line of safety must be established for every account — a variable line that must be watched as it rises and falls from month to month. On one side of the line is a balance sufficient to cover all commercial requirements ; on the other side a loanable balance of sufficient size to make the account profitable. Each year the size of the daily balances is a little larger on account of the growing practice among mer- chants of sending personal checks drawn on their local banks in settlement of obligations, instead of using cur- rent exchange. The result is that items placed in transit for collection each day must be deducted from the cus- tomers ’ daily balance. A merchant, for example, in Aberdeen, South Dakota, sends a check drawn on a local bank to the wholesale house in Chicago. It takes four and a half days at the best to clear the check, and during this time the Chicago banker deducts the amount from the wholesaler’s daily balance. Such items, in large numbers, play havoc with the loanable value of the account and necessitate the larger daily balance. To determine what the balance of each customer must be to make his account profitable requires a careful analy- sis that, with the larger banks, has resulted in the or- ganization of a separate department. Every account is examined three times a month, at intervals of ten days. At the end of the month summaries are made and laid before the president so that the executive can get in touchf with the depositor whose business is unprofitable and point out to him what steps must be taken if he desires to continue his banking relations with that par- ticular institution. The analysis embraces three items: the average daily BANK COSTS 145 FORM I: On this card the account of each depositor is carefully analyzed , so that it can he laid periodically on the executive’s desk for scrutiny 146 EFFECTIVE SYSTEMS balance, the average daily amount in transit and the daily loanable balance. Figures for the first item are obtained by taking the actual balance as shown on the ledger for each day during the month, adding the amounts and dividing the total by the number of days. The deposits of whatever account is under analysis are recorded on a separate sheet (Form I), ruled with col- umns for the different classes. First are entered the checks on Chicago deposited in time for clearing. These are treated as cash. In the second column are entered the checks on Chicago received in the afternoon, too late to be cleared before the following day. Next are shown the checks on New York City, and then the checks on miscellaneous points throughout the country; columns are also provided for the amounts of exchange paid by the depositors and the cost of exchange to the bank. At the end of the month, the total amount in transit is divided by the number of days in the month, thus showing the daily average in transit. A NALYSIS of each customer's account must he ac~ curate and thorough , for the margin of 'profit in the hank's business is often extremely narrow . This form was adopted after several years’ experi- menting and does away with the laborious method for- merly in use of listing each item according to the amount of exchange and again listing it according to the time for clearing. The difference between the items in transit or uncol- lected funds and the average daily balance (less the legal reserve) gives the banker the loanable balance. And that the figures may be accurate, the exact cost of each operation is figured. The man in charge of the analysis takes three months of the regular business for every BANK COSTS 147 FORM II: The cost analysis report reaches the executive head on this form , and he knows at Gnce whether the danger limit has been reached 148 EFFECTIVE SYSTEMS banking point in the country,, figuring the actual ex- change cost and dividing it by the volume received dur- ing the period for each point. In arriving at the average cost per thousand of exchange, and where the business for any one point is too small to warrant a flat rate, the cost is based on each item. In completing the analysis, the banker takes into his reckoning the cost of exchange on out-of-town items, the interest paid on daily balances, the cost of transfers (this usually represents the market value of New York in Chicago, which is an item that will most likely vary with all banks), and the general operating expenses. In figuring his overhead, the banker totals all his expenses except interest on balances — which is figured separately in each case — and divides this total by the average daily deposits for the year. The result shows the average rate per cent the business costs for the year. In making the calculations the deduction covering funds in New York is omitted, for the items vary with all banks. In the one bank’s practice the average yearly balances kept in New York banks are divided by the aver- age deposits for the year, deducting from the average balances with the bank of the account under analysis the per cent thus obtained and crediting the interest re- ceived on it as being carried in New York for the use of that account. This brings the analysis up to the point where it shows the loanable value of the account. From the average daily balance is subtracted the average daily amount in transit, together with charges thereon, and then the 25 per cent legal reserve must be taken out and the remain- der is the amount left to be loaned. The completed analytical report as laid before the president (Form II) is as follows: BANK COSTS 149 Clearing house items $54,000 Out-of-town items 86,900 Daily average balance on basis of remitting down to $25,000 44,500 Less daily loanable total in transit . . . 11,000 $33,500 Less 25 per cent reserve 8,375 $25,125 Value thirty days at 5 per cent .... $104.68 Exchange paid to bank 34.70 Total receipts $139.38 Interest at 2 per cent for 30 days . . . $ 63.80 Exchange cost 34.70 Cost New York Exchange 15.70 Cost of operating 30.00 Total expense $144.20 Bank received $139.38 Bank paid out 144.20 Bank lost $ 4.82 This report brings before the president of the bank the fact that it was losing $4.82 a month and it was for him to suggest to the depositor some readjustment that would either reduce the amount of the items in transit or increase the average daily balance from $44,500 to a point that would show a profit. If the items were con- fined to the one bank or even to local banks, very likely an increase in daily balances would be unnecessary. If the out-of-town accounts were liquidated by current ex- change, the customer would have a smaller amount charged against his balance. These expense analyses, corresponding to the cost sheet in a factory, bring before 150 EFFECTIVE SYSTEMS the banker in forcible and simple shape, the places where his business is weak and where it is strong, where it is making money and where it is losing. TN BUSINESS the earning of profit is something more than *“* an incident of success. It is an essential condition of success , because the continued absence of profit itself spells failure. But while loss spells failure , large profits do not connote success . Success must be sought in business also in excellence of performance; and in business , excellence of performance manifests itself, among other things, in the advancing of methods and processes; in the improvement of products ; in more perfect organization , eliminating friction as well as waste; in bettering the condition of the working- men, developing their faculties and promoting their happiness; and in the establishment of right relations with customers and with the community. — Louis D. Brandeis PART IV— USING GRAPHS AND STATISTICS IN BUSINESS Concentrate Detail ^HE merchant who will concentrate his busi- ness, who will concentrate his efforts, who will keep himself advised of the tendency of de- mand and accommodate his purchases thereto, who will sell for cash, will have something in this life for his efforts. Day by day we are coming to realize our de- pendence upon each other; and the great problem is so to direct that dependence that our efforts may not go astray, may not lose their direction and be dissipated — may not become lost motion, so to speak. For that reason, concentration in its every sense is becoming more and more essential, not alone to the large business man w T ho must con- sider every infinitesimal detail in these days of keen competition, but to the smaller business man as well, who is being brought each succeed- ing day in contact with the fact that it is the economies of business that make the profits. A. D. BROWN President , Hamilton , Brown Shoe Company XVII BEHIND THE FIGURES By A. E. Andersen A N UNEXPLAINED shortage of $15,000 in the raw material account for the year just closed led the general manager of a specialty concern through the sales, purchasing, cost and operating departments to the little registering device at the side of each finishing machine. The product was sold by the lineal foot. The figures indicated that the material used exceeded by $15,000 worth what had been delivered to customers. No “ book- keeping errors” were found, but when the accuracy of the records had been checked and proved, the reason for the loss was found in the devices for registering the quantity of product turned out. These were out of order. For more than a year every customer had been charged for much less than had actually been shipped because the counters had “slipped.” Since the gifts were of finished product the loss was nearly double the cost of the raw material. Right figures check, guide and control any business. A suitable accounting system, matched to the size and needs of the business, throws to the surface significant facts. More — it brings to the man at the head of the business, grouped and related details which otherwise would escape attention. A market man in Massachusetts learns from his records of what people are buying, when 154 GRAPHS AND STATISTICS he ought to push fish instead of meat, or pork instead of mutton. He is getting behind his figures, just as is the manufacturer in Chicago who sets quotas of sales and output based on what has been sold and made in the past and asks “why?” when the monthly reports fluc- tuate either below or above the figures set. No matter what your business may be, you can set your accounting to watch the significant factors in that business. V ITAL facts which show the ujp or down tendencies of a business can only be secured by going behind the bare figures and reading their true meaning. Different managers have different methods of finding these significant facts. What some men sense by experh ence others get from tabulated and charted facts. A factory cost accountant put in a rather elaborate system for the superintendent. He collected the costs of steel for the blade, the wood for the handle, the labor and overhead expenses in making a kitchen knife. After he had collected figures for a couple of months, the superin- tendent of the plant took a note book out of his pocket and said that they agreed pretty closely with what he had figured as the costs on the different grades. The superintendent knew by long experience the aver- age total cost of certain classes of orders. But when the cost man went over his tabulated figures and showed him the relative department charges for overhead ex- penses, he brought to the superintendent’s attention a fact which he had not before realized — that he was losing money on certain classes of goods. Only by department comparisons could such a condition come to light. A suitable cost system in a manufacturing plant may show one manager the significant facts in his business. Figures may prophesy in a merchandising establishment, BEHIND THE FIGURES 1 55 when the records are planned to control the business. The sales manager of a large jewelry house with an ex- tensive local and country business has a plan for knowing MONTHLY AND ACCUMULATIVE SALES 1911 1912 rfS’ O U. S «E^^«tflOZO FIGURE VII: The chart on the left showed one manager a slump in sales. The reason was an advertising campaign which started too late. The right-hand section shows cumulative sales for two years what is going on, which is adaptable to other lines. Like other executives, he has found that charts showing gross sales both in quantities and money values will enable him 156 GRAPHS AND STATISTICS to know definitely what the sales department is doing in each line and will direct him to the weak spots in his organization. Returning on one occasion from a trip abroad, he found conditions in the business somewhat as indicated by the chart in Figure VII. A summary of sales by months and accumulative sales for the same period had been contrasted with the corresponding figures for the corresponding month or period of the previous year. At the beginning of January quite an extensive advertising campaign had been prepared. He had looked for a large increase in sales. But as the chart indicates, when he returned on the last of May, instead of an increase there had been a gradual decline in business for the current year. In- vestigation showed that the advertising campaign planned to start the first of J anuary had not been begun until late in March. Had he not compared his sales he would not have learned at once the cause of the decline. As it was, the increase of business which is shown for the months of July and August on the charts was made pos- sible by the prompt application of additional pressure on the sales and advertising departments. Records of this sort reduced to a unit basis enable the managers of all kinds of businesses to watch their courses. Statements and charts which show the average price realized per ton, per pound or per barrel by steel, glue and brewing companies, enable the sales managers of these respective concerns to keep in touch with the re- sults obtained by each salesman. Similarly the pay rolls of large retail stores are watched. A record is kept of each clerk’s business, day by day. Each week the per- centage of salaries to the sales made is calculated. At any time the superintendent and department manager BEHIND THE FIGURES 157 know what the pay roll stands for in sales, and which clerks are efficient. Whenever a business man, at the end of the year or the month, sits at his desk with the figures of the period before him, one of the obvious things he watches is the FIGURE VIII: This chart showed one dealer the close interdependence of his gross and net profits , and expenses. Note how the failure to reduce expenses during August and September nearly consumed net profits relation between expenses and the amount of business done. His records must be planned to show comparative statements and charts of sales, cost of sales, expenses and net profits. Unless the figures get to him in this form 158 GRAPHS AND STATISTICS it is difficult to see how the outlay matches up with the amount of business done. An interesting example which indicates how the vice- president of a wholesale house follows gross profits and departmental expenses is shown in Figure VIII. Trade conditions had been poor and one of the department managers failed to compare his departmental expense with his gross profits. This condition continued until the month of August when, as will be seen, the gross profits were practically consumed by the departmental expense. Each month now this department head gets his compara- tive statement of gross profits and departmental ex- penses and does not wait for the figures to “push” him. He pushes the figures. F IGURES are of no value in and of themselves — inter- pretation by the executive is necessary if they are made to reveal their inner significance. Tradition says figures do not lie. Yet, the wrong in- terpretation of figures may throw the head of the busi- ness completely off the track. Groups of facts must be considered with relation to the right groups of corre- sponding facts. Both sides of the question must be con- sidered in the tabulated statistics. A sash and door company began to scrutinize the rec- ords of its twelve salesmen, mostly young and middle aged men. The low gross sales of one of the older sales- men at first led the president to believe that this older man was being kept on the pay roll for sentimental rea- sons. But when he took the sales records of the various products and compared them with the profits obtained on each sale he changed his mind. He found that while the older man sold less in the aggregate than his fellow travelers, the total profit on his business was greater. BEHIND THE FIGURES 159 Because of his experience, he knew the profitable and unprofitable lines. The comparison of the two sets of figures showed how the company had gone wrong and a new sales policy was inaugurated at once. Every sales- man was instructed to concentrate effort on the profitable lines, and allow the low-profit lines to sell themselves or use them to push the more profitable specialties. FIGURE IX: This comparison of the repairs and renewals required by three mining machines brought to attention the abuse of No, 3 and resulted in hiring a more careful operator for it Look into any group of figures for the significant items ; the records of one department compared with the others or of one branch compared with the next will often sug- gest a more uniformly profitable way of handling the business. Lumped figures do not show tendencies. A 160 GRAPHS AND STATISTICS poor machine in one department may keep up the total relative cost of the output of that department. One slow line of goods may distort the figures of a store. It is better to individualize accounts wherever possible in order that each may stand on its own merits. The president of a mining company suspected that his repair and renewal account was higher than it should be, purely because of his general knowledge of conditions. Not until he had compared the expenditures for repairs and renewals on three machines, as shown in Figure IX, did he realize that two of the machines had suffered un- justly for the faults of one. The three cutting machines were of the same general design and cost and were in- stalled about the same time. When the facts came out that machine Number 3 had much greater repair and re- newal expense than the other two, it was discovered that the man who had charge of this machine subjected it to much rougher usage than the operator of either of the other two machines. Figures that mean most to the head of a business must contain all the elements entering into a consideration of an y particular item. Statements and charts of sales and expenses only without cost of goods sold may prove mis- leading. Business is done for profit, not for sales totals. Two concerns may be doing substantially the same gross business ; one, however, may be doing its greater business at a much higher cost. ( The Philadelphia and Baltimore offices of an electrical supply house had substantially the same total of sales. Yet, when the annual statement came in it was found that much more money was made in one office than in the other in spite of the fact that the volume of sales was about the same in both. When the figures came to the general manager of the company, he saw at once that BEHIND THE FIGURES 161 the reason Baltimore netted less in profits than Phila- delphia was two-fold : supplies had been sold at too close a margin of profit and sales and office salaries were dis- proportionate to the amount of business done. Often by matching department with department, branch office with branch office, machine with machine or clerk with clerk, a better understanding can be obtained of what the business is doing. It has been found in many businesses that comparative expense statements, furnished to branch managers with the comments of an executive officer, will do much to hold down cost. On the second Tuesday of each month, the manager of a soda-fountain business devotes his entire day to the study of statements and graphic charts. Sales, branch and departmental expenses and other elements entering into profit and loss accounts come under his supervision. One of the reasons why the company can do business at a low cost is because the manager knows how to use the figures in his business. C OMPARISON of results in different branches of a business , or different departments , often reveals to the executive places where leaks are occurring. Studying a statement itemizing the expenses of one of the larger branches of the company, the head noticed that the wages of the unloading and shipping depart- ment increased in the four months ending April 30th over a similar cost for the slack season of the previous year. Investigation developed that the manager of the branch had failed to cut, from eight to six, the men in his receiving department. Receiving and shipping expenses at the Kansas City branch, greater than the average shipping expenses of the seven or eight other branches, drew attention to an- 162 GRAPHS AND STATISTICS other condition which might not have come to the man- ager’s notice. Inquiry showed that the receiving and storage facilities were inadequate, that it was necessary to handle material twice in unloading and storing, that the bins, shelves and general layout were poor. By spending five hundred dollars for the improvement of the storeroom, the company made an annual saving of sixteen hundred dollars in this particular item of ex- pense. Just as a sales manager may get from his records definite knowledge of his sales and profits, so the manu- facturer can devise intelligent summaries of expenses that will show him the relative costs of his products. Overhead expenses often go up mysteriously. Unless the expenses are put on paper in comparative form, it is hard to get behind the totals and find out just what is causing the increase in expense. Non-productive labor, salaries of timekeepers, order and shop clerks and sup- plies consumed, are all details which the head needs to group in such form that ready comparisons may be made. Itemized, comparative figures make it possible to find the reason for high overhead expenses in the monthly statement of a business. Bulk totals, unless seen in re- lation to other figures, have little significance unless the man who watches the returns keeps the basic figures in the back of his head, and compares the bulk total with that. Last year’s figures may generally be taken as a basis for this year’s total. Monthly quotas of expenses sometimes are best. Variations from standard can then be checked before a wrong policy is established. The cost of lubricants in one mine showed a marked increase over the corresponding period of the previous year. When the superintendent investigated he found that the machine operators were burning lubricating oil costing BEHIND THE FIGURES 163 thirty cents a gallon in their torches instead of six-cent illuminating oil. To check the previous waste, each machine operator was allotted two gallons of oil per day, although an ad- ditional quantity could be had by giving reasons. A second cause for the high lubricating cost was caught by watching the amount of money received for oil bar- rels returned. The credit item for returned barrels seemed smaller than the year before. It developed that the miners, instead of tapping a barrel, had been knock- ing in the head and filling their pails by dipping into the barrel. About six hundred dollars a year was saved by stopping this practice. Comparative statements of factory expenses are always instructive. In one case when such figures came to the attention of the manager, an increase of $834.25 in mis- cellaneous materials and supplies uncovered an important source of waste. The foreman of Department A had in his charge a large stock of materials and supplies, many of which were used in Department B. Unknown to the former, the head of Department B had taken and used wastefully large quantities of material, thinking that the other foreman would have difficulty in explaining the large debit difference in his material account. Two little columns of figures brought out this badly organized spot in the factory where inefficiency existed because of the jealous rivalry of these two foremen. All sorts of items in overhead expense can be cared for if the totals come before the manager not in the form of bulk figures but itemized under separate headings. The electric-power-used item in one large manufacturing concern totaled $42,300 for one year. In going over the figures, the manager of the plant thought here was an item which would cost more next year because he ex- 164 GRAPHS AND STATISTICS pected an increase in the business and power used would increase almost in proportion to an increase in produc- tion. O VERHEAD, material costs , productive and non- productive labor — figures properly displayed and rightly read will show abnormal features in these items . The totals stopped him. They looked big for the work already done. He went through the plant and made some rough estimates of apparent wastes in power here and there. Then he talked over the situation with his electrical engineer. He found that by overhauling his wiring, individual meters could be put into the differ- ent departments and so the expense of current used in each shop determined. The manager invested nine thou- sand dollars in these changes. And the first ten months of the current year indicated that in spite of an increase of fifteen per cent in production over the preceding year the total power cost would be, roughly, thirty-two thou- sand dollars. The saving in power alone the first year would pay for the changes made in the power equipment. Uust as properly displayed and grouped figures will show the rise and fall in manufacturing expenses, so they will indicate to the factory superintendent the inter-re- lation between productive and non-productive labor — the totals watched most jealously in every manufacturing plant, since every manager knows the necessity of keep- ing down the ratio between non-productive and pro- ductive labor. The relative importance of these items escaped one manager until he plotted his figures in a chart like that shown in Figure X. Put in this graphic way, the increase in non-productive labor for April, 1911, was apparent at a glance. When the foreman of the department was asked for an explanation it was BEHIND THE FIGURES 165 found that two skilled workmen had been kept on the pay roll during a slack period in order that the men would be available when business increased. Such records are history. The money had been spent. But it was easy to establish a policy that thereafter the foreman should not settle such questions himself but should confer with the superintendent. In this case it was found that the particular men on this work could FIGURE X: How unusual expenditures can be corrected by a graphic monthly analysis is shown here. Note how the April “peak” in foreman s and clerks' salaries was brought down and kept at a reasonable level have been easily replaced, although in all instances this might not have been the case. In November of the same year, that chart shows non-productive labor in Depart- ment C increased nearly one hundred dollars. The 166 GRAPHS AND STATISTICS figures were prophecy, not history, for when the manager went behind them he found that they represented an in- crease in truckers to carry out a different method of moving and shifting merchandise which was not neces- sary. C APITAL must be constantly turning — locked up in slow lines it acts as a dead loss — reports show when it is producing at the highest rate possible. “Let every dollar of capital invested or borrowed per- form its full duty,” is the way a prominent banker ex- presses the need of keeping inventories, customers’ ac- counts, notes receivable, cash and working liabilities at the minimum and at the same time producing the maxi- mum earnings. These are conditions which the managers of a variety of concerns may look for in their statements. 'Just as records will show tendencies in sales and explain department outputs and machine efficiency, so the financial condition of a business may be watched. Under normal conditions investment in working assets of such businesses as hardware, grocery, paint, shoes, jewelry, drug, dry goods, automobile and steel can easily be determined. Definite relationship must exist between capital represented in working assets and the annual turn-over. Records can be drawn from different sections of the business to show “lock-up in working capital” at the close of each month. Failure to keep this at the minimum necessitates borrowing and paying of interest otherwise unnecessary. One manufacturer traced his uninvested working assets through his record of uncollected customers’ accounts and inventories, as shown in Figure XI. Two branches, in St. Louis and Omaha, selling belting, pulleys and other supplies, did substantially the same volume of business BEHIND THE FIGURES 167 and operated under much the same conditions. The figures showed, however, that the Omaha branch had an investment in stock and accounts $30,000 larger than that of the St. Louis branch. When the situation was sifted down to its elements, it was discovered that the Omaha branch did not give the same strict attention to stock keeping and the collection of accounts as did the St. FIGURE XI: Past due accounts and excessive inventories are difficult to control in many industries. By comparing his Omaha and St. Louis branches, a manufacturer of belting reduced his investment , as shown here on a scale of $1,000 units Louis office. By installing a perpetual inventory and efficient sales records and revising the collection methods, the Omaha situation was brought up to the St. Louis standard. 168 GRAPHS AND STATISTICS In like manner the investment in the several classes of assets in various businesses may be profitably compared. Just as well as in sales and expense, the head of the busi- ness may see his figures in a u per unit ’ ’ form. On this uniform basis, the relative investment in different branches can be easily seen and the working assets kept at the lowest possible points in all. Nor is it in the large business alone that this class of records is worth while. A printer doing an annual busi- ness of about $25,000, revised his storekeeping and ac- counting system and reduced his inventories by $1,500 and his uncollected customers’ accounts by $2,000. This $3,500 has enabled him to pay off bank loans and save about $175 a year in interest. The plan by which he re- duced his inventory should be of less interest to every business man than the fact that a basic principle in busi- ness is careful watch over the investment in inventories, customers’ accounts, and notes receivable. The inventory figure in any business is a worth while study, not only from the investment angle, but from that of sales and purchases. Comparisons of sales, purchases and inventory from time to time will bring out facts in the business and help to maintain their correct ratios. Records that show when to buy will enable the purchaser to keep fresh materials and stocks on hand, as well as reduce capital tied up in inventories. That definite figures, rightly grouped, will bring before the head of a business a better understanding of his whole business, these various experiences of other man- agers show. Any business man may take a similar point of view on his figures. Figures that prophesy mean the success or failure of men in business. For right accounting is more than history. It is not enough to know what has been done ; BEHIND THE FIGURES 169 records should show what should be done. The directors of a large eastern manufacturing concern, with inven- tories valued at ten million dollars, voted to pay an ex- pert eighteen thousand dollars a year to devise means of giving them figures that would prophesy. By devising and installing a system of purchasing, receiving and storekeeping that would enforce minimum stocks of raw materials, goods in process and finished products without impairing the efficiency of the business, the money tied up in inventories was reduced by nearly two million dol- lars. The directors proved the value of right account- ing. Any business man who looks upon his accounting as mere recording and not as a method of control for the details of his business misses the vital significance and use of the facts behind its figures. TT IS the aim of every manufacturer to supply a better grade A of goods at a lower price than the other fellow. This study to maintain a balance between grade and price revolves about the details . System is one of his greatest aids to this end. — Morris Selz Founder, Selz, Schwab and Company XVIII GRAPHS THAT GUIDE YOUR BUSINESS By Kendall Banning I N a small town up in the hills of New Hampshire is a small manufacturing plant that may properly be regarded as representative of its class. It employs about seventy-five people, operates a factory of moderate size and equipment, and, in its external aspects, does not differ materially from the thousands of small factories that are scattered throughout the country. Yet it main- tains a department that might be considered in a measure as a complement to the “ planning room” that is such an important factor in the Taylor system of shop manage- ment, and to it is credited a large part of the unusual efficiency that makes the factory conspicuous. For want of an authoritative term, this department is known as the ‘ 4 curve room.” It is the function of this curve room to keep graphic record of the activities of every phase of the business. This is done by means of charts, ranging from forms of ordinary size that may be kept in the correspondence files, to “graphs” the size of large wall maps, that are mounted on frames and operated similarly to the maps and drawings that are part of the equipment of nearly every large drafting office. Upon these graphs are kept annual, semi-annual, quarterly, monthly, weekly, daily and even hourly reports of the progress made by the PICTURING THE BUSINESS 171 departments, their costs, their output, their overhead costs, and the many detailed statistics that are needed to keep the executive heads of the plant in constant and accurate touch with each item of expense, sales and pro- duction. From the information thus tabulated, the management establishes standards by which the work of the factory is maintained, and is enabled to make pro- vision for increases or decreases in the volume which it turns out by observing the ‘ 4 tendencies ’ 9 as they appear, in picture form, on the various chart-reports. G RAPHS in office, store and factory are pictures of the figures, bringing out plainly the high and low spots in production — net results visualized . In a lesser degree, the graph is being used in many business offices — principally for indicating “tendencies” that serve as guides in making estimates. In the case of the present plant, however, over three hundred dif- ferent records are kept by this map form. In some cases, two, three and even many more different but co- related records are kept on a single sheet for purpose of economy. The actual figures that serve as the basis for these graphs are, of course, kept in the files after the usual manner. While the graphs are accurate, and, so far as possible, show the detailed figures, they do not in all cases provide for the exact numbers, although they represent these figures and indicate where they may be found should more specific data than that which appears on the charts be required. While it is not probable that such an extensive use of graphs would be practical for every business, it is obvious that such a system for pre- senting records is of great value because of the oppor- tunities for comparison with the corresponding periods of former years and months, that it makes possible. 172 GRAPHS AND STATISTICS In the case of this particular factory, the exact figures required for the maintenance of the various charts are gathered daily, and, in a few instances, at shorter in- tervals, by a clerk who is one of the staff of three em- ployed in the curve room. The data in these reports are then transferred to the graphs in pencil form, or are “plotted in,” to use the term of the drafting room. To insure accuracy in this work, one draftsman calls off the figures to his co-worker, who plots them in with pencil ; FIGURE XII: This specimen section of a graphic map eight feet long shows , by means of colored lines , the actual daily costs , the average costs for the month and the “ standard ” cost the positions are then reversed and the process repeated, so that each man checks up the other’s work. Twice a day the chief of the curve room goes over these charts and draws, in colored ink, the various lines that represent the figures that are required for record. PICTURING THE BUSINESS 173 One of the most important features- of this tabulating work, however, is the task of figuring out and charting the “average” and the “standard” lines, both of which are extensively used to serve as the basis of comparison. In Figure XII, for example, which shows a detail of one FIG T JRE XIII: On the “production” graphs are recorded significant data . This chart, for example, shows how many tons of liquor were produced and how many tons of salt were used of the cost maps, the heavy broken lines indicate the actual costs of the items named in the space provided on the left, as recorded from day to day. The dotted lines that run through the daily cost lines indicate the monthly 4 ‘ average ’ ’ of cost ; in the original charts these monthly-average lines are further distinguished from the others by the use of red ink. These “average” cost lines are figured every day, in order to show clearly at any time the actual costs on any day as compared to the average for the month up to that point. But these sta- tistics are given still greater value by indicating, by means of straight blue lines, the “standard” costs. 174 GRAPHS AND STATISTICS Thus the “actual,” “average” and “standard” costs of each item of the business are shown in map form in such succinct and condensed way that any variation is made immediately apparent. When the activities of every de- FIGURE XIV: The tendencies of “ production ” and “profit” as repre- sented on this chart , are of great value in making up estimates for ensuing seasons partment are similarly reduced to graphic form, it is a comparatively simple task for the management to keep in accurate touch with the progress of the plant by a daily visit to the curve room, where the records are kept ready of access. Most of the charts are eight feet in length by about two feet in height — a size sufficient to contain a continu- ous daily curve for one year. They are mounted in wooden frames, after the manner familiar in architects’ PICTURING THE BUSINESS 175 and contractors’ offices, and are suspended from the ceiling. These records are particularly useful in picturing the output of a plant. In Figure XIII, for example, is illus- trated the method by which the production of various departments is tabulated both from day to day and from week to week during the period of a month. The ‘ ‘ aver- age pounds salt per ton weekly” is indicated by a series of straight lines that extend over weekly periods instead IAN. 1912 PCS. 1912 MAR.1912 APR.1912 MAY 1912 JUNK 1912 JULY 1012 *110.1912 wEEKeNo.No 8 14.00 :::J i lili mm SELLING PRICE HE: PER TON 19.HA ■f j- m jlHH 11 t2.oo HE MILL C6ST iff IP± t = |4 pi# =|j=8 ii is llid AND SELLING 11.00 g-; EXPENSE it: 11 frrf H II psil IX. TOTAL COST 10 W H |j| Ij S|| - ±::t±fc + ::+ 8.00 WH Sg g:| Hi MILL COST e.oo iiSg a mm 7JOO Hi 8.00 m ;HH S-i Hfi pH::: H H P|| 111:1 e.OO g: 4.00 tH s»o 3r OVERHEAD T EXPENSES 77" SELLING ^ EXPENSE T,Dq Sg FIGURE XV: With charts like this weekly “expense” graph , it is possible to note digressions from the normal and detect leaks before they assume large proportions of over daily periods by which the “tons liquor pro- duced” is indicated at the top of the chart. The figures which determine the make-up of these charts are col- lected every day from the factory, and upon these figures 176 GRAPHS AND STATISTICS the chart record is based. How these figures compare with the standard production is indicated by the straight line (on the original shown in blue) that is established on the basis of former records. Similarly, in Figures XIV and XV are represented data that the management of the plant demands, and that make evident many fluctuations that are not always so apparent from the ordinary type of report that con- sists merely of comparative figures in parallel columns. P RODUCTION data of past years become standards by which subsequent results are gauged — graphic charts which set quotas and guide railway policies. It is obvious that such a system of tabulating records is of especial value to the management in establishing standards of work and of cost, and in providing for re- current fluctuations of the markets. For instance, a demand for the plant’s product may vary with the differ- ent seasons of the year — a condition that would, of course, be apparent on the graph. From the records of past years, the management is en- abled to determine the “ quota” for each period and to express this standard on the graph by means of a straight blue line extending through the period in ques- tion. In the same way, it is possible to reduce the vari- ous costs of production to standard limits and thus to check any undue excesses before they assume dangerous proportions. It has been through these advantages that the factory in New Hampshire has eliminated many of the extravagances and wastes that mar the efficiency of so many small plants, but which are usually uncorrected merely through ignorance on the part of the manage- ment that any leaks exist. The use of such graphs is valuable in warning the management of exceptional con- PICTURING THE BUSINESS 177 ditions in the plant and in making it possible to provide for future conditions that, judging from the records of the past, may reasonably be expected. Although used to advantage by all businesses, small as well as large, graphs have a peculiar value in concerns whose magnitude is such that the management is not in direct touch with all departments. A graphic picture in such cases forestalls the necessity of running with tedious care through long columns of figures, whose significance may even then be lost. Some of the leading railroads of the country have learned to make good use of the graph. The principles and nearly all of the details of railway accounting are prescribed by the Interstate Commerce Commission. By law the railroads are required to fol- low the instructions of the Commission as to when, how, and what they shall report. The returns for expenses, however, are not so complete as the other figures, nor are they comparable between different railroads or different sections of the country because of striking differences in the division of traffic between passenger and freight, and differences in physical and operating conditions. The railroads have been left largely to their own initiative and resourcefulness, therefore, in developing a system for checking costs and utilizing their facilities and equipment. One railroad in the East has developed the use of the graph to a state of high efficiency. Charts in this con- cern are prepared on thin paper so that blue prints may be made, and regularly each month as they are brought up to date, copies are furnished to the general and divi- sion officials. It has been found that the charts rouse a great interest in the returns and inspire keen rivalry between departments and divisions. Figure XVI is a sample of the value of these charts. 178 GRAPHS AND STATISTICS It gives a bird’s-eye view of the operation of a freight station employing sixty or seventy men and handling from one thousand to sixteen hundred tons of freight FIGURE XVI: This graph follows the monthly changes in the cost of operating a freight station. Compared with the outlay and results for preceding months and years , poor or efficient management shows up sharply daily. At large stations the agent has each morning a memorandum statement showing the pay roll expense of the previous day, the tonnage handled, and the cost per ton. For every station, a monthly statement is prepared PICTURING THE BUSINESS 179 and “graphed,” with a final graph summarizing the totals and general average for all freight stations. The facts in the operation of a yard where freight FIGURE XVII: The startling pay roll advance , and the increase in labor and engine costs per car , after July , 1910 , would normally be danger signals for the executive . The rise was really due to extensive terminal alterations trains are classified are shown in Figure XVII. The cost per car handled varies widely in different yards on ac- count of the differences in facilities and the extent of the classification made necessary by the character of traffic 180 GRAPHS AND STATISTICS and the location of the yard with respect to other divi- sions, junctions and connecting roads. The value of the statistics lies in comparing the current records of each yard with its record in previous months or previous years. Each yard is charted separately, but for the in- formation of the officials one chart is prepared showing the results comparatively for all yards. Other charts of a similar kind are prepared by this railroad and used with valuable results to show the con- ditions of operation in every department and division. The curves give instantaneous impressions. They make it possible for the mind to take in quickly a long series of related facts, and both the actual and relative changes in each when compared with the others and with differ- ent periods. Briefly, they give the maximum of in- formation with the minimum of mental effort, and they are replete with corrective suggestion. $3 A SUCCESSFUL man must know his business. He mus apply this knowledge — he must work, and he must work to the best advantage. And to work to the best advantage he must work with system . — John H. Converse XIX HOW TO CONTROL EXPENSE ITEMS By Edward. L. Wedeles Treasurer, Steele Wedeles Company A N OFFICE boy earning three dollars a week once proposed an economy that saved onr house a thousand dollars a year. He came to my desk and broached a plan that had never occurred to us: “Why can’t we send acknowledgments by postal card, instead of by letter ?” At first there seemed to be objections to this method, chief of which was the publicity it might give to the affairs of merchants in small towns, but after we put the plan into operation we never had a complaint. We had been spending a thousand dollars a year for nothing. Subsequently an idea occurred to us: “Why make any acknowledgment at all ? All remittances reach us by check or draft, w r hich the remitter gets back with our in- dorsement and the stamp of the bank through which it is paid. Isn’t this enough?” Again we changed our method, and since that time we have not sent out even the postal cards. Only in special instances do we now acknowledge remittances. Our cus- tomers understand, and our business goes just as smoothly as before, with the saving of a thousand dol- lars or more, not to mention the cutting off of a great volume of office work. At another time we cut expenses materially by pack- 182 GRAPHS AND STATISTICS in g certain goods in cartons, instead of wooden boxes, as we had always done. A trial of the new method demonstrated that it not only reduced the expense, but gave just as much satisfaction, if, indeed, not more. E XPENSE analysis is an important part of the executive's duty — classification , tabulation and comparison aid him in locating hidden items of waste. So, all through the detail of a business, there is oppor- tunity to analyze expense and cut it without disturbing the organization or the service to customers. New ideas may seem revolutionary at first and you are disinclined to adopt them. Often your only reason for failing to do so is purely sentimental. We had been paying a thou- sand dollars a year in postage largely from sentimental reasons, yet when we cut off this expense the sentiment vanished and no one seemed to care. Initiative is just as necessary in handling expense as in selling goods. A man gets into a rut of expense and needlessly spends large sums because he does not look for a different way. Therefore, anything that will help him to think, will reduce expense. Anything that will keep expense items continually before him, will help him con- trol this part of his business. He cannot always have a bright office boy to clip a thousand dollars here and there from the annual total, but he can always have graphic records to confront him and suggest the need. The more graphic the record, the more suggestive. Expenses eat up a business unless controlled and checked. Money slips away easily in a thousand channels that never cease flowing. The demands on the cash- drawer are incessant. Unless there is vigilance, the ex- pense outgo will exceed the income, and presently the drawer will be emptied. EXPENSE CONTROL 183 In every establishment there are two kinds of expense. On the one hand you have productive expense, which is the investment of money in salesmanship, labor, rent, ad- vertising, and all those tangible and intangible commodi- ties that go to make up the conduct of an establishment. It is an outgo that brings dividends, directly or indi- rectly. The principal items of productive expense may be likened to the parts of a machine ; the smaller items are the oil that keeps the whole machine running smoothly. On the other hand, you have expense which is waste, though it often masquerades under false colors. It is the money that gets away without bringing any return whatever. It is the drain that saps the life of a busi- ness and perhaps destroys it. Not always is this kind of expense easily detected, for it may be cleverly hid- den. An incompetent or lazy employee may give in service less than he receives in salary; a team may be idle for a day ; an advertisement may be poorly devised and cost more than it returns in business. These losses are more difficult to discover than the actual waste of some commodity that can be weighed or measured, but they are none the less non-productive expense. To distinguish between these two varieties of expense, therefore, is important. To do so requires the exercise of the intellect in a double capacity ; first, judgment ; sec- ond, system. The line of demarcation may be hard to find. For ex- ample,. artificial light is a productive expense, because without it the transactions of store or office would cease. But just how much light is needed is a different question. Should there be ten, twenty or thirty lamps'? Can two use the same light ? These are matters to be determined by the judgment, not by bookkeeping or statistics. Eye- 184 GRAPHS AND STATISTICS sight, health, efficiency, are all to be considered. No mathematics will determine for you just where the light bill ceases to be a productive expense and becomes non- productive. But take the two electric light meters, each supplying the same number of lamps under the same conditions, { FIGURE XVIII: This chart shows how expense once it is classified can he supervised and controlled by means of comparative reports and let one show double the expense of the other in a given period. The question is no longer one of judg- ment, but of system. Indeed, it must be system itself that discovers for you this very wasteful expense. You may have the best judgment in the world on all matters involving business logic, but if you have an inadequate expense system the drain on the cash-drawer will go un- checked. A satisfactory system by which a managing executive may watch and control the expense of his establishment involves three things : classification, tabulation, compari- son. These make up the means of discovering the leaks EXPENSE CONTROL 185 in expense, so far as ink and paper can show them. In classification, it is scarcely possible to go too much into detail. The modern tendency is to divide and subdivide expense outgo until there is no possibility of classifying it further. It is only through these minute classifications that tabulation and comparison have their full value. For example, take the electric light meters just referred to. Suppose no individual record was kept of each meter, but all were charged against one general account, light. The waste would go on undetected. Carry the illustration further. Suppose that individual records were kept of each meter, but not tabulated. Or suppose, again, that the meters were all classified sepa- rately and tabulated, but no one made the comparison. These three elements, you see, are vitally connected one with another. C LASSIFICATION of all expenses so that the un- tagged items are insignificant — this is the basis of any satisfactory system of controlling them. I believe it possible to classify business expense to the point where the untagged items are almost infinitesi- mal. In our own business we classify and tabulate ninety-nine and eight-tenths per cent of expenses. Expense items reach my desk daily in the form of entries in two books which classify general expense and sundry expense. These books are ruled like a double- column journal, but are divided into accounts like a ledger, a certain number of pages being set apart for each classification of expense. A bookkeeper posts these books from the general cash book, entering items in the left-hand column, and in the body of the page a full identification or explanation of the item. The accounts are arranged alphabetically, and indexed. 186 GRAPHS AND STATISTICS The classified and general expense accounts are as fol- lows : Advertising, including only general advertising not subject to classification against particular brands of goods Agencies, embracing reports of all kinds on customers Attorneys’ fees and court costs Brokerage, including travelers’ salaries at branches Teaming done by teams other than our own Charity, covering contributions to institutions and the like Cost books, or daily price sheets sent to travelers Fuel Fixtures and tools, including office furniture, alterations in partitions or railings, and smaller tools and appliances, such as hammers, saws, etc. Larger apparatus and implements, such as typewriters and adding machines, are charged to property accounts Insurance Light Mail order department Meals, embracing expenses of employees working overtime Office salaries, covering wages of every kind except those in the shipping department, which are charged to sundry salaries Power Postage Rent Sundry salaries Stationery Sundries, unclassified in this book Taxes Teaming, by our own wagons Telegrams Telephone Travelers’ salaries, including those of buyers, department managers and the officials who control them. In our business we have no account directly representing trav- elers’ traveling expenses, for we allow our travelers a given sum to cover both salary and expense. At the close of each month the totals from these classified expense accounts are transferred to a hook which records comparative expenses. This book is ruled like a trial-balance sheet, so that the various items are EXPENSE CONTROL 187 arranged in tables for comparison month by month. These monthly totals in turn, are classified by years and arranged for comparison. The sundry expenses are minutely subdivided and in- clude the smallest items of expense ; even showing a rec- ord of matches and soaps, and tickets purchased from persons soliciting for entertainments. The totals from the Sundry Expense book are, of course, included in the tabulated recapitulations in the “Comparative Expense Books. ’ ’ These books are valuable as a medium for the method- ical scrutiny of daily items. From them you can watch the outgo in all its details and ramifications. Expense may be compared to a group of water-courses draining some common region. The streams flow in every direc- tion, all of them centering at the same source. Some of them are only rivulets, some creeks, some rivers, but all drawing away the same waters. To get a birds-eye view of this group of streams, you must mount an eminence. To attempt to follow each separately would be a long and tedious task, but from an elevation you may study the course of every one. So, too, you can scan the expense streams from the eminence of your own desk if you have the proper sys- tem. No rivulet will be too small to see. Each entry will be itemized under its proper classification. In run- ning through the accounts every morning you can place your finger on items that appear too large, or uncalled for, or which need explanation. You can point out the spots where expense streams must be dammed. Expense is best controlled by centralizing its super- vision. Subject all its ramifications to some system that reduces them to this daily scrutiny at your desk. And, necessarily, condense all the items as far as is compatible 188 GRAPHS AND STATISTICS with this minute classification. Have your expense rec- ords permanent, in the form of books, for the detached report sheet is bulky and inconvenient to handle. The most efficient record lies in your private account books. R EDUCTION of expenses to a percentage basis puts them all on the same level — then the wastes and dis- crepancies appear at once in glaring outlines. But the classified and comparative books named make up only one step in the controlling of expense. They give you a daily, monthly and yearly scrutiny, but their statistical value is as yet imperfect. Their figures repre- sent money, not percentages. In keeping the various items of expense at their proper ratio, percentage sta- tistics play an important role. The more detailed these statistical tables are, the more efficient will be your su- pervision of outgo. The deadly parallel is used here, not to show similarities, but to reveal incongruities, dis- similarities. Expense, as a rule, is governed by fixed or progressive percentages. YvTien there are abrupt varia- tions from this rule, they must be shown up conspicu- ously on the records. Nothing does this so graphically as percentage tables. For this purpose we keep a number of books, made up of tabulated percentages, monthly and yearly. The first gives the percentage of expense to sales. The page is ruled at the left for entering the various classifi- cations, one under another ; at the right are perpendicu- lar columns for the percentages. Thus the table shows Office Expense, Salaries, Sundry Salaries, Cartage, and the like. If, for example, you desire to know the ratio of office expense to sales, turn to the index, find the table, and run your finger along the designated cross- line; you can see at a glance the percentages for each EXPENSE CONTROL 189 month in the year. Turning to the yearly table, you can compare the years in the same way as the months. Going down a line, you follow the ratio that salaries bear to sales, and so on through all the subdivisions per- taining to the expense of selling. The advantage of this record is manifest. All these items bear a natural relationship to the chief classifica- tion under which they are grouped — Sales. For ex- ample, once you have determined approximately the per- centage office expense ought to bear to sales, you have the key to the subsequent controlling of this item. The ratio may have to be increased gradually because of in- creased costs, but if you do increase it you do so intelli- gently. You know exactly why. You do not waste brain force wondering why your selling expense is so big or where you ought to cut. The percentage table shows you just what department is beyond its normal ratio. The second comparative percentage book shows the ratio of expense to expense. In other words, it shows the ratio each item of expense bears to the total ex- pense. This book is ruled the same as the other, following out the monthly and yearly percentages in the same manner. For instance, suppose you want to learn what relation your teaming bears to the total cost of conduct- ing your business. You wish to establish some rule for controlling this item. The percentage rule is an excel- lent guide. Month by month, year by year, tabulate your teaming expense in ratios. Without such a table, you must go it blind. There will be wastes you can not detect. In this book it is scarcely necessary to tabulate with extreme minuteness. The minor classifications detailed in the more general expense books may be omitted and 190 GRAPHS AND STATISTICS only the larger classifications tabulated. But this book affords opportunity to keep track of expense percentages in any general or special item the executive desires. Every business has its particular departments or phases especially in need of watching. The third comparative percentage book gives the ratio of expense to gross merchandise profits. The method of tabulation is the same as already described. Here, too, the classifications need not be so detailed as in the daily and monthly itemized record of expenses. C OMPARATIVE statistics books may be multiplied as far as necessary , giving the important facts about every big and little phase of the business . This book gives you a succinct survey of the bearing the expense account has upon the business as a whole. It measures the difference between income and outgo, and shows in percentages the results of the firm’s enterprises. If the ratios shown are too large to harmonize with the amount of capital invested, the various classifications may be analyzed and traced back in ever-increasing de- tail to the tabulated dollars and cents tables and ac- counts. ‘ In addition to these important books of statistics, we have others of local value. Thus, there is a book devoted* to electric light and elevator meters. It is ruled for sta- tistical tables. Each meter has a column running the vertical way of the page, and in each cross-space is entered the sum charged against that meter for a given month, in dollars and cents. A full column represents the total paid on a given meter for a year. So, passing your finger from left to right across the page, you can follow the history of any elevator by its meter, month by month, checking its performance. EXPENSE CONTROL 191 .Another book useful to firms having teams is that con- taining statistics of the stable. It is ruled to give the quantities of feed consumed and the cost. Take oats, for example. The table shows the number of bushels used daily and monthly, the average daily cost, and the aver- age cost per bushel. The hay table shows the same sta- tistics in tons. So, too, are tabulated the daily number of horses consuming this feed, and the daily average of horses. If you watch this stable book you will quickly detect and control non-productive outgo. Once you know the proper average quantity of feed required per horse, any over-feeding, under-feeding, or waste, must be discovered. This system of recording and watching expense may be extended indefinitely and made as general or specific as the needs of your business require. The books and tables described may be reduced to three or multiplied into a score, and each will reveal in undeniable figures the trend of some department or classification of your business, £$3 ]yf ANUFACTURERS are showing renewed interest in ^ 1 production costs . For here is something every manager can control . Market and selling conditions may he outside his definite control . He can buy right — sometimes . He can put over a special selling campaign . But more and more he must study production costs and know that they are exactly right . — J. Eddy Chace XX MAKING CLERICAL WORK AUTOMATIC By H. M. Wood Of the Lodge & Shipley Machine Tool Company A N executive in our plant need not wait two weeks to know the cost of a job that was done the day before. If, for example, he wishes to know the cost of the one hundred headstocks used in one lot of eighteen- inch lathes, all the cost department has to do is assemble a series of cost cards, find the assembly group number corresponding to this style of headstock and run these cards through a machine. Records which, under some conditions, might take two weeks to assemble because of the clerical work necessary in posting and compiling the data, can be turned out in a day in this way. Primarily this speed in handling cost figures is made possible by the use of an assorting machine similar in general construction to the machines used by the United States Census Bureau. While this machine does much of the laborious posting and calculating which otherwise would have to be done by accountants, the method of handling labor and material records in the factory is an essential element in the success of the system. In the first place, in order that records of work and costs may be assembled in compact form, the plant as a whole is organized on the numerical basis. Departments, men, machines, operations and materials are all numbered. All the work and the operations are standardized and AUTOMATIC COST FINDING 193 identifying numbers given to each. There are numbers for standard parts, for repairs, tools, new parts, and so on. Consequently, when a job number is given to an order that number in itself is a key which identifies the job in several different ways. M ACHINES and methods that simplify the analysis of cost figures in the office and bring the big facts quickly and accurately to the executive’s desk . How this system of numerical identification is worked out and how it simplifies the handling of clerical detail can be well illustrated by analyzing the method of find- ing the cost of one part of one lot of eighteen-inch lathes. On this lot it is, of course, necessary to keep distinct records of labor and material ; to know how much time each man spends on each operation ; what machine he uses. This part headstock of the eighteen-inch lathe be- longs to the assembly part known as a group by the num- ber 55. The part has a piece number 1,100 which desig- nates the main headstock casting and it has the shop job number, 14,450 which keys it as belonging to a lot of one hundred eighteen-inch lathes. The material and time for this number are charged against the shop number and the piece number. Requisitions for material are made upon the stock department in the usual way and the record of material used is kept by the stock keepers and forwarded by them to the cost department. The labor on this part is kept on a time sheet which is filled out by a timekeeper who visits each machinist periodically and keeps track of his time in a loose-leaf book with pages ruled like Form I. As this form shows, when these time sheets and the material sheets are turned in to the cost department, the 194 GRAPHS AND STATISTICS data on them is in the form of numbers and is really an analysis of these numbers, each of which identifies some bit of cost information. Formerly the cost department posted time from the time sheets to a book at the end of the week and classified the results in columns under individual headings. Now instead of posting, the data from the time book is as- sembled compactly on a card like that shown in Form II. All the data pertaining to time keeping and to stock keeping is assembled by punching small, round holes in the proper location on the card shown in Form II for the time and Form III for the material. Take the analysis of the time on job number 14,450, piece number 1,100 as an example. The first three columns show the date and all the cards of the same day are punched simultaneously by a gang punch, on that day. In the card shown (Form II), the figure 3 punched in the first column indicates the third month of the year which itself is keyed by the punch mark in the figure 10' at the top of the second column. The punch mark at figure 3 indicates that this operation was performed the third week in the month and in the third column the figure 14 (one punch for each figure) is a key to the day of the month. Each department, numbered consecutively, is easily identified on the form by the punched marks, and the two punched marks in the fourth column indicate that the work was performed in department 10, the planer department. \ The fifth column with three punch marks shows that the workman whose number is 222 is a machinist to whom the time on this job is to be charged. In the next main sub-division under the title “ Charge’ ’ is punched the job number 14,450, which is a key to the AUTOMATIC COST FINDING 195 H hi U 1 2 2 h . 0 to <5?o (0(3 CD ECO 01^0 io'i- “ tt s < p b tz« S = O ui O a, z o « 0 0 z rr ^ 0 o 1 z (0 Oo CD fl o « — n|qo 313I1UV wood 3HOXS •QM Jh .-(MO -NO * tf) (DiK CO O * U) <0 ' N <0 0> N O » * 10 <0 < h- ©I FORMS l t III and IV: The time sheet at the hack is filled out by a clerk who visits the men at their work . The front and middle cards are the stock keeper’s and the “ census 99 records of materials used 196 GRAPHS AND STATISTICS lot of one hundred eighteen-inch lathes. The punch mark on the left side of this same column shows that this particular job is a standard part and as such is dis- tinguished from repairs, tools, and so on, which are designated by name in this subdivision of the column headed “charge.” The piece number 1,100 designates the main headstock casting, and the group number 55 is the numerical way of stating that this particular lot of parts is one belong- ing to the complete headstock number 55. The name of the operator planing the bottom of the headstock, ex- pressed in arithmetical terms, is 134. The department and the part have already been designated, and this separate classification of operations is necessary to show the specific portion of the casting which is being planed. Similarly, the machine in the department numbered 1234 means that the work was done on the thirty-six-inch planer. The columns for hours, indicating elapsed time and the amount paid, are shown in the next two columns. The amount paid is the wage charge against this particu- lar job. It is, of course, calculated in the cost depart- ment by multiplying the time on the job taken from the time sheet (Form I) and multiplied by the man’s rate. The wage charge is indicated by the punch marks in the column headed “Amount.” In the last column on Form II the character of the work from the accounting standpoint is designated. The abbreviations in this column refer to overhead, non-pro- ductive, productive, and so on. The punch mark indi- cates that this work is productive labor. Store room records of material are kept in just the same way. Two sets of cards, similar in design to that shown in Form III, are used for keeping the material AUTOMATIC COST FINDING 197 records. Green cards are used for material coming in from the foundry and pink cards for material coming in from the machine shop receiving office. The record of goods received from the foundry is indicated by marks punched directly on the card, just as the time records are kept. A monthly summary of the totals of the records of both green and pink cards is tabulated on a white card marked store room (Form IV). So in compact shape a vast amount of information re- garding the details of time and material charges is avail- able. The next step is to assemble and analyze these 12 11 10 09 O 1 3 o . "DAY. 0 o dept. oO MAW 000 CHARGE ioo;ooO PIECE NO. OoroOO GROUP O O OPERA- TION OOO MACHINE OOOO HOURS oOjO AMOUNT O 0 ; oO 1 1 ov Oi 1 1 1 6* O’ 1 ; f 1 1 10T01 1 1 1 OI 1 Oi 1 1 1 111 1 1 ; i i RH 2 2 20 2 2 000 <2 2*2 2 2 2 2; >2 2 2 2 2 2 2 2 202 2 0212 2 2 j 2 2 PRM o o 3 3 3 3 333 T ' 8 I3 3i 3 3 3 3 3 i 33 3 3 3 30 3 3 303 3 3 jO 3 3 ; 3 3 » 4 4 4 4 4 444 NPT i 4 0l0 4 4 4 4 i 4 4 4 4 4 4 4 0 4 4 40 A ’4] 4 4 Oi 4 4 0 2 5 5 5 5 5 5 55 APT issisOs ORW ■ 5 5! 5 5 5 OO 5 S 5 5 5 8 5 5 5 j 5 5 5 -05 RS* RD* 6 6 6 6 666 16 6:6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 6 1 6 6 6 16 6 V 7 7 7 777 MM i7 7;7 7 7 7 7 17 7 7 7 7 7 7 7 7 7 7 7 7 7j 7 7 7 { 7 7 8 e 8 8 888 *8 8; 8 8 8 8 8 18 8 8 8 8 8 8 8 8 6 88 88 8 0 8 18 8 9 9 9 9 999 C *** J9 9: 9 9 9 9 9 19 9 9 9 9 9 9 9 9 9 99 99| 9 9 9 19 9 J FORM II: Holes are punched in this card by a machine . They are then run through another machine which assorts them so that any desired statistics can be secured charges. For this work the “census-machine” is used. After the cards have been punched they are thrown promiscuously into a box with others and when all the cards for the day are prepared they are run through the assorting machine and distributed according to groups. The assorting machine has pockets numbered from 0 to 9, thus corresponding to the figures in the columns on the cards. A scale on the machine is graduated in such a way 198 GRAPHS AND STATISTICS that it corresponds exactly to the location of the verti- cal columns on the cards. A brush is adjustable to any position along the scale and in its different positions it makes electrical contact with a small revolving shaft. To assort a group of cards for any particular column, it is only necessary to set the brush over that column on the scale and feed the cards into the machine, which automatically sorts them at the rate of two hundred and sixty per minute. A SSORTING 'punched cards by means of electric tabulation to find any desired set of statistics saves a large amount of clerical work in getting costs . Take the time cards on our lathe part as a sample. In the first place, the machine is set for the right-hand column and the package of miscellaneous cards is thus separated into the various classifications of labor. Select- ing the productive group, these cards are again run through the machine and standard parts and labor parts are separated, these two being the only subdivisions of productive labor. Then the time on this particular lot of eighteen-inch lathes will be turned in on standard parts, and if the “standard” subdivisions of “productive” labor are run through the machine again, they may be assorted accord- ing to job or “charge” numbers. iThis takes a little longer, as the charge number con- sists of five figures. For the first time the machine is set to give nine piles assorted by tens of thousands. The brush is then set over one notch to the right on the indi- cator scale, and all the numbers in the first ten thousand are assorted into nine piles of thousands. By similar successive set-overs the subdividing is carried through hundreds, tens and units. AUTOMATIC COST FINDING 199 This leaves the cards in numerical order according to the 44 Charge” numbers, with all cards of a given 4 4 Charge ’ ’ number together. The cards are then placed in files provided for the purpose, with index cards separ- ating the different “Charge” numbers. Cards for “Charge” number 14,450 remain in this file until our lot of eighteen-inch lathes is completed. When this lot of lathes is finished and the cards are all in, all of the cards now filed under 4 4 Charge ’ ’ number 14,450 are run through an adding machine. This ma- chine automatically foots up the totals of hours and wage costs for the entire job directly from the punch marks on the cards. These totals from the adding ma- chine are then “posted” into permanent records, and the cards are replaced in their file to await calls for further information. When there is much data to be assembled the advan- tages of this system are apparent. For some of the in- formation on the cards there may never be any call. But the cards are filed under the 4 4 Charge ’ ’ numbers and the more detailed data is not worked up until something spe- cific is required. ^ If, for example, the cost of the one hundred head- stocks used in eighteen-inch lathes is wanted, all that is necessary to do is to run through the machine all of the 4 4 Charge 14,450” cards so as to pick out 4 4 Group 55.” Then add up the amounts to get the wage cost. On the other hand, if you wish to find how long a certain machine tool worked on this lot, assort all the 4 4 Charge 14,450 ” cards by the machine column and add the number of hours on the cards which assemble them- selves under the machine number wanted. The assorting and adding machines effect a great sav- ing of labor in your cost department, since you need 200 GRAPHS AND STATISTICS fewer and cheaper clerks. There is less chance for errors because when once the cards are properly punched, the machines are bound to do the work correctly. But the most important consideration of all is the speed with which you get your results ; under this system you can have the cost of a lot the day following completion, whereas under other methods it would take a week or so to post the records and compile the data. A LMOST every large concern that started twenty years ago ^ and is successful today , could today duplicate that success . You can he a Wanamaker , a Marshall Fields or an Altman, if you personally attend to your store, look after your window displays, watch your business and study it thoroughly . You can become successful just as easily as these big men have done before . It depends upon how you study your business and how much you love your business . — Samuel Brill President, Brill Brotheis I