The daily banner. (Cambridge, Md.) 1897-2008, 1917-09-19
SUCCESS VERSUS
A COST SYSTEM
| Necessity of knowing The Basic Ele-
meut For Computing Profits.

not only 10 metal manufacturers ,Dul
to contractors and business men gen
, orally Portions of the report are
as follows:
! The three elements entering into
the cost of manufactured goods are:
l. Material
;. Labor.
;. Overhead.
Material consists of two general
classes:
|. Direct material
:. Indirect material.
. Direct material is the substance
! from which products are made \G1
! which can be conveniently charge
against the particular order. Job or
. article manufactured.
Indirect material is that which is
used in the process Of manufacturing
, but enters in such Il manner that 1t
cannot be definitely located and con
veniently charged TO the product be-
: cause of the great amount of detali
and labor involved. Items of indi-
rect materials are waste, oils. small
! tools, emery cloth, betting, etc.
The cost of material should in
I clude the purchase price, freight and
carriage. and other expense required
: in the delivery and all charges ac-
cruing up to the point of manufac-
! ture.
! The cost of direct materials should
/ be charged in its entirety, waste OF
: salvage not considered, except in
! those cases where the value of thee
: waste and salvage is of such impor-
! tance to be taken into consideration.
Indirect materials should be char
ged 10 overhead expense
/ The value of materials is of vital
/ importance to the costs entering into
a job or order and should be so han
! died that the correct value is at
| tached 10 the same, so that in tigur-
! ing the current manufacturing cost,
! the materials should be priced at ac-
tual cost; that is. material purchased
at one price should all be taken out
at that price before using the price
at which the next or succeeding lot
was taken in. However. where the
value of material used on an order
is small or where the material is
of class which tiuctuates little in
value from time to time. average
costs may be used.
Materials when purchased should
be covered by purchase orders plac-
ed on file and checked against the
material upon its receipt. an entry
being made on the stock card or in
ventory record
The second element of cost is la
Dor, and this, like material, is dIvid-.
ed into two classes, one of which is
called direct and the other Indirect.
siss; is tsa. Y hicts IS tec,
directly to the job and can be so
charged.
Indirect labor is that which can
not be definitely allOcated to a par
ticular job, but must be charged to
overhead expense, either proportion
ately to departments or in its entire
ty to general expense.
Items of indirect expense are SUI
perintendence. oiling, machinery, re
pairs. shop clea ming, etc.
There are "ariO"i methods OIL
pl omptly recording labor IN its iii
rect application to Jobs, one Of which
is where the workman makes rec
CrG of the time he spent on each job.
and another is Waere 4 department
clerk or a foreman records the time
of the workman, either in pencil or
by use of mechanical devices, known
as time stamps.
The third element of cost and the
one most difficult to charge definitely
is that of overhead. All charges that
cannot be definitely allocated become
overhead expense. The totals of the
various overhead accounts should be
distributed to the departments to
which they belong in proper proper
tion as may be determined.
The committee finds that no Spe-
citic and definite methods of distrib
uting the overhead can be recon-
mended, but that some general meth
Cd should be adopted Almost any
method will cover some conditions
and prove fairly satisfactory, but
the committee has endeavored to
outline a method that will not break
down when the conditions become
complex.
Items covering anything pertain
| ing to space occupied, such as rent
and taxes, may be distributed on the
basis of area. Items pertaining to
the value of buildings and equipment
such as insurance and depreciation,
may be distributed on the basis OF
dl 1lSlllS GOV GIluS tApSnSSS
not associated with rent or taxes or
building and equipment valuation,
commonly called fixed charges, may
be distributed by one of two meth
ods:
(a) By arbitrary apportionment
to each department.
(b) By one of three ways in gem
eral use as follows:
|. Proportion of hours worked.
2. Percentage of direct wages.
). Percentage of prime or mater
ial cost
For purposes of standardization,
this committee recommends the use
of the hours worked method, where
1t is not obviously incorrect TO do so,
since the time element is more uni
form than the rates of wages paid.
| This is done by taking the total ma
chine or man hours worked and dis
tributing the total expenses in pro-
portion to the machine or man hours
worked in each department.
All charges should be closed out
and costs aScertained monthly, dS eX-
perience has shown that six months
or Il year is too long a period to wait
to compute accurate costs. If Condi-
tiOns require remedying they should
be corrected Immediately and not six
months or a year later, when the
concern may have passed into the
| hands of a receiver. For purposes
! of efficiency it is necessary to know,
as nearly as possible. actual condi-
/ tiOns at the time Of happening.
We hesitate to go into the con-
! struction of a system of accounts, as
! the average person with a statistical
turn of mind can arrive at fairly re-
j liable results, independently of the
! general accounts. On the other
! hand, any bookkeeper with a little
/ thought can devise accounts that will
| interlock with an accurate cost sys-
TEN.
Perfect results should not be i'm