jobs ; but the normal cost of completed work will be the
cost of direct material which will from the outset be charged
upon it, plus the allowance to each department for work
Oncost rates for departments or machines will be required
for such calculated costs and for charging from one depart-
ment to another any work done in one department originally
allocated to a different one.
Duties of Cost Office.
The chief duties of the Cost Office thus are
(a) To maintain correctly the routine in connection
with the keeping of the Cost Ledger, entering therein
to each account the cost of
Material from the Requisitions ;
Special purchases and disbursements from the
Counting House books ;
Wages from the Wages Abstract ;
Expenses or Oncost at the rates fixed.
(b) If responsible for prices, to see that these are based
OP, actual cost.
154 MANUAL OF COST ACCOUNTS
(c) To ensure clerical accuracy by observing that
material and wages charged to each contract or order are
in accord with the specification of the respective Works
Order and that Wages Abstract is agreed with gross
wages of Pay Roll ; and Stores Issues Summary agreed
with credits to Stores Accounts.
(d) To maintain frequent reconciliation between the
expense or oncost charged in the Cost Ledger and the
current expenses as shown by the financial books.
The Accounts Department should compile the monthly
expenses summary with the assistance of the Cost Office
dissections ; and the Cost Office uses the monthly expense
summary for departmental allocations.
(e) To allocate correctly expenses as between depart-
ments in fixing rates in accordance with the burden
that should be borne by each ; and to distribute Jsuch
expenses over the work on sound principles.
(/) To issue instructions as to cost sheets in use in
the works, and to see that these are strictly complied
(g) To take steps to ensure the handing in promptly
to the office of the necessary records as compiled in the
works, duly certified by the officers responsible (foreman,
storekeeper, supervisor), and to take charge of such
(h) To install a system of preservation of records and
of easy reference thereto.
(*) To establish methods of routine to keep in touch
with the Counting House as to raw material purchased,
wages paid, expenses analysed, etc.
The work must always be up-to-date, and so arranged
as to provide information to the management immediately
it is called for.
Machines for Reducing Costing Work.
Machines in use for obtaining results more speedily and
with less clerical labour include the Burroughs Adding
WORKS ROUTINE 155
Machine, the Comptometer, and other calculating machines ;
the Wages Payroll Machine ; Ledger Posting Machine ;
the Hollerith Sorting and Tabulating Machine, the Powers'
Machines, and similar appliances. The sorting machines
work with cards on which the records are punched instead
of being written. The machine can be set to sort these
into any desired classification and the totals can be
quickly obtained in the tabulating machine. These are
economical where the records run into many thousands,
but the usual type of adding machine can be put to
advantageous use in all large offices.
OPERATING (WORKING) COSTS
IN this class are included the costing records of railways,
tramways and similar concerns performing services rather
than producing goods, where there is a single unit as in
Single Costs, but of a different type.
Hence the work performed is measured in train-miles,
wagon-miles, or ton-miles ; car-miles or passenger-miles.
Classification of expense is made under each heading of
cost, such as in the case of railways
Maintenance of Ways, Works and Stations, including
Staff and Repairs ;
Locomotive Power, including Staff, Fuel, Oil and
Carriage and Wagon Repairs, including Staff, Wages
and Material ;
Traffic Expenses, including Staff, Stores and Cartage
A more usual example occurs in the case of motor
haulage businesses. The costing is made from drivers'
diaries of loads carried, which are summarized in a weekly
statement. A comprehensive weekly return is then
prepared from these statements.
The amounts from the weekly summaries should be
totalled week by week until a quarterly sheet is obtained,
which should be agreed with the financial books, and
thus furnish a valuable analysis of the costs.
The unit of a ton-mile represents the carriage of 1 ton
for 1 mile ; so that the total ton-miles is the sum of the
products of miles and tons on each load.
OPERATING (WORKING) COSTS
THE SYREN MOTOR HAULAGE CO.
SUMMARY OF DRIVERS' WEEKLY STATEMENTS FOR THE WEEK ENDING
Total Miles .
Total Loads in Ton-
Wages . .
Cost per Ton-mile
By Supplies to Motor 1
Loss in Quantity
Balance in Hand
Maker : Austin.
Date of Purchase :
October 15tb, 19..
per Ton- mile.
MANUAL OF COST ACCOUNTS
A detailed record of Petrol, Oil, Tyres and Repairs is
maintained ; also a record of cost in respect of each
machine, showing the number of miles run and quantity
of load carried in ton-miles.
OPERATING STATEMENT OF ELECTRICITY GENERATING STATION.
FOR HALF-YEAR ENDING 31 ST DECEMBER, 19..
OUTPUT 200,000,000 UNITS.
To Generation of
Coal . .
By Sales of Electric
Light, Power, Heating .
Buildings . 3,200
Machinery . 40,400
By Sales of Steam .
Salaries . . 6,000
Wages . . 26,000
Sundries . . 3,000
Street Lighting 1,000
Mains, etc. . 37.202
To Rent and Rates
Net Profit . . .
COST RECORDS AND REPORTS
THE need for correct detail in Expense Accounts cannot
be too strongly emphasized, and the allocation of expense
should be made on equally accurate lines, so that the
expense charged at any point may be traced and verified.
Authority in the Purchase Department may be specific-
ally delegated to those who have close acquaintance with
different classses of materials, with buying limits in each
case and close control of the exercise of buying discretion
may be secured.
Supplies of Sundry Stores and Small Tools to individual
shops may be controlled by a system of rationing ; any
excess beyond the scheduled allowance requiring special
The extent to which foremen are familiarized with
works expense varies, and there is much to be said for
a system by which each foreman is given month by month
a summary of such expenses chargeable to his shop as
come under his direct control : e.g. cost of indirect labour ;
cost of sundry stores ; general repairs ; so that by acquiring
his appreciation and interest these and similar items may
be economically managed.
On these lines a regular system of expense reports,
subdivided in classes corresponding with the respon-
sibilities of director, managers and foremen, and giving
the detail of each expense in separate schedules at each
stage, may be a means of obtaining effective control of
Similar management reports on production, with analysis
showing production per hour ; per machine per hour ; or
MANUAL OF COST ACCOUNTS
production per man per hour, and comparisons with
previous records and corresponding periods of other years,
cannot fail to prove their value. Similarly, reports of
SCHEDULE OF WORKS EXPENSE.
GENERAL WORKS EXPENSE
Power House ....
SHOP EXPENSE ....
Rent and Rates . . .
Insurance, Heat, and Light
Indirect Wages ....
Idle Time .
cost per unit in different operations can be adopted in
Where it is possible to arrive at a standard unit of
production, the cost of productive wages and shop expenses
may be usefully measured in terms of such a unit ; and the
number of units per hour of working time in different
periods may be usefully compared. Even if the same unit
is not applicable throughout the factory, different units
may be used in different departments and the advantage
of periodical comparisons is obtained.
A common unit may be based upon the number of tons
of finished work ; or the number of units of specific articles ;
or the products may be individually rated in points based
on the number of labour hours estimated to be required
in doing the work. Reports are then required to show the
number of units per hour week by week from each depart-
ment and the amount of productive wages per working
hour, and consequently wages per unit of work. Similarly
shop expenses in each department per working hour and
COST RECORDS AND REPORTS 161
consequently shop expenses per unit of work. Where a
variation of these records shows inquiry to be necessary
the details of shop expenses or workmen's time on different
jobs will indicate the cause.
In some cases a uniform unit can be applied to the whole
of the production of a factory. In the rubber industry,
for example, the material will proceed from one stage to
another in exactly the same form up to the moulding stage,
and will then be treated in the different ways for the purpose
of producing different articles. The cost per pound of
finished products will not indicate correctly the actual
cost of any of the products, but if the assortment of pro-
ducts remain normal the cost per pound will be a useful
efficiency index and the individual costs of specific products
may be obtained by calculation or will vary in accordance
with scheduled percentages above or below the average.
The expense of maintaining detailed cost systems can
by this means be very largely avoided and a simpler plan
of cost resorted to, by which the total weekly or monthly
production costed out on the basis of the average cost plus
or minus the known percentages, will absorb the direct
and indirect charges involved in the production.
In addition to the Cost Ledger Accounts, a detailed
record of Buildings, Plant and Machinery should be kept
in the Cost Office.
BUILDINGS RECORD. The rulings on the next page for a
Buildings and Fixed Plant Ledger will show the informa-
tion that should be recorded therein. The values must
be written down to provide for the time when replacement
will have to be made, and the register will show the amount
at which each item stands from time to time.
Expenditure upon repairs and alterations should be
entered, but is not added to the value.
Expenditure upon additions and extensions must be
MANUAL OF COST ACCOUNTS
added to values at date and depreciation must be increased
Sufficient space must be given to each item to allow for
additions and notes of repairs.
BUILDINGS AND FIXED PLANT LEDGER.
PLANT AND MACHINES. A ruling for a Plant Record is
given on the next page ; a separate account or card serves
to record the history of each machine.
The location of each machine must be recorded in an
inventory which should be checked off month by month
to ensure that all additions are included in the records
and that depreciations are correctly allocated.
Works repairs and works extensions, as executed in
the factory, will be analysed when completed to
determine the charges to be made to Expenses as repairs
and renewals, and to Plant Account as additions or
Card Ledgers or Loose-leaf Ledgers are desirable for the
above, and any fuller details that may be required can
also be recorded.
DEPRECIATION is usually calculated as a percentage on
the value of each asset at the commencement of each
year, the rate being fixed so as to reduce the value of each
machine to scrap price at the time when its working life
will be exhausted. Another plan preferred by some
accountants is to write off yearly an equal portion of the
COST RECORDS AND REPORTS
original cost. The former has the advantage of giving a
lighter charge in the later years when repairs are heavier.
Either of these methods may be applied to Machinery
and Plant ; the percentage on cost being distinctly
preferable with machines having a short life.
PLANT AND MACHINE LEDGER.
Leasehold buildings are usually depreciated on a special
plan known as the " Annuity " method. A fixed annual
sum is charged as depreciation, debited to Profit and Loss
Account and credited to the Leasehold Account, but this
sum is fixed at such a rate as to allow interest on the
diminishing balance to be debited to the Leasehold Account
164 MANUAL OF COST ACCOUNTS
year by year. This is to regard the leasehold as an invest-
ment and treat it as earning interest which is credited to
Profit and Loss Account accordingly.
Alternatively, the Sinking Fund plan is adopted by
which a fixed annual sum is charged against profits and a
similar amount is invested either in gilt-edged securities
or in Endowment Insurance ; interest on the securities
should be re-invested, the fund thus accumulating at
REVALUATION. It is advisable to check the depreciation
calculations by valuations at intervals of a few years.
TOOLS are generally maintained in working order by
charging all renewals against profits.
PATTERNS, unless chargeable to specific orders, must be
booked to a Patterns Account, and be subjected to a heavy
rate of depreciation.
DISCARDED PLANT should be grouped in separate records
to which realized values may be credited, and any losses
ascertained and written off.
IDLE PLANT. Advices should be instituted by means
of which machines not fully used may be transferred to
shops where they would be more useful ; by this means
the need for further purchases may be avoided to some
Shop Rates should be recorded in detail in a Rates
Book, showing the total expenses under which the factory
works ; the amounts distributed as Shop Rates ; and the
resulting Oncost against work done.
Details of the cost and how it is allocated will also be
found here ; as shown in the following accounts
Dr. BUILDINGS. C'.
Total Charges for Rents
and Rates or Deprecia-
tion . . . .
d. || ||
Transfers to Shop Rates
or General Works Rate
COST RECORDS AND REPORTS
Total Charges for Depre-
ciation and Repairs .
As in Buildings Account.
Dr. GENERAL WORKS RATE OR SHOP RATES ACCOUNT.
Charges made to Work
done at Rates in force
Share of Cost in respect
Plant . . .
Heat and Light
Departmental Grouping of Expenses and Output.
An essential means of linking up the financial accounts
with the commercial operations is to arrange the Trading
and Profit and Loss Accounts on a departmental plan,
that is so as to show the trading results in respect of different
products. It is naturally of the greatest importance to
ascertain which products are the most profitable. For this
purpose the works cost of the goods manufactured must be
used as the debit to the Trading and Profit and Loss
Accounts in each department and the Administration,
Distribution and Selling Expenses must be divided between
the groups of products by careful analysis.
In some businesses a dissection into departments on
these lines can be taken to an earlier stage and the opera-
tions in the factory can be separated in the same divisions,
each distinct product having its manufacturing depart-
ments appropriated to it. In such cases the ascertaining
of the cost of manufacture of each group of products is
immensely simplified. The chief complication arises in
respect of indirect expense charges on work which is done
in one department for the benefit of another ; and it would
appear reasonable that such indirect expense should be
based upon the amount of time spent on such work at a
rate of expense charged upon that time (or as a percentage
upon the wages it represents) in proportion to the rate of
expense in the department doing the work, or the appro-
priate machine rates if particular classes of machines
have been used.
166 MANUAL OF COST ACCOUNTS
In other cases it is impossible to appropriate the manu-
facturing departments to specific groups of output, the
different articles making up the output, although dissimilar
in their final stages, use and trading markets, being manu-
factured in common at different stages in all the depart-
ments of the factory ; and where these circumstances
apply it is undesirable as it is incorrect in principle to
endeavour to load the commercial expense on to the manu-
facturing operations. Commercial operations require a
different basis for their dissection and do not enter into the
finished manufacturing cost of goods, which is the object
of cost accounts applied to manufacturing. So that the
arrangement of factory oncost must not be influenced by
expenses connected with the commercial side of the business,
the position being really that two functions are carried
on the one a manufacturing and the other a merchanting
one. The manufacturing costs should arrive at the finished
cost of the goods ; this will be the cost on which the selling
department make their calculations and this cost will be
the price at which the goods come into stocktaking. The
records in the Cost Ledger may be made up to show either
the manufactured cost or the gross cost ; but the applica-
tion of oncost covering the commercial charges will be
clearly an application of a charge which can only be
correctly made against goods which are sold and not
against those which remain on hand.
Costing Without Costs.
The primary object of maintaining cost records is to
obtain the cost of each product, but the utility of cost
records by no means ends when that has been achieved. It
is from the use which is made of the cost records and the
manner in which the incidental information obtained by
the Cost Department is utilized that the whole of the Cost
System justifies itself. Looked at from this point of view,
the compilation of Job Costs may be considerably curtailed
when the cost records are sufficiently established to enable
COST RECORDS AND REPORTS 167
calculations to be made upon the basis of standard or
normal cost, by means of the known cost of raw material,
and the calculated cost of labour for performing the required
operations ; the use of the costing records then becomes a
criticism of shop efficiency by the comparison of output
costs ; the scrutiny of costs of operations ; and investiga-
tion of non-effective or partly-effective assets, shown by
such items as obsolete machinery, idle stocks, excessive
amounts locked up in work-in-progress, etc. The efficiency
of the cost system must be shown by the value it becomes
to the management in showing up weak points by com-
parison of statistics relating to these factors with standards
which it is able to obtain and can show to be attainable.
The frequency with which stocks of raw material are
being turned over may be measured in terms of the number
of months total withdrawals represented by the stock
figure ; the value of the work-in-progress measured in
terms of the number of months completed work ; the cost
per unit of electricity in the power house, if producing its
own current ; and the Idle Time records of machines com-
pared with Overtime Records of other machines or depart-
ments will be similarly statistical records to which the
Cost Department can turn its attention. These methods
used in conjunction with a debit to departments of labour,
shop expenses, and spoilt material against a credit for the
value of the work they perform will enable the costing of
completed work to be performed upon a basis of standard
or normal costs and the check upon the shop efficiency
will be much more speedily obtained than where the
criticism of the foreman does not come about until the job
is finished and the cost worked out in detail.
The valuation of work-in-progress is the one element
which then presents difficulty and the difficulty is con-
siderably increased, in fact the system may be said to be
impossible where the work is non-standard. With
standard work valuation of work-in-progress can be assessed
by taking a conservative estimate.
168 MANUAL OF COST ACCOUNTS
Retail Branch Shops.
Supplies to branches are usually charged on a Selling
(1) To facilitate checking of stock ;
(2) To prevent difficulty in branches exchanging stocks ;
(3) Because it is not always desirable to disclose cost
Returns from branches to Head Office then take the form
of summaries of sales with cash remittances through local
bank for the amount and Stock Account showing value
(at Selling Price) of goods on hand.
Wages and Petty Expenses should be dealt with by
Imprest covering the required amount.
Managers' commissions will be based on turnover.
For financial stocktakings the values of actual inventories
must be agreed with stock figure and reduced to cost
STATISTICAL PRESENTATION OF RESULTS
IT is a commonplace assertion that statistics can be made
to prove anything, and anyone who has heard two
debaters arguing opposite points of view from the same
figures, one alleging that there is a concealed or undeter-
mined element of error which entirely upsets the conclusions
of his opponent, will readily grasp the enormous possibilities
of miscalculation which may arise in the handling of
It is clear that when figures are used for statistics
(1) They must be accurate in themselves ; or
(2) The degree of accuracy must be known ;
(3) They must be prepared in appropriate classes.
When used for comparisons, the sets compared must
exactly agree in composition.
The importance of the application of these principles
in accounts lies in the settlement of tables of comparisons,
whether of production, works expenses, wages in different
departments, or in similar fields. The accounts of a business
for one period lose much of their value if they cannot be
compared with previous and following records. Such a
comparison will be worse than useless if the accounts are
not prepared on exactly similar lines year by year (or
with known alterations of method or classification which
are clearly shown). For instance, a book-keeper may
classify catalogues in one year as printing, including such
matters as company notices ; another year with adver-
tising, where it properly belongs ; another year with
stationery, along with envelopes and india-rubbers.