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Henry Julius Lunt.

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= 1%


5




Exps.












Wages 270












Coal . 200












Elec-












tricity 150












Re-












pairs 220












Sacks &








s




Sun-












dry












Chgs. 115












Deprecn.












Plant 170


1,125


6








5,740 98,875 :40 2




5,740


98,875



THIRD ACCOUNT




TRADING AND PROFIT AND LOSS ACCOUNT.




Month of January.


19

Jan


'l. To Stock of
Flour . .


Tons.
3,090



51,875


19..
Jan. 31. By Sales . .


Tons.
6,475


115,000




31. ,, Manufac-
turing A/c.

Less Stock
Jan. 31 .

Gross Profit


4,635


87,000








7,725
1,250


138,875
25,000


6,475


113,875
1,125


6,475 | 11 5,000


6,475


115,000



SINGLE (OUTPUT) COSTS
PROFIT AND LOSS ACCOUNT.



15







on










Sales.






19..









19..


Jan. 31.


To General Exps.
viz.
Office Salaries


07


85


Jan. 31. By Gross Profit . . . 1,125
(=98% on Sales)




Sundry Exps.


03


30






Travellers .




120






Advertising .


04


50






Carriage . .


3


340






Discount


07


75






Interest . .


05


60








66%! 760




n


Net Profit. .


32 365








98% 1,125


1,125



cost per unit can be worked out ; this cost will be found
important in all comparisons.
The gross profit must be arrived at

(a) By ascertaining actual value of stocks ; or

(b) By charging to Manufacturing Account material
put in hand and crediting finished stock and estimating
work in progress ; or

(c) By assuming a percentage based on experience.
There will usually be a steady relation between quantity

of material used and quantity of output and work in
progress, but fluctuations in price must not be disregarded.

A Monthly Expense Summary should be prepared from
the Nominal Ledger, and after suitable adjustment as
regards outstanding or prepaid items the expenses for the
month are obtained.

In the calculation of expenses the monthly quota must
not represent merely purchases of stores, e.g. coal, repair
material, oil, etc., but stocks on hand must be taken into
account and net amounts consumed only must be charged
up.

At the conclusion of the financial year the totals of the
accounts on these lines will necessarily agree with the
financial results.

The Trading Results, whether annual or monthly, should
be tabulated in parallel columns over a series of periods so
that costs can be compared and unremunerative expenses



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18



MANUAL OF COST ACCOUNTS



promptly checked. The value of such comparative
record cannot be over-estimated.

Specimen Cost Sheets.

The Colliery and Steel Works Cost Sheets here shown
are prepared similarly from the financial books and pro-
duction returns. For the setting out of comparisons
recourse should be had to the use of graphs showing the
results in diagrammatical form.

SUN STEEL WORKS.

WEEKLY COST SHEET.
For week ending 22nd November, 19..
Week's Production
1,800 tons.



Per ton
Steel
Produced.




Total.


Per ton
Produced.


Cwts. 15.5
4.3
2.0
2.0

8.0


Pig Iron . 1,395 tons
Scrap . 387
Iron Ore . 180
Limestone . 180
Coal . . 729


11,160
3,483
630
180
864


640
1 18 6
7
2
9 6




Less Sales of Scrap, Mill Cinders and Scale


16,317
830


9 1
9




WAGES
Smelting Furnaces and Gas Producers
Ladles and Casting Pits
Rolling Mills
Cranemen and Labourers .
Boilermen and Engineers .
Locomotive Drivers and Yardmen


15,487

2,250
1,350
1,350
1,080
900
90


8 12

1 5
15
15
12
10
1




PRIME COST
DIRECT EXPENSES
Sundry Stores : including oil, waste,
millgrease, saw blades
Rents and Rates of Works .
Coal for Re-heating ....
Coal for Steam
Gas, Water, Electricity
Timekeepers and Store Clerks
Repairs and Renewals
Depreciation .
Royalties


22,507

180
225
270
675
720
45
270
450
90


12 10

2
2 6
3
7 6
8
6
3
5
1




WORKS COST INDIRECT EXPENSES
Management, Salesmen, and Office
Salaries and General Expenses, in-
cluding Interest, per Schedule.


25,432
2,380


14 2 6
1 6 6




Net Cost at Works .


27,812


15 9



CHAPTER IV

DEPARTMENTAL COSTS

IN a business where a single product is turned out, the
method of Single Cost can be adopted, but offshoots
spring up in course of time, and a successful concern
turns out several types of work, or will undertake branches
of trade outside its original scope of transactions, e.g.
an engineering business may lay out a foundry or take up
electrical work ; and in general industrial businesses these
conditions invariably apply.

In these circumstances there is no single unit of produc-
tion, and where a business is making two or more clearly
defined varieties of goods, it is best to commence the
organization of a costing system by splitting up into
various departments, for each of which separate records
can be obtained. It is almost invariably found when this
is done that one department carries part of the expenses
of, and, maybe, losses incurred by another.

Departmental Cost is the method employed to ascertain
the profits of departments of a business.

The classifications of departments is a matter for decision
on practical grounds ; in some cases the material used may
determine the division ; in other cases the nature of
the machines in use, or the character of the labour
employed.

It is essential, first, to prepare a detailed schedule of the
work done in each of the departments, including also
particulars of the stocks held on behalf of each, so that
the records do not become confused at different stages.

Purchases must be analysed in the Purchase Invoice
Book or a separate Purchases Book used for each
department.

19



DEPARTMENTAL COSTS



21



Sales must be similarly analysed in the Sales Book.

SALES BOOK.



Date.


Name.


Fo.


Total.


Silks.


Cottons.


Woollens.








s. d.


s. d.


* <*


* <*.



Wages must be made out separately for each department,
and in the event of some workers having booked time in
more than one department, the correct amount must be
recorded in each and the total arrived at in a final summary.



SUMMARY OF WAGES BOOK.





Gross







Silks Department Total
Cottons


125
154


Woollens


137




417


Staff-




Foremen, Storekeepers, and
Timekeepers ....
Engineers ....


15
12


Office


22




467



10



es.


Deductions.


Net.


d.





s.


d.





s.


d.


6


3


6


6


122


11





7


5


13


_


148


10


7


2


4


9


4


132


12


10


3


13


8


10


403


14


5


6




6


6


15


4


_


_




5


_


12


9


_


6




7


6


22


2


-


3


14


7


10


453


9


5



Materials transferred from one department to another
must be supplied only against written requests. These
will be summarized, and a Departmental Transfer Summary
prepared to Show the departments supplying and receiving
respectively.



DEPARTMENTAL TRANSFER BOOK.
SUPPLIES TO SILKS DEPARTMENT.



Week






From Cottons


From Woollens


ending.


DETAILS.


Total.


Department.


Department.






f


s.


d.


f


s.


d.





s.


rf.


Jan. 24


Requisition 524
527 . .


15


2

4


6
3


10


2


6


15


4


3





536 .


7


15


9


7


IS


9









22 MANUAL OF COST ACCOUNTS

The Summary Totals can then be journalized to debit
and credit of departments affected. Such materials,
whether partly manufactured or not, must be priced at
cost (plus value of work done) without any addition of
profit.

A difficulty arises in determining the values in respect
of the correct addition for works expense : this addition
cannot be obtained by reference to the total amount of
the transfers made, but must be based upon some factor
more nearly related to the amount of work done to the
material, and hence the cost of wages expended upon it is
generally the fairest basis. The departmental factory
expenses will bear an ascertainable ratio in each depart-
ment to the direct wages, and this ratio should be added in
making up the cost of the goods transferred to other
departments.

General Expenses and Selling Cost are not chargeable
except as an addition to Finished Goods when sold and
despatched.

Stocks and Stores Records.

Stocks must be classified departmentally and individual
stock records in a Stores Ledger shown on the following
page will be found useful.

Supplies of material from stores to departments must
be recorded by means of Issues Notes and totalled in a
Raw Material Summary which will give the total raw
material week by week to charge to each department.

Factory Expenses.

Expenses and indirect wages chargeable to one depart-
ment or another must be allocated accordingly. The
distribution of general or indirect expenses including
general wages charges, presents some difficulty. The
division is sometimes made on the basis of direct wages
paid in each department ; but it is essential for accuracy
that the general factory charges should be apportioned



DEPARTMENTAL COSTS



23



after ascertaining the actual facts by careful analysis on
the following lines, and this subject will be found referred
to in greater detail in a later chapter.



Dr.


STORES LEDGER.
INWARDS.






Date.


Invoice.


Supplier.


Quality.


Quantity.


Price.


* d.





















Cr.



OUTWARDS.



Date.


S.

Dept.


C-
Dept.


w.

Dept.


Week's
Consumption.


Price.


Value.


Balance on Hand.


Quantity.


Value.














s. d.




. A,



A Departmental Oncost Rate should thus be arrived at
and may be based upon

(a) Direct Wages.

(b) No. of employees working hours,
or (c) No. of units produced.

This will furnish a useful basis of comparison from time
to time and serve as a guide in checking allowance for
works expense in estimating the cost of individual orders.

The final presentation of results may be in the form to
a Manufacturing Account or a Cost Summary ; and the



24



MANUAL OF COST ACCOUNTS



Cost Records can be usefully prepared in a Cost or Depart-
mental Ledger which will accumulate the results until
the stocktaking figures make a reconciliation with the
financial books at the close of the period.



APPORTIONMENT OF EXPENSES.





Use.


Basis of Division.


Coal

Rent, Rates, and Cost of
Heating ....
Electricity or Gas

Repairs . " .
General Factory Wages
and General Services

Sundry Stores .
Depreciation


Power

Power
Lighting


Power required to drive machinery in
different sections.

Areas occupied by section.
As for Coal.
Number of lights in each section.
According to actual expenditure.

Unless circumstances recmire otherwise,
according to totals of di.ect wages in
each section.
According to actual use.
According to inventory value of machinery
and plant.



EXAMPLE OF EXPENSE APPORTIONMENT.





Total for week.












Adjusted as to








General


ITEM.


outstanding or


Silks.


Cottons.


Woollens.


Services.




prepaid amounts.










Rent and Rates


30


&


f


5


1


Electric Power


120


50


20


40


10


Coal heating


25


10


5


5


5


Tools


15


10


_


5


_


Repairs


50


30


5


5


10


Wages-












Engineers' Staff


40


11


8


16


5


Storekeepers


30


10


10


10


_


Sundry Stores


20


10


5


5


-


Insurance .


10


5


2


3


_


Superintendence


35


15


5


15


-




375


166


65


109


35


General Services




10


9


16








176


74


125





Value of work in progress and finished goods unsold
must be obtained week by week as closely as possible.

In many businesses where the amount of Work-in-Process
and Finished Stock is small or stationary, the credit to
Manufacturing Account may be taken as actual sales, but
where the stock of finished goods fluctuates, the credit of
Manufacturing Account should be made up from a weekly









Q
W



w -ax

Ml



2 5



Q






1151



s s s



'-Li
'



-J2- - . ja >f



DEPARTMENTAL COSTS 27

Production Record instead of from the Day Book totals.
This Production Record will give in detail the output of
each department, the Total Works Cost or Cost of Pro-
duction of which is represented by the net charges to the
Manufacturing Account. This total will be transferred
to Finished Goods Account ; and that account, after
stock on hand is deducted, will show the cost of goods
sold.

Administration Expenses .

These include



SELLING EXPENSE

Commissions.

Travelling.

Advertising.

Discounts.
DISTRIBUTION

Carriage.

Branch Offices.



OFFICE EXPENSES
Salaries.



Stationery and General
Expenses.

Audit Fees.
MANAGEMENT

Salaries.

Commissions.

Directors' Fees.
DEPRECIATION

(Not charged to Factory.)
INTEREST ON LOANS.

Allocation of these expenses may be at a percentage
on Works Cost (or upon the amount of sales) in each depart-
ment with the exception that if any particular expense is
incurred on behalf of any department (e.g. warehousing
or interest charges upon special stores ; advertising),
the allocation should be varied accordingly. This subject
is considered in more detail in Chapter X.



3-{1765)



CHAPTER V

PROCESS COSTS

PROCESS Costing is used to ascertain the cost of each
stage of manufacture where material is passed through
various operations to obtain a final product or result ;
with by-products in many cases at different stages.

Process Costing is used in Chemical Works, Refineries,
Food Producing Factories, Dyeworks, Bleaching and
Finishing Works, and the Textile Industries generally.

In these accounts the object is to arrive at the results
at different stages of manufacture for comparison and
pricing purposes. An account is required for each stage,
which is debited both in quantity and in values with
material in hand and fresh material. It is credited with
by-products.

Similarly wages are analysed into corresponding stages
and expenses apportioned on the same plan. The cost
of the process is then shown by a compilation of these
three sources of information, taking into account the
quantity of the product obtained, which in the inter-
mediate stages passes forward to the next process.

A distribution of works expenses may be made on the
basis of productive wages in each process, if this is found
to give sufficiently accurate results, or may follow the lines
already indicated for Departmental Accounts.

By-products are credited to the process in which they
are produced and it will be found that, if the value of
by-products is less than the cost of original material, as
is often the case, the cost of the resulting product is
thereby greatly increased. Thus the cost of the process
does not only consist in the running expenses but in the
loss in weight when the final product is recovered.

A modification of this plan is necessary where a stock

28



PROCESS COSTS



29



EXAMPLE OF PROCESS COST ACCOUNT FOR WORKS EMPLOYING

CHEMICAL PROCESS.

THE SWAN OIL REFINERY, LTD.

REFINING ACCOUNT FOR WEEK ENDING ?TH JANUARY

Dr. CRUSHING ACCOUNT. Cr.





Tons.





s.


d.




Tons.


c *.


To Kernels .


1,000


30,000


_


_


By Crude Oil to






Wages .
Power & Steam




400
150


:


:


Refining A/c.
Cake to Cake


500


28,675 -


Repairs & Stores
Rent, Rates, &
Expenses




50
175






Sales A/c
Sundry Sales
A/c (Bags,


400


2,000 -












etc.). .




100












Loss .


100






1,000


30,775




-




1,000


30,775



Dr.



REFINING ACCOUNT "A.'



Cr.





Tons.





5.


d.




Tons.


s.


To Crushing A/c
Sundry Materials
Wages


500


28,675
250
120


-


-


By Finishing A/c .
Sundry Sales A/c
Residual Oils


450


28,520 -


Power and Steam




135


_


_


and Fats


40


800


Rent, Rates, &










Loss in Process.


10




Expenses




140














500


29,320








500


29,320 -



Dr.



REFINING ACCOUNT "B" (FINISHING).



Cr.





Tons.





s.


d.




Tons.


*


To Refining A/c "A"
Wages
Barrels


450


28,520
125
3,000


-


-


By Sales Account .
Sundry Sales .
Loss in Process.


447

1


31,900 -
45 -


Power & Steam




200


_











Rent, Rates, &
Expenses




100


-


-










450


31,945








450


31,945 -







Total Cost.


Process Cost.


Cost of Raw Material .
Crushing Process
Crude Oil
Refining Process
Refined Oil
Finishing Process
Finished Oil .




s. d.
30 - - per ton

57 7 -
63 7 6
71 7 4


s. d.
27 7 - per ton
6-6
7 19 10



account is required for partly manufactured material at
each intermediate stage ; and in this manner the method



30



MANUAL OF COST ACCOUNTS



shown may be adopted for obtaining the average cost of
manufacture of articles which are not entirely identical ;
the average cost is useful for comparison from one period
to another and serves to check the detailed estimates of
individual costs where allowances will be required for
greater or less expense of manufacturing a particular type
according as the size or complexity of the type in question
exceeds or falls below the average.

Gas Works Accounts.

The following outline shows a form of accounts where
there are a number of valuable products obtained from the
treatment of waste material. The difficulty that specially
arises in these accounts is that a value has to be placed
upon material for which there is no market price, and a
further difficulty in accounting for the quantities used
occurs where solids are converted into liquids, or gases
or liquids re-converted into solids. The use of standard
formulae based on the normal product of each process
makes this possible.

GAS, COKE, AND RESIDUAL PRODUCTS.

Pro formd Account, illustrating stages of manufacture
and expenses charged at various stages

TRADING ACCOUNT FOR__



To Carbonization A/c
Purification A/c
General Expenses

Classified under distin-
guishing heads



Manufacture of Gas.



By Sales of Gas ...
Sundry Income
Profit on Sales of
Dehydrated Tar
Benzol ....
Sulphate of Ammonia,
etc



CARBONIZATION ACCOUNT.



To Coal used . . .
Wages-
Retort House
Repairs, Renewals,
and Maintenance.


Tons.





s.


d.


By Coke & Ashes sold .
Tar and Liquor A/c
Trading A/c
Cost of Gas made


Tons.


(. s.






\







PROCESS COSTS



31



PURIFICATION ACCOUNT.



To Lime used .
Oxide used





s.


d.


By Sales of Spent Oxide . .
, Trading A/c ....


Wages ....























By -Products.



TAR AND LIQUOR ACCOUNT.



To Carbonization A/c .
Value of Tar and
Liquor made .


Tons.





s.


d.


By Crude Tar sold
Liquor sold . .
,, Tar Dehydration A/c
Motor Benzol A/c .
Sulphate of Am-
monia A/c


Tons.


s.















of By- Products.



DEHYDRATED TAR ACCOUNT.



To Crude Tar used
Cost of Steam
Fuel, Wages, and
Maintenance .
Profit and Loss A/c.


Galls.





j.


d.


By Sales of Dehydrated
Tar ....


Galls.











MOTOR BENZOL ACCOUNT.



To Crude Material . .
Wages ....
Stores ....
,, M'ahitenance
,, Profit and Loss A/c.


Galls.





s.


d.


By Sales of Motor
Benzol . . .


Gall?.


s-















SULPHATE OF AMMONIA ACCOUNT.



To Crude Material
Sulphuric Acid
Wages . .
Stores . .
Maintenance
Profit and Loss A/c .


Tons.





s.


d.


By Sales of Sulphate
of Ammonia . .


Tons.


*



















32



MANUAL OF COST ACCOUNTS



WEEK ENDING

No. 1. PROCESS STAMPINGS.





No. of
Com-
pleted
Parts.


Value.




Cost
per
Unit.


No. of
Com-
pleted
Parts.


Value.


To Material from Stores. .
Wages . . . . .




120


By Stock A/c
Cost each


d.

4-25


30 000



531


Expenses per Charges
Allocation .
(= 87-5% on Wages




105














531








531

KIW



No. 1. STOCK ACCOUNT.



To Stock of Stampings . .
Process A/c ....

1
To Stock A/c


1,150
30,000


531


By Process No. 2 A/c
Stock c/fd.
@ 4-25d. . .

ESS ACCOUNT.
AND TESTING.

By Stock A/c . .
Sales of Scrap .
Work in Process .
Cost of Process .

Cost each .

:K ACCOUNT.

By Process No. 3 A/c
Stock c/fd. . .

CESS ACCOUNT.

NISHING.

By Finished Stock
A/c . . . .
Cost of this Pro-
cess ....


d.

d.
5-3


28,000
3,150


500

56


31,150


556


31,150

25,000
500
2,500


556

5
81


Jo. 2.

ASSEI

28,000


PROC

4BLING

loo

200
250
130


Material from Stores . .
Wages


Expenses


(= 52% on Wages)

To Stock of Assembled Fit-
tings
,, Process A/c ....

To Stock A/c
,, Packing
Wages


28,000

No. 2.

50,000
25,000


1,080
STOC



2,000
994


9-55
d.

d.
8


28,000

MMCcaMK

40,000
35,000


1,080

^^Mi

1,598
1,396


75,000


2,994


75,000


2,994

C0SKSWB


1,723


No. 3
40,000


. PRC
Fi

1,598
20
75
30


40,000


Expenses


(= 40% on Wages)



Cost each



PROCESS COSTS 33

In compiling the Process Accounts shown on p. 31 each of
the items shown will be made up by grouping the separate
expense charges concerned ; to facilitate accuracy and
uniformity these expenses dissections should be carefully
denned and standardized by means of Expense numbers
or cost numbers for the main headings, and with
sub-numbers for detail divisions ; and under these
numbers the wages and materials are most conveniently
dissected.

This method will facilitate the handling of the expense
items ; and also form a very suitable basis for instituting
the use of the Sorting and Tabulating machines. The
totals of wages and sub-divisions to Cost Nos. ; and totals
of weekly Stores Issues with dissection under Stores
Accounts Nos., and (after re-sorting) under Cost Nos. can
be promptly obtained and posted with a minimum of
clerical work and delay.

Example of Process Cost Account is given on p. 32 for
ascertaining and comparing cost of manufacture in the case
of a business making a Standard Article by repetition work
in a series of well defined stages : as in the manufacture
of brass incandescent gas burners by stamping ; assembling
and testing ; and finishing departments.



SUMMARY OF PROCESS ACCOUNTS.





No. 1
Process.


No. 2
Process.


No. 3

Process.


TOTAL.


To Work in Process (if any)
Material
Stock Accounts
Waste .
Wages .
Expense


306
(less
(credit)
120
105


200

) <<.

250
130


dd) 604

~75
50


m

5
445
285


Less Work in Process car. forwd. .


531


544
81


729


1,804
81


Gross Cost .


531


463


729


1,723


No. Completed ....


30,000


25,000


40,000


40,000


Cost each


4-25d.


5-3d.


8d.


10-35d.



34 MANUAL OF COST ACCOUNTS

METHOD OF VALUATION OF WORK IN PROCESS.

WORK-IN-PROCESS No. 2 PROCESS ACCOUNT.
= Material 700 x 2.500

(2,500 Parts in 27,500 = & 6

process)

= Wages and Expenses 380 x 1,250

(2,500 Parts in 26,250 = ^ 18

process taken as

1,250 parts com-

pleted) 81




CHAPTER VI

TEXTILE ACCOUNTS PROCESS COST METHOD

PROCESS Cost methods are adopted in the textile industries,
the cost per Ib. of yarn or per yard or per piece of cloth
being ascertained.

Spinning Mills.

The cost divides itself into two parts

(a) Cost of cotton (or other material) ;

(b) Cost of wages and expenses.

The average cost of cotton will be found from the
periodical Trading Accounts, which should be set out to
show net consumption per Ib. of yarn produced.

The cost of cotton enters into Manufacturing Cost apart
from initial cost price on account of

(1) Waste in processes diminished by value of waste
sold ; and

(2) Loss by weight in processes through drying
diminished by subsequent absorption of moisture by the
yarn. t

An advance in *price of cotton therefore means an
enhanced increase in cost of production of yarn.

The fineness of yarn is measured in counts, the counts
being the number of hanks (of 840 yards) contained in
1 Ib. of yarn ; so that the cost of cotton per Ib. of yarn
shown in the Trading Account will be the average cost,
or the cost for the average counts produced by the mill.


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