Coal . 200
5,740 98,875 :40 2
TRADING AND PROFIT AND LOSS ACCOUNT.
Month of January.
'l. To Stock of
Flour . .
Jan. 31. By Sales . .
31. ,, Manufac-
Jan. 31 .
6,475 | 11 5,000
SINGLE (OUTPUT) COSTS
PROFIT AND LOSS ACCOUNT.
To General Exps.
Jan. 31. By Gross Profit . . . 1,125
(=98% on Sales)
Carriage . .
Interest . .
Net Profit. .
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
At the conclusion of the financial year the totals of the
accounts on these lines will necessarily agree with the
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
w * ~- 1
j m m M *
oo 1 ooeo <* to i/> c<i
CS O> <O
O OOMf CONiDOO
op (N op * op c^ op op
O O O >/5 O O 1/5 O
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..
Pig Iron . 1,395 tons
Scrap . 387
Iron Ore . 180
Limestone . 180
Coal . . 729
1 18 6
Less Sales of Scrap, Mill Cinders and Scale
Smelting Furnaces and Gas Producers
Ladles and Casting Pits
Cranemen and Labourers .
Boilermen and Engineers .
Locomotive Drivers and Yardmen
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
WORKS COST INDIRECT EXPENSES
Management, Salesmen, and Office
Salaries and General Expenses, in-
cluding Interest, per Schedule.
14 2 6
1 6 6
Net Cost at Works .
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
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
Sales must be similarly analysed in the Sales Book.
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.
Silks Department Total
Foremen, Storekeepers, and
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
DEPARTMENTAL TRANSFER BOOK.
SUPPLIES TO SILKS DEPARTMENT.
527 . .
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
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
General Expenses and Selling Cost are not chargeable
except as an addition to Finished Goods when sold and
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.
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
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.
Balance on Hand.
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
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.
Basis of Division.
Rent, Rates, and Cost of
Electricity or Gas
Repairs . " .
General Factory Wages
and General Services
Sundry Stores .
Power required to drive machinery in
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
According to actual use.
According to inventory value of machinery
EXAMPLE OF EXPENSE APPORTIONMENT.
Total for week.
Adjusted as to
Rent and Rates
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
s s s
-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
Administration Expenses .
Stationery and General
(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.
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
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
EXAMPLE OF PROCESS COST ACCOUNT FOR WORKS EMPLOYING
THE SWAN OIL REFINERY, LTD.
REFINING ACCOUNT FOR WEEK ENDING ?TH JANUARY
Dr. CRUSHING ACCOUNT. Cr.
To Kernels .
By Crude Oil to
Power & Steam
Cake to Cake
Repairs & Stores
Rent, Rates, &
REFINING ACCOUNT "A.'
To Crushing A/c
By Finishing A/c .
Sundry Sales A/c
Power and Steam
Rent, Rates, &
Loss in Process.
REFINING ACCOUNT "B" (FINISHING).
To Refining A/c "A"
By Sales Account .
Sundry Sales .
Loss in Process.
Power & Steam
Rent, Rates, &
Cost of Raw Material .
Finished Oil .
30 - - per ton
57 7 -
63 7 6
71 7 4
27 7 - per ton
7 19 10
account is required for partly manufactured material at
each intermediate stage ; and in this manner the method
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
Classified under distin-
Manufacture of Gas.
By Sales of Gas ...
Profit on Sales of
Sulphate of Ammonia,
To Coal used . . .
By Coke & Ashes sold .
Tar and Liquor A/c
Cost of Gas made
To Lime used .
By Sales of Spent Oxide . .
, Trading A/c ....
TAR AND LIQUOR ACCOUNT.
To Carbonization A/c .
Value of Tar and
Liquor made .
By Crude Tar sold
Liquor sold . .
,, Tar Dehydration A/c
Motor Benzol A/c .
Sulphate of Am-
of By- Products.
DEHYDRATED TAR ACCOUNT.
To Crude Tar used
Cost of Steam
Fuel, Wages, and
Profit and Loss A/c.
By Sales of Dehydrated
MOTOR BENZOL ACCOUNT.
To Crude Material . .
,, Profit and Loss A/c.
By Sales of Motor
Benzol . . .
SULPHATE OF AMMONIA ACCOUNT.
To Crude Material
Wages . .
Stores . .
Profit and Loss A/c .
By Sales of Sulphate
of Ammonia . .
MANUAL OF COST ACCOUNTS
No. 1. PROCESS STAMPINGS.
To Material from Stores. .
Wages . . . . .
By Stock A/c
Expenses per Charges
(= 87-5% on Wages
No. 1. STOCK ACCOUNT.
To Stock of Stampings . .
Process A/c ....
To Stock A/c
By Process No. 2 A/c
@ 4-25d. . .
By Stock A/c . .
Sales of Scrap .
Work in Process .
Cost of Process .
Cost each .
By Process No. 3 A/c
Stock c/fd. . .
By Finished Stock
A/c . . . .
Cost of this Pro-
Material from Stores . .
(= 52% on Wages)
To Stock of Assembled Fit-
,, Process A/c ....
To Stock A/c
(= 40% on Wages)
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
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.
To Work in Process (if any)
Less Work in Process car. forwd. .
Gross Cost .
No. Completed ....
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
= Wages and Expenses 380 x 1,250
(2,500 Parts in 26,250 = ^ 18
process taken as
1,250 parts com-
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
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
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.