Finer yarns will entail more waste as well as different
mixings, so that the cost for each count requires separate
investigation based on calculation and test.
The cost of wages and expenses is seen in total in, the
Trading Account and the cost per Ib. yarn for average
counts should be shown there.
36 MANUAL OF COST ACCOUNTS
There is a difficulty in applying Process Cost methods
from the fact that the material is continually in process,
but the production at each stage is obtained for payment
of wages piece rates being universal.
Wages and production are thus obtained in processes,
and works expenses can be apportioned similarly by
The expense cost varies with different counts of yarn
produced, according to
(1) Processes required to produce particular counts ;
(2) Production of machinery on different counts ;
(3) Effect on mill production as a whole, which may be
increased or reduced with variations from the standard
for which the plant is best adapted.
In framing the Financial Accounts a clear division should
be made between raw material, material for various
expenses accounts, productive wages and indirect wages,
and other expenses ; and these expenses should be further
divided to separate works expenses from office and selling
expenses. At monthly periods a balance of the financial
accounts should be made so as to ascertain the expenses of
the montk for comparison purposes. The first view that
is obtained, therefore, month by month, of the accounts
of the business will be in the form of a Trading Account.
Where the stocks are not actually taken the values of these
must be calculated from the Stores Records and estimated
amounts of material in process.
The second step that should be taken is to separate the
main processes that are carried on so as to obtain an expense
allocation for each stage. The whole of the expenses
should be dissected so far as possible directly against one
or other of these sections, and such expenses as cannot
be separately charged must be allocated on a fair basis.
There will be obtained a series of accounts for the different
stages of manufacture, and the number of Ibs. of yarn
TEXTILE ACCOUNTS PROCESS COST METHOD
spun, the number of pieces of cloth woven, and the number
of pieces finished can be used as a basis for calculating the
cost in each process per unit. Up to this point the system
that is carried on is entirely in accord with the financial
accounts, and the records will be made up month by month,
COTTON SPINNING MILL.
SPINNING ACCOUNT FOR HALF-YEAR ENDING 30tH JUNE.
Stock 1st J
Less Stock 3(
Less Waste F
Sales of Yarn .
Add Stock' 30th
Less Stock 1st Jan.
Loss in Weight
d Expenses at Mil
Wages . .
s and Insurance
Heating and Lighting .
Other Expenses ....
Office and General Salaries and
Balance Net Profit
so as to contain a continuous series of records for
The average costs are thus shown in the Trading Account,
and a similar statement of average Production Cost may
be prepared week by week from Wages Production and
Expense Records. Detailed costs for particular yarns are
then ascertained by calculation and test based upon these
MANUAL 01- COST ACCOUNTS
COST STATEMENT FOR WEEK ENDING.
And so on.
Warehouse and Engineers
Management and Office Salaries .
Net Weight Yarn produced
Total Cost per Ib. Yarn
Production in Hanks.
FOR THE HALF-YEAR ENDING
To Consumption of Yarn
Stock 1st Jan. .
Less Stock 30th June .
To Weavers' Wages >
Wages . . .
Rent and Rates
Stores and other Mill
.. Office Expenses
Gross Profit .
By Production of Cloth .
Add Stock 30th June .
Less Stock 1st Jan. .
SUMMARY OP E?
Wages . .
A similar analysis of the Trading Account, together with
a Weekly Wage and Expense Report, showing cost per
yard or piece of cloth, can be prepared for the manufac-
turing department. The wages are paid at piece rates
TEXTILE ACCOUNTS PROCESS COST METHOD 39
and a percentage on weaving wage is added to cover
COST STATEMENT FOR WEEK ENDING
of Yarn or
Pieces of Cloth.
Cost per Ib.
Yarn or per
Piece of Cloth.
And other operations.
Non- Productive Wa%es
Warehouse and Engineers
Office and Salesmen
Indirect Cost .
Average of Total
Cost . .
d per Ib. Yarn
__d per Piece.
__d per Piece.
Percentage of Expense to Weavers' Wages
To carry the detail of costs further than this, each of the
departments already specified must be further subdivided
so as to ascertain as regards the running expenses, the
approximate cost of running each machine or group of
machines in the factory. The works expenses must be
allocated in detail on the methods explained in the chapter
on Factory Expenses, so as to place upon each machine its
fair share of the burden. The office expenses will not be
computed in this manner as they are only chargeable on
finished goods, and are not added to the value of these until
they are sold. The cost of running each machine having
been ascertained, the number of hours that it is expected
to be working must be estimated, and the total expenses
divided by the total hours gives the estimated amount per
hour that the machine will cost to run.
TEXTILE ACCOUNTS PROCESS COST METHOD 41
The method of obtaining detail costs will then be for the
material which will be required to produce a given quantity
of the cloth in question (allowing for waste and loss of weight)
to be priced out according to the known cost of material
at the market price of the day.
The direct wages will be known as these are payable at
piece work rates. The working expenses of the depart-
ments at the rate obtained in the most recent monthly
accounts must be added, or alternatively, the rates of the
different machines for the time that will be required to
be devoted to the work must be totalled in the case of
special work which is different from the average product.
To the total thus obtained must be added the rate of
expense for office charges, carriage to customers, discounts
and commissions to salesmen.
In the accounts of dyeworks and similar businesses
where the original value of the material treated does not
enter into the accounts, the process cost is confined to
recording the cost of the dyes and other materials, wages
and running expenses. A separate Cost Sheet is used for
each lot of work done, which shows the individual expense
for each process ; and a monthly summary giving the
totals of the individual Cost Sheets must be set off against
the expenses shown in the financial books.
JOB COSTING TERMINAL COSTS
TERMINAL Costs are employed to show the cost of carrying
out contracts and undertakings which are by their nature
entirely separate and are terminated by the completion of
The accounts of a builder and contractor present the
best illustration in simple form of the methods adopted
in Job Costing. Under this system the object is to arrive
at the profit or loss on each contract. The greater part
of the work is estimated for, so that the price is fixed in
detail in advance ; other work is done by day work, and
it is then no less important to ascertain the exact cost.
Name of Employee N , Trade
|ob Name and No.
46 MANUAL OF COST ACCOUNTS
The method to be adopted will bring the Contract
Ledger, in which the accounts of the different jobs are
contained, into the Double Entry Book-keeping System,
and thus ensure that the results obtained will be actual
financial results. The use of an independent Cost Ledger,
which is necessary where the number of individual cost
accounts to be kept is very much greater, can be dispensed
with in businesses of this type. In the Contract Ledger
an account will be opened for each job undertaken, and there
will be a series of jobbing accounts for different types of
jobbing work, so that the results of each group will be
separately ascertained. The Sales Ledger will not be
interfered with, but, on the completion of each job, the
amount of the contract will be credited to the Contract
Account and debited to the Customers Sales Ledger
The wages are dealt with in the first place on daily or
weekly time sheets, which are utilized in making up the
total wages due in the Wages Book for the purpose of
paying wages ; and the gross wages are then analysed in a
Wages Abstract for the purpose of charging up to the
contracts or to Expenses Accounts for indirect labour.
(See pp. 43 and 44.)
A separate abstract will be used for plumbers and another
for bricklayers in a similar manner. The grand total will
include staff wages not chargeable to any particular
contract, and will be agreed with Wages Book Totals,
and the total of each column in the abstract will then
be posted to its appropriate Contract Account in the
Contract Ledger and the staff wages and time spent on
work chargeable to Expense Accounts (e.g. repairs)
will be posted to the Nominal Ledger.
Materials for contracts include special purchases and
supplies from stores.
JOB COSTING TERMINAL COSTS 47
The dissection in the Purchase Analysis Book will
separate these two groups and will classify stores purchases
as joiners, bricklayers or plumbers material and under
these headings the Stores Accounts will be arranged.
Special purchases will be posted direct from Purchase
Analysis Book to Contract Account ; the total amount of
purchases for stores will be posted to debit of Stores
Account in the Nominal Ledger under above classification.
Stores Accounts should be kept in a Stores Ledger
which contains records of all building material. A separate
account is required for each article, and this is debited
ISSUE NOTE FOR STORES.
Date Stores Ledger Fo
Contract Ledger Fo
Required for Job. No
/ .s- d.
Authorised by Received by
with quantity and value of (1) Balance in Stock ; (2) all
purchases subsequently, irrespective of the source of
supply ; it is credited with stores issued to Contracts or
Jobbing Accounts, or used in repairs, etc., work and
chargeable to Expense Account.
The stores are only issued to contracts against Issue
Notes prepared in the office, which are entered in a Stores
Issued Book on presentation at the stores.
The materials used must be priced at cost.
The posting of the Contract Ledger should be made from
the Stores Issued Book ; or a Stores Summary ; or a journal
entry comprising the totals of the summary ; and the total
of the amounts debited to the Contract Accounts should
be credited to the Stores Account in the Nominal Ledger ;
this account will show at any time the book value of the
JOB COSTING TERMINAL COSTS 49
stores in hand, which should agree with the total of the
list of balances taken out from the Stores Ledger. The
Stores Ledger Accounts should naturally be checked at
short intervals with the actual stocks held. Any shortages
of materials, unless these can be traced to jobbing work,
must be charged to Stores Adjustment Account as an
The Contract Ledger Accounts must be credited with
any stores returned, posted from a Stores Returned Book,
or entered at the end of the week or month in the Stores
Issued Book as a deduction.
PLANT. The value of plant sent to the site should be
charged to the Job Account. In connection with long
contracts there will be considerable depreciation in the value
of the plant, and it is important that the contract on which
this occurs should be fully charged. In the Nominal
Ledger an account should be opened for Contract Plant,
and a list of plant available should be kept, each item having
its value shown, and the total agreeing with the book
value shown by this account. When any plant is charged
to a job, the Contract Plant Account must be credited,
and when on the completion of the work the plant is
returned, the Job Account will be credited with the estim-
ated value, and the Contract Plant Account will be debited.
In the event of such plant being sold the credit will go
directly to the job concerned. In this way each job will
be made to bear the full cost of the use of plant.
SUB-CONTRACTS are debited in the same way as direct
purchases, being charged to jobs in the Contract Ledger
direct from the Purchases Analysis book.
Disbursements on account of particular contracts are
dealt with by posting direct from Cash Book or Petty
Cash Book to Contract Ledger.
Total expenses, including foremen's salaries, office
salaries and expenses, insurance, rent and rates, cartage,
50 MANUAL OF COST ACCOUNTS
advertising, repairs and depreciation, will be grouped
in an Expense Allocation Account and transferred to
contracts at stocktaking times.
Alternatively a definite scheme for charging Overhead
Expenses to the contracts can be prepared, and the
appropriate charges made to each job when the work is
finished and the Contract Account closed. A method often
adopted which is not, however, sufficiently accurate is
to charge a percentage on the outlay on each job ; seeing
that some contracts will consist mainly of material and
others will have a small proportion for material and a larger
amount for wages, thus entailing more expense in super-
vision and probably also being in hand for a longer period,
it follows that a flat rate on both material and labour
will not give a fair charge to each job, tending to over-
charge the jobs on which the material forms the larger
portion of the outlay. It will be found by a close analysis
of expenses that the wages should bear a heavier rate than
material. The correct charges to place upon material
are those which are entailed by the buying, warehousing
and handling of the Stores. The total annual expense for
these services can be obtained by analysis of the Financial
Accounts, and, by dividing this proportion over the material,
a percentage can be fixed as a Warehousing Rate. Other
expenses, including general management, may be sufficiently
accurately proportioned as a percentage paid on the wages
of each job. Where there is a joinery department fitted
with woodworking machinery it may be desired to have a
special hourly rate for the use of the different machines.
For the purpose of fixing these rates the following expenses
in connection with the machines should be omitted in
fixing the general oncost rates, and should be allocated
specifically to each machine and then the total of the burden
on each divided by the total estimated hours it will work,
gives the machine hour rate. The charges to be included
are the depreciation and repairs for the machine ; the
cost of power to run it ; the proportionate share of the
By Contract .
1^1 CO 0<N | 1 |
-^ t^* 00 ^ 1 Oi 1 jj
ce S; v co ^ N S 1
4 i i i i
1 i to
^ i ii - *
2 : s rtN
,,11 1 i
^ r -
1 ? 1
5 rt '/> 1 C
o S v rr iS
Q U} 2
= = = = ,2
52 MANUAL OF COST ACCOUNTS
space occupied covering rent and rates, lighting, heating,
cleaning of the workshop ; and if it is desired to cover the
annual cost of the money locked up in the machines, the
normal rate of interest on the capital value of each should
be brought into account.
Under this system the Contract Ledger becomes an
integral part of the double-entry book-keeping system.
A monthly Journal entry in the following form will serve
to focus the Contract Ledger entries for posting to the
Sundry Contracts Dr.
To Special Purchases.
Stores per Stores Issued Book.
Sundry Contracts Dr.
To Expense Allocation Account
for proportion of General Expenses
charged to Jobs.
Expense Allocation Account Dr.
To Sundry Expenses :
Rent and Rates
for Expenses actually incurred
during the month,
etc., etc., etc.
Value of completed work is similarly credited to
contracts and debited to customers.
Sundry Customers Dr.
To Sundry Completed Contracts.
In this way each Contract Account becomes a separate
Trading Account, showing its own profit or loss ; and
balances are transferred to General Profit and Loss
Where the work is done under Architects' Certificates,
the amount of each may be credited as the work proceeds.
The Contracts and Jobbing Accounts should bear
similar charges for expenses.
Uncompleted work must be valued as Work-in-Progress.
This may be taken at cost of outlay, that is, material
JOB COSTING TERMINAL COSTS
plus labour, and the current percentage may be added for
expenses. When the method is preferred of only charging
expenses to the jobs as they are completed, the amount of
establishment charges on Work-in-Progress must be
reserved for by debiting a Suspense Account when making
up the periodical accounts. No profit must be taken
credit for, nor must the full value be allowed to stand if
there is any reason to suppose that the work cannot be
completed for the contract price. An exception arises
in the case of long contracts extending over several years,
where a fair profit must be estimated as the work proceeds.
A safe profit in such cases may be estimated at two-
thirds of the profit shown on the basis of the value certified
for by architect's certificate, where payment is received on
this basis, the balance of one-third being reserved against
unforeseen difficulties in completing the work.
Where only a portion of the value of the work done is
THREE MONTHS ENDING 31sx MARCH, 19..
Contract No. 143
Contract No. 153
Plumbers (if any) .
To Net Profit . .
Contract No. 126
Contract No. 128
Profit "on jobbing
PURCHASES ACCOUNT (JOINERS).
To Balance of Stores in
By Stores Issued Contracts
Stock on Hand
MANUAL OF COST ACCOUNTS
JOBBING ACCOUNT (JOINERS).
To Stores Supplied
Wages . . .
By Sundry Customers
per Day Book
EXPENSES ALLOCATION ACCOUNT.
To Staff Wages
Rents and Rats
By Contracts per Journal
paid as the contract proceeds the profit on the unpaid
portion should be further reserved.
Machinery and Plant are recorded in classified accounts
in the Private Ledger, and suitable depreciation is written
off year by year.
It is an advantage to divide the closing accounts into
Joiners' Contracts ;
Bricklayers' Contracts ;
Plumbers' Contracts ;
and to show the profit (or loss) on Jobbing in each depart-
ment. For the purpose of this analysis, some contracts
will require to be divided when the final result is obtained.
The amounts due from customers are shown in the
Sales Ledger to the debit of personal accounts. In the
case of Jobbing work, the entries come through the Sales
Day Book (analysed to show the three departments
separately). In the case of contracts the Contract Journal
contains the entries debiting the customer and crediting
the Contract Accounts.
Payments on account of contracts will consequently be
posted to the Sales Ledger Accounts.
MULTIPLE COSTS LABOUR
MULTIPLE Costs apply to businesses where the products
differ widely in type, value and complexity ; where similar
operations may be used to give widely differing ultimate
results ; where specialization and the standardization of
parts may be extensively adopted.
The application of Cost Accounts to businesses of this
type usually follows the Job Cost system, with variations
in sections of the works to which special methods are
The object aimed at is to ascertain the actual cost of
execution of each order as it is completed, and to obtain
this the detailed dissection of all outlays is unavoidable ;
this entails considerable clerical work.
The cost divides itself again into Labour, Material and
METHODS OF PAYMENT
(1) Time Rates.
(2) Piece Rates with guaranteed wage.
(3) Bonus Methods
Premium Bonus ; Efficiency Bonus.
(4) High Wage Plan.
(5) Profit Sharing.
(6) Output Bonus Priestman Plan.
TIME RATES are essential where work cannot be
standardized or classified into suitable classes or grades
for piece rating.
PIECE RATES are satisfactory provided the rates are
correctly fixed at the outset. See also Chapter XIII.
BONUS METHODS of various types have been devised to
stimulate production, and encourage employees to earn
56 MANUAL OF COST ACCOUNTS
more than average wages, and at the same time to obviate
the tendency on the employer's side to cut rates by
combining a benefit to the employer with the workman's
bonus ; this being achieved by the reducing cost per unit