to the employer, along with an increasing bonus and rate
per hour to the employee. The workman's objection
from his standpoint is that he only gets a portion of the
increased results from his extra labour, and that the
system may be used for ascertaining maximum production
with a view to fixing piece rates ; alternatively, however,
he can and does get a higher rate per hour and a larger
PREMIUM BONUS. (1) In the " Rowan " system, the
bonus paid to a workman is fixed as a percentage on wage
earned equal to the percentage of time saved.
Under this plan the workman will never earn double
pay, but will usually have more than half of the remaining
benefit ; the employer having in addition a saving in
expenses per job through increased output.
(2) Another plan is to fix in advance the proportion of
time saved which shall be credited (or debited in the case
of time exceeded) to the workman.
EFFICIENCY SYSTEMS. The object of these is to fix the
minimum time in which a job can be done by skilled men
and pay heavily for the reaching of the standard.
The " Taylor " system gives a bonus of 40 per cent on
day wage if the standard is reached ; and if that is
exceeded, then payment at piece rate, plus 40 per cent,
Modifications of this plan (e.g. " Halsey ") give the
worker a graduated rate of bonuses commencing at 5 per
cent if output is 65 per cent of efficiency standard, and
advancing by steps to 40 per cent when the 100 per cent
HIGH WAGE PLAN. This plan proceeds on a day wage
basis, but at rates 40 per cent or 50 per cent above
district rates, with the object of compelling employees to
J*jj v^Z **H7
58 MANUAL OF COST ACCOUNTS
use every ounce of effort and of enabling employers to
insist on the highest possible standard.
PROFIT SHARING schemes have for their object
(1) Stimulating of employees' interest in the business ;
(2) Ensuring mutual oversight to eliminate waste
(both of time and material) ;
(3) Improvement of methods by utilizing employees'
(4) Retaining services of employees by giving them a
permanent standing as part proprietors.
The drawbacks to such schemes usually lie in
(a) The payments being too far apart ;
(b) Bonus being too small to exercise a sufficiently
strong influence ;
(c) The idea that proprietors gain more from the
extra efforts of the workpeople under the scheme than is
given in bonus;
(d) Inability of employees to obtain access to the
(e) Results being influenced by trading conditions
which are beyond employees' control ;
(/) Objections to bonus distributions in the form of
Under the Port Sunlight (Lever Bros., Ltd.) plan,
employees of five years' service are entitled to participate
in the distribution of co-partnership certificates, for the
issue of which a fund is made available each year, depending
on the profits earned. The distribution is made in three
grades based on merit awards, and the bonus shares
receive a rate of dividend which, though preferential,
varies with the dividend on the ordinary shares. There
are restrictions on transfer.
Under the scheme initiated by J. T. and J. Taylor, of
Batley, the employees receive a bonus annually out of
profits available after paying a 5 per cent dividend on the
share capital, the division of the surplus between share-
holders and employees being in proportion to the capital
MULTIPLE COSTS LABOUR 59
employed and wages earned. There is provision in the
scheme for additional bonus to employees who have been
long with the firm, and the bonus may be invested in the
Numerous other similar Profit Sharing schemes are in
operation having in most cases special features to suit
With modern accounting methods providing monthly
Profit and Loss returns the objections to such plans can
THE PRIESTMAN PLAN is typical of the Output bonus.
The scheme is to classify all work completed, and total
weekly the gross production by weight, or by measurement
of volume in points. The standard weekly output is agreed
upon between employers and men's representatives, and is
subject to increase or decrease if the number of employees
or working hours is increased or reduced. Bonus is then
paid to every employee at the rate of increase of output
Profit Sharing Schemes and Output Bonuses are in the
form of group bonuses ; the gross results are used to
determine the rate payable to the individual. This plan is
not considered economically sound by many works managers
on the ground that each man should have the benefit of
his own skill and effort to induce him to do his best work ;
and that none should benefit unless they have earned the
bonus with their own labour. At the same time the
different methods are suitable under varying circum-
stances, and in some cases it is group organization which
produces maximum output rather than individual skill.
A plan successfully adopted in connection with revisions
of Piece Work Rates provides for the consideration of these
by a joint committee of management and employees'
representatives with the object of securing that any rate
which is found by a workman to be inadequate shall be
enquired into and be adjusted if shown to be too low.
Similarly appeals by the management for revision of too
60 MANUAL OF COST ACCOUNTS
liberal rates are considered, with the proviso that no rate
will be reduced without a corresponding increase being
given to a low rate.
With the idea of encouraging interest in a profit sharing
scheme the monthly Balance Sheet and Trading Account
described in Chapter XI may be used, and it seems likely
that this method of accounting will remove one of the
principal objections to profit sharing schemes in making a
monthly ascertainment of bonus possible.
ENGAGEMENT OF LABOUR. For the engagement of
employees a history card should be prepared setting out
full details of the employee's record, trade, etc., and
this card should be retained for the purposes of recording
advances of pay, etc., so long as the employee remains
with the firm. Each employee should be given a number
which will correspond with the department where he will
work, so that his department can be readily seen from the
pay roll number.
TIME RECORDING. It is essential for the record of time
spent in the works to be correctly obtained, and for this
purpose a time-keeper is usually provided with either a
time board on which each man can hang a brass check, or
a time recorder clock in which each man can place his
time card for the time of commencing and leaving to be
mechanically recorded. There is a certain saving in
clerical work in the use of mechanical time recorders, but
the presence of a time-keeper when recording is in progress
is essential to prevent wrong use of the clock by workmen
registering the time of others who are late or absent. The
total time provided by the time-keeper's book from the time
board, or that recorded by the time recorder on the time
card will be used for making up wages for day workers,
and will be checked off for piece workers with the time
booked on individual piece work notes. See Time Sheet
and Wages Book, pages 43 and 44.
MULTIPLE COSTS LABOUR
PIECE WORK NOTES. Where payment at piece rates is
in operation it is preferable to have a system of piece work
notes, by which the time spent on each job is recorded upon
Works Order No.
a separate note, in order to ensure the correct booking of
time on each job. There are many other advantages
obtained from the elasticity of method resulting when
each item of the wages dissection is recorded on a separate
62 MANUAL OF COST ACCOUNTS
job note even when day rates are in force. The Time
Sheets or Job Notes should be certified by the foreman
PAY ROLL. The Pay Roll is made up from the gross
time records, with in the case of the piece workers the
summaries of the Piece Work Notes. A coin summary
should be made at the foot of each Pay Roll Sheet showing
the amounts required in 1 notes, 10s. notes, silver and
copper to pay out exactly the wages on that sheet. This
makes the counting out much simpler and facilitates tracing
errors. For compiling the Pay Roll a convenient method
is the use of the Burroughs Wages Adding Machine, with
which an operator can tabulate the Pay Roll with great
rapidity, giving at the same time an automatic check on
the additions and deductions. The calculating machine
is used for reckoning piece work prices, bonuses and bonus
additions to wages ; and the adding machine summarizes
the job notes of each workman, to obtain his total pay.
The method of summarizing wages illustrated on page
44 has been superseded in many offices by the introduction
of adding machines for the purpose. The job notes after
the completion of the Pay Roll are sorted into order of
Jobs and Expense Numbers and listed so as to give the
total for each job or expense item with a grand total which
agrees with the total wages of the Pay Roll. A consider-
able amount of clerical work is saved by this means.
Where there is a large number of employees and the
works is consequently divided up into separate shops,
each shop requires to be dealt with separately as a distinct
unit by means of a Shop Pay Rioll and a Shop Wages
Abstract. A final summary of such Shop Wages Abstracts
is then required either by tabulating the dissections in
columnar form, giving the Shop Wages vertically and the
charges to Jobs horizontally, or by mechanical summarizing
methods. The saving of time and labour by the latter
process is considerable.
A useful comparison may be made week by week of the
MULTIPLE COSTS LABOUR 63
percentage of indirect to direct labour. As indirect labour
forms one of the main items of works expense this percen-
tage will give an advance indication of rise or fall in works
expenses as a whole.
Extreme care in the payment of wages so as to guard
against irregularities must be ensured by a sound system
as well as by a reliable staff. The system must aim at
placing responsibility upon several officials, who will
check one another's operations.
The clerks engaged in making up the wages should not
also pay out to the men. At the time of payment foremen
who can identify the men should be present. The Pay
Roll should be submitted to and signed by the manager.
MULTIPLE COSTS MATERIAL
THE lay-out of a factory necessarily demands suitable
planning of the stores departments in relation to the
It is essential that there be
(1) Rough Stores conveniently situated for the receipt
of raw material ;
(2) Components Stores for completed parts ;
(3) Shipping Department for finished orders ;
(4) Good general organization to save time in carrying
work through ; suitably placed departmental stores,
tool stores, etc.
(5) Efficient transportation.
It is important to obtain a strict control of purchases
in order to ensure that there is complete harmony as to
prospective supplies between Stores Department and
Buying Office and Contract Department who handle the
orders received. To ensure this the Contract Department
having prepared a complete specification on receipt of each
order will circulate same, supplying one copy to the chief
Storekeeper. On this he will indicate material available in
his stores, and material not available which must be
purchased. The specification is then returned to the
Contract Office, who issue Purchase Requisitions to the
Buying Department for items of which the supplies are
running short, and advise Planning Department of manu-
factured Stock items required. The Stores Office will
also perceive at any time from the records in the Stores
Ledgers when the stock of any item is falling below its
MULTIPLE COSTS MATERIAL 65
fixed minimum, and a Purchase Requisition should be
immediately sent to the Buying Office.
Receipt of Stores.
On receipt of goods the Storekeeper will record details
of the material, quantity, quality, etc. It is preferable
that quantities, etc. expected should not be advised to the
Storekeeper in advance and the responsibility for checking
invoices should rest with the Accounts Department and not
with the Stores Department.
The Storekeeper will advise the Buying Office and Plan-
ning Department of goods received daily. The goods will be
examined by the Inspection Staff and complaints reported.
A daily Goods Received Sheet (with duplicates) or a
separate Receiving Note for each item (with duplicates)
is preferable to the use of bound books, on account of the
greater ease with which carbon copies of the entries can be
made and circulated to departments concerned. When
books are used two sets will be required for use on alternate
The Buying Office will check details against invoice,
indicating whether the items are classed as Special Pur-
chases or Stores Material and will insert correct Bin No.
and price ; and then return the sheet to Stores Office for
entry of debits of Stores Material to Stores Ledger.
In the case of Purchases for particular contracts the
Buying Department will insert the number of the job on
the invoice. An extra copy of the Goods Received Sheet
t may be used to replace the entry of separate invoices in
the Purchase Analysis, the Goods Received Sheet for this
purpose being provided with a Cash Column and bound as
part of the Purchases records. The total of the sheets
will then be carried into the Purchase Analysis Book.
The detail work required to maintain a continual
check upon the consumption of material may entail
66 MANUAL OF COST ACCOUNTS
considerable clerical labour. It is useful for the following
(1) To control waste ;
(2) To safeguard against pilfering ;
(3) To assist Buying Department by providing records
of quantities used ;
(4) To assist Stores Department in maintaining the
minimum stock prescribed ;
(5) To provide means of taking an inventory without
closing down the works.
The Stores Ledger may take the form shown on page
67, or a more elaborate ruling can be provided with detail
for values, if desired.
The Stores Ledger should be under a separate control
from the actual stores, as the Ledgers are for the purpose
of a check upon the Storekeeper.
The best method to adopt with a view to saving
duplication of records may be set out as follows
The Stores Office should be adjacent to the main stores,
having an independent head responsible for the accurate
posting of the Ledger entries ; the Stores Ledgers being
also readily available for reference by the Storekeeper.
The Stores Ledgers are most advantageously kept on
the loose-leaf method and, if the entries are numerous,
individual items may be entered in quantities only, the
prices being noted to each item on the requisitions and the
calculations being extended with the use of the calculating
machine by the Stores Section of the Cost Office. At the
same time the extension of values in the Stores Ledgers
is an advantage as a check upon
(1) The accuracy of the prices or calculations on the
(2) Omissions or inaccuracies in the posting.
The Stores Ledger can then be balanced with a con-
trolling Stores Account in the financial books. It is also
possible in this event for the Stores Issues to be totalled
(preferably by the adding machine) in the Stores Office
68 MANUAL OF COST ACCOUNTS
before the Issue Notes are handed over to the Cost Depart-
ment ; then when the Cost Department have re-sorted
and summarized the Issue Notes according to the jobs
concerned, the total for posting to the jobs can be obtained
and agreed with the Stores total to ensure accuracy in the
routine. In order to reduce the amount of clerical work
which is entailed in the keeping of Stores Ledgers on this
plan when there are many thousands of individual entries
required, the use of Ledger posting machines is an
advantage, enabling the work to be done more speedily.
Where the Sorting and Tabulating Machines are in use
the method adopted is to total the weekly issues on the
Tabulator Sheet and post the total issues to each Stores
Account. As the entries will be already sorted into
correct order the posting can be rapidly done.
A Lot No. or Bin No. should be given to each article in
stock. The number then ensures that the correct item will
be understood whenever it is referred to.
The numbers should be arranged according to code so
that the items indicated can be readily identified and an
index will be maintained by the Stores Office and kept up
The arrangements of the stocks in the Stores and of the
accounts in the Stores Ledgers will follow the order of the
It is a frequent practice for the Storekeeper to have a
card attached to each lot of stores, indicating the amount
in stock. When further supplies arrive, the quantity
received is noted in the " Received " column, and as the
issues are taken from the bin, the quantity taken out is
entered in the " Issued " column, and the third column
will thus show the balance in stock. This is frequently
a useful plan if the Stores Ledgers are not available for
reference by the Storekeeper, or are not entered up daily
so as to be always up to date. In some cases the bin cards
MULTIPLE COSTS MATERIAL
are dispensed with as not serving a really useful purpose
when the Stores Ledgers are promptly written up day by
Index of prices, including record of quotations as well as
orders placed should be kept in the Purchase Department.
Issues of stores are made only against Issue Notes or
Requisitions are of various types and should be
distinguished by use of various coloured forms, e.g.
(1) PRODUCTION ORDERS. These are supplies of Direct
material for the manufacture of
(a) Customers' Orders ;
(b) Stock Orders for standard parts.
(2) TOOLS OR PATTERN ORDERS. These are supplies of
Direct Material chargeable to Tools Orders or Patterns
Orders for Tools or Patterns, either for special jobs or for
general Tools or Patterns Renewals or Stock.
(3) REPLACEMENT MATERIAL FOR SPOILT WORK.
Direct Material for Productive Work but chargeable to
" Errors " or " Defective Work " Account instead of being
charged to the job on which it is used.
(4) PLANT MAINTENANCE. Supplies of Material for
Plant Repairs and Renewals chargeable to Expense
MANUAL OF COST ACCOUNTS
(5) CONSUMABLE STORES. Supplies of Indirect Material
chargeable to Expense Accounts, e.g. Oils and Lubricants,
Waste, Canteen and Ambulance supplies.
The Planning Department in conjunction with the
Drawing Office, will issue, in respect of each Production
Order, a full detailed Works Order with drawings, com-
plete instructions, and Material specifications. Requisitions
for such material may accompany the order or will be
written out by foremen's clerks, and material will be
drawn from stores as required. The Storekeeper will
retain the requisition, obtaining on it the workman's
signature for the material issued ; and will also enter the
date of issue against the items concerned on the Material
specification, which should be presented to him at the same
In departments where work is of a repetition character,
foremen will prepare their own requisitions for supplies
to keep their machines running.
Number of Order.
Date issued to works.
Date promised for delivery.
Sundry stores for general consumption, e.g. oil and
lubricant, will be requisitioned by the foremen.
Tools are issued against deposit of requisition or tally
by the workman requiring them, who will be responsible
for their safe return, when the requisition or tally will be
surrendered in exchange.
MULTIPLE COSTS MATERIAL 71
Pricing Stores Requisitions.
The Stores Ledger will record the purchase price of each
item of goods received, the information being obtained
from the Buying Department entries upon the Goods
Received Sheets. These prices should be the actual
cost prices delivered at works, any trade discounts being
deducted and freight, Customs duty, carriage and similar
charges added. The Stores Requisitions will ordinarily
be priced at the cost price of the earliest purchase which
remains unexhausted. Where the stocks have been
written down, the reduced price must be recorded on each
Stores Ledger Account and this will be the figure for
pricing subsequent issues.
In cases where frequent purchases are made of the same
articles, e.g. bolts and nuts, it may be impossible to keep
accurate record of the issues made from each purchase,
and where the prices are varying the plan to be adopted is
to average the cost price of the stock on hand at monthly
intervals and use the price so fixed as the value for the
Transfers of Material from One Job to Another.
The accuracy of Cost Accounts is very frequently upset
because of the transfer of material from one job to another,
and difficulties arise where the practice is frequent. As it
is not advisable to consider clerical difficulties when the
question is really one of hastening forward the completion
of an urgent order, cases will always arise where material
is transferred from one job to another to oblige a customer
who is pressing strongly for delivery.
In order to keep the costs correctly the details of the
material or parts transferred and Jobs concerned should
be recorded on a Material Transfer Note, which is handed
in at the end of the day through the Stores Department
to the Cost Office, and the item will then be transferred
from one job to the other in the Cost Books.
MATERIAL RETURNED TO STORES. The Storekeeper
72 MANUAL OF COST ACCOUNTS
will receive with all surplus material returned to Stores a
" Stores Credit Note," which will be similar to a Stores
Requisition but of a different colour. These Stores
Credit Notes will be passed through the Stores Ledger and
to the Cost Office for credit to the job concerned and will
be deducted from the total of Stores Issues in making up
the periodical summary.
Where a satisfactory system of Stores Accounts is kept,
the annual stocktaking can be dispensed with. The
Stores Accounts should then be under the supervision of
the Accounts Department, and the actual stock should be
checked continuously by an independent stocktaker, who
will report daily to the Accounts Department the particular
materials he has counted or weighed and quantity found.
Any discrepancies will be inquired into and if necessary
written off to Stores Adjustment Account, which will
then appear in the monthly expense summary. Such
discrepancies may be caused by
(1) Waste in measuring out ;
(2) Deterioration of stock ;
(3) Wrong pricing of issue notes ;
(4) Omission or inaccuracy in recording quantities.
Where the periodical checking of Stock is not carried
out, a reconciliation of the Materials Account in the
financial books, with the inventory of the stores at Stock-
taking time must be made, and differences due to any of
the above causes may arise.
In other cases the precautions which are necessary at
stocktaking are to see that all material is counted or
weighed by two independent staffs, one counting or weighing
and the second checking the count and not merely copying
the figures on to the stock sheet ; precautions being also
taken that no stock is missed and none included twice.
The stock should be valued at cost or market price, which-
ever is the lower, and, in the event of material having
MULTIPLE COSTS MATERIAL 73
fallen in price since it was purchased, the Stores Ledger