compiled as a percentage on the total running hours.
The record on page 105 may be entered weekly ; time
worked should be entered in black, and time at rest in red,
so that the total for any particular machine over a period
MANUAL OF COST ACCOUNTS
can be readily ascertained ; also the relation of idle time
to time worked can be seen at once, and the amount of
possible income represented by the idle time charged up
at the correct rate for each machine is obtained.
In certain cases an exceptional treatment of machine
records may be required in order not to load particular
Particulars of Machine
Estimated Life Depreciation Rate
WEEKLY RUNNING EXPENSES.
work excessively. A machine may be in use only a fraction
of working hours but may be essential in order to carry
out other important contracts ; the cost of the machine
is thus incurred for the benefit of the plant as a whole and
the general rate must bear part of its cost. In effect
a rate will be fixed for such a machine on the basis of what
it would cost if run a fair proportion of its time, and the
fact that the machine is not actually earning its charge
at this rate will be made up by a change on the general
Where a " standby " machine is required in order to
, ri .
IDLE TIME REPORTS. The record of idle machine time should state the specific reason why the machines are not at
vork. This information can then be used by the progress office with a view to obtaining a division of work so as [to
elieve congestion in another part of the factory.
No. of each
bO r bo -M
-S "K -S g to
1 S ? 1
w ^ w +, +,
^ rt c3 ^ o3 rt
en w o en
1 ill 33
S O & O O
E ffi ffi K
106 MANUAL OF COST ACCOUNTS
ensure continuous production if the working machine
should fail, the costs of both machines must be included in
the machine rate of the working machine so that the whole
expense will be absorbed in the number of hours working.
An exception may arise to the charging of expenses to
work performed, where trade runs in busy and slack
seasons. Here it would not be practicable to charge the
whole of the current expense at the slack time. An
average rate must be fixed which will be sufficient if
spread over the whole year ; and in the busy season care
must be taken that the expense for the whole year is then
actually made good.
The cost of making good defective work or the loss
arising in consequence deserves special attention, and in
some businesses forms a very important factor in the
manufacturing results. Defective charges are therefore
to be subdivided under suitable headings :
(1) Defects in material which may again be subdivided
in suitable cases.
(2) Defects of workmanship subdivided if necessary.
(3) Defects in design.
Under these headings the expense charges arising
through the ordinary channels of material, wages and
oncost should be grouped, the charges under each works
order number being made up separately so that a statistical
record can be obtained of the defective charges on each job.
It is preferable, however, that the defective charges should
not be placed to the Cost Accounts of the job direct, as
otherwise a fair comparison of the cost of different jobs is
prevented and the actual record of defective work is
hidden in the general details.
Maintenance and Guarantee Charges.
A similar method should be adopted in dealing with
maintenance and guarantee charges, where the machines
MULTIPLE COSTS EXPENSES 107
are supplied on guarantee for a specified period and have to
be maintained in running order. The charges under these
headings should come against the manufacturing results
and may be provided for by a reserved amount against
the Cost Account of each order, such items being credited
to a Suspense Account. The direct charge to each job is
preferable to a debit in Works Charges or Oncost Account.
Another point arises when certain lines have to be
quoted in competition with other works more favourably
situated. It may be justifiable in such cases to debit
this work with lower rates than those generally in force
and to regard part of the expense as falling on the works
as a whole, or chargeable against the General Profit and
Loss Account. It is obvious that there is a limit to the
extent to which this method could be adopted.
General or Office Expenses.
Where the products are similar to the extent of being
disposed of in the same market, and by means of the same
selling organization, a percentage on works cost may be
used to cover all charges of administration and distribution.
In other cases, in the computation of Administrative
Expenses some exceptions arise. It is not equitable to
apportion these by a similar addition to the Works Cost
in every case. For instance, one department in a works
uses expensive material, e.g. platinum ; another depart-
ment is producing goods on which heavy advertising
expense is undertaken ; another concentrates upon a
product selling in proportionately large quantities, with a
minimum selling expense, at a cut figure.
In these cases the output must be analysed and the
expenses classified on a fair basis much necessarily
resting on intelligent judgment and rates for Admin-
istrative Oncost must be fixed for each class of product
The aim in such cases is to look at each section and try
to ascertain what its position as regards expense would
108 MANUAL OF COST ACCOUNTS
be if it were a business by itself ; in other words, what
expense a competitor in each line would have to carry.
It may be necessary to use a flat rate on works cost for
office expenses and a further selling oncost at differential
rates for different products.
In other businesses the actual commissions, discount,
and carriage on each contract can be charged up to its cost
ALLOCATION OF OFFICE AND SELLING EXPENSES
OVER VARIOUS CLASSES OF FINISHED GOODS.
A dministration Expenses
Office Salaries and Gen-
eral Office Expenses :
Rent, Rates, Post-
ages, Stationery, etc.
Proportionate to Turnover, and may
be charged by an Oncost Rate on
Works Cost, with adjustment in
the case of goods sold in bulk lots.
Management Salaries . Ditto.
Selling and Distribution Expenses
Travellers' Salaries and /Proportionate to Sales effected indi-
Commissions ) vidually of each class of goods.
r } Proportionate to actual charges on
| each class of goods.
Discounts j Proportionate to terms of settlement
I in each class.
j Actual analysis of Bad Debts over
/ each class of goods.
Advertising, Catalogues, ^^ Qutlay Qn each ^ Qf
Tt M ~i, T? ^ i Proportionate to Turnover or actual
Branch Expenses j ^ Qf goodg in each
RO^L- T+ 5 Values of Stocks held and Book Debts
Bank Interest in each
THE COST LEDGER
THE summarizing of results may be carried out in a number
of ways, and the most appropriate form for the Cost Ledger
depends entirely upon the amount of information which is
desired in a particular business and the circumstances of
(1) The Cost Ledger may conveniently be ruled with
separate columns for the main heading of expenditure as
shown on page 110, and the loose-leaf form is usually
found the most convenient on account of the ease with
which similar items can be grouped together and completed
(2) The preparation of costs upon Cost Sheets which are
Works Order No. 0621.
, Date, 8th October, 19..
Customer: W.JONES 4 Promised, 20th October, 19..
1 Date completed, 15th October, 19..
10 x 2J in. Pedestal Bearings.
25 hrs. 2
4 hrs. 5/4
18 hrs. 36/-
10 hrs. 17/-
VV.I. Bar U*
Steel Nuts .
2 10 -
2 - -
25 hrs. 2
4 hrs. 5/4
28 hrs. 53/-
25 hours @ 2/-
4 hours @ 2/3 .
28 hours @ 4/6 .
2 10 -
4 18 4
Office Oncost, 20% .
Profit . . .
21 9 4
4 5 10
25 15 2
4 4 10
30 - -
.-ret TJ- . ~ =~- - -
Net Profit : 16-5% on Gross Cost,
or : 1 4-2% on Sale Price.
THE COST LEDGER 111
not assembled in the form of a Cost Ledger till the calcu-
lations are completed and closed is another method of
compiling final results.
This method may be used in conjunction with a well
organized filing system in which the original data pertain-
ing to each order are filed ; the cost sheet remaining in
the docket and being entered up at inspection stages and
closed on completion.
(3) In other cases wages and material are summarized
on entirely separate sheets which are combined in the
making up of the final cost. This has a certain amount of
convenience in enabling the wages and stores sections of
the Cost Office to work on the same records without
This method is particularly adapted for the use of
mechanical posting ; an automatic check is obtained and
a large amount of detail can be handled promptly.
(4) Actual detail costs of specific items may be taken
out only in special cases and the purpose of the accounts is
then to give information in the shape of costs of running
departments, processes or machines, which will serve to
check the results in the detailed calculations and ensure
It is essential to adopt this method when the individual
jobs are small in value and complex in detail. It is also
useful when the products are mainly standard and varia-
tions from the average can be calculated or gauged by
It must be borne in mind that the main points to consider
(a) The amount of detail required in the Cost Records.
(b) That the results must be obtained as promptly as
(c) That comparisons of results must be possible both
in the total cost of jobs and in the detail of such
The amount of detail required in each cost will vary in
112 MANUAL OF COST ACCOUNTS
every case. Where detailed costs are regularly recorded
it is usual for each order which has to be executed in the
works to be divided into production orders, each being
specified with a works order number, and the costs will be
booked against each works order number as the work goes
through. A separate Cost Account will accordingly be
opened in the Cost Ledger for the works order number
and the total cost of each part will be obtained under
these heads. The cost of the job will then be found by
assembling the totals of the works orders.
Another method which may be adopted is to record
costs against part numbers and drawing numbers on each
machine or other product with the object of obtaining yet
more detailed records, and when this is done the stores and
wages charges will be specified against the part numbers,
etc., in detail.
It appears preferable from a practical point of view to
obtain the cost results in total against works order numbers,
and to dissect the charges against these works order
numbers over the parts and operations according to the
detail shown in stores requisitions and wages tickets, in
order to build up the detail cost of manufacture of the
Cost Ledger Ruling.
In some cases a saving can be made in the amount of
clerical work required for the recording of oncost details
by inserting in the Cost Ledger ruling a series of columns,
one for each department in which there is a different
oncost rate, inserting also the hours in each case if hourly
rates are used. By this means the total of each column
furnishes the amount on which oncost for each department
is based and this calculation only requires to be made at
the conclusion of each job.
In such cases a reserve must be made for the amount of
oncost on Work-in-Progress at the time of closing the books
THE COST LEDGER 113
for stocktaking purposes, and this will be done by journal
entry charging Oncost Suspense Account and crediting
Oncost Account or Works Expenses Account with the
amount of oncost calculated upon the total obtained from
the records in the Cost Ledger of uncompleted jobs. At
the commencement of the following period the amount will
be written back by cancelling the entry.
Where, however, the oncost rates are too numerous to
make this method practicable, it is essential for the oncost
to be summarized week by week with the wages abstract
in order to obtain the oncost charges to each job. Where
departmental rates are in use the totals of wages in each
department on each job may be used for arriving at the
department oncost to charge to the Cost Ledger, and the
total wages in each department will furnish the total
amount of oncost for the period. Where machine rates
are in use the oncost charges should be summarized on the
Wages Piece Work Notes or Day Work Tickets; and an
abstract of these amounts will be required for arriving at
the amount of the total oncost and the charges to each job.
Cost Ledger Postings.
The postings to the Cost Ledger will embrace
(1) Items from the financial books including postings
from Purchase Analysis Book for goods supplied direct to
contracts, postings from Petty Cash Book for travelling
and hotel expenses paid to workmen and others visiting
the job and any similar items which do not come through
the abstracts of material and wages. In the financial
books these items are posted individually or by means of
the monthly totals of analysis column provided for the
purpose to the debit of Cost Ledger (or Work-in-Progress)
(2) The summary of materials issued from stores prepared
from Stores Issue Notes should be recorded in a Materials
Abstract Book month by month or journalized. The
114 MANUAL OF COST ACCOUNTS
details of direct materials are posted to the debit of the jobs
concerned, and in the financial books the total of these
items is debited to Cost Ledger (or Work-in-Progress)
Account : items chargeable to Expense Accounts, includ-
ing repairs, are posted to those accounts in the Nominal
Ledger, and the total amount is credited to the Stores
(3) Similarly with the wages abstract the total wages
on productive work will be charged to the individual
jobs in the Cost Ledger and debited in the financial
books to the Cost Ledger Account (or Work-in-Progress
Account). Wages chargeable to expense items will be
debited to Expense Accounts in the Nominal Ledger
and the total amount of wages earned credited to the
(4) Oncost postings will be made from an oncost or
works charges summary to the debit of the jobs in the
Cost Ledger and in the financial books to the debit of
Work-in-Progress Account ; the total will be credited to
Oncost (or Works Expenses) Account.
(5) It may be desired to include all charges against the
job in the Cost Ledger Account and so to debit each account
with the amount of General Oncost chargeable to it on its
completion, also to credit the sale price and debit the
(6) When the job is complete the cost account must be
made up and closed ; and a monthly summary of closed
cost accounts should be agreed with schedule of goods
shipped from works or put into warehouse. The credit
to the job will be :
(a) Works cost, if general oncost and profit are not
included in Cost Ledger entries ; in the financial books
Work-in-Progress Account is credited and Trading
or Finished Goods Account debited.
(b) Gross cost, if general oncost is charged in the Cost
Accounts ; in this case a summary of general oncost
charges will be made as the jobs are closed. In the
THE COST LEDGER 115
financial books the entries will be as in (a), the total of
general oncost being credited to General Oncost Account
and debited to Work-in-Progress Account monthly.
(c) Selling Price, if the profit on each job is to be
shown : in the financial books the entries as in (b)
will be required, but a summary of the Cost Ledger
Profit and Loss balances will agree with the profit shown
by the Trading Account.
(7) Transfers from other Cost Accounts, e.g. from Stock
orders for batches of standard parts which are still in
Each Cost Number requires a separate folder or filing
case in the filing system. This folder will contain the copies
of original order ; works orders ; wages and stores notes,
etc., as these pass through the Cost Department, and when
making Cost Ledger postings the original wages tickets and
stores requisitions should be available for checking off
with the works order and specification, so that an indepen-
dent check will exist by which it is ensured that the book-
keeping records against the job will actually tally with
the wages and materials expended upon it.
Classes of Orders.
A natural division will fall into the following groups
(1) Sales Orders classified in suitable sections ;
(2) Sales Repair Orders ;
(3) Stock Orders ;
(4) Works Extension Orders ;
(5) Guarantee and Maintenance Orders.
Each class of order should be easily distinguishable by
colour of form used, or by a coding number.
Stock Orders (3) are for the preparation in bulk, of
parts required in the assembly of Sales Orders ; such parts
on completion will be deposited in " Finished Stores."
116 MANUAL OF COST ACCOUNTS
In a factory producing standard articles they will form
the earlier stages of almost all the work executed.
Orders for works repairs may be carried out in the same
manner as if the work was for outside customers ; full
detail of time and materials used being recorded, but to
simplify these records it is often the rule to charge up to
Standing Orders numbers instead of to individual accounts.
The amount of clerical work required in the abstracting
of material and wages can be very considerably reduced by
the use of mechanical methods. Stores issues, instead of
being summarized by hand in order to ascertain the total
charges to jobs, should be sorted into job numbers and
mechanically listed. Similarly with wages dissections ;
if a separate wages ticket is provided for each job, the tickets,
having been agreed with the men's total time for the pre-
paration of the pay roll, should be re-sorted and listed to
obtain the charges to the jobs. In large businesses by the
use of the sorting and tabulating machines the method
adopted is to punch a card for each item of stores issued or
each wages item and by first sorting to obtain the credits
to the Stores Accounts or to individual workmen, and
afterwards re-sorting under the job number, the charges
to the job are obtained automatically. This method has
the advantage not only of reducing the actual clerical
work, but of furnishing the results in a very much shorter
space of time.
The same advantage is obtained in compiling periodical
statements of cost results ; the mechanical sorting and
summation reducing considerably the time required for
Repairs and Extensions.
When work of this nature is undertaken by the employees
of the works it is advisable to distinguish clearly at the
outset whether the charge is to be made against revenue as
a repair or renewal, or whether it is to be placed to the charge
THE COST LEDGER 117
of capital outlay as an extension. In order to avoid the
complication which arises in the financial accounts where
oncost is charged on repair work :
(1) Resulting in charges being brought into the financial
books for repairs in excess of the actual outlay, and
(2) Increasing the total expenses beyond the actual
It is advisable not to charge oncost upon repairs.
For this reason it is preferable for repair charges not to
be made against separate cost accounts in the Cost Ledger.
This can be avoided by dealing with repairs under expense
numbers and using special subdivisions of these expense
numbers when the cost of individual items is to be obtained,
and such items can be abstracted independently for control
and statistical purposes. The handling of oncost is
considerably simplified if this can be arranged at the
In the case of extensions and additions to plant the
position is different because such items may be correctly
regarded as productive work and the cost of them is not
only the material and wages laid out, but the actual
amount of works charges incurred upon them ; and the
usual rates of works oncost for the departments in which
the work has been done may be charged upon such
In some cases a more conservative method is adopted of
only charging a low rate of oncost upon extensions and this
has the effect of keeping the plant, etc., accounts at a lower
figure than would otherwise be the case, and consequently
reduces later the charges for depreciation.
In some departments the nature of the work makes it
difficult to allocate the charges specifically to each job, and
it becomes an advantage to summarize all such charges to
one account and to charge the job for the service performed
at a standard scale. Typical items of this kind would be
118 MANUAL OF COST ACCOUNTS
Painting and Packing Departments, and a Test Department
can be satisfactorily run on a similar basis. The wages
and materials and works expenses of each department
are then charged to a Cost Account for the department in
the Cost Ledger, and it is credited with the charges made to
individual jobs which have passed through the depart-
ment. A standard scale is fixed in each department by
which different jobs will be charged according to the
average of similar previous cases. In the Test Department
it is important that a statistical record should be kept of
the cost of each test for future reference.
It is usual for a Foundry Account to be dealt with in a
Balances arising on these accounts should be written
off month by month to the Manufacturing Account.
Drawings, Tools, Jigs, Dies, Patterns, Etc.
The best method of dealing with the items under this
head will depend upon the nature of the work for which
they are undertaken. Where the jobs are standard
and in no way special the charges incurred will be capital
outlay and should be charged to Tools, Patterns, etc.,
Accounts, and written off through the works oncost to the
job accounts, spreading the outlay over a limited number
Where the work is special and it is not expected that the
same work will have to be repeated it becomes obvious that
all charges of this nature must be made part of the cost of
executing the order and the entire cost must be written
off against the job in hand.
Where, however, although the work is not standard, it
can safely be expected that there will be repeat orders the
number of possible repeats within a reasonable period
whether 5, 10, or 50 must be estimated and a proportionate
amount written off the cost of the initial outlay against
THE COST LEDGER 119
Waste and Scrap.
It is generally sufficient to credit the Manufacturing
Account with the value of waste, etc., as and when sold ;
or to be more exact the waste should be passed into the
stores to the debit of Waste Account under classified
headings and the jobs concerned proportionately credited.
The sales effected will then be credited against the Stores
A difficulty arises where there are by-products utilized
in further processes ; the by-products should be charged to
the processes which handle them at the market price, if
this is obtainable. Where there is no market price and the
material must consequently be regarded as having no value,
where in fact it may be a matter of expense to dispose of
it at all, it is obvious that no charge can be made against
a subsequent process for dealing with such residue.
A more difficult problem arises where material bought in
one form is partly used in a number of different ways,
e.g. material which is cut up and portions utilized for
different purposes, e.g. skins which are cut up for different
uses ; timber cut up to obtain special parts for particular
purposes are cases of this kind. In order to charge a fair
amount of the original cost against each lot, an estimate of