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Material .... 75 3 6 + 1 14 -
Coremakers + % for

Material . . . . 13 16 - + 1 15 1



88 19 6 3 9 1 391

and a percentage is
added to cover the
cost of Indirect
Labour, say, 52% . 45 11 11

134 11 5

Sundry Material and
Overhead Expenses
are added at a per-
centage on total
labour, say, 25% . 34 1 9



507 8 -

The Overhead Expenses chargeable to each group may
be determined by the total wages of the group and a cost
per cwt. in each group thus arrived at.

Where the Foundry is a department in an engineering
works the cost of castings made should be compiled week
by week and the castings sent into stores at cost price,
i.e. Works Cost. Castings are then drawn from stores for
jobs as required on Stores Requisitions.

The practice of charging castings to stores at market
price in order to show a profit on foundry work is unsound
in creating an artificial profit which may not be realized.



FOUNDRY ACCOUNTS 139

If the Foundry is running at a loss the market price
should be used and the loss written off at once.

The profit on the foundry will be shown by a comparison
of the current costs with the market price for similar work
whether the castings are for stock or for sale immediately ;
and ^a Foundry Trading Account can be compiled to show
the profit on sales of castings if desired.



10 (1765)



CHAPTER XIII

WORKS ROUTINE

ONE of the most valuable aids to the economical running
of a factory is an efficient Planning Department, whose
duties consist of

(1) Saving of time by having work prepared for putting
in hand immediately machines are at liberty ;

(2) Preventing delay in the progress of work through
various departments ;

(3) The arranging of orders to provide for the prompt
execution of urgent work ;

(4) The supervising of stores to maintain stocks to meet
orders at hand.

The concentration of these duties upon a special staff
will make for increased efficiency in handling the work.

To systematize the general routine a diagram of duties
and responsibilities may be set out in the following form

Board of Directors.
I





General Manager.




Finance
anager. Acco

inch Co
ots. Offi

tising
Hers.


Manager


Purchase
Dept.

Quotations.
1 Drav
1 Offi
Buyer.

1 Plan
Stores. De


Works


Manager


Sales W

nen. Brc
Dep

Advei
rks
>ts. Trave


intant. Secretary.


st
ce

Cas
Book4


Correspondence

lier. Records,
eepers.


ving Engi
ce.

Inspec
ning
pt.


ieer. Forei

tors.
Wo

D3I



The success of a business is considerably influenced by
the extent to which the technical management obtains
criticism and assistance from the financial direction. In
view of the fact that forecasts of production and estimates
of the cost of manufacturing orders about to be undertaken
are based upon the cost records of past work, it folfbws that
promptitude and accuracy in the furnishing of costs are

140



WORKS ROUTINE 141

of greatest importance to efficient management, and the
arrangement of works routine has an important bearing
upon the facility and accuracy with which cost records can
be obtained. This does not mean to imply that detailed
individual job costs cannot be dispensed with to some
extent where the results can be obtained in group form,
e.g. by departmental methods, because in such cases
individual costs can be calculated from known details,
and the group records exist to prove the accuracy of the
calculated costs. So that to some extent the clerical
work involved in obtaining continuous, costs may be
reduced. In other cases, however, this method is not
possible owing to the variety in the work undertaken and
an efficient method of Job Costing must then be used.

Estimating Department.

Taking for the purpose of illustration the case of an
engineering works, the original handling of inquiries will
be dealt with by an Estimating Department and in framing
their tenders the Estimating Department should have at
their disposal the results of previous work in the form of
Cost Summaries. They will also be in touch with the
stores and buying departments in connection with the
stock and prices of materials, and with the wages and piece
work departments in respect of wages and piece work
prices. Obtaining from the Drawing Office detailed draw-
ings and material specifications they will be able to prepare
estimates in detailed form which will be available for
comparison (when the work has been executed and costed
out) with the actual cost results, and variations in the cost
of work from the amount of the estimate can thus be traced.
Assuming that an order is received to be executed for a
customer or that sanction is given for manufacture for
stock, the Estimating Department will hand over the
information they have obtained on the subject to the
Planning Department, copies of the order or Master Card
being at the same time circulated to other departments



142 MANUAL OF COST ACCOUNTS

interested, e.g. Drawing Office, Jig and Tool Department,
Buying Department, Progress Office and Cost Office.

The Drawing Office will revise the drawings to be used
on the job and prepare exact specifications of the material
required which they will hand over also to the Planning
Department.

The Planning Department from the Master Card prepares
a Works Order for each section or principal part of the
machine to be manufactured, copies being circulated as
above, and such Works Order should be accompanied by
material specification for the material required for its
execution. The separate jobs to be undertaken in the
manufacture or assembly of the particular part will require
a Job Card giving details of the work to be done, measure-
ments and so on. The Works Orders with drawings and
Job Cards are passed to the Rate-fixers or Piece Work
Office who schedule on the Job Cards the processes required,
and prepare the Piece Work or Day Work Tickets for
each item, fixing the Piece Work prices and inserting same
on the Piece Work Tickets and Job Cards. The Job Cards
will then be sent direct to the Cost Office ; or be retained by
the timekeeper in the shops for record of the time taken
to be inserted.

The foreman is supplied with the Works Order, Wages
Tickets and Material Specification and will prepare requisi-
tions for material as he requires it. When obtaining
material he will present to the storekeeper the Material
Specification on which the storekeeper will record the date
against each item supplied, at the same time obtaining the
workman's signature on the Stores Requisition Note which
is passed to the Stores Office. The Wages Tickets are
sorted by the foreman so that he can have ready for each
man a series of jobs to be taken up one after another, and a
rack should be provided marked with the men's numbers in
the shop so that the piece work notes for each man can be
inserted under his number.

As a job is finished the Time Clerk should record the



WORKS ROUTINE 143

exact time on both finished and new jobs, thus ensuring
that accurate time recording is obtained. In the event of
a foreman not having a job ready or if the workman has
to wait for a job to be brought, then a separate time ticket
should be used to record the waiting time between one job
and the next. The finished Wages Tickets should be sent
day by day from the shops to the Wages Departments
where they will be required in calculations for bonuses, and
after the pay roll is completed and the bonus paid the
Wages Tickets should be sent to the Rate-fixing Depart-
ment so that the information obtained can be compared
with a view to correct rate-fixing. At ea.cn week-end the
Wages Tickets of unfinished jobs must be collected and
fresh tickets issued in exchange by the foreman for the
following week. The Job Card will require to be entered
up with the amount of wages paid for each process on the
job as shown by the Wages Tickets, and this can be done
either by the time-keeper in the shops or by the Cost
Department who for this purpose will require the Wages
Tickets to be handed to them by the Wages Office after the
completion of the Pay Roll and before the Wages Tickets
'are returned to the Rate-fixers.

It is preferable for work to be inspected before a bonus is
authorized, and this can be done so as to allow time for
calculation of bonuses when the wages payable on Friday
or Saturday are only made up to the previous week-end.
The actual Piece Work Notes can then be summarized in
the Wages Office to obtain the wages payable.

In cases where wages have to be made up to Wednesday
or Thursday night and paid on Friday or Saturday, the
margin of time is insufficient for this to be done. The
wages payable will then consist of Time Rates for" the
actual hours worked, plus excess of Piece Work bonus above
Time Rates for the week previous. In any event the day
wages and Piece Work bonus will agree with the total of
the Wages Tickets, and the charges to the job will be made
from the abstract prepared from the Wages Tickets.



144 MANUAL OF COST ACCOUNTS

It is a convenient plan for the shop clerk or time-keeper
to keep a serial record of the Wages Tickets given to each
man during the week, showing the job number and the total
wages earned on each job and distinguishing between
Productive work ; Repairs and other expenses for other
shops ; and Indirect Expenses for own shop ; and this is
available for use in the Wages Office and Cost Department
immediately. On the other hand the time-keeper can also
keep a record of the work done by different men on the same
order number as on the Job Card specified above, thus
bringing together the various processes of one job and
forming a sub-analysis for Cost Office use, which again
facilitates the preparation of Cost Records.

Inspection and Test.

The Piece Work bonus should be authorized by the
Inspection Department by the presentation of the work
to the View Room before the Piece Work Notes are
handed in ; or by the signature of the Inspector on the
Piece Work Note as he passes through the shops ; or by the
use of an independent inspection note, which is a duplicate
of the Piece Work Note but of a different colour, being sent
after inspection to the Wages Office authorizing the pay-
ment of the bonus shown on the Piece Work Note to have
been earned. The Cost Department will receive advices
of the inspection, testing, packing and shipping of all
machines and will require to close the costs for such
jobs concurrently with the invoicing of same to customer.

A summary should be prepared each month showing in
suitable sections the items making up the sales with
particulars of the main items of the cost of manufacture
against each sale.

Planning and Progress Departments.

In conjunction with the Planning (or Production)
Department whose function may be limited to the arrange-
ment of future work, preparation of Works Orders and
specifications and the oversight of Stocks and future



WORKS ROUTINE ' 145

supplies of material ; the Progress Department will take
charge of orders in hand in the factory, watching their
route and obtaining records of completed operations ;
obtaining reports of work held up for supplies of material
congestion of work in particular departments, etc.
Diagrams will be used to show the stage which each order
in hand has reached.

A production schedule should be laid down in advance
and the Progress Department work then consists in
facilitating in every way the accomplishment of the
forecast.

RATE-FIXING. The difficulties of fixing correct rates
for piecework or bonus systems can only be overcome by
the skill of the Rate-fixer and his mechanical ability assisted
by time studies and the use of detailed records of the time
taken on the jobs.

TIME ALLOWANCES. The Piece Rates or Time Allowances
fixed by rate-fixers should be stated in terms of time and
not as prices per piece ; and in addition to stating the time
should also specify the machine at which the work is to be
done and the grade of labour to be employed.

To secure the co-operation of employees in obtaining
maximum output, questions concerning the rectification
of rates should be dealt with by shop committees con-
sisting of, say, Foreman, Shop Steward and Rate-fixer
acting for the purpose of adjusting any rates which are
shown to be too low or too high. In the latter case a
safeguard for the employee is sometimes introduced by
guaranteeing that no rates shall be reduced without
corresponding increases of a rate which is claimed to be
too low.

Mass Production or Repetition Work.

The methods of organization known under this name
have for their object the cheapening of production by

(1) Standardization of work and processes, producing
a high degree of efficiency and specialization ;



146 MANUAL OF COST ACCOUNTS

(2) Employment of machines to the fullest extent in
order to increase the product per employee ;

(3) Arrangement of factory to avoid loss of time and
labour in transferring work from one place to another ;

(4) Saving time by continuous work so that there will
be no loss through the changing of jobs ; setting machines ;

(5) Continuous flow of work simplifying wage systems ;
oversight and routine.

If these methods can be adopted an increase of output
for the same amount of capital will be obtained, and the
indirect expense will be reduced. Manufacture will
proceed as authorized by sanctions for specific quantities
of finished machines. The main difficulty then arises in
adjusting different supplies to keep pace with maximum
output without overstocking. For this purpose the
Components Stores department will keep detailed accounts
of stocks of parts and orders in hand.

In various stages of manufacture varying methods
may be employed

(a) In the Foundry, costs will be made up as a
separate department ;

(b) Orders for parts for stock will be put through in
large quantities under Works Order Numbers ;

(c) Machines will be run continuously on standard
work in processes ;

(d) Assembly will proceed under direction of Progress
Department ;

(e) Variations from standard will be made on specific
assembly orders.

Costing by Operations.

The special feature introduced in the costing in the case
of (c) is that in the place of booking the time on particular
work to its Order No., the operations which the work has
to go through are scheduled and numbered, and time and
wages are charged to each operation number. One opera-
tion may comprise various processes and each may be



WORKS ROUTINE



147



numbered separately so that analytical records of cost at
each process are available. Thus, if part " A " has to go
through five operations, say Al, A2, A3, A4, A5, and in
A5 there are ten processes these will be A5-1, A5-2,
A5-3, and so on.

A series of cards will show operations on each part.
SERIES OF OPERATIONS.

Article No ,..,.,...*..

Date Commenced

Withdrawn....



Dept.



Operations.



Number.



Another series of cards for each sub-process will take
the original entries from the wages (time or piece) cards ;
these Process Cards will be summarized on Operation Cost
Cards.



PROCESS COST CARD.



Operati


on


ft


ro









Date.


No.


Wage.


Production.


Date.


No.


Wage.


Production.



















The time cards also show quantities passed by the
inspectors at each stage. From these records the Operation
Cost Card is written up week by week for every part
manufactured, showing

(1) The average wage cost, in detail, of operations or
processes per unit produced ;



148



MANUAL OF COST ACCOUNTS



(2) The material cost booked to the same number, also
arrived at per unit completed ;

(3) Expense cost added at works or departmental rate.

OPERATION COST CARD.

Article No

Pattern No Date__.



Operation

No.


Dept.


Processes.


Average
Cost.


Average
Cost.


Average
Cost.


Average
Cost.






Total


1









A weekly comparison of wage cost is made to indicate
possibilities of more economical workings. Spoilt work
will be shown by records of pieces passed at each stage,
and this cost must be included in calculating total expense
of each operation.

The supplies thus obtained will go into Finished Stores
and other supplies of finished parts will be purchased ;
from these sources the finished machines will be assembled.

A statement of weekly or monthly productions in the
following form will be found useful for comparisons

MONTH ENDING OCTOBER 21sT, 19..:
SHOP A. ORDER XI 627.



Operation.


Gross
1 Produc-
tion.


Number of
Work-
people.


Actual
Hours
Worked.


Wages
Paid.


Produc-
tion per
50 hours
per
Worker.


Time
per
Unit.


Wage
UnTt.


Machining 1
2
3
4

5
Bitting .
j rinding
nspecting


; 30,000

29,500
29,400
| 29,000
! 28,970
! 23,700
i 28,500
1 28,300


31
5
9
10
13
6
5
9


Hours.
5,900
970
1,690
2,050
2,450
1,180
950
1,750


iso

50
70
115
148
70
64
175


254
1,521
869
707
591
1,216
1,439
800


Minutes.
11-80
1-97
3-44
4-24
5-07
2-46
2-00
3-71


Pence.
2-80
40
51
95
1-22
58
53
1-48






88


16,940


1,042




34-69


8-47d.



Quantity Passed, 28,000.
Average Total Time, 37-7 min.

Average Total Wage

Cost of Castings 5/- each equals per unit completed
.Factory Overhead Expense at 240% on Wages * .



8.97d.
64-28d.
21 -53d.

94-78d.



WORKS ROUTINE



149



Assembling.

The parts required are tabulated in a Material Schedule,
giving a detailed list of every part in the finished
machine.

The work to be done is also tabulated in an Operations
Schedule, following the numbering for parts adopted in
the Material Schedule.

Each operation may consist of several minor processes
which are similarly tabulated on Operation Cards.

MOTOR PRODUCTION.

WEEKLY STATEMENT OF COST PER CHASSIS.

Week ending



MATERIAL

Purchases of Finished Parts

Stores Consumed per Detail Schedules

LABOUR

Machining .....

Erecting

Foundry .....

Sundry Labour ....



120
185



20

13

4

5



WORKS EXPENSE

Rent, Rates and Insurance ....
Coal, Gas, Water, including Heating and Lighting 47
Wages and Salaries ....

Depreciation and Repairs .... 20



INDIRECT EXPENSE

Rent, Rates and Insurance, Ofnco
Lighting and Heating ....
Management and Office Salaries
Discounts and Allowances
Travelling, Advertising, Salesmen's Salaries
General Expenses .....
Interest . t



3
2

55
32
24
15
20



i

305

42
347

147
494



151



645



A continual weekly record is then prepared as follows

In a MATERIAL SUMMARY each part is priced out of its

cost price as purchased, or at factory cost if manufactured.



150 MANUAL OF COST ACCOUNTS

In a WAGES SUMMARY is shown the cost of every opera-
tion (and process) according to the time booked to the
number representing that operation during the period,
divided by number of completed units to show cost of
operation per unit completed for sale.

SHOP EXPENSE SUMMARY is prepared from financial
books for same period similarly divided, and an appropriate
percentage may be added to wages at each operation to
provide the amount of Oncost required.

The total of these schedules then shows total cost per
unit week by week, and comparisons of fluctuations in cost
of manufacture indicate possibilities of economy.

Job Costing.

This method is also worked in conjunction with job
costing methods where a machine is completed up to a
certain point to standard pattern and then finished to suit
customer's requirements.

Unit System.

Under this head a method of costing has been
developed on the principle of a comparison between
actual cost under detailed analytical heads and a
standard cost basis prepared from an analysis of the
normal products.

This is particularly suitable when selling prices are
fixed by competition, and the products are highly
standardized. .

The weekly production total obtained by detailed record
of all parts or jobs completed in the factory, represents
in the Cost Office a certain value in material, wages and
expenses, because every product is valued and analysed
at a normal production cost. These normal costs are
tabulated, showing composition of 'the whole production
in respect of total material, wage, and expense ; and



WORKS ROUTINE 151

special prominence is given to the chief product from which
the unit system is to be standardized.

For convenience of reckoning, a decimal system is
adopted by which the chief product is valued at a produc-
tion cost of 100 ; its material, wage and expense cost
being similarly expressed as percentages. The production
cost of every other product is similarly stated in terms of
its percentage at a normal cost to the adopted standard ;
and its material, wage and expense costs in each case
are stated in decimal terms showing the ratio which the
product or part bears to the standard. A complete
tabular statement can be worked out on these lines
embracing every product in the works ; and once settled
this Cost Schedule remains in use. Being in decimal
form it is easy to work from, and the plan is further
simplified by the work being put in hand invariably in
lots of ten or multiples of ten.

In the Stores System, the value of stores is expressed in
similar decimal values, determined from the standard
prices adopted for the different parts or material ; varia-
tions in purchase prices from standard are regarded as
a loss or a profit in buying, and are thus eliminated from
the Cost System. Issues of stores are consequently always
in accordance with Cost Schedule.

Wages are either paid at piece rates corresponding
throughout with the prices fixed in the Standard Cost
Schedule ; or, if paid by time, the output is recorded so
that detailed comparisons can be made and any losses
(or profits) as against the schedule can be recorded.

Expenses are assigned on standard basis, in detail, to
the products in the Cost Schedule (either as a percentage
on wage, or by other predetermined methods to suit
individual circumstances in some cases as a percentage
on Prime Cost) and the total compares week by week with
actual current outgoings.

From the Detailed Production Total expressed in
quantities turned out, there will result week by week



152 MANUAL OF COST ACCOUNTS

a summary expressed in decimals of the standard product
of the

(a) Total Production for the week ;

(6) Material



(c) Wages



represented by that production.



(d) Expenses

The total production will indicate whether the factory
has accomplished a satisfactory volume of work for the
week ; and this can be converted into production in
s. d. by multiplying the decimal total by value of
Standard Product on which the whole system is based.
The same conversion can be made in any item in the same
way.

The material total balances the Store Records and when
converted into s. d. indicates the consumption of stores
for the financial books.

The wages total is similarly converted, and is subject
to adjustment in respect of any wages paid above or
below the standard ; which is shown by a comparison
with actual wages paid.

Expenses compare similarly with the Counting House
Records.

Prompt returns are available under the system and
periodical comparisons indicate the line in which the
business is tending. It is particularly suitable where
standardized products are being made.

It has the advantage of showing

(1) Total production in quantity irrespective of price
fluctuations, which for comparisons of turnover is
vitally important ;

(2) Wage cost comparisons in a form which can be
compared with output of a corresponding quantity of
work ;

(3) Expense per unit produced which indicates degree
of efficiency in production reached from time to time.
A description of this method will be found in Multiple
Costs by H. L. Garry.



WORKS ROUTINE 153

Inter -Departmental Trading Accounts.

Another method sometimes adopted is to institute
departmental trading accounts in the factory for the purpose
of showing the amount which each department gains
or loses against the scheduled cost of performing the work
allotted to it.

The method appears only to have real utility when the
work is standard and it can thus be used to take the place
of detailed job costs.

Each department being charged with the wages paid ;
indirect materials used, spoilt work and allocations of
overhead expenses is credited with the estimated value of
the work performed and the profit or loss can be obtained
week by week from these records.

Detailed calculations can be made of the cost of special


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Online LibraryHenry Julius LuntManual of cost accounts → online text (page 9 of 13)