FEDERAL TRADE COMMISSION 
 
 JULY 1, 1916 
 
 WASHINGTON 
 
 GOVERNMENT PRINTING OFFICE 
 1916
 
 FEDERAL TRADE COMMISSION 
 
 FUNDAMENTALS OF A COST SYSTEM 
 FOR MANUFACTURERS 
 
 JULY 1, 1916 
 
 WASHINGTON 
 
 GOVERNMENT PRINTING OFFICE 
 1916
 
 EDWARD N. HURLEY, 
 
 Chairman. 
 WILLIAM J. HARRIS, 
 
 JOSEPH E D^S. frWaW< FEDERAL TRADE COMMISSION 
 
 WILL II. PARRY. 
 
 GEORGE RUHLEE. WASHINGTON 
 
 LEONIDAS L. BRACKEN, 
 Secretary. 
 
 July 1, 1916. 
 To the American Manufacturer: 
 
 The Federal Trade Commission has found that an 
 amazing number of manufacturers, particularly the 
 smaller ones, have no adequate system for determining 
 their costs and price their goods arbitrarily. It 
 is evident that there must "be improvement in this 
 direction "before competition can be placed upon a 
 sound economic "basis. 
 
 With the object of aiding in the improvement of 
 business generally we have endeavored in this pam- 
 phlet to show briefly the importance of accurate 
 manufacturing costs and the fundamental principles 
 underlying them. I commend it to your attention and 
 feel satisfied that if you will read it carefully you 
 will find many helpful suggestions. 
 
 The pamphlet has been prepared under my di- 
 rection by Mr. Robert E. Belt, Chief Accountant, and 
 Mr. R. W. Gardiner, Assistant. 
 
 Trusting we may have your hearty cooperation, 
 I am, 
 
 Very respectfully yours, 
 
 <r 
 
 Chairman
 
 CONTENTS. 
 
 Page. 
 
 Purpose of this pamphlet 5 
 
 Objections to installing cost systems 5 
 
 Necessity for ascertaining true costs 6 
 
 Exchange of statistical information beneficial 7 
 
 Many businesses not profitable 7 
 
 What is cost 7 
 
 System and its development .- 7 
 
 The job cost system 8 
 
 Material 9 
 
 Labor . 9 
 
 Overhead expense 10 
 
 Departmentalization necessary for proper distribution of factory overhead 10 
 
 Fixed factory charges .- 11 
 
 Building expense 11 
 
 Power 12 
 
 Insurance and taxes 12 
 
 Depreciation the necessity for including in cost 12 
 
 Methods of determining depreciation 12 
 
 Variable factory charges 13 
 
 Interest 14 
 
 Ascertainment of normal cost 14 
 
 Distribution of overhead to job costs -. 15 
 
 The productive-hour method 16 
 
 Total factory cost 16 
 
 Shipping, selling, and general expenses 17 
 
 Controlling accounts 18 
 
 The continuous production system 19 
 
 Financial and operating statements 21 
 
 Ledger accounts and statements 21 
 
 Ledger accounts 21 
 
 Trial balance 27 
 
 Profit and loss statement 
 
 Statement of factory operations 28 
 
 Summary of factory overhead 29 
 
 Balance sheet 29 
 
 Uses and advantages of a cost system 30 
 
 Better direction of sales force 30 
 
 Elimination of waste 30 
 
 Cost system an investment, not an c:;pense 31 
 
 4
 
 FUNDAMENTALS OF A COST SYSTEM FOR MANUFACTURERS. 
 
 PURPOSE OF THIS PAMPHLET. 
 
 It is a fact too little realized that an accurate determination of 
 costs is fundamentally related to manufacturing efficiency. More 
 and more concerns are joining the ranks of those who realize the 
 necessity of knowing accurately their costs of manufacturing and 
 selling. Every business man who joins in this work can feel that 
 he is doing his part toward the improvement of business condi- 
 tions generally and his own business conditions in particular. This 
 bulletin has been prepared with a view to aiding the campaign of 
 education by explaining what a cost system is, how it operates, the 
 results obtained, and the benefits to be derived from its operation. 
 
 OBJECTIONS TO INSTALLING COST SYSTEMS. 
 
 There are a number of objections in the minds of business men 
 who have not installed cost systems to taking the matter up. One 
 of these is the feeling that exists in the minds of so many that their 
 business is unique and different from any other and that no system 
 could be devised which would give them true costs. It is unques- 
 tionably true that some lines of manufacture lend themselves more 
 readily to the installation of a cost system than others, but it is also 
 true that no line of manufacture is so complicated that a system can 
 not be devised which will give reasonably accurate results. 
 
 The most common objection is that of the cost of installation and 
 the expense of operation. Many manufacturers are of the opinion 
 that a cost system means an interminable amount of detail and red 
 tape and the assistance of a number of extra clerks. It is true, in 
 many cases, that some extra labor may be required, but not to the 
 extent that the manufacturer fears. There is in nearly every office 
 that is not systematized sufficient unnecessary work done to cut the 
 extra work down to a minimum, and, in fact, in some cases, where 
 an office has been systematized, it has not been necessary to employ 
 any extra help at all. If the manufacturer will look upon a cost 
 system as an investment which he expects to produce for him a fair 
 return in the same manner that an investment in improved machin- 
 ery would, the objection as to the expense is not a valid one. A 
 number of business men think that money spent for stationery is 
 wasted and that a cheap ready-made book will answer as well as 
 one specially designed for his business.' If a $10 book which lasts 
 
 5
 
 6 COST SYSTEM FOE MANUFACTURERS. 
 
 a year will save half an hour a day for a $12-a-week clerk as com- 
 pared with the use of a ready-made book which can be bought for 
 $1, the additional investment of $9 has brought in a revenue or 
 effected a saving of $39 for the year. This holds true of nearly all 
 specially designed forms as well. 
 
 Other business men are of the opinion that they do not need a cost 
 system because they know what their goods cost. They may, and 
 a number of them do have an approximate idea of what their goods 
 cost, but in a large number of instances this supposed knowledge is 
 based on foremen's guesses in advance as to the time necessary to 
 do the work or as to the time spent on the work after it is done. 
 Guesswork is unsafe and poor business practice. 
 
 NECESSITY FOR ASCERTAINING TRUE COSTS. 
 
 Formerly the necessity for the determination of true manufac- 
 turing costs was not as imperative as it is to-day. Margins between 
 cost and selling price in most lines were larger. Costs could be 
 ignored except hi a general way and a good return still be made on 
 the investment; but to-day margins of profit in most lines of trade 
 are very much narrower than formerly, and the necessity for the 
 most efficient management and closest analysis is felt as never 
 before. 
 
 It is necessary to-day for the business man's success that he know 
 on what articles he is making a profit and on what he is incurring a 
 loss. Competitive conditions are seriously disturbed where losses 
 on one or more articles are recovered by profits on other articles. 
 It is obvious that a manufacturer should not only know the cost of 
 each article he manufactures but that he should see that every article 
 manufactured bears its proper share of factory and general overhead. 
 
 Most manufacturing plants have grown to a size which renders 
 personal supervision impossible. The only reliable way, therefore, by 
 which an executive can judge of the efficiency of an organization is 
 through a system of periodical statistical reports. These reports 
 can only be accurately obtained when a good cost system is in 
 operation. 
 
 New methods are being introduced and improved machinery in- 
 stalled in the factory every day, with a view of reducing costs either 
 by the elimination of waste or by increasing efficiency. It is impos- 
 sible to know whether the introduction of these improvements will 
 reduce costs unless the manufacturer knows not only what his total 
 cost is but exactly what items make up the total. Items of cost are 
 frequently lost track of when the total only is considered, while if 
 those items were properly segregated so as to show what they were 
 they could be materially reduced and in some instances eliminated 
 altogether.
 
 COST SYSTEM FOR MANUFACTURERS. 7 
 
 EXCHANGE OF STATISTICAL INFORMATION BENEFICIAL. 
 
 In tlie past many manufacturers disliked to give out information 
 concerning their business. To-day the reverse is the case. Trade 
 associations are compiling statistics as to production, shipments, 
 and costs for the benefit of their members, and the manufacturer 
 instead of trying to keep this information to himself welcomes the 
 opportunity to supply the data, knowing that his competitors are 
 doing the same thing and that these statistics will be of benefit to 
 himself and to his industry. The Federal Trade Commission is keenly 
 alive to the value of this information. 
 
 The Commission is urging manufacturers to determine their costs 
 accurately in the interest of better trade conditions. It believes 
 that anything that is of benefit to an industry is of benefit to the 
 public, and it is also of the opinion ^that the nearer cost systems 
 approach uniformity the more valuable will be the results. 
 
 MANY BUSINESSES NOT PROFITABLE. 
 
 A large proportion of manufacturers are not making the money 
 they should. A great number of them are actually losing money. 
 
 The purpose of conducting a business is to make money, and the 
 only way to make money is to sell something for more than it costs. 
 The first essential, then, is to know the cost. It is the belief of the 
 Commission that the small margin of profit existing in so many of our 
 industries is due to the ignorance on the part of manufacturers of what 
 their goods actually cost to produce. This ignorance causes them to 
 make unprofitable prices, which the manufacturer who does know 
 his cost is forced to meet to a large extent. 
 
 WHAT IS COST? 
 
 Cost is defined as the amount or equivalent paid, or charged, or 
 given for anything; loss of any kind, expenditure, outlay, as of 
 money, time, labor. 
 
 This equivalent may be in the form of money paid for material or 
 for labor, or for some one of the many kinds of expense or loss that 
 exist in every manufacturing business. It is apparent that cost con- 
 sists of three elements, viz, material, labor, and expense. 
 
 SYSTEM AND ITS DEVELOPMENT. 
 
 The problem is to ascertain the amount of each of these elements, 
 and in order to accomplish this in the simplest and most practical 
 manner the manufacturer has recourse to system. System is defined 
 as a regular method or order, a formal arrangement, or a mode of 
 operation governed by general laws or rules.
 
 8 COST SYSTEM FOE MANUFACTURERS. 
 
 During the last 10 years the best accounting brains in the country 
 have been devoting a great deal of time to the perfection of general 
 laws or rules which will give the desired results with the least effort 
 and expense, and the outcome of their work is what is known as a 
 "Cost System." This provides not only for the determination of 
 the amount of each element of cost properly chargeable to each job 
 or operation, but also provides for an improved method of bookkeep- 
 ing which causes the books to reflect at all times the true financial 
 and industrial condition of the business and renders possible the prepa- 
 ration of monthly statements of conditions, as well as complete 
 monthly statements of financial and factory operations. 
 
 There are, generally speaking, but two distinct methods of manu- 
 facture. Each requires a cost system a little different in detail but 
 identical in fundamental principles. The first of these is used in a 
 business where every order is a separate article of manufacture, very 
 often made to order, and the selling price fixed before work is started; 
 and the second is used in a business where the output consists of one 
 or more articles which are being continually produced. For con- 
 venience we will designate the cost systems applicable to each as the 
 "Job Cost System" and the "Continuous Production System." 
 
 THE JOB COST SYSTEM. 
 
 The first step is to provide for giving the factory instructions as to 
 what work is to be done, and a form should be provided which must 
 give the following information: Job number, date, name and address 
 of customer for whom work is to bo done, a description of the work 
 to bo done, giving sufficient details, specifications as to what material 
 will be needed, and shipping instructions. This form should also 
 have space for the entry of shipments, so that when the work is done 
 the order form will be a complete record. A duplicate of this factory 
 order should be kept in the office and when the original is sent to the 
 factory the cost clerk opens a job cost sheet under that number. 
 
 The job cost sheet should show number, date opened, customer's 
 name, and in some cases a brief description of the work is advisable, 
 as it sometimes enables the cost clerk to detect an error in the number 
 shown on the time ticket or material requisition. As all reports are 
 made by job number instead of by name, it is of vital importance 
 that the greatest care be taken to insure the correctness of the 
 numbers on the time tickets and material requisitions. In addition 
 to the abovo information, the cost sheet should bo arranged so as to 
 provide columns for the following: Date, employee's number, hours, 
 amount of pay, machine number, machine hours, requisition number, 
 quantity of material and cost thereof.
 
 COST SYSTEM FOR MANUFACTURERS. 9 
 
 MATERIAL. 
 
 The first element of cost is material. Material is of two kinds, 
 direct and indirect. 
 
 Direct material is that which forms part of some particular job 
 and can be so charged. Indirect material is that which can not be 
 located as belonging to a particular job, and which is more in the 
 nature of general supplies. This class of material is sometimes 
 termed "expense material," as its ultimate destination is the expense 
 account of some department. 
 
 Material must be purchased, received, checked, and taken care of 
 unt.il it is required for use, and the general method recommended is 
 as follows: 
 
 A part of the factory should be set aside as a stock room and some 
 employee designated to perform the duties of stock clerk. The stock 
 clerk will keep the stock ledger cards or sheets, one for each article, 
 showing the quantity on hand. These cards should also show the 
 maximum quantity of each article he is to be allowed to carry and 
 also the minimum below which the stock must not be allowed to 
 fall. When the stock reaches the minimum a requisition should be 
 made on the purchasing agent for sufficient quantity to bring the 
 stock up to the maximum and sent to the superintendent or works 
 manager for approval, after which the goods are ordered. When 
 the goods come in they should go to the receiving clerk, who checks 
 them, reports their receipt to the office, and delivers the goods to ihe 
 stock room, where they remain until requisitioned out. 
 
 When the order reaches the factory the first step is to obtain the 
 material, and a requisition should be made on the storeroom for the 
 necessary quantity. This requisition should be numbered and space 
 should be provided thereon for job number or department, date, 
 quantity, description, price, amount, and signature of foreman. The 
 cost clerk extends the amount on the requisition and posts it to the 
 job cost sheet in the space provided, then files it away until the end 
 of the month, when the total for the month must be obtained. 
 
 LABOR. 
 
 The second element of cost is labor, and this, like material, is 
 divided into two classes direct, or, as it is sometimes called, pro- 
 ductive labor, and indirect, or nonproductive labor. Direct labor is 
 that which is applied directly to the job and which can be so charged. 
 Indirect labor is that which can not be located as belonging to any 
 particular job, but must be charged to the expenses of some depart- 
 ment. 
 
 The general method of handling labor is to have each employee 
 make up a time ticket each day. This ticket, for recording direct 
 labor, should show the employee's name, employee's number, date 
 
 39743 16 2
 
 10 COST SYSTEM FOR MANUFACTURERS. 
 
 and hours worked on each job, job number, and machine number, 
 if a machine is used ; and in the case of indirect labor the department 
 and nature of the work must be shown in lieu of job number. These 
 time tickets are sent in to the office each day and the direct labor is 
 posted to the job cost sheets and the indirect labor entered on a 
 summary sheet with columns headed by the name of departments, 
 so that the totals can be posted to the department expense account at 
 the end of the month. 
 
 The productive hours for each department are entered on another 
 summary, both for man hours and machine hours, which is totaled 
 at the end of the month. If the work is correctly done the totals on 
 this summary will equal the total of the postings made to the job 
 cost sheets. 
 
 OVERHEAD EXPENSE. 
 
 The job cost sheet now has entered thereon the first two elements 
 of cost, viz, direct material and direct labor, and the next question 
 is the proper method of handling the third element of cost, which is 
 generally known as " Overhead Expense," or, as it is also called, 
 ' ' Burden.' ' Overhead expense is the expense of every kind connected 
 with the business, none of which can be directly located as belonging 
 to a particular job. These expenses, while part of the cost of a job, 
 are general, so can not reach the job direct; hence a method must be 
 devised for them to reach the cost sheet in an indirect manner, the 
 method at the same time being so planned that each job will receive 
 its fair proportion of the total. 
 
 Before taking up the question of how overhead expense is to be 
 handled, it is necessary to determine just what items constitute 
 overhead. A list of these items and their description must neces- 
 sarily be very general and subject to change, as items of expense 
 occur in some lines of manufacture which it is necessary to treat as 
 overhead, while the same items hi another line can be handled as 
 direct expense. 
 
 Overhead may properly be divided into two classes factory over- 
 head, which consists of items directly belonging to factory operations, 
 and general overhead, which is expense not directly connected with 
 the factory. 
 
 As factory overhead is one of the items of total factory cost, the 
 method of handling this will be outlined first. 
 
 DEPARTMENTALIZATION NECESSARY FOR PROPER DISTRIBUTION OF 
 
 FACTORY OVERHEAD. 
 
 The first step in a fair and equable distribution of factory overhead 
 is a departmentalization of the business. Every business can be 
 departmentalized to some extent, some more than others, but the 
 subdivision into departments varies so much in the different lines that 
 it is almost impossible to give any definite idea as to what divisions
 
 COST SYSTEM FOR MANUFACTURERS. 11 
 
 should be made. Generally speaking, it is best to subdivide into 
 departments according to operations of manufacture, although at 
 times, for simplicity, a subdivision which places similar work in the 
 same department regardless of operation is used and has proven 
 satisfactory in a number of cases. By similar work is meant 
 hand workers who use practically the same amount of supplies, 
 machines of similar type, etc. Departmentalizing by operations is 
 a little more complicated, as it results in a greater number of depart- 
 ments, because the same or a similar kind of hand work may bo done 
 in several departments, and the same holds true of the machine 
 departments. 
 
 In a number of lines of manufacture all work can be placed in one 
 department where the unit of production is the same; i. e., with hand 
 workers the unit is the productive man hour, with machine workers 
 the machine hour, and in other departments the unit may be pound, 
 ton, piece, dozen, square feet, yard, etc. In departmentalizing a 
 business the fact should be borne in mind that the better the depart- 
 mental subdivision is made the more accurate will be the cost results. 
 
 FIXED FACTORY CHARGES. 
 
 Building Expense, Power, Insurance, Taxes, and Depreciation con- 
 stitute what are generally known as "Fixed Factory Charges," be- 
 cause they are practically fixed, and the factory has nothing to do 
 with either increasing or decreasing them. 
 
 BUILDING EXPENSE. 
 
 The first requisite of a business is a place in which to work; conse- 
 quently the first item of overhead is Building Expense or Rent. If 
 the building is owned by the manufacturer, the building expenses 
 consist of Insurance, Taxes, Depreciation, and Repairs, together with 
 such other expenses which are general in their nature but yet are 
 necessary to render the building useful, such as heat, light, elevator, 
 janitor, and water. If the building is rented, the items of insurance, 
 taxes, depreciation, and repairs are paid by the owner and in lieu of 
 these is Rent. Rent includes a return on the investment in addition 
 to the items named, so when it is desired to make comparisons be- 
 tween plants where the building is owned and where it is rented the 
 return on the investment must be taken into consideration. 
 
 The basis of distribution for all rent charges is the productive or 
 used square feet. The total used square feet divided into the total 
 rent charges gives the charge per used square foot. This result 
 multiplied by the used area of the department gives that depart- 
 ment's proportion of the total rent expenses. By used floor space is 
 meant that which is actually in use, exclusive of stairways, passages, 
 elevator space, and idle or unused space.
 
 12 COST SYSTEM FOB MANUFACTURERS. 
 
 POWER. 
 
 The second requisite is power, and this must be obtained either 
 from outside sources or generated in one's own plant. The distribu- 
 tion of power is a little more difficult than that of building expense, 
 and sometimes an arbitrary division based on the opinion of the 
 engineer and superintendent is used, but this method is not recom- 
 mended. One difficulty in distributing power charges is that very 
 often the same boiler supplies steam for heating and steam for power 
 generating and it is difficult to say how much for each. 
 
 For distributing power charges the factor generally used is found 
 by multiplying the horsepower required by each machine or depart- 
 ment by the average hours run by each and dividing the sum into the 
 total power charge. Power distribution is a problem in itself, and 
 it varies so much in different plants that it is impossible to lay down 
 any rules for its solution. Each plant must be treated in an indi- 
 vidual manner according to the existing conditions. 
 
 INSURANCE AND TAXES. 
 
 Insurance and taxes should be distributed on the basis of the 
 actual net value of the equipment in each department. This refers 
 to fire insurance and taxes on the plant only, as boiler insurance is a 
 charge to power, accident insurance is a charge to general factory 
 expense, and the charge for other forms of insurance is determined 
 by the nature of the insurance. Taxes on real estate and plant only 
 are chargeable against manuf acturing operations, as taxes on finished 
 goods in stock and franchise taxes are chargeable to general expense, 
 while income tax is a direct charge to profit and loss. 
 
 DEPRECIATION THE NECESSITY OF INCLUDING IN COST. 
 
 Depreciation is one of the most important of all the overhead 
 expenses, because it is generally the largest. There has probably 
 been more written on this subject than any other item of overhead, 
 but there are so many different ways of handling depreciation, some of 
 which are best adapted for one line and some for another, that there 
 is really no recognized standard method. It is universally admitted, 
 however, that depreciation does exist, that it is an element of cost 
 just as much as labor or material, and that any system which does 
 not provide for including it is faulty and one that will not give 
 true costs. 
 
 METHODS OF DETERMINING DEPRECIATION. 
 
 One method of handling depreciation, which is unqualifiedly con- 
 demned although extensively used, is to wait until the end of the 
 year and then if the profit and loss statement shows that a good 
 profit has been earned to charge a part of this profit to depreciation. 
 If, on the other hand, the profit and loss statement shows little or 
 no profit, nothing is charged to depreciation. It is difficult to
 
 COST SYSTEM FOR MANUFACTURERS. 13 
 
 understand how any practical man can take the view that his plant 
 and equipment have not worn out because he has not made a profit, 
 and at the same time have worn out when he has made a profit. 
 
 The first step necessary to provide for proper depreciation is to de- 
 partmentalize the plant values. The next step is to take each kind 
 of equipment or machine and figure its proper depreciation. 
 
 There are several methods of determining the amount of deprecia- 
 tion. One is to estimate the scrap value and deduct this figure from 
 the original cost. The difference is then divided by the estimated 
 life of the machine in years, and the result is the annual depreciation 
 on that machine. A modification of this method which is not quite 
 as simple, but really affords no difficulty, is after ascertaining the 
 amount to be charged off during the life of the machine to determine 
 a percentage which when applied to the net book value of the machine 
 will leave only the scrap value of the machine on the books at the ex- 
 piration of its estimated life. 
 
 To illustrate: If the initial cost of a machine and equipment is 
 $1,000 and the estimated scrap value is $200, with an estimated life 
 of 10 years, then $800 is the amount that must be charged into cost 
 during that period, or $80 per year. To attain this result, by using 
 the net value of the machine as a basis, a rate of 15 per cent would 
 be necessary, which would make the depreciation 15 per cent on $1,000, 
 or $150, the first year; 15 per cent on $850, or $127.50, the second year, 
 etc. The advantage of this method in the interest of normal costs is 
 that the decrease in depreciation charges is ordinarily offset by an 
 increase in repairs. 
 
 VARIABLE FACTORY CHARGES. 
 
 Variable charges or controllable expenses are the final items of 
 factory overhead. These are subdivided departmentally and charged 
 to the expense account of each department. Owing to the fact that no 
 two lines of manufacture have the same kinds of expenses, a descrip- 
 tion of them must be very general. Such items as nonproductive 
 labor, repairs, lubricating oils, and miscellaneous supplies are found 
 in nearly all expense accounts. 
 
 Factory expenses are incurred which can not be located as belong- 
 ing to any department, and these items should be charged to an ac- 
 count called "General Factory Expense." This account should be 
 distributed over the departmental expense accounts on some basis 
 which is fair to all, the nature of this distribution varying as to 
 special conditions existing in each particular business. Great care 
 should be taken to prevent anything being charged to the general 
 account that could possibly be charged to one of the departmental 
 accounts, as otherwise, either through carelessness or lack of knowledge, 
 the general account will become the dumping ground for all items 
 the charge for which, is in the least doubt.
 
 14 COST SYSTEM FOB MANUFACTURERS. 
 
 INTEREST. 
 
 The question of whether interest on the capital invested is a proper 
 charge against cost of production is one on which there is a marked 
 difference of opinion. The cases where it is considered desirable to 
 include interest in cost may be grouped under two heads: 
 
 1. Where materials have to be stored for long periods while a 
 seasoning process is being completed. 
 
 2. Where it is desired to show the effect of variations in the amount 
 of capital employed and the term of employment. 
 
 As seasoned material has a higher value than when first purchased, 
 it is apparent that the interest on the capital locked up during the 
 seasoning forms in a sense a direct part of the cost of the material. 
 If the material were purchased in a seasoned condition, a higher 
 price would have to be paid, and this price would at least include 
 interest and other carrying charges. 
 
 As some manufacturing processes require the use of expensive 
 equipment or take a long time to complete, both of which tie up 
 capital, while other processes require neither the equipment nor the 
 time, it is impossible to get true relative costs unless consideration is 
 given to interest on the capital employed. 
 
 Cost accountants and industrial engineers, for comparative and 
 statistical purposes, almost unanimously advocate including interest 
 in cost, and so far as interest is included in cost for comparative or 
 statistical purposes it serves a useful purpose. 
 
 Auditors, on the other hand, who are more directly interested in 
 the preparation of statements showing the financial condition of a 
 business, take the ground that interest is not an item of cost and 
 that to include it in cost results in an inflation of inventory values 
 and an anticipation of profits. It is true that including interest 
 in cost does inflate the inventory and is an anticipation of profit by 
 exactly the amount of interest charged to the cost of the goods on 
 hand. In arriving at inventory values, however, the approximate 
 interest which has been charged to the cost of the goods on hand 
 can be readily eliminated. 
 
 It is recommended that where interest on the investment is treated 
 as an item of cost that the interest charged to the goods on hand be 
 eliminated from inventory values, and, that in preparing profit and 
 loss statements the amount of the interest charged to costs during 
 the period be returned to Income under the specific caption "Interest 
 on Investment." 
 
 ASCERTAINMENT OF NORMAL COST. 
 
 In every manufacturing business it is unquestionably true that in 
 some months items of expense will occur which are not properly 
 chargeable against the cost for that month. For instance, it may be
 
 COST SYSTEM FOR MANUFACTURERS. 15 
 
 found necessary to make extensive repairs on a machine, which 
 repairs are sufficient for the entire year, and it would be manifestly 
 unfair to include the entire repairs in the costs of any given month. 
 Furthermore, every business has its dull season when its departments 
 are not running more than hnlf time, and this would also result in the 
 actual cost for those months being abnormally high. 
 
 These facts lead to the conclusion that what is necessary for the 
 manufacturer to know is not "What did it cost me to produce my 
 goods last month?" but "What would it have cost me to produce 
 under normal conditions and how far were my actual costs from 
 normal?" It will be seen that if selling prices are based on actual 
 costs during a busy season when the plant is probably working over- 
 time, the selling prices would be so low that the plant might be liter- 
 ally swamped with work, while conversely, if the selling prices were 
 based on actual costs when the plant was dull, they might be so high 
 that no business whatever could be obtained. It is necessary, there- 
 fore, that costs be averaged over a period of time sufficiently long to 
 take in both dull and busy seasons. The method of doing this is to 
 establish a "Reserve for Overhead" and credit this account with the 
 reduction in cost during the busy season and charge it with the 
 increase in cost during the dull season. The balance of this account 
 is closed out to Trading Account, as will be explained later. 
 
 DISTRIBUTION OF OVERHEAD TO JOB COSTS. 
 
 Having now provided for the recording of the overhead expense, it 
 becomes necessary to provide for charging it to the different jobs. 
 There are several methods of doing this. The first is by charging a 
 percentage on direct labor, but this in many lines results in inaccu- 
 racies and the method has been discarded by a large number of 
 manufacturers, although there are many who still use it owing to 
 its ease of operation. An illustration will show the reason for the 
 inaccuracy of this method. One man receiving 40 cents an hour 
 may be doing handwork, requiring no power, very little floor space, 
 and few supplies. If the overhead rate was 40 per cent, his hour 
 cost would be 40 plus 16, or 56 cents. Another man, receiving the 
 same rate of pay, may be working at a largo and expensive machine, 
 being subject to repairs, using power, several times the floor space, 
 and using a quantity of supplies, and his cost would be figured at 
 56 cents also, although it is probably a fact that the machine he is 
 using can not be operated for less than SI an hour. Another fault 
 with this method is that it throws most of the burden on the high- 
 priced man, when as a matter of fact, and this will be admitted by 
 nearly every practical executive, the high-priced man requires less 
 supervision and wastes less material than the cheaper one and really 
 should carry a less burden instead of a greater.
 
 16 
 
 COST SYSTEM FOB MANUFACTURERS. 
 
 There are, however, some lines of manufacture where the direct 
 labor method of distributing overhead can be used to advantage, 
 particularly where the workmen are on a piecework basis or where 
 they receive practically the same wage. In such cases a percentage 
 of direct labor will give good results. 
 
 THE PRODUCTIVE-HOUR METHOD. 
 
 Another method, and the one that is recognized by a majority of 
 manufacturers and accountants as the standard, is what is known 
 as the "Productive-Hour Method." In a plant where practically 
 all the labor is hand labor, the man hour is the basis and the total 
 hours divided into the total overhead expense gives a rate per hour, 
 which rate multiplied by the hours spent on a job gives the over- 
 head expense chargeable to that job. 
 
 In a plant where machines are the producing unit the distribution 
 must be on the basis of the machine hour, and the same method is 
 pursued as in the case of the man hour. 
 
 An estimate of overhead expenses should be made at the beginning 
 of the year, based on previous years' experience with such changes as 
 the executive's knowledge of business conditions leads him to make. 
 This figure, divided by the expected output in hours of the machines, 
 gives a normal overhead expense rate to be applied to all work in 
 that department. This rate remains constant until the end of the 
 fiscal year. The following schedule shows the method to be used in 
 establishing this rate: 
 
 ESTIMATED FACTORY OVERHEAD, 1916. 
 
 
 Total. 
 
 Dept. A. 
 
 Dept. B. 
 
 Dept. C. 
 
 Indirect Labor 
 
 87,300 
 3,900 
 8,560 
 420 
 525 
 2,625 
 5,400 
 4,950 
 790 
 1,818 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 $2,500 
 1,200 
 2,800 
 144 
 ISO 
 900 
 1,500 
 1,650 
 240 
 720 
 
 00 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 $3,000 
 1,500 
 3,960 
 192 
 240 
 1,200 
 2,700 
 2,100 
 360 
 900 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 $1,800 
 1,200 
 1,800 
 84 
 105 
 525 
 1,200 
 1,200 
 190 
 198 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 (>:> 
 
 Building Expense 
 
 Power 
 
 Insurance 
 
 Taxes 
 
 Depreciation 
 
 Repairs 
 
 General Factory Expense 
 
 Miscellaneous Supplies 
 
 Miscellaneous Expense 
 
 
 36,288 
 
 00 
 
 11,834 
 
 00 16,152 
 
 00 
 
 8,302 
 
 00 
 
 Yearly Hours Per Unit: 
 306 Days 8 Hours Each 
 
 2,448 
 245 
 
 2,448 
 245 
 
 2,448 
 245 
 
 Less 10 per cent 
 
 Net Yearly Hours Per Unit 
 
 2,203 
 8 
 17,624 
 67* 
 
 2,203 
 14 
 30,842 
 52* 
 
 2,203 
 25 
 55,075 
 15* 
 
 Number of Unils in Department 
 
 Yearly Hours per Department 
 
 Hourly Overhead Rate 
 
 
 TOTAL FACTORY COST. 
 
 The job cost sheet has now been charged with the three elements 
 of cost, viz, material, labor, and factory overhead expense, and the 
 total of these constitutes factory cost, to which must be added the 
 general overhead.
 
 COST SYSTEM FOR MANUFACTURERS. 17 
 
 SHIPPING, SELLING, AND GENERAL EXPENSES. 
 
 All of the items of factory cost now having been described and the 
 goods completed and placed in the storeroom as finished goods, the 
 next step is the method of handling the shipping, selling, and general 
 expenses of the business. 
 
 Shipping account is charged each month with its proportion of the 
 fixed charges and with labor, supplies, and miscellaneous expense 
 items. The total of this account is closed out to Profit and Loss. 
 
 Selling expense is, the next item to be considered. Some include 
 everything under this head that is not charged to the factory. A 
 better plan, though, is to separate the actual selling expense from the 
 general expenses and include in selling only such items as salaries and 
 expenses of the sales force whether on the road or in the office, adver- 
 tising, catalogues, price lists, the cost of handling canceled orders, etc. 
 
 Under general expenses are included officers' salaries, office expenses 
 (not including factory clerks), discount on sales, bad debts, bad 
 work, franchise taxes, and other items of a general nature. The 
 item Bad Work included in General Expense is defective work. As 
 every manufacturer has to contend with this item of expense it must 
 be included with the other general expenses. 
 
 An estimate of shipping, selling, and general expenses should be 
 made at the beginning of the year. This amount divided by the 
 estimated cost of the total completed work for the year gives a per- 
 centage for these items. Applying this rate to the factory cost of a 
 job, the amount which must be added to factory cost to ascertain 
 total cost is readily determined. 
 
 The following schedule shows the method of arriving at this rate: 
 
 ESTIMATED SHIPPING, SELLING, AND GENERAL EXPENSES. 
 
 FOR YEAR 191G. 
 
 
 Total. 
 
 Distribution. 
 
 Shipping. 1 
 
 Selling. 
 
 General. 
 
 
 $1,200 
 1,500 
 13. 200 
 4,800 
 2,500 
 1 500 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 $600 
 1,500 
 
 00 
 
 00 i 
 
 
 
 $600 
 
 00 
 
 Labor 
 
 
 
 Salaries. . . .. 
 
 $9,000 
 
 00 
 
 3.600 
 4,800 
 
 00 
 00 
 
 Oflicers' Salaries 
 
 
 
 Commissions . ... 
 
 
 
 2,500 
 1,500 
 
 00 
 00 
 
 Advertising 
 
 
 
 i 
 
 Insurance 
 
 192 
 215 
 200 
 120 
 2,300 
 1,200 
 750 
 325 
 
 12 
 15 
 100 
 50 
 
 00 i 
 00 ' 
 00 i 
 00 
 
 180 
 200 
 100 
 
 70 
 2, 300 
 1,200 
 750 
 150 
 
 00 
 00 
 00 
 00 
 03 
 00 
 CO 
 CO 
 
 Taxes 
 
 
 
 Depreciation 
 
 
 
 Repairs 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 75 
 
 00 
 
 100 
 
 00 
 
 Estimated cost of completed work, 
 $120,000.00. 
 Percentage or Cost 
 
 30,002 
 
 00 
 
 2,352 
 
 00 
 
 13, 700 
 
 00 
 
 13, 950 
 
 GO 
 
 25% 
 
 1 
 
 2% 
 
 11. 5% H.5Ci 

 
 18 COST SYSTEM FOE MANUFACTURERS. 
 
 CONTROLLING ACCOUNTS. 
 
 The principles of double entry are carried out in connection with 
 a cost system by means of what is known as "controlling accounts." 
 The advantage of the controlling principle is that it puts the book- 
 keeper in position to check up the work of the cost department in 
 totals, or, in other words, to control it. The control system will not 
 detect an error such as posting to the wrong account, but it is an 
 indubitable proof that the cost clerk has posted "every item to the 
 proper side of some account. It is hard to exaggerate the importance 
 of this feature in any cost system. 
 
 Materials account is charged with all purchases of materials from 
 the accounts payable or voucher register. The requisitions for the 
 month are totaled and a journal entry effected crediting Materials 
 and charging Work in Process. The balance of the account is the 
 cost of the materials in the stock room. 
 
 Labor account is charged with the total labor, both direct and 
 indirect. At the end of the month the account is credited with the 
 total labor shown on the cost clerk's labor summaries and Work in 
 Process charged with the direct labor and the departmental expense 
 accounts with the indirect labor. There will be a credit balance in 
 this account which will represent the amount earned by the employees, 
 but not paid. When the end of a pay period falls on the last day of 
 the month, the account should balance. 
 
 The next type of controlling accounts necessary are those which 
 reflect the overhead expenses. Building Expense account is charged 
 with all expenses of every kind, as heretofore -described, and at the 
 end of the month a journal entry is made charging each department 
 with its proportion of the total and crediting Building Expense 
 account. The entire expense of this account should be absorbed by 
 the departmental expense accounts. 
 
 Power account is handled in exactly the same manner. The entire 
 expense of this account should also be absorbed by the departmental 
 expense accounts. 
 
 Insurance is charged with all insurance which applies to the factory, 
 such as fire, accident, boiler, etc. This account is credited each 
 month with one-twelfth of the annual payment and the proper 
 departmental account charged. Insurance on stock, either raw 
 material, work in process, or finished goods, is charged to General 
 Expense and Insurance account credited. The balance of this 
 account is the value of prepaid insurance. 
 
 Taxes account is handled in the same manner as the Insurance 
 account, but these two accounts should be kept separate. 
 
 Depreciation account is comparatively simple to handle. A journal 
 entry is made each month charging Building Expense, Power, and 
 the departmental expense accounts with the amount of depreciation
 
 COST SYSTEM FOR MANUFACTURERS. 19 
 
 decided on at the beginning of the year. The credit goes to an account 
 called "Depreciation Reserve," the effect of which is to reduce the 
 book value of the plant and equipment, although it is not a good 
 plan to actually reduce this value on the books. It is better to carry 
 the reserve account and let the plant accounts remain at the original 
 cost figure. 
 
 The departmental expense accounts have now been charged with 
 their proportion of the fixed charges and with the indirect labor. The 
 only other charges are miscellaneous expenses, supplies, and repairs, 
 and these come from the Accounts Payable Register. These depart- 
 mental expense accounts are now credited with the distributed over- 
 head expense determined by multiplying the number of operating 
 hours by the normal hourly rate, Work in Process account being 
 charged. This total credit should balance the expense accounts, but 
 practically there will be small balances which should be charged or 
 credited at the end of the year to Reserve for Overhead. 
 
 Work in Process account now stands charged with direct material, 
 direct labor, and the departmental overhead expense. It is credited 
 with the cost of all jobs completed during the month, the charge 
 being to Finished Goods account. The balance of Work in Process 
 account is the factory cost of incomplete work. The charge to offset 
 this credit is to Finished Goods account. 
 
 When goods are sold, Finished Goods account is credited with the 
 cost and Trading Account charged. This figure is what is known as 
 "Cost of Sales." When goods are returned, Trading account is 
 credited and Finished Goods charged with the cost of the returned 
 goods, so that Cost of Sales will only be the cost of goods actually 
 sold. 
 
 The Reserve for Overhead is charged or credited to Trading ac- 
 count, so that the balance of the account is the true gross profit 
 on the goods sold. 
 
 THE CONTINUOUS PRODUCTION SYSTEM. 
 
 A system for recording the costs of a continuous product is a much 
 simpler one than a system for recording the cost of job work, because 
 in the former costs are figured department ally or by processes 
 instead of by jobs. The accounts are practically the same, except 
 that there is not the necessity for the same detailed analysis as in the 
 job cost system. 
 
 The business must be departmentalized as the first step, and the 
 departmental divisions carefully observed, as otherwise true costs 
 will not be obtained. The departmental divisions are different from 
 the job cost divisions, as these should be by processes, regardless as 
 to whether the work is of similar character or not. 
 
 Material is handled in the same way in both systems as far as 
 purchases and delivery to stock room goes, but in a slightly different
 
 20 COST SYSTEM FOB MANUFACTURERS. 
 
 manner after it is requisitioned out. It will be necessary to open a 
 material account for each department. As the material is withdrawn 
 for use these accounts are charged with its cost whether it be pur- 
 chased raw material or the finished product of some preceding depart- 
 ment. The credit to these accounts will be the cost of the material 
 used on the completed work and the balance will be the cost of the 
 material used on the work in process. 
 
 Labor is handled in the same manner as described in the Job 
 Cost System, except that it is not necessary to differentiate between 
 direct and indirect labor. It is, however, advisable to keep the 
 direct and indirect labor separate in order to get a detailed analysis 
 of cost in each department, so that any leaks which may exist will 
 be brought .to light. All labor done in a department is part of the 
 cost of operation of that department and must be taken up in the 
 monthly cost sheets. There will be some general labor, such as fore- 
 men, superintendents, etc., whose work must be distributed over 
 several departments. The basis for this distribution depends on the 
 nature of the business. It will be necessary to open departmental 
 labor accounts which will be charged with all labor and credited with 
 the labor cost of the completed material. The balance in these 
 accounts will represent the value of labor done on the work in process. 
 
 There should be also an overhead expense account for each depart- 
 ment, and these accounts will be charged with their proportion of the 
 fixed charges, with all indirect material or supplies, and with all mis- 
 cellaneous expense items. The credit to these accounts will be the 
 expense incurred on the work completed, and the balance will be the 
 expenses incurred on the work in process. 
 
 At the end of the month a journal entry is made charging a suc- 
 ceeding department material account, or the finished goods account, 
 as the case may be, with the total cost of the product sent out and 
 crediting each of the departmental accounts with its share of the 
 total cost. When this is done it will be seen that the sum of the bal- 
 ances in these three departmental accounts^ namely, material, labor, 
 and expense, will be the cost of the work in process in that depart- 
 ment. When a department has completed all the work it has and 
 sent its product to some other department these three accounts should 
 balance. 
 
 In some lines of manufacture, where a continuous product is made, 
 it is the practice to issue a Works Production Order to make a certain 
 quantity of goods, and where this practice is used the Job Cost Sys- 
 tem is used, keeping the cost by order number. 
 
 After the goods . have reached the Finished Goods account the 
 method of treatment under the Continuous Production System is 
 identical with the Job Cost System.
 
 COST SYSTEM FOR MANUFACTURERS. 
 
 FINANCIAL AND OPERATING STATEMENTS. 
 
 21 
 
 The profit and loss statement should be so arranged as to reflect the 
 actual results of the period, and the figures shown thereon should not 
 need any explanation or qualification. 
 
 For the purpose of giving the executive information as to the opera- 
 tions of his factory it is well to prepare a statement of factory opera- 
 tions. As all the figures are from the books, the preparation of this 
 statement involves very little work and gives valuable information. 
 
 A statement of assets and liabilities should also bo prepared, and 
 the difference between assets and liabilities must be the figure shown 
 on the profit and loss statement as surplus or net profit. 
 
 Where goods are purchased for resale the profit and loss statement 
 should have another division showing the amount of profit on pur- 
 chased goods or merchandising separate from the profit earned on 
 manufactured goods. Where this item is small it may be disregarded 
 and merged into manufactured goods, but the best practice is to 
 keep them separate. 
 
 The systems outlined are believed to be simple and easy of opera- 
 tion. While a number of details have been explained it must be 
 remembered that the methods outlined are general, and it is not 
 claimed that the outlines as given would fit every business. The one 
 thing above all others that both the manufacturer and the accountant 
 should have in mind in installing a system is simplicity. Simplicity 
 means ease of operation, less liability of error, and what is equally 
 important economy of operation. 
 
 LEDGER ACCOUNTS AND STATEMENTS. 
 
 The following schedules show the ledger accounts necessary, the 
 trial balance before the closing entries are made, and forms for a 
 profit and loss statement, statement of factory operations, and 
 balance sheet. In order to enable ready reference to be made to the 
 various entries numbers have been inserted showing the source of the 
 entry. While the ledger accounts show the books as closed, it is not 
 recommended that this be done except at the end of the fiscal year, 
 as statements can be prepared from the ledger without the accounts 
 being closed. 
 
 MATERIALS. 1. 
 
 
 $3 000 
 
 00 
 
 Work in Process . (11) 
 
 I 
 $6, 4S4 
 
 32 
 
 Purchases . .(29) 
 
 7,800 
 
 00 
 
 Balance 
 
 4, GOO 
 
 00 
 
 
 284 
 
 3? 
 
 
 
 
 
 
 
 
 
 
 
 
 11,084 
 
 32 
 
 
 11,084 
 
 ::L' 
 
 J balance.. . 
 
 4.600 
 
 00 
 
 

 
 22 
 
 COST SYSTEM FOR MANUFACTURERS. 
 LABOR. 
 
 Total Pay Roll. 
 Balance 
 
 (29) ' $5,692 
 686 
 
 6,379 
 
 Balance 
 
 Work in Process 
 
 Building Expense 
 
 Power 
 
 Repairs 
 
 General Factory Expense. . . 
 Factory Overhead. Dept. A . 
 
 " ' " " B. 
 
 " " " C. 
 Shipping 
 
 -(14) 
 --(3) 
 ..(4) 
 ..(8) 
 ..(9) 
 -(10) 
 -(11) 
 -(12) 
 .(21) 
 
 Balance. 
 
 BUILDING EXPENSE. 
 
 POWER. 
 
 INSURANCE. 
 
 $200 
 
 4,444 
 
 185 
 
 300 
 
 . 356 
 
 92 
 
 246 
 
 251 
 
 185 
 
 117 
 
 6,379 07 
 
 Labor (2) 
 
 $185 
 
 no 
 
 General Factory Expense (9) 
 
 $76 
 
 29 
 
 Power (Heat and Light) (4) 
 
 84 
 
 10 
 
 Factory Overhead Dept A (10) 
 
 101 
 
 72 
 
 Insurance (5) 
 
 12 
 
 00 I 
 
 " " " B" (11) 
 
 127 
 
 15 
 
 Taxes (6) 
 
 20 
 
 00 
 
 " " " C (12) 
 
 101 
 
 72 
 
 Depreciation (7) 
 
 40 
 
 00 
 
 Shipping. (21) 
 
 50 
 
 86 
 
 Repairs (8) 
 
 65 
 
 00 
 
 General Expense (Office) (23) 
 
 50 
 
 86 
 
 Elevator Expenses . --(29) 
 
 58 
 
 00 
 
 
 
 
 Water (29) 
 
 16 
 
 50 
 
 ^______ 
 
 
 
 Miscellaneous Materials (29) 
 
 28 
 
 00 
 
 ^_____ 
 
 
 
 
 
 
 ^ ' 
 
 
 
 
 503 
 
 60 
 
 
 508 
 
 60 
 
 Labor (2) 
 
 $300 
 8 
 10 
 40 
 325 
 45 
 38 
 75 
 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 00 
 
 Building Expense (3) 
 
 $84 
 252 
 336 
 168 
 
 10 
 30 
 40 
 20 
 
 00 
 
 Insurance (5) 
 
 Factory Overhead, Dept. A... (10) 
 " " <f B...(ll) 
 " C....(12) 
 
 Taxes (6) 
 
 Depreciation (7) 
 
 Fuel (29) 
 
 Oils (29) 
 
 Water (29) 
 
 Repairs and Supplies (29) 
 
 
 841 ' 00 
 
 841 
 
 Accounts Pavable 
 
 Balance. 
 
 $828 
 
 00 
 
 828 ! 00 
 
 756 I 00 
 
 Building Expense 
 
 Power 
 
 Repairs 
 
 Factory Overhead. Dept. A . 
 <f B 
 
 " " . " C.. 
 
 Shipping 
 
 General Expense 
 
 Balance 
 
 - (3) 
 
 - (4) 
 
 - (8) 
 -(10) 
 .(11) 
 .(12) 
 -(21) 
 .(23) 
 
 $12 
 
 12 
 
 16 
 
 7 
 
 1 
 
 14 
 756 
 
 00 
 
 TAXES. 
 
 Accounts Payable 
 
 Balance. 
 
 $1,095 
 
 l.O'.l,-, 
 1,000 
 
 00 
 
 Building Expense 
 
 Power 
 
 Repairs 
 
 Factory Overhead, Dept. A. 
 
 " " " B. 
 
 " " C. 
 
 General 
 Balance. 
 
 xpense. 
 
 - (3) 
 
 - i 4) 
 
 - (8) 
 -(10) 
 .(11) 
 .(12) 
 .(21) 
 .(23) 
 
 $20 
 10 
 
 16 
 
 1,000 
 
 1,095 | 00
 
 COST SYSTEM FOE MANUFACTURERS. 
 DEPRECIATION RESERVE. 
 
 23 
 
 Balance 
 
 $1,568 
 
 '74 
 
 Balance 
 
 $1,240 
 
 00 
 
 
 
 
 Building Expense . . .(3) 
 
 40 
 
 00 
 
 
 
 
 Power (4) 
 
 40 
 
 00 
 
 
 
 
 Repairs (8) 
 
 13 
 
 33 
 
 
 
 
 Factory Overhead Dept. A (10) 
 " B....(H) 
 " " " C (12) 
 Shipping (21) 
 
 75 
 100 
 43 
 8 
 
 00 
 00 
 75 
 33 
 
 
 
 
 General Expense . . ...(23) 
 
 8 
 
 31 
 
 
 
 
 
 
 
 
 1,508 
 
 74 
 
 
 1, 508 
 
 74 
 
 
 
 
 Balance... 
 
 1.508 
 
 74 
 
 REPAIRS. 
 
 I^abor (2) 
 
 $356 
 
 40 
 
 Building Expense (3) 
 
 $65 
 
 00 
 
 Insurance (5) 
 
 2 
 
 00 
 
 Factory Overhead Dept A (10) 
 
 159 
 
 00 
 
 Taxes (6) 
 
 2 
 
 50 
 
 " " " B (11) 
 
 247 
 
 80 
 
 Depreciation (7) 
 
 13 
 
 33 
 
 " " C (12) 
 
 115 
 
 43 
 
 Supplies (29) 
 
 167 
 
 00 
 
 Shipping C 21 ) 
 
 2 
 
 00 
 
 Miscellaneous Expense (29) 
 
 48 
 
 00 
 
 
 
 
 
 
 
 . 
 
 
 
 
 589 
 
 23 
 
 
 589 
 
 23 
 
 GENERAL FACTORY EXPENSE. 
 
 Labor (2) 
 
 $92 
 
 60 
 
 Factory Overhead, Dept. A. . .(10) 
 
 $155 
 
 90 
 
 Building Expense (3) 
 
 76 
 
 oq 
 
 " " '' B (11) 
 
 207 
 
 
 Factory Office Expense . (29) 
 
 265 
 
 00 
 
 ' " " C (12) 
 
 104 
 
 30 
 
 Miscellaneous Expense (29) 
 
 14 
 
 10 
 
 
 
 
 Miscellaneous Supplies (29) 
 
 20 
 
 00 
 
 . ~" 
 
 
 
 
 
 
 
 
 
 
 
 467 
 
 99 
 
 
 467 
 
 99 
 
 FACTORY OVERHEAD, DEPT. A. 
 
 10. 
 
 Indirect Labor 
 
 Building Expense 
 
 Power 
 
 Insurance 
 
 Taxes 
 
 Depreciation 
 
 Repairs 
 
 General Factory Expense . 
 Miscellaneous Supplies 
 
 " Expense 
 
 Reserve for Overhead 
 
 --(2) 
 --(3) 
 --(4) 
 ..(5) 
 --(6) 
 ..(7) 
 ..(8) 
 --(9) 
 -(29) 
 -(29) 
 .(13) 
 
 $246 
 
 101 
 
 252 
 
 12 
 
 15 
 
 75 
 
 159 
 
 155 
 
 30 
 
 75 
 
 84 
 
 1,207 
 
 Work in Process, 1,802 Hours, at 67 
 cents (14) 
 
 $1,207 
 
 1,207 34 
 
 34 
 
 FACTORY OVERHEAD, DEPT. B. 
 
 Indirect Labor 
 
 Building Expense 
 
 Power 
 
 Insurance 
 
 Taxes 
 
 Depreciation 
 
 Repairs 
 
 General Factory Expense. 
 
 Miscellaneous Supplies 
 
 " Expense 
 
 $251 
 
 127 
 
 336 
 
 16 
 
 20 
 
 100 
 
 247 
 
 207 
 
 40 
 
 85 
 
 1,431 j 
 
 i Work in Process, 2,523 Hours, at >* 
 
 cents (14) 
 
 Reserve for Overhead (13) 
 
 $1,311 
 119
 
 24 
 
 COST SYSTEM FOB MANUFACTURERS. 
 FACTORY OVERHEAD, DEFT. C. 
 
 FINISHED GOODS. 
 
 12. 
 
 Indirect Labor (2) 
 
 $185 
 101 
 168 
 7 
 8 
 43 
 115 
 104 
 20 
 61 
 
 70 
 72 
 20 
 00 
 75 
 75 
 43 
 30 
 00 
 50 
 
 Work in Process, 4,418 Hours, at 15 
 cents (14) 
 
 $662 
 IBS 
 
 70 
 65 
 
 Building Expense (3) 
 
 Power (4) 
 
 Reserve for Overhead (13) 
 
 Insurance ... (5) 
 
 
 Taxes (6) 
 
 
 Repairs (8) 
 
 
 
 " Expense. . ..(29) 
 
 
 816 
 
 35 
 
 816 
 
 35 
 
 RESERVE FOR OVERHEAD. 
 
 13. 
 
 Factory Overhead, Dept. B...(ll) 
 
 $119 
 153 
 
 78 
 65 
 
 Factory Overhead, Dept. A. ..(10) 
 Trading --(20) 
 
 $84 
 189 
 
 32 
 
 
 273 
 
 43 
 
 273 
 
 43 
 
 WORK IN PROCESS. 
 
 14. 
 
 Balance 
 
 $2,000 
 6,484 
 4,444 
 1,207 
 1,311 
 662 
 
 00 
 32 
 67 
 34 
 96 
 70 
 
 ! Finished goods (15) 
 
 $12,086 
 4,024 
 
 13 
 
 86 
 
 Material (1) 
 
 ' Balance 
 
 Labor . (2) 
 
 
 Factory Overhead, Dept. A . . .(10) 
 
 16, 110 
 
 99 
 
 16,110 
 
 99 
 
 Balance... 
 
 4.024 
 
 86 
 
 
 
 15. 
 
 Balance 
 
 $3,754 
 12,086 
 597 
 
 00 
 13 
 12 
 
 Trading (cost of sales) (20) 
 
 $8,801 
 7,635 
 
 53 
 
 72 
 
 
 : Balance 
 
 Cost of returns (20) 
 
 
 
 LES. 
 
 10,437 
 
 25 
 
 16,437 
 
 25 
 
 Balance 
 
 7,035 
 
 72 
 SA 
 
 \ 
 1 
 
 5. 
 
 
 Sales returns (17) 
 
 $865 
 
 ?0 : 
 
 Accounts receivable (28) 
 
 $13,485 
 
 60 
 
 Sales allowances (18) 
 
 50 
 
 on 
 
 
 
 
 Out freight (19) 
 
 120 
 
 00 
 
 ^__^___ ~~~ 
 
 
 
 Trading -(20) 
 
 12, 450 
 
 f,0 
 
 , 
 
 
 
 
 
 
 ^ ' 
 
 
 
 
 13,485 
 
 60 
 
 " 
 
 13,485 
 
 ffl 
 
 
 SAL 
 
 ES 
 
 RETURNS. 
 
 1 
 
 
 Accounts receivable (28) 
 
 $805 
 
 ?0 
 
 Sales (16) 
 
 $865 
 
 fO 
 
 
 
 
 
 
 
 SALES ALLOWANCES. 
 
 18. 
 
 Accounts receivable (28) 
 
 $50 
 
 00 
 
 Salts . (16) 
 
 $60 
 
 00 
 
 
 
 
 
 
 
 OUTBOUND FREIGHT. 
 
 Accounts Payable (29) 
 
 $120 
 
 on 
 
 Sales (16) 
 
 $/20 
 
 00 
 
 
 
 
 

 
 COST SYSTEM FOR MANUFACTURERS. 
 
 TRADING. 
 
 20. 
 
 Cost of Sales (15) 
 
 $8,801 
 189 
 4,056 
 
 53 
 11 
 
 88 
 
 Cost of Returns (15) 
 
 $597 
 12,450 
 
 12 
 40 
 
 Reserve for Overhead .. (13) 
 
 Sales .. (16) 
 
 Profit and loss (27) 
 
 
 
 PING. 
 
 13,047 
 
 52 
 
 13,047 
 
 52 
 
 
 
 
 5IIII 
 
 1 
 21. 
 
 Labor (2) 
 
 $117 
 50 
 1 
 1 
 8 
 2 
 50 
 6 
 
 00 
 86 
 00 
 25 
 33 
 00 
 00 
 75 
 
 Profit and loss (27) 
 
 
 19 
 
 Building Expense (3) 
 
 
 
 Taxes (6) 
 
 Depreciation (7) 
 
 Repairs (8) 
 
 Miscellaneous Supplies (29) 
 
 Miscellaneous Expense (29) 
 
 
 237 
 
 19 
 
 237 
 
 19 
 
 
 
 
 
 
 SELLING EXPENSE. 
 
 Salaries .. (29) 
 
 $800 
 200 
 120 
 
 00 
 00 
 53 
 
 Profit and Loss (27) 
 
 SI, 120 
 
 53 
 
 Commissions (29) 
 
 EXPENSE. 
 
 Advertising (29) 
 
 
 1,120 
 
 53 
 
 1,120 
 
 53 
 
 
 GENE 
 
 RAL 
 
 2, 
 
 $. 
 
 Building Expense (3) 
 
 $50 
 14 
 10 
 S 
 400 
 300 
 186 
 204 
 
 86 
 00 
 75 
 33 
 00 
 00 
 43 
 30 
 
 67 
 
 Profit and Loss (%7) 
 
 tl, 180 
 
 67 
 
 67 
 
 
 
 Taxes (6) 
 
 Depreciation (7) 
 
 Officers' Salaries (29) 
 
 Office Salaries . -(29) 
 
 Delivery Expense (29) 
 
 Miscellaneous Expense (29) 
 
 
 1,180 
 
 1,180 
 
 DISCOUNT ON PURCHASES. 
 
 24. 
 
 Profit and Loss (27) 
 
 3 .'(7.5 
 
 40 
 
 Accounts Payable (29) 
 
 $165 
 
 40 
 
 
 ON SALES. 
 
 DISCOUNT 
 
 25. 
 
 Accounts Receivable (28) 
 
 $95 
 
 00 
 
 Profit and Loss (~~) 
 
 #35 
 
 00 
 
 
 BAD DEBTS. 
 
 RESERVE FOR 
 
 26. 
 
 \ccounts Receivable . (28) 
 
 $64 
 131 
 
 00 
 00 
 
 Balance 
 
 $125 
 
 70 
 
 90 
 
 00 \ 
 
 
 Profit and Loss (2i) 
 
 
 Balance... 
 
 195 
 
 00 
 
 195 00 
 
 
 
 
 131 , 00
 
 26 
 
 COST SYSTEM FOE MANUFACTURERS. 
 PROFIT AND LOSS. 
 
 Shipping ---(21) 
 
 $237 
 
 19 
 
 Trading.. . (20) 
 
 54 056 
 
 88 
 
 Selling (22) 
 
 1.120 
 
 53 
 
 
 165 
 
 40 
 
 General Expense (23) 
 
 1.180 
 
 67 
 
 
 
 
 Discount on Sales (25) 
 
 95 
 
 00 
 
 " 
 
 
 
 Reserve for Bad Debts ... (26) 
 
 70 
 
 00 
 
 ^_____ 
 
 
 
 Net Profit to Surplus (36) 
 
 / G18 
 
 89 
 
 ^____^_ 
 
 
 
 
 
 
 ^ 
 
 
 
 
 4,222 
 
 28 
 
 
 4,222 
 
 28 
 
 ACCOUNTS RECEIVABLE. 
 
 2S. 
 
 Balance - 
 
 $6 000 
 
 00 
 
 Cash (30) 
 
 $9 875 
 
 00 
 
 Sales (16) 
 
 13 485 
 
 60 
 
 Returns (17) 
 
 *865 
 
 20 
 
 
 
 
 Sales Allowances (18) 
 
 50 
 
 00 
 
 ^ 
 
 
 
 Discount on Sales . (25) 
 
 95 
 
 00 
 
 ^ 
 
 
 
 Bad Debts (26) 
 
 64 
 
 00 
 
 ^^, 
 
 
 
 Balance 
 
 8,536 
 
 40 
 
 ^ 
 
 
 
 
 
 
 
 19,485 
 
 60 
 
 
 19, 485 
 
 60 
 
 Balance... 
 
 8,536 
 
 40 
 
 
 
 
 ACCOUNTS PAYABLE. 
 
 29. 
 
 Cash (30) 
 
 ! $15,350 
 
 ">0 
 
 Balance 
 
 $6 2.50 
 
 00 
 
 Discount on Purchases (24) 
 
 165 
 
 40 
 
 Accounts Payable Register... 
 
 19,499 
 
 71 
 
 Balance 
 
 10, 233 
 
 81 
 
 
 
 
 
 
 
 
 
 
 
 25, 749 
 
 71 
 
 
 25, 749 
 
 71 
 
 
 
 
 Balance... 
 
 10. 233 
 
 SI 
 
 CASH. 
 
 30. 
 
 Balance 
 
 Accounts Receivable (28) 
 
 17,061 
 9,875 
 
 00 
 00 
 
 Accounts Payable (29) 
 Balance 
 
 : S15, 350 
 11,585 
 
 50 
 50 
 
 
 .ND. 
 
 26,936 
 
 00 
 
 ; 26,936 | 00 
 
 Balance 
 
 ; 11,585 
 
 50 
 -LA 
 
 i 
 
 3 
 
 L. 
 
 
 Balance 
 
 54,000 
 
 00 
 
 
 
 
 
 
 ' 
 
 
 
 
 BUILDINGS. 
 
 32. 
 
 Balance 
 
 12,000 
 
 no 
 
 
 
 
 
 
 
 
 
 
 MACHINERY AND EQUIPMENT. 
 
 33. 
 
 Balance 
 
 S50, 000 
 
 00 
 
 
 
 
 
 
 
 

 
 COST SYSTEM FOR MANUFACTURERS. 
 CAPITAL STOCK. 
 
 27 
 
 34. 
 
 
 
 
 Balance 
 
 $100,000 
 
 on 
 
 
 
 
 
 
 
 UNISSUED STOCK. 
 
 Balance 
 
 $15 000 
 
 00 
 
 
 
 
 
 
 
 
 
 
 SURPLUS. 
 
 36. 
 
 Balance . . . 
 
 $6 518 
 
 89 
 
 Balance 
 
 $5 000 
 
 00 
 
 
 
 
 Profit and loss (27) 
 
 1,518 
 
 89 
 
 
 
 
 
 
 
 
 6,518 
 
 89 
 
 
 6,518 
 
 89 
 
 
 
 
 Balance 
 
 6,518 
 
 89 
 
 
 
 
 
 
 
 TRIAL BALANCE (BEFORE CLOSING) JANUARY 31, 1916. 
 
 1 
 
 Materials 
 
 $4,600 
 
 no 
 
 
 
 2 
 
 
 
 
 $686 
 
 79 
 
 5 
 
 Insurance 
 
 756 
 
 00 
 
 
 
 6 
 
 Taxes 
 
 1,000 
 
 75 
 
 
 
 7 
 
 
 
 
 1,568 
 
 74 
 
 10 
 
 Factory Overhead Dept. A . . 
 
 
 
 84 
 
 32 
 
 11 
 
 " B 
 
 119 
 
 78 
 
 
 
 12 
 
 
 153 
 
 65 
 
 
 
 14 
 
 Work in Process ... _.... 
 
 4,024 
 
 8fi 
 
 
 
 15 
 
 
 7,635 
 
 72 
 
 
 
 16 
 
 Sales 
 
 
 
 13 485 
 
 fiO 
 
 17 
 
 
 865 
 
 ?0 
 
 
 
 IS 
 
 Sales Allowances . 
 
 50 
 
 00 
 
 
 
 1<} 
 
 Outbound Freight 
 
 120 
 
 00 
 
 
 
 
 
 Trading 
 
 8,204 
 
 41 
 
 
 
 21 
 
 Shipping 
 
 237 
 
 19 
 
 
 
 22 
 
 Selling Exnense 
 
 1,120 
 
 53 
 
 
 
 23 
 
 
 1,180 
 
 67 
 
 
 
 24 
 
 
 
 
 165 
 
 40 
 
 25 
 
 
 95 
 
 00 
 
 
 
 26 
 
 
 
 
 61 
 
 00 
 
 ->s 
 
 Accounts Receivable 
 
 8,536 
 
 40 
 
 
 
 29 
 
 
 
 
 10,233 
 
 SI 
 
 30 
 
 Cash 
 
 11,585 
 
 50 
 
 
 
 31 
 
 
 4,000 
 
 00 
 
 
 
 32 
 
 
 12,000 
 
 00 
 
 
 
 33 
 
 Machinery and Equipment 
 
 50,000 
 
 00 
 
 
 
 34 
 
 Capital Stock 
 
 
 
 100,000 
 
 00 
 
 35 
 
 
 15,000 
 
 00 
 
 
 
 30 
 
 Surplus 
 
 
 
 5,000 
 
 00 
 
 
 
 131, 285 
 
 66 
 
 131, 285 
 
 66 .
 
 28 COST SYSTEM FOR MANUFACTURERS. 
 
 PROFIT AND LOSS STATEMENT FOR MONTH ENDING JANUARY 31, 1916. 
 
 Gross Sales (16) $13, 485. 60 
 
 Sales Returns (17) |865. 20 
 
 Sales Allowances (18) 50. 00 
 
 Outbound Freight (19) 120. 00 
 
 1,035.20 
 
 Net Sales 12, 450. 40 
 
 Cost of Sales (20) 8, 204. 41 
 
 Reserve for Overhead (13) 189. 11 
 
 8, 393. 52 
 
 Gross Profit 4, 056. 88 
 
 Snipping (21) 237.19 
 
 Selling Expense (22) 1, 120. 53 
 
 General Expense (23) 1, 180. 67 
 
 Discount on Sales (25) 95. 00 
 
 Bad Debts (20) 70. 00 
 
 2, 703. 39 
 
 Net Earnings 1, 353. 49 
 
 Discount on Purchases (24) 165. 40 
 
 Net Profit 1, 518. 89 
 
 STATEMENT OF FACTORY OPERATIONS, FOR THE MONTH ENDED JANUARY 31, 1916. 
 
 SUMMARY OF FACTORY OPERATIONS. 
 
 Material: 
 
 Inventory at first of Month ?3, 000. 00 
 
 Purchases 7, 800. 00 
 
 Freight and Express In 284. 32 
 
 Total 11,084.32 
 
 Less Inventory at End of Month 4, 600. 00 
 
 Direct Material Used $6,484.32 
 
 Direct Labor 4, 444. 67 
 
 Factory Overhead, per detail below : 
 
 Department A 1, 207. 34 
 
 B 1, 311. 96 
 
 C.. 662.70 
 
 Total Factory Overhead 3, 182. 00 
 
 Total Material, Labor and Overhead : 14.110.99 
 
 Add Inventory, First of Month: 
 
 Work in Process 2, 000.00 
 
 Finished Goods 3, 754. 00 
 
 5, 754.00 
 
 19,804.99 
 Less Inventory at End oi' Month: 
 
 Work in Process 4, 024 . 86 
 
 Fini8hed Goods. . 7, 635. 72 
 
 ll.G60.f8 
 
 Ccst (>f Sales, per Front and Loss Statement 8, 204. 41
 
 COST SYSTEM FOR MANUFACTURERS. 
 SUMMARY OF FACTORY OVERHEAD. 
 
 Nature of Expense. 
 
 Total. 
 
 Depart- 
 ment A . 
 
 Depart- 
 ment B. 
 
 Depart- 
 ment C. 
 
 Building Expense . .. 
 
 $330 
 758 
 218 
 35 
 43 
 522 
 467 
 90 
 683 
 222 
 
 59 
 90 
 75 
 00 
 75 
 23 
 99 
 00 
 40 
 50 
 
 $101 
 252 
 75 
 12 
 15 
 159 
 155 
 30 
 246 
 75 
 
 72 
 30 
 00 
 00 
 00 
 00 
 90 
 00 
 50 
 60 
 
 $127 
 336 
 100 
 16 
 20 
 247 
 207 
 40 
 2.51 
 85 
 
 15 
 
 40 
 00 
 00 
 00 
 so 
 79 
 00 
 20 
 40 
 
 $101 
 168 
 43 
 7 
 8 
 115 
 104 
 20 
 1R5 
 61 
 
 72 
 20 
 75 
 0!) 
 75 
 43 
 30 
 00 
 70 
 50 
 
 Power , 
 
 Depreciation . 
 
 Insurance. . . . . 
 
 Taxes 
 
 Shop Repairs 
 
 
 Miscellaneous Supplies. 
 
 Indirect Labor 
 
 Miscellaneous E xpen.se 
 
 Total 
 
 3,371 
 189 
 
 11 
 11 
 
 1,123 
 
 84 
 
 02 
 32 
 
 1, 431 
 119 
 
 74 
 78 
 
 818 
 
 153 
 
 35 
 66 
 
 Adjustment in Department Overhead 
 
 Total Factory Overhead, as above 
 
 3,182 
 
 00 
 
 1,207 
 
 34 
 
 1,311 
 
 96 
 
 6G2 
 
 70 
 
 
 BALANCE SHEET, JANUARY 31, 1916. 
 
 Current Assets: 
 
 Cash (30) $11, 585. 50 
 
 Accounts Receivable (28) $8, 536. 40 
 
 Less Reserve for Bad Debts (26) 131. 00 
 
 8, 405. 40 
 
 Raw Materials (1) 4, 600. 00 
 
 Work in Process (14) 4, 024. 86 
 
 Finished Goods (15) 7, 635. 72 
 
 Total Current Assets $36, 251. 48 
 
 Deferred Assets: 
 
 Prepaid Insurance (5) 756. 00 
 
 Prepaid Taxes (6) 1,000.75 
 
 Total Deferred Assets ]., 756. 75 
 
 Capital Assets: 
 
 * Land (31) 4, 000. 00 
 
 Buildings (32) 12, 000. 00 
 
 Machinery and Equipment (33) 50, 000. 00 
 
 Less Depreciation Reserve. 
 
 (7) 
 
 62, 000. 00 
 1, 568. 74 
 
 60, 431. 26 
 
 Total Capital Assets 64, 431. 26 
 
 Total Assets. . . 102,439.49 
 
 Current Liabilities: 
 
 Accounts Payable (29) 10. 233. 81 
 
 Accrued Wages (2) 686.79 
 
 Total Current Liabilities 10, 920. 60 
 
 Capital Liabilities: 
 
 Capital Stock (34) TOO, 000. CO 
 
 Less Unissued Stock ... (35) 1 5. 000. 00 
 
 - 85. 000. 00 
 Surplus (36) . 5, 000. 00 
 
 Total Capital Liabilities 90 ; 000. 00 
 
 Net Profit for Month. . . 1 , 518. 89 
 
 102, 439. 49
 
 30 COST SYSTEM FOB MANUFACTURERS. 
 
 USES AND ADVANTAGES OF A COST SYSTEM. 
 
 The prime object of a cost system is to determine costs, to analyze 
 and compare them, and to use them as a basis for making prices. But 
 the uses and advantages go further. A manufacturer from reliable 
 records is able to make clearer and more intelligent statements to his 
 bank and thereby obtain a larger line of credit than he could without 
 
 them. 
 
 BETTER DIRECTION OF SALES FORCE. 
 
 In most every line of manufacture there are some classes of work 
 done on which the manufacturer loses money. This may be due to 
 the high cost in his own plant, or it may be due to the fact that some 
 competitor is better equipped to make that particular article. A cost 
 system will bring out these facts and will show the manufacturer 
 which lines he should push. Salesmen, like everyone else, are prone 
 to follow the line of least resistance. In salesmanship, the line of 
 least resistance is selling the goods which require the least effort, and 
 in nearly every instance the goods which require the least effort to 
 sell are the least profitable lines. If the selling force know that a 
 line of goods produces little or no profit and are told to use every 
 effort to push another line, the result will be apparent in the profit and 
 loss account. 
 
 Still other manufacturers have customers on their books to whom 
 they have been selling for years and have been giving some reduction 
 in price or some concession in the way of extra work. A number. of 
 these accounts are decidedly unprofitable, and a cost system will 
 bring these to light and put the manufacturer either in a position to 
 raise his prices to a profitable basis or let some one else have the 
 unprofitable business. 
 
 ELIMINATION OF WASTE. 
 
 In every manufacturing business there are bound to occur leaks, 
 either of material, labor, or expense. If statistics are kept showing 
 the amount of material necessary to do certain classes of work, the 
 amount of labor, and the amount of overhead expense, an increase 
 in any of these items will be revealed by a comparison and the execu- 
 tive will be in a position to take the matter up for investigation. It 
 is hardly necessary to say that after a few of these matters have been 
 taken up with the factory the factory people will use a little more 
 care, not only in the use of the material but in the time they spend 
 on the work. A cost system with forms properly designed for giving 
 statistical information is of the greatest aid to factory efficiency.
 
 COST SYSTEM FOE MANUFACTURERS. 31 
 
 COST SYSTEM AN INVESTMENT, NOT AN EXPENSE. 
 
 A system will not run itself; neither will it in itself reduce costs 
 nor increase efficiency. This is strictly up to the manufacturer him- 
 self. A system will give him the information, and if this information 
 is properly used, he will unquestionably find that his system is not 
 an item of expense, but a very valuable asset. 
 
 If a manufacturer purchases a new machine before his old one is 
 worn out, he does so because he expects the amount expended to 
 increase his profits either from economy in operation or from an in- 
 crease in production. He looks on this as an investment and not an 
 expense. Office methods have been improved to quite as large an 
 extent as machinery, and an investment in improved methods will 
 produce a return just as will an investment in improved machinery. 
 
 One of the strongest arguments in favor of installing a practical 
 cost system is the fact that every manufacturer who has installed one 
 and who has operated it for at least a year is firmly convinced that it is 
 a paying proposition. 
 
 The Federal Trade Commission is urging manufacturers to give the 
 subject of accurate costs the attention it deserves. It has found that 
 unreliable costs of production and distribution cause a great deal of 
 unfair competition and a heavy business death rate. 
 
 While the claim is not made that a cost system will save a man from 
 failure, the claim is made that a man who knows where he stands day 
 by (lay is very much less likely to make a failure of his business than 
 One who is directing his business by guesswork. 
 
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