On this summary should be shown also the differences between actual costs of products and the values at which they are carried on the stock records so that the required adjustment can be ma ́'e subsequently.

Unit costs of all items on the summary must be determined for the purpose of revising stock record prices of regular products and for comparison with selling prices in case of special products. It is necessary periodically to send schedules of these unit costs of regular products to the price fixing department in order that important changes may be reflected in selling prices.

Numerous inquiries will be received from the sales department for costs on various special articles, which must be computed from the cost data previously compiled and by investigation of shop procedure that would be followed in the manufacture of these items. For this purpose, and for general information, unit costs when determined should be listed in comparative form on cost cards covering each size and kind of product manufactured.

Costs must also be determined for new construction work and extraordinary repairs and renewals in the same manner as production costs, but on separate summary sheets to keep them entirely distinct as they are chargeable to capital asset, reserve or operating expense accounts.

Cost records should be used as a means of controlling work in process. The factory cost accountant must call for department inventories finally to check this important asset, but the frequent need therefor will be obviated if inactive work in process as shown on the production summary is properly investigated and necessary adjustments are made.

RECEIVING Reports

Receiving reports are delivered to the factory cost accountant covering all goods received. These must be checked against copies of purchase invoices to ensure receipt of quantities and kinds of materials as billed. Unless this work is carefully performed, either materials in transit account, to which purchase invoices are temporarily charged when passed by the general accounting department, or inventory accounts may become overstated and a financial loss may be suffered.

Receiving reports are also priced from the purchase invoices for the use of the stock record department in revising purchase prices and for entry in the distribution journal to the debit of inventory, fixed assets or factory expense accounts and the credit of materials in transit.

OVERHEAD EXPENSE

Items charged to factory expense in the distribution journal must be further segregated in an expense distribution record arranged to show classes of expense, departments chargeable therewith and a total column to offset the factory expense column in the distribution journal. Withdrawals from stores that cannot be charged direct to orders in process are likewise entered in money value in this same expense distribution which also contains stores credit columns.

Time slips that bear overhead expense numbers must be sorted weekly by class of expense. The labor values thereof are then totalled and posted to the indirect labor distribution which is arranged to show class of expense and departments chargeable and also departments to be credited with the labor performed.

All overhead expense data require careful inspection to prevent charges being grouped under general expense which can possibly be allocated to departments, in order to avoid redistributing them on an arbitrary basis.

Monthly entries are made from the expense and indirect labor distribution to the factory ledger accounts indicated. When all overhead expenses, including fixed charges, have thus been segregated to the proper department accounts in the ledger, the monthly department overhead rates must be computed. At this point particularly the factory cost accountant must exercise judgment and care, for he seldom can adopt one unit as a basis for distributing the expense of all departments. He will find it necessary to determine for each department a unit based upon production, productive man hours, machine hours or productive labor which will distribute most equitably the expense of that department on the product manufactured. These rates when finally established may be used for statistical purposes only, as fluctuations therein may be slight, or investigation of monthly department balances may prove that they are due to temporary conditions which would not affect the rates already in use during a period of several months.

FACTORY LEDGER

The results of the various activities of the cost accountant which have already been described must be consolidated in the factory ledger. This book should contain such asset accounts as inventory controls, divided in accordance with the stock record groups, fixed asset accounts, in which capital additions are carried during the current fiscal period so that they can be transferred in totals at the end thereof to the general accounting department, materials in transit and deferred charges accounts. Liability accounts will be required to cover general accounting department transactions, payrolls and current reserves, which should be handled in the same manner as the fixed asset accounts. There also must be accounts for each department of the factory and a general expense account arranged so that operating expenses can be classified according to the divisions in the distribution records. Furthermore, an inventory adjustment account must be kept in which the money value of all price and quantity adjustments affecting the stock records can be absorbed. This account demands the close attention of the factory cost accountant because, in serving as a medium to dispose of inventory losses and gains, it measures the efficiency of the entire cost accounting system. If the postings thereto involve large amounts, an immediate investigation must be started to discover the weaknesses responsible for the errors which made the inventory adjustments necessary.

Credits to the general accounting department covering purchases, fixed charges and payrolls paid will be debited direct by journal vouchers to materials in transit and department accounts in the factory ledger. In like manner the manufacturing cost of goods shipped, shipping expense and office maintenance charges must be debited to the general accounting department and credited to inventory, work in process and department accounts.

To complete the factory ledger postings, it is necessary to pick up monthly entries from all the records heretofore described, which must be arranged to cover every factory accounting transaction affecting any of the accounts mentioned above.

Finally, non-productive department accounts which cannot be distributed direct as overhead expense must be closed into general expense and thence apportioned to production departments. At this point the entire cost accounting work of a month should have

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been embodied in the factory ledger in such a manner that it forms an actual and important part of the general financial

accounts.

PERIODIC STATEMENTS

The factory cost accountant has now reached the final stage in the course of his monthly labors. From the factory ledger, which should be in balance, he draws off a trial balance and forwards it to the general accounting department to be incorporated in the monthly consolidated balance-sheet. Then he must prepare a comparative operating statement covering all departments in the factory, on which is listed in parallel columns for the present month and the preceding month the total operating cost of each department, divided according to the classifications in the subsidiary records. Interdepartment transactions are deducted to determine net operating costs, and department production figures and overhead rates are entered as further evidence of the condition of operating efficiency. He also should prepare a schedule showing the total operating cost of all departments, which must agree with the total of the net operating costs of individual departments.

data for all these monthly These he obtains from the

The factory ledger supplies the statements except production figures. production reports, which must be compiled weekly from shop production records, time slips and notices of deliveries to stores, in order to furnish the factory management with necessary operating information.

Much of the factory cost accountant's work cannot be completed until after the close of the month which it covers. Owing, therefore, to its continuous or recurring nature, the routine of two months must often be in progress at one time. Consequently care and dispatch must be exercised in its performance in order to prevent the intermingling of cost data and the protraction of the work itself into a third month, which is sure to result in serious confusion.

The duties of the factory cost accountant can never become monotonous, because they repeatedly present themselves to him under too many different aspects; and the degree of success which he may hope to attain in their accomplishment depends solely upon the limit of his own versatility.

Candy Manufacturers' Accounts*

BY WILLLAM A. SHENTON

This article is written for the purpose of outlining the essential and peculiar features in accounting for the business conducted by a class of candy manufacturers who produce a grade of hard candies formed in machine presses.

In recent years there has come into being a variety of business enterprises that have been developed through the exploitation of their wares or product by means of extensive advertising campaigns. Among such is this class of candy manufacturers.

Owing to the very nature of the industry, it must be more or less apparent even to the outsider that there must be certain fundamental factors contributing to the successful conduct of business of this sort. It is essential that there should be

(a) A meritorious trade name or brand;

(b) A national sales field;

(c) A gross profit margin sufficient to carry the advertising and selling costs;

(d) A standardized product.

A careful consideration of these factors suggests to the mind of the accountant certain basic requirements in accounting to meet the needs of concerns of this type. For instance, it will be seen that the management in order to direct the business intelligently must know with a reasonable degree of certainty the relationship between the cost of manufacturing, the cost of selling and the selling prices. A knowledge of these facts appears especially essential when it is known that as a matter of selling policy a considerable percentage of manufactured product is frequently distributed as free goods to the jobbers throughout the country.

The succeeding comments upon the nature of the accounts for this class of candy manufacturers relate to the accounting phases of the business in the order indicated below:

1. Factory accounts;

2. Advertising and selling expenses;

3. Financial.

A thesis presented at the May, 1919, examinations of the American Institute of Accountants.