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predetermination will assist materially in keeping the cost within well defined limits. If you determine standard outputs as expressed in units per hour, in a sense you have determined the cost of work from the standpoint of time at any rate, which after all is the real productive investment in business. So long, therefore, as a job or operation is up to or ahead of the schedule of estimated production as expressed in units per working hour, the costs are bound to be within prescribed limits. What should be watched is the cost of work which falls behind schedule as here is where the losses occur. Thus, you have within your control, through the medium of predetermination, the data necessary to watch costs during the process of work and in the hands of your shop personnel, giving them a direct point of contact in connection with cost reduction. In other words, determine equivalents and watch actual results which fail to measure up to them. Do not overlook the enormous importance of the influence on shop officials in putting them in direct touch with this matter of cost, through having standard outputs and curtailing actual costs in excess of them. This does not mean that the actual costs of production are not to be compiled in an accurate manner. Predetermination should be used as much as possible in anticipating increases in cost. Watching costs in excess of estimates enables you to produce more economically than would otherwise be the case.

Normal Operation Should be Basis Referring to the third principle “Standardization,” in the early part of 1908 the writer took hold of a large plant in Pennsylvania, comprising a structural shop, machine shop and foundry. The burden accounting employed at the time gave the machine shop more profits than it was entitled to, while the structural shop was showing profits less than those actually made. The foundry was selling castings to the machine and structural shops at actual cost, which did not include any proportion of the overhead expense of the company. In the changes that followed, each department was put on its own feet through the books of the company, with provision for monthly profit and loss statements.

The theory which the author had in mind was that the greatest volume of business could be secured only when the plant was operating at about normal. With high production meaning low cost, and low production high cost, under the usual method of accounting it meant that the sales and cost divisions came into conflict both when costs were high, which operated against obtaining business, and when costs were extremely low due to abnormal business, which resulted in quoting prices lower than would be necessary to secure the business.

So much for the theory; now for the practice! A concern is in business to sell. It may make what it can sell, or sell what it makes, but selling is the fundamental basis of any business, a point which many accountants and industrial engineers seem to forget. If, as a sales manager, I cannot sell goods because due to conditions being below normal my prices are too high, or because of an abnormally high production my prices are lower than I know I can get for my goods, I don't need to be an industrial engineer nor an accountant to know that something is radically wrong with the whole thing, both in theory and in practice.

With standard rates, however, reflecting normal conditions, I am assured against loss of business on the one hand and loss in prices on the other. I know also that on this basis the line which is profitable in the shop will show profits, whereas through operating on a low production basis the increased overhead will not only wipe out the profits, but make the line show a loss. At any rate, at the time the methods were introduced in the concern in question, the business was making very little money. It's sales were not large and it was a heavy borrower, with a pattern account far in excess of real value. It. had a bond issue hanging over it's head. Today this plant with two additions, is doing a capacity business, making excellent profits and declaring dividends. It is discounting its paper and has retired its bonds, while the pattern account is where it belongs.

The fourth principle is "Productivity." The most advanced doctrine of management is that the unit sold is really the time of equipment, the time of working, the time money is tied up in materials, the time of clerical help, the time of storing materials in a given place, the time of making rigging, the time of transferring materials from one place to another, and the time of inspection. If there are delays or enforced idleness at any of these points the result will be high costs, which make for high prices. In proportion, therefore, as manufacturers consider this question of time in price making and figuring profits, in that same proportion will they increase their business efficiency.

Productivity, a Measure of Costs It is also obvious that a customer should pay most for that which is most complicated to make. A job may be simple to mold but decidedly intricate as to core making and setting. The only basis, therefore, is to properly consider productivity, which is after all the true measure of complication

In brief, the requirements of a proper system of foundry costing are:

Cost of labor and material should be accurately determined and properly classified.

The expenses of a business or overhead or burden as it is called, should be carefully compiled and classified.

The apportionment of overhead to production must be arranged on some basis as will not make the cost of heavy work too high nor the cost of the light work too low, otherwise the result will be loss of sales on heavy work and plenty of light work at low prices.

Those who purchase castings should pay most for those which cost the most to produce, as reflected by the time taken to produce them.

Costs vary with productivity by which is meant the relative amount produced per man per day. The work of a man producing a ton per day costs less per 100 pounds than that of a man who produces only 500 pounds per day and the cost should reconcile this difference. In other words, consideration should be given to the fast and slow moving jobs.

Costs should be classified according to whatever plan will best meet the particular conditions. This can be done according to classes of work, kind of molding, separate patterns and classes of patterns, kind of cores, character of cleaning, according to departments, and by classified weights. Provision in all cases should be made for determining the cost of individual patterns.

Costs should be placed on a 30-day basis offering 12 opportunities per year for locating and correcting faulty conditions.

Costs should be based on standard rates for the various items in order to enable a foundry to operate and make prices based on normal conditions.

With the four principles incorporated in the cost system, and the eight requirements met, the following may be expected:

1. Elimination of guess work in price making
2. Knowledge that all items are included.
3. The right kind of a basis for predetermining production

rates and costs.
4. Intelligent apportionment of overhead.
5. Comparison of work between different plants.
6. Close watch on work running over estimates.
7. Discouragment of price cutting.
8. Better prices.
9. Stronger institutions financially.
10. Valuable Association data.
11. Betterment to the entire industry.

The Bridgeport Evening Post on Aug. 13 made the following statement editorially:

"The master printers of this country have a constructive organization from which other industries and trades can well take the idea. Instead of being an organization to control prices and for fighting the labor unions, it is one to work with each other as to costs. There was a great deal of piratical competition in the printing industry. Some customers paid too much and others not enough. One department in a plant would make money and the other lose it. Various attempts were made in the past to form organizations among master printers to control prices, which also served for warfare on labor unions."

“The real constructive idea of this printers trade organization and which has been found to be successful, is that if a printer knows his cost he will not sell his product for less than its cost and thereby he does not become unfair competitor to his neighbor. Therefor nothing is said or done in the matter of sales prices."

Conclusion In presenting this argument more attention has been paid to principles, laws and economic considerations than to the methods and forms, which after all are only incidental considerations. If the basis is right, the factors having to do with gathering and compiling cost data are easily within the control of any competent cost accountant or accounting organization.

In closing, therefore, let me repeat that a cost accounting plan must have as much to do with the future as with the present or past. It must serve the production and sales departments of the business just as much as the financial. It must know as much about what should be done as what is being done. If designed to give due consideration to the factors enumerated it will serve you well in this day of keen competition, tax complications and labor difficulties.

an

Report of the A. F. A. Committee

on Foundry Costs

During the year since the last report of your committee on foundry costs, showing condition of work done and financial status up to Sept. 1, 1918, the work has been prosecuted vigorously.

It was found by C. E. Knoeppel & Co., after visiting a number of the subscribers' plants, that some changes in the method of presentation would be advisable, in the interest of simplicity. They therefore prepared a new bulletin to supersede the original one and at a meeting of your committee, March 5, 1919, the new presentation was passed upon and accepted. After duplication, copies were mailed to all subscribers and all were requested by mail to thoroughly digest "hem.

During July an itinerary was arranged which included a number of revisits to plants already visited.

Since that time the work of visiting clients has progressed satisfactorily, and it is anticipated that by the end of the current year the work will have been completed.

Of the foundries visited 90 per cent have been convinced and have agreed to go ahead with the installation of the standard system. The balance have agreed and will go ahead ultimately. It is with satisfaction that your committee reports this condition.

The following is a summary of work done and to be done as of Sept. 5, 1919:

Foundries visited
Foundries to visit.
Foundries not heard from..
Visits not desired....
Not using system.
Not interested..
Out of bounds.

18 57 24 6 9 9 3

126

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