Cyclopedia of Commerce, Accountancy, Business Administration, v. 02 (of 10)

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Title: Cyclopedia of Commerce, Accountancy, Business Administration, v. 02 (of 10)

Author: American School of Correspondence

Release date: July 30, 2014 [eBook #46448]
Most recently updated: October 24, 2024

Language: English

Other information and formats: www.gutenberg.org/ebooks/46448

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*** START OF THE PROJECT GUTENBERG EBOOK CYCLOPEDIA OF COMMERCE, ACCOUNTANCY, BUSINESS ADMINISTRATION, V. 02 (OF 10) ***

[Illustration: BIRD'S─EYE VIEW OF THE BALDWIN LOCOMOTIVE WORKS,
PHILADELPHIA, PENNA.]

Cyclopedia
_of_
Commerce, Accountancy,
Business Administration

VOLUME 2

_A General Reference Work on_

ACCOUNTING, AUDITING, BOOKKEEPING, COMMERCIAL LAW, BUSINESS
MANAGEMENT, ADMINISTRATIVE AND INDUSTRIAL ORGANIZATION,
BANKING, ADVERTISING, SELLING, OFFICE AND FACTORY
RECORDS, COST KEEPING, SYSTEMATIZING, ETC.

_Prepared by a Corps of_

AUDITORS, ACCOUNTANTS, ATTORNEYS, AND SPECIALISTS IN BUSINESS
METHODS AND MANAGEMENT

_Illustrated with Over Two Thousand Engravings_

TEN VOLUMES

CHICAGO
AMERICAN TECHNICAL SOCIETY
1910

Entered at Stationers' Hall, London
All Rights Reserved

Authors and Collaborators

JAMES BRAY GRIFFITH, _Managing Editor_
Head. Dept. of Commerce, Accountancy, and Business Administration,
American School of Correspondence.

ROBERT H. MONTGOMERY
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants.
Editor of the American Edition of Dicksee's _Auditing_.
Formerly Lecturer on Auditing at the Evening School of Accounts and
Finance of the University of Pennsylvania, and the School of Commerce,
Accounts, and Finance of the New York University.

ARTHUR LOWES DICKINSON, F. C. A., C. P. A.
Of the Firms of Jones, Caesar, Dickinson, Wilmot & Company, Certified
Public Accountants, and Price, Waterhouse & Company, Chartered
Accountants.

WILLIAM M. LYBRAND, C. P. A.
Of the Firm of Lybrand, Ross Bros. & Montgomery, Certified Public
Accountants.

F. H. MACPHERSON, C. A., C. P. A.
Of the Firm of F. H. Macpherson & Co., Certified Public Accountants.

CHAS. A. SWEETLAND
Consulting Public Accountant.
Author of "Loose─Leaf Bookkeeping," and "Anti─Confusion Business
Methods."

E. C. LANDIS
Of the System Department, Burroughs Adding Machine Company.

HARRIS C. TROW, S. B.
_Editor─in─Chief_, Textbook Department, American School of
Correspondence.

CECIL B. SMEETON, F. I. A.
Public Accountant and Auditor.
President, Incorporated Accountants' Society of Illinois.
Fellow, Institute of Accounts, New York.

JOHN A. CHAMBERLAIN, A. B., LL. B.
Of the Cleveland Bar.
Lecturer on Suretyship, Western Reserve Law School.
Author of "Principles of Business Law."

HUGH WRIGHT
Auditor, Westlake Construction Company.

GLENN M. HOBBS, Ph. D.
Secretary, American School of Correspondence.

JESSIE M. SHEPHERD, A. B.
Associate Editor, Textbook Department, American School of
Correspondence.

GEORGE C. RUSSELL
Systematizer.
Formerly Manager, System Department, Elliott─Fisher Company.

OSCAR E. PERRIGO, M. E.
Specialist in Industrial Organization.
Author of "Machine─Shop Economics and Systems," etc.

DARWIN S. HATCH, B. S.
Assistant Editor, Textbook Department, American School of
Correspondence.

CHAS. E. HATHAWAY
Cost Expert.
Chief Accountant, Fore River Shipbuilding Co.

CHAS. WILBUR LEIGH, B. S.
Associate Professor of Mathematics, Armour Institute of Technology.

L. W. LEWIS
Advertising Manager, The McCaskey Register Co.

MARTIN W. RUSSELL
Registrar and Treasurer, American School of Correspondence.

HALBERT P. GILLETTE, C. E.
Managing Editor, _Engineering─Contracting_.
Author of "Handbook of Cost Data for Contractors and Engineers."

R. T. MILLER, JR., A. M., LL. B.
President, American School of Correspondence.

WILLIAM SCHUTTE
Manager of Advertising, National Cash Register Co.

E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Author of "The Credit Man and His Work" and "Financial Advertising."

RICHARD T. DANA
Consulting Engineer.
Chief Engineer, Construction Service Co.

P. H. BOGARDUS
Publicity Manager, American School of Correspondence.

WILLIAM G. NICHOLS
General Manufacturing Agent for the China Mfg. Co., The Webster Mfg.
Co., and the Pembroke Mills.
Author of "Cost Finding" and "Cotton Mills."

C. H. HUNTER
Advertising Manager, Elliott─Fisher Co.

FRANK C. MORSE
Filing Expert.
Secretary, Browne─Morse Co.

H. E. K'BERG
Expert on Loose─Leaf Systems.
Formerly Manager, Business Systems Department, Burroughs Adding
Machine Co.

EDWARD B. WAITE
Head, Instruction Department, American School of Correspondence.

Authorities Consulted

The editors have freely consulted the standard technical and business
literature of America and Europe in the preparation of these volumes.
They desire to express their indebtedness, particularly, to the
following eminent authorities, whose well─known treatises should be in
the library of everyone interested in modern business methods.

Grateful acknowledgment is made also of the valuable service rendered
by the many manufacturers and specialists in office and factory
methods, whose coöperation has made it possible to include in these
volumes suitable illustrations of the latest equipment for office use;
as well as those financial, mercantile, and manufacturing concerns
who have supplied illustrations of offices, factories, shops, and
buildings, typical of the commercial and industrial life of America.

JOSEPH HARDCASTLE, C. P. A.
Formerly Professor of Principles and Practice of Accounts, School of
Commerce, Accounts, and Finance, New York University.
Author of "Accounts of Executors and Testamentary Trustees."

HORACE LUCIAN ARNOLD
Specialist in Factory Organization and Accounting.
Author of "The Complete Cost Keeper," and "Factory Manager and
Accountant."

JOHN F. J. MULHALL, P. A.
Specialist in Corporation Accounts.
Author of "Quasi Public Corporation Accounting and Management."

SHERWIN CODY
Advertising and Sales Specialist.
Author of "How to Do Business by Letter," and "Art of Writing and
Speaking the English Language."

FREDERICK TIPSON, C. P. A.
Author of "Theory of Accounts."

CHARLES BUXTON GOING
Managing Editor of _The Engineering Magazine_.
Associate in Mechanical Engineering, Columbia University.
Corresponding Member, Canadian Mining Institute.

F. E. WEBNER
Public Accountant.
Specialist in Factory Accounting.
Contributor to The Engineering Press.

AMOS K. FISKE
Associate Editor of the _New York Journal of Commerce_.
Author of "The Modern Bank."

JOSEPH FRENCH JOHNSON
Dean of the New York University School of Commerce, Accounts, and Finance.
Editor, _The Journal of Accountancy_.
Author of "Money, Exchange, and Banking."

M. U. OVERLAND
Of the New York Bar.
Author of "Classified Corporation Laws of All the States."

THOMAS CONYNGTON
Of the New York Bar.
Author of "Corporate Management," "Corporate Organization," "The Modern
Corporation," and "Partnership Relations."

THEOPHILUS PARSONS, LL. D.
Author of "The Laws of Business."

E. ST. ELMO LEWIS
Advertising Manager, Burroughs Adding Machine Company.
Formerly Manager of Publicity, National Cash Register Co.
Author of "The Credit Man and His Work," and "Financial Advertising."

T. E. YOUNG, B. A., F. R. A. S.
Ex─President of the Institute of Actuaries.
Member of the Actuary Society of America.
Author of "Insurance."

LAWRENCE R. DICKSEE, F. C. A.
Professor of Accounting at the University of Birmingham.
Author of "Advanced Accounting," "Auditing," "Bookkeeping for Company
Secretary," etc.

FRANCIS W. PIXLEY
Author of "Auditors, Their Duties and Responsibilities," and
"Accountancy."

CHARLES U. CARPENTER
General Manager, The Herring─Hall─Marvin Safe Co.
Formerly General Manager, National Cash Register Co.
Author of "Profit Making Management."

C. E. KNOEPPEL
Specialist in Cost Analysis and Factory Betterment.
Author of "Systematic Foundry Operation and Foundry Costing," "Maximum
Production through Organization and Supervision," and other papers.

HARRINGTON EMERSON, M. A.
Consulting Engineer.
Director of Organization and Betterment Work on the Santa Fé System.
Originator of the Emerson Efficiency System.
Author of "Efficiency as a Basis for Operation and Wages."

ELMER H. BEACH
Specialist in Accounting Methods.
Editor, _Beach's Magazine of Business_.
Founder of The Bookkeeper.
Editor of _The American Business and Accounting Encyclopedia_.

J. J. RAHILL, C. P. A.
Member, California Society of Public Accountants.
Author of "Corporation Accounting and Corporation Law."

FRANK BROOKER, C. P. A.
Ex─New York State Examiner of Certified Public Accountants.
Ex─President, American Association of Public Accountants.
Author of "American Accountants' Manual."

CLINTON E. WOODS, M. E.
Specialist in Industrial Organization.
Formerly Comptroller, Sears, Roebuck & Co.
Author of "Organizing a Factory," and "Woods' Reports."

CHARLES E. SPRAGUE, C. P. A.
President of the Union Dime Savings Bank, New York.
Author of "The Accountancy of Investment," "Extended Bond Tables," and
"Problems and Studies in the Accountancy of Investment."

CHARLES WALDO HASKINS, C. P. A., L. H. M.
Author of "Business Education and Accountancy."

JOHN J. CRAWFORD
Author of "Bank Directors, Their Powers, Duties, and Liabilities."

DR. F. A. CLEVELAND
Of the Wharton School of Finance, University of Pennsylvania.
Author of "Funds and Their Uses."

[Illustration]

Foreword

With the unprecedented increase in our commercial activities has come
a demand for better business methods. Methods which were adequate for
the business of a less active commercial era, have given way to systems
and labor─saving ideas in keeping with the financial and industrial
progress of the world.

Out of this progress has risen a new literature──the literature of
business. But with the rapid advancement in the science of business,
its literature can scarcely be said to have kept pace, at least, not to
the same extent as in other sciences and professions. Much excellent
material dealing with special phases of business activity has been
prepared, but this is so scattered that the student desiring to acquire
a comprehensive business library has found himself confronted by
serious difficulties. He has been obliged, to a great extent, to make
his selections blindly, resulting in many duplications of material
without securing needed information on important phases of the subject.

In the belief that a demand exists for a library which shall embrace
the best practice in all branches of business──from buying to selling,
from simple bookkeeping to the administration of the financial affairs
of a great corporation──these volumes have been prepared. Prepared
primarily for use as instruction books for the American School of
Correspondence, the material from which the Cyclopedia has been
compiled embraces the latest ideas with explanations of the most
approved methods of modern business.

Editors and writers have been selected because of their familiarity
with, and experience in handling various subjects pertaining to
Commerce, Accountancy, and Business Administration. Writers with
practical business experience have received preference over those with
theoretical training; practicability has been considered of greater
importance than literary excellence.

In addition to covering the entire general field of business, this
Cyclopedia contains much specialized information not heretofore
published in any form. This specialization is particularly apparent in
those sections which treat of accounting and methods of management for
Department Stores, Contractors, Publishers and Printers, Insurance, and
Real Estate. The value of this information will be recognized by every
student of business.

The principal value which is claimed for this Cyclopedia is as a
reference work, but, comprising as it does the material used by the
School in its correspondence courses, it is offered with the confident
expectation that it will prove of great value to the trained man who
desires to become conversant with phases of business practice with
which he is unfamiliar, and to those holding advanced clerical and
managerial positions.

In conclusion, grateful acknowledgment is made to authors and
collaborators, to whose hearty coöperation the excellence of this work
is due.

Table of Contents

(For professional standing of authors, see list of Authors and
Collaborators at front of volume.)

VOLUME II

PURCHASING AND STORES DEPARTMENT _By James B. Griffith_ Page 11

Lists of Dealers──Catalogue Filing and Indexing──Special
Quotations──Department Routine──Requisitions──Purchase Orders──
Receipts and Invoices──The Stores Department──Organization──Taking
Inventory──Installing a Stores System──Record Files──Materials and
Supplies──Parts and Finished Stores──Machinery and Equipment Records

RECORDS OF LABOR AND MANUFACTURING ORDERS _By James B. Griffith_ Page 65

Labor Records──Wage Systems──Day Wage──Piece Rates──Premium
Systems──Efficiency Systems──Time─Keeping Systems──Time
Clocks──Production Time Records──Time Cards──Mechanical Time
Recorders──Piece─Work Records──Production Orders──Shop Orders──Order
Register──Tracing the Order

GENERAL EXPENSE _By Chas. E. Hathaway_ Page 127

Expense Distribution──True Cost──Selling Expense──Methods of
Distribution──The Man─Hour─Rate Method──The Machine─Hour─Rate
Method──The Percentage Method──Productive and Non─Productive
Labor──Expense and Production Cost Ledgers──Departmental
Expenses──General Expense──How to Use Percentages──Operating
Expense Statements──What the Statement Should Show──Comparative
Figures──General Expense Statements──Charts

COST SUMMARIES _By James B. Griffith_ Page 165

Collecting Cost Data──Material Cost Records──Labor Cost──Job
Cost──Comparative Cost Records──By─Products──Production
Records──Controlling Accounts

MACHINE─SHOP MANAGEMENT _By Oscar E. Perrigo_ Page 193

Methods of Modern Manufacturing──Organization of Manufacturing
Plant──Official Communications──Successful Management──Shop Methods
and Records──The Employment Agency──Time Keeping──Time Cards──Paying
Employes──Production Orders──Plant Orders──Storing and Issuing Stock
and Materials

COST─ANALYSIS ENGINEERING _By R. T. Dana and H. P. Gillette_ Page 251

The Science of Management──Subdivision of Duties──Cost
Getting──Punch─Cards──Cost Distribution──Process Cost
Subdivision──Output──Checking up Charts──Cost Reduction──Bonus
System──Labor Saving Devices──Chronological Charts

REVIEW QUESTIONS Page 319

INDEX Page 331

[Illustration: SHOP OFFICE, WESTERN ELECTRIC COMPANY, NEW YORK CITY]

PURCHASING AND STORES DEPARTMENT

PURCHASING DEPARTMENT

=1.= If the old axiom, "Goods well bought are half sold," holds true,
the purchasing department may well be considered one of the most
important in any business. In referring to the purchasing department
we have in mind that department, or division of the business, whose
duty it is to attend to the buying. In a large industrial enterprise
this may mean a department headed by a purchasing agent with several
assistants; in a department store, the buyers for the several
departments; in a small retail business, the member of the firm who
buys the goods. No matter whether the department be an extensive one,
or one requiring but a part of the time of one man, the principle is
the same.

Perhaps no other head of a department has greater need of complete
information and systematic records of his department, than does the
buyer. A man may have every qualification for a successful purchasing
agent, but, unless he has the most detailed information to aid him in
judging qualities and prices, his cannot be considered a successful
department. On the other hand, many a man, with no other qualification
than common sense, has built up a most successful purchasing department
because his work was thoroughly systematized.

We will consider the purchasing department from two standpoints: The
_information required_, and the _routine work_ to be performed. Under
the first head the requirements may be stated as:

1. List of dealers.

2. Full information about lines carried by each dealer or manufacturer.

3. Records of special quotations.

4. Information about qualities supplied by various dealers, to be
obtained from records of past purchases.

LIST OF DEALERS

=2.= The purchasing agent will have no difficulty in securing a list of
dealers. Even a new business is usually well supplied with circulars,
catalogues, and other information showing which dealers handle certain
lines. The principal concern of the purchasing agent is to so record
this information that it will be instantly available.

In some cases it is found necessary to make special lists of dealers,
and these are usually made on cards. A card is used for each article or
class of material that may be of interest, and the name of the class
is written at the top of the card. Below this are listed the names and
addresses of dealers and manufacturers supplying that particular class
of material. Since in most concerns this information can be combined
with the system of catalogue indexing, we do not show a special form
for this record.

CATALOGUE FILING AND INDEXING

=3.= A purchasing agent must necessarily gather much of the information
required in the operation of his department from catalogues supplied
by manufacturers. These catalogues are his technical library, in many
cases supplying the only available information relative to a particular
class of goods. Needless to say, some method must be provided for
carefully preserving these catalogues. They must be filed in such a
manner that they can be located quickly.

While every office has plenty of opportunities to accumulate an
oversupply of catalogues, resulting in a tendency to discard all except
those in which the purchasing agent may be interested at the time, it
is better to err on the side of a liberal supply. A catalogue that
comes in to─day may be of no immediate value, but it may become useful
a little later. It would be impracticable to keep every catalogue and
circular that reaches the office, but, if it is from a new concern, or
offers any new ideas, it should be kept, even though the subject is not
of especial interest at the moment.

Many systems of catalogue filing have been devised, and there are
almost as many styles of catalogue files on the market as there are
manufacturers of such equipment. No one system or style of filing will
answer the requirements in every concern. Each must build up a filing
system that will conform to existing conditions.

Though a system of universal application cannot be laid down, some
general suggestions may prove of value. No matter what the style
of receptacle used, catalogues are filed according to one of two
methods: The _alphabetical_, or the _numerical_. The alphabetical
method consists in the arrangement of catalogues in bookcases or other
suitable devices, according to the names of the publishers. For a
small number of catalogues, this is a very satisfactory system, for
the very reason that a purchasing agent soon becomes familiar with the
catalogues of different manufacturers, recognizing them by their size,
shape, or color.

A modification of the alphabetical system is one in which the
catalogues are arranged alphabetically by classes; that is, the lines
of goods in which the purchasing agent is interested are divided into
specific classes. In each of these divisions, the catalogues of all
manufacturers listing that class of goods are arranged in alphabetical
order. This method is also very satisfactory for a limited number of
catalogues.

For a large catalogue file the numerical system will prove the most
satisfactory. By this system each catalogue is given a number which
should be plainly shown on the back of the catalogue. All catalogues
of a specific class are placed in one group, and a series of numbers
is set aside for the group. To illustrate, we might have machinery
catalogues, numbers 1 to 100. All machinery catalogues would then be
given a number in that series. If the number be increased beyond 100,
the numbering system would be repeated by using 1_a_, 2_a_, etc.

With the numerical system, the catalogues of each group must be
arranged in exact numerical order, so that any catalogue may be
instantly located.

=4. Files.= As has already been stated, the style of file, as well as
the method of filing, or indexing, must conform to the conditions in
each individual office. However, the experience of the past is the
best guide for the future. As a general rule, sectional bookcases
will be found the most satisfactory for catalogues in bound form,
that is, those with substantial covers, and particularly those that
will readily stand on edge. An advantage of the sectional bookcase is
that all catalogues can plainly be seen, and even though a numerical
system be used, a man soon learns to recognize catalogues of certain
manufacturers without referring to any number or indexing system.

In every catalogue file will be found pamphlets, circulars, and
price lists which are not easily cared for in bookcases. For these
a section of a vertical file is recommended, and in many cases this
file has been used successfully for filing all sorts of miscellaneous
catalogues. It may be expanded to any capacity, and can be used with
equal success for either the alphabetical or numerical system of
indexing.

Which is the better depends upon the circumstances, but in nearly every
case either the sectional bookcase or the vertical file, or perhaps a
combination of the two, will be found most satisfactory.

=5. Catalogue Indexing.= The principal value of a file of catalogues
lies in the index. A miscellaneous lot of catalogues is of very little
value unless it be properly indexed. True, most catalogues contain an
index, but this is not the sort of index required by the purchasing
agent. He does not care for an itemized list of every article
manufactured by John Jones & Co., but he does want an index that will
show him where he can find descriptions and prices of machines of a
certain class. A catalogue may list thousands of articles in which the
purchasing agent has no interest, where it lists ten that are of use to
him. These ten articles are the ones which should be shown in his index.

[Illustration: Fig. 1. Subject Card for Catalogue Index]

The principal index of the catalogue file is one arranged by subjects.
A card used for this purpose is shown in Fig. 1. At the top of the card
is listed the subject. Below this is given the names and addresses of
all manufacturers supplying the goods listed. In the columns at the
right are recorded the section number, catalogue number, and page. The
section number refers to the section in the file where the catalogue
will be found; the catalogue number to the catalogue itself; and the
page to the number of the page in the catalogue. In making up such
an index, it is unnecessary to include a long list of articles of no
especial interest, but simply those which the concern is obliged to
purchase. If an entirely new subject comes up, it can then be listed
after suitable investigation.

These cards are filed alphabetically, according to the name of the
subject. While in some large concerns a more elaborate file will be
necessary, this index can usually be kept in a small card tray in a
desk drawer.

[Illustration: Fig. 2. Title Card for Catalogue Index]

When the numerical system of filing is used, another index is necessary
to locate the catalogues by name. In most cases our chief concern would
be to locate the catalogue by subject, but there are times when it
becomes necessary to locate a catalogue by name. To provide for this
cross─index, the card shown in Fig. 2 is used. It will be noted that
the arrangement of this card is just the opposite of the subject index,
the name and address of the manufacturer being given at the top of the
card together with the reference to the section and catalogue numbers.
On the lower half of the card are listed the names of articles, made by
that manufacturer, in which we are interested. This card is also filed
alphabetically, but, of course, under the name of the manufacturer.
When the number of cards is limited, both forms can be filed in the
same index by using contrasting colors. For instance, a buff color
might be used for the subject index, and salmon for the name index.

SPECIAL QUOTATIONS

=6.= Every purchasing agent receives, in addition to published price
lists, many special quotations on material and supplies in which he is
interested. Very frequently quotations are received at a time when he
is not in the market for the particular material offered, but they are
nevertheless of value for possible future use, and should be carefully
preserved.

[Illustration: Fig. 3. Card Form for Special Quotations]

One method of handling special quotations is to set aside a special
file, or a drawer, or a section of the regular file, to be used
exclusively for quotations. The quotations, when such a file is used,
are usually filed alphabetically according to the name of the material
offered. This method of filing necessitates a cross─index to locate the
letters by names of firms and is not entirely satisfactory, owing to
the difficulty of locating the most advantageous quotations. There may
be a dozen or more letters from different firms quoting prices on the
same material, and, to find which is the lowest, all must be examined.
Again, a firm will make quotations on several lines in the same letter,
which necessitates copying a part of the items or reorganizing the
filing system.

In a business receiving many such quotations, it is advisable to
reserve a special file for them, but we recommend their being filed
according to the names of firms. To provide an accessible record of
special quotations, the use of a special form, either on cards or loose
leaves, is recommended. While no form universally applicable can be
devised, the several forms herein presented are very good examples of
forms in use and offer some valuable points for study.

Fig. 3 is a conventional form. This is a card, at the top of which
is provided space for recording the name of the article or class of
material. Below this is a record of all quotations received, giving
date, name of the firm from whom the quotation is received, and
initials of the salesman making the quotation, when made in this
manner. The columns following are for quantity, or size on which the
quotation is based, the list price, discount, net, whether f. o. b. or
delivered, and terms. The last two columns are for a record of orders
placed.

One of these cards is used for each article or class of material on
which special quotations are received. Every quotation is recorded,
no matter from whom, and when the card is filled a new one is added.
Whenever records on any one card become obsolete, the card can be
destroyed, keeping the file up to date.

The cards are filed according to the names of the articles or classes
of material. When the number of classes is limited, it will be
satisfactory to index the cards by means of a straight alphabetical
index. In this case quotations on bolts and all other articles, the
names of which commence with _b_, would be filed back of the _B_
index. If the number of articles is large, it is advisable to use
blank index guides and write the names of classes of material. As an
illustration, in some lines of manufacture, bolts will be used in all
sizes. On the index would be written the word _Bolts_, and back of
this the cards would be filed according to sizes, one card being used
for each size of bolt. The same plan can be carried out for each class
of material. It is also advisable, in a manufacturing business, to
subdivide the file as, between materials──representing materials which
actually enter into the construction of the product manufactured──and
supplies──representing all classes of factory supplies.

A card especially designed for a record of quotations on articles which
are listed in several sizes is shown in Fig. 4. The special feature of
this form is the inclusion of several columns in which to record prices
on a number of different sizes of the same article. This form would be
especially applicable in recording prices on such articles as bolts,
mentioned in the preceding paragraph.

[Illustration: Fig. 4. Quotation Card for Records of Prices of Several
Sizes]

ORDERS PLACED

=7.= Of equal importance is a record of orders placed. A purchasing
agent needs to know where orders for a given article have been placed
in the past, prices paid, promptness of delivery, and general character
of goods received. A convenient method of recording this information
is to use a card similar to the illustration, Fig. 5, which shows a
form used for recording purchases of a given article between specified
dates. The record itself shows the order number, quantity, name of
vendor, and full information about prices, including total cost per
unit. These cards are filed alphabetically, according to the name of
the article, exactly as described for the records of special quotations.

Fig. 6 omits some of the details, but provides for notations relative
to quantities, etc., under the heading, _description_. This form also
shows total amount, thus furnishing a record of the gross investment in
material of a given class.

[Illustration: Fig. 5. Detailed Record of Orders Placed]

[Illustration: Fig. 6. Record of Orders, Including Price and Amount]

Fig. 7 is used in a manufacturing business, and is intended to provide
a record of orders placed which will prevent a duplication of orders.
At the extreme right of this form is a column headed _purpose_. In
many manufacturing businesses, orders for certain materials are placed
after contracts have been received, and the material is specified
for use on a certain contract or order. In other establishments
several lines of goods are manufactured, but certain materials
enter into the manufacture of all lines. The purchasing agent may
receive requisitions from different sources for material required in
these various lines, and his records should show for what lines or
departments orders have been placed. Both of these contingencies are
provided for in this form, as the purpose of each order is plainly
stated.

[Illustration: Fig. 7. Order Record of a Manufacturer, Showing Purpose
for Which the Goods are Required]

[Illustration: Fig. 8. Record of Orders Providing for Details of Each
Order]

Fig. 8 is another special form, designed for use where certain
particulars are required. In devising a form, it should be made as
simple as possible, but, at the same time, provision should be made
for recording all particulars that may be of especial value in the
business in which it is to be used. The forms shown are presented, not
as being ideal for use in all cases, but for their suggestive value.

It is immaterial whether these forms be on cards or in loose─leaf form.
That is a question of individual preference, and can only be decided by
the person who is to make use of the system.

A good example of a form designed especially for use in a loose─leaf
system is shown in Fig. 9. This gives full information about both
orders and receipts, furnishing complete information relative to
quantities of any particular line handled.

[Illustration: Fig. 9. A Loose─Leaf Record of Goods Ordered and
Received]

The manner of filing is the same as with the card system, except that
these sheets are arranged between suitable indexes in a loose─leaf
binder. If desired, the order records and special quotations can be
filed together. By using forms of different colors the two can be filed
in the same index. This is a very convenient arrangement, for then all
records of both quotations and orders are found together. In some cases
all of the information required will be found on the order records.
When special quotations are received they can be filed in front of, or
immediately back of, this record.

While in some offices other special records may be advisable, all
necessary information for the average office relative to sources
of supply, prices, etc., are provided by catalogues and records of
quotations and prices described. Any other information required can be
provided for by a modification of the forms referred to.

DEPARTMENT ROUTINE

=8.= Any discussion of the routine duties of the purchasing department
is necessarily more or less theoretical and any method of procedure
laid down is subject to such modification as will reduce it to a
practical working basis for the individual establishment. To present
the subject in a practical manner, therefore, this discussion will be
confined to the needs of an average manufacturing business. As has been
stated elsewhere in these papers, it is much less difficult to modify a
system designed to care for all details in a large establishment than
to expand the simple systems of a small business.

The duties of the purchasing agent in respect to the actual purchase of
goods may be classified as follows:

1. Receiving _requisitions_, or orders for materials and supplies
required for stock or in different departments.

2. Placing and following up orders.

3. Checking receipt of goods.

4. Checking invoices for prices.

5. Filing order copies and requisitions.

=9. Requisitions.= Under ordinary circumstances the purchasing agent
will place no orders until he has first received a requisition from
either the stores department or the department that requires the
material. The requisition should in every case state the purpose for
which the material or supplies is required, as well as by whom wanted.

Each department should be supplied with its own requisition blanks,
and, to make them distinctive, a different color should be adopted for
each department. Each department should also be identified by a letter
which will be printed on the requisition blank in connection with a
serial number. Thus the requisition numbers of one department will
start with _A_1, another _B_1, etc.

A positive rule should be laid down that all requisitions issued by one
department are to be signed by one person, usually the foreman. This
rule must be rigidly enforced and no requisitions honored without the
proper signature.

While requisitions should be drafted in a form to meet individual
requirements, Fig. 10 is given as a typical example that will be found
suitable in a large majority of offices.

The requisition, as a rule, is made in duplicate. The original goes
to the purchasing agent and the duplicate is retained by the foreman.
In some of the larger establishments a triplicate form is used,
the original and duplicate being sent to the purchasing agent. The
duplicate is then returned to the foreman with proper notations to show
that the order has been placed.

There are very few cases, however, where this is necessary. It is
not a good plan to require the foreman to keep records that can be
eliminated, and the average foreman does not care when or where the
order is placed; all he wants is the material. He has no interest in
going back of the purchasing agent on whom he has made requisition.

When the factory is located at a distance from the office, requisitions
should be in triplicate and bear the O. K. of the superintendent or
factory manager. The duplicate will then be filed in the factory office
pending the receipt of the goods.

[Illustration: Fig. 10. A Typical Form of Requisition Blank]

Foremen who make requisitions on the purchasing agent will retain their
copies until the material is received.

On receipt of the requisition, the purchasing agent first investigates
to find if the material, or some other that will answer the same
purpose, is in stock. If not, he looks up his sources of supply
and prices, and then he is ready to place the order. When a large
investment is involved, it is usually necessary to obtain special
quotations, and sometimes samples, before the order can be placed.

=10. Low Stock Report.= Another form of requisition is the low stock
report furnished by the stores clerk. Every article and class of
material in stock is given a _low_ limit. When this limit is reached
the stores clerk makes a report, Fig. 11, to the purchasing agent. This
is recognized as a notice to purchase. The report shows the low limit
and quantity in stock. It is important that the low limit be included,
for in some cases it will be found advisable to change the limit.
Material formerly used in large quantities may now be in so little
demand that it will be thought best to reduce the limit. At other times
it will be necessary to increase the limit.

[Illustration: Fig. 11. The Stores Clerk's Report of Low Stock]

The report is made in duplicate, a copy being retained by the stores
clerk until advised that the order has been placed. There is no special
need for keeping these reports permanently; all information that they
would supply may be had from copies of purchase orders.

=11. Purchase Orders.= When an order is placed, it is of course
necessary to keep one or more copies. The best practice is to make
purchase orders in manifold, providing as many copies as may be
required. Modern typewriters and carbon paper render it possible to
make all necessary copies at one writing.

The number of copies will be governed by the requirements of the
business. In a small business where the goods are received by the
purchasing agent, one copy is sufficient. When a receiving clerk is
employed, a second copy will be needed by him to check the receipt of
goods.

The illustration, Fig. 12, shows a set of six blanks, the original
and five copies, which will meet the requirements of the average
manufacturing business. These copies will be used as follows:

[Illustration: Fig. 12. Typical Form of Manifold Order Blanks]

_Original._ This is to be mailed or delivered to the vendor.

_Follow─Up Copy._ This copy is retained by the purchasing agent to
follow up the order. It is first filed in a tickler, or date file,
back of the date when an acknowledgment should be received. If no
acknowledgment is received, the vendor is followed up and the order
filed ahead.

The order is next filed under the date when the invoice should be
received. After the invoice is received, the order copy can be used to
follow up the transportation company for delivery.

_Receiving Copy._ This copy goes to the receiving clerk who files it
according to the name of the vendor. When the goods are received, he
checks the items against the copy and returns it to the purchasing
agent. In some cases he reports the receipt of goods by means of a
receiving slip, which will be explained later.

_Auditor's Copy._ In a highly organized business a copy of every order
is given to the comptroller or auditor. The principal use of this copy
is to furnish information in respect to obligations incurred, that
finances may be provided in advance.

_Cost Department Copy._ The copy furnished the cost department is to
post the cost clerks in prices. In many large factories complete files
of all orders placed are kept in the cost office. This is an excellent
plan since it provides a complete price record.

_Shop Copy._ This is intended for the special use of the factory when
located at a distance from the office. It is filed in the office of the
factory manager, under the name of the vendor, and supplies him with a
record of all orders placed for the factory.

=12. Checking Receipts.= The purchasing agent will be advised of the
receipt of goods by the return of the receiving clerk's copy of the
order, properly checked. Or, in some cases, it may be advisable to have
all goods reported on a special form, Fig. 13.

[Illustration: Fig. 13. A Form of Report of Goods Received]

[Illustration: SURPLUS TOOLS GATHERED FROM OVER─EQUIPMENT AT LOCAL
SHOPS AND RETURNED TO CENTRAL STORES ON THE SANTA FE SYSTEM The
Reapportionment of Work, Concentrating all Manufacturing Operations at
Topeka, Made it Possible to Return to General Stock Many Small Tools,
to be Used as Needed Instead of Held in Unnecessary or Excess Local
Reserve Courtesy of the _Engineering Magazine_]

In those factories where a receiving clerk, as well as a stores clerk,
is employed, the receiving slip should be made in duplicate. One copy
will go to the stores clerk with the goods and will later be sent to
the purchasing agent, furnishing a double check on the goods. The
purchasing agent will send one copy to the cost clerk, first noting
the account to be charged. This gives the cost clerk the necessary
information for charging out material when used.

One argument in support of this plan is that, having no record of
quantities ordered, the receiving clerk will be compelled to carefully
count and list all articles received. But it is also true that he is
obliged to make a detailed copy instead of merely checking the items
against his copy of the order.

Another point in connection with the work of the receiving clerk that
has caused much discussion, is the wisdom of furnishing him with a
record of prices. The prevailing opinion among manufacturers seems
to be that this should not be done. This need not interfere with the
operation of our system, for prices can be left off the receiving
clerk's copy by using a short carbon. This will keep all blanks uniform
in size.

=13. Checking Invoices.= It may be laid down as a rule that invoices
should first go to the purchasing agent, not for audit, but to be
checked for quantities and prices. The purchasing agent will check the
invoice, note on it the purpose, or the department for which the goods
were purchased, and forward it to the auditor. The transaction is then
closed so far as the purchasing agent is concerned.

=14. Filing.= After the O. K.'d invoice has been forwarded to the
auditor, the following papers remaining in the purchasing department
are to be filed:

_Follow─up copy of the order_, filed alphabetically under the name of
the vendor.

_Receiving clerk's copy of the order_, filed with the original
requisition.

_Requisition from the department requesting the goods_, filed
numerically according to the departmental serial number; that is,
all requisitions from _Dept. A_ will be filed together in numerical
sequence.

When a record of goods received has been made on the forms prescribed,
the purchasing agent's records will be complete.

THE STORES DEPARTMENT

=15.= In this discussion, the _stores department_, or _stock
department_ as it is frequently called, is treated as a subordinate
division of the purchasing department. Properly organized, it becomes
one of the most valuable from a profit─making standpoint. Without
organization it may degenerate into one of the most useless.

To attain the state of efficiency of which it is capable, the
organization and system of operation of the stores department must
be of the highest order, otherwise it cannot be expected to fulfill
its mission. So much has been written about the failure of stores
departments and stores systems to produce desired results, that a
statement of what is meant by _stores department_ seems to be demanded
before we can arrive at intelligent conclusions regarding its functions
and operation.

Broadly, the stores department is that department of a business which
has the custody of its stock in trade, materials, supplies, and
other physical property, except real estate. Reduced to a concrete
example, in a trading business the term means that department which is
responsible for the storage and proper care of the goods purchased for
resale; also the materials and appliances required in the operation of
the business. There may be no department known by this name; there may
be no one man whose duty it is to supervise the work; nevertheless,
the department exists. Every clerk in a small retail store may be
a receiving clerk, a salesman, and a stores clerk; or in a larger
establishment several men may be employed as stockkeepers; but in both
cases the responsibilities of the stores department are shouldered by
some one, perhaps by several people.

Like every other department of a business, the organization of a stores
department depends largely upon the nature of the business. To furnish
an illustration that can be readily understood, we will treat the
organization and operation of the stores department from the standpoint
of a manufacturer.

ORGANIZATION

=16.= The stores department is properly under the direct supervision
of the purchasing agent. In the last analysis he is the man who is
responsible for the maintenance of a stock of materials and supplies
which will at all times be adequate for the business. It is proper,
therefore, that he should have supervision over the _receipt_,
_storage_, and _delivery_ of the goods which he has purchased.

In the actual operation of the stores department, the purchasing agent
will delegate his authority to the chief stores clerk, who will in turn
be assisted by the necessary number of stock men and a receiving clerk.
It will be the duty of the chief stores clerk to see that all materials
are properly stored, to maintain the records prescribed, and to furnish
such reports as may be necessary regarding the movement of the stock.
He will have general supervision over the entire department. In the
actual physical operations of the department, he will be assisted by
stock men who are subject to his orders.

In small establishments the stores clerk also acts as receiving clerk,
but in the larger enterprises, a separate receiving clerk is required.
He will check the receipt of all goods, deliver them to the storage
places prescribed by the chief stores clerk, and make such reports as
may be prescribed. While he is, generally speaking, under the orders
of the chief stores clerk, he also makes certain reports direct to the
purchasing agent.

TAKING AN INVENTORY

=17.= Before a stores department can be successfully organized an
_inventory_ must be taken, for this inventory will be the basis on
which the records of the stores department are founded.

Stores record systems are quite commonly referred to as perpetual
inventories, and, occasionally, such a system is pointed to as a
failure for the reason that at the end of the year, or other fiscal
period, the inventory, that is, the actual physical inventory of the
stock, does not check with the records. The fact that systems of stores
records have been regarded as inventories _in fact_, is responsible for
most so─called failures. Regarded in its proper relation, a perpetual
inventory is nothing more nor less than an accurate accounting of all
goods that come into and go out of the establishment, these records to
be checked by an actual physical inventory with such regularity and
frequency that the accounts can safely be considered as exhibiting
a correct inventory. In considering the question, how to take an
inventory, we refer, therefore, to an actual physical inventory, that
is, a count of every article in stock. When once this inventory is
taken and properly recorded, it is entirely possible to install and
maintain systems which will make it unnecessary to inventory all of
the physical property at any one time.

It has been the general custom in a large manufacturing establishment
to shut down for a period of greater or less duration, running all the
way from two or three days to as many weeks, for the purpose of taking
an inventory. Since it has been considered necessary to shut down for
this purpose, inventories have, as a rule, been taken but once a year.
All this is unnecessary, for, with proper methods, it is possible to
take even a complete inventory without perceptible interruption of
the operation of the plant. The first step is to decide, at just what
time the inventory is to be taken, and to have all foremen get their
shops in readiness. This means a general cleaning up which will make it
easy to locate and count, weigh, or measure the _materials_, _tools_,
_supplies_, and _work in process_. Then, at a specified time the work
of taking the inventory should be started simultaneously in every shop.

The making of the necessary records will be in charge of a clerk who
will be assisted by the foremen and as many helpers as may be required.
Each clerk is given a supply of tags, ruled as shown in Fig. 14. These
are made in the form of shipping tags, but larger than the usual sizes
used for that purpose. It will be noted that the tag is perforated near
the top. The portion above the perforation shows the season and date of
inventory, the card number, and the department. The card number and the
department are repeated on the lower part of the card, which is also
divided into two parts. The upper half is for an inventory of material,
finished stores, and work in process, divided as to _description_,
_name of last operation_, the _quantity_, and the _unit_. The lower
half is for an inventory of tools, machinery, equipment, and supplies,
with provision for the _description_, _quantity_, _unit_, _numbers_,
and _location_. By _unit_ is meant the unit in which the material or
supplies are priced, as pounds, yards, dozen, gross, etc.

The first operation is to attach one of these cards, which are
consecutively numbered, to each machine, tool, bin, rack, or pile of
material. Then the clerk and his assistants will go through the shop
and weigh and count the material represented by each tag, recording
the items on the tag itself. As this is done, the lower half of the
tag is torn off. Since a record is kept of the card numbers given to
each clerk, it will be necessary for him to turn in every one, and if
care is used in placing the tag on every article before the count
has begun, there is no possibility of material being overlooked. As
a further precaution against the loss of cards, the remaining part
of the tag is afterward removed and sent to the office for checking
against the main record. As the tag is used merely to insure a record
of quantities of all property, it is unnecessary to include prices.

[Illustration: Fig. 14. Labor─Saving Inventory Tag]

With this method an inventory can be taken in a very short time. There
are cases on record where an inventory in the largest industrial
enterprises has been taken by this method without shutting down the
plant in any department for a longer period than two days.

=18. Inventory Records.= When the physical inventory has been taken,
the next step is to record quantities and prices, and make the
extensions that the record may show total values. The records of the
inventory should be classified; that is, all material or equipment of
a certain class should be recorded on the same form, so that the total
value of each class can be ascertained.

For a manufacturing business, the inventory is subdivided as follows:

Machinery and Equipment.
Machine Tools.
Small Tools.
Drawings and Patterns.
Materials and Supplies.
Parts and Finished Stores.
Work in Process.
Manufactured Goods.

One form might be made to answer the purpose for all these inventories,
but as certain special information is needed in each case, it is
considered the better plan to use special forms. We, accordingly,
illustrate forms for each of these classes.

_Machinery and Equipment._ Under this heading is listed all
_machinery_, _furniture_, _office appliances_, and _equipment_ of all
classes required in the operation of the business. The form for the
inventory is shown in Fig. 15, this being a loose─leaf form, about 10 x
12 inches in size.

For this section, a sheet is used for each specific class of equipment,
and, where the same class of equipment is required in different
buildings or departments, a sheet is used for each department.
For instance, all typewriters used in a given department will be
inventoried on one sheet, and no other equipment will be inventoried on
the same sheet.

The information given at the head of the sheet includes the _location_,
_cost_, _estimated life_, _name_, _series number_, _our number_, and
_from whom purchased_. The form provides for a record of date (meaning
date purchased), and description of the equipment, original cost, cost
of additions and repairs, per cent and amount of depreciation, and the
net value. Reference to this record shows the exact number of machines
of a given class in use and just where they are being used.

_Machine Tools._ Under the head of machine tools, an inventory covers
all tools of this character, whether purchased or manufactured in
the plant. Since large plants usually manufacture their own machine
tools, this form is used to show _date of manufacture or purchase_,
_description_, _cost of material and labor_, _per cent_, and amount
added to cover the _factory burden_, and the _total cost_. Like the
form used for machinery and equipment, all machine tools of a given
class should be inventoried on the same sheet, Fig. 16.

[Illustration: Fig. 15. Loose─Leaf Form for an Inventory of Machinery
and Equipment]

[Illustration: Fig. 16. Inventory Form for Machine Tools]

[Illustration: Fig. 17. Inventory Record of Small Tools]

[Illustration: Fig. 18. Form of Inventory Sheet for Drawings and
Patterns]

[Illustration: Fig. 19. Form of Inventory Sheet for Materials and
Supplies]

[Illustration: Fig. 20. An Inventory of Parts and Finished Stores]

[Illustration: Fig. 21. Special Form for Inventory of Work in Process]

[Illustration: Fig. 22. Sheet for an Inventory of Manufactured Goods]

_Small Tools._ Most small tools are purchased, but some of them may be
made in the plant. These tools may be purchased singly, or in lots of
one dozen, or in other quantities. To meet these conditions the form,
Fig. 17, provides for a record of _date of purchase_, _description_,
_quantity_, _unit_, _material and labor costs_, _per cent and amount of
burden_, and _total cost_. When the tools are purchased ready for use,
only the last money column is used.

_Drawings_ and _Patterns_. This inventory includes all drawings and
patterns that are in use or of value to the business. In placing a
value on this property, conservatism is necessary. A new pattern is
supposedly worth what it cost to manufacture it. But a pattern may
become obsolete in a very short time. It is necessary, therefore,
when taking the inventory, to estimate the probable life of all
patterns, basing this estimate not only on wear and tear, but on
the probability of their being replaced by later models. The cost
of drawings and patterns should be entirely absorbed in the cost of
the goods manufactured, and to cover this a very liberal rate of
depreciation must be provided. In the inventory form we do not show the
depreciation, as we consider it more practicable to take a complete
inventory, and make a new appraisal of drawings and patterns at the
end of each fiscal period. The form given for this inventory, Fig. 18,
shows _date put in stock_, the _number_, _description_, and _details of
cost_.

_Material_ and _Supplies_. The inventory of material and supplies
includes all material which goes into the construction of the goods and
all supplies required in the operation of the plant.

In recording this inventory, supplies and material should be kept
separate, and each should be thoroughly classified. One sheet should
show but one special class; that is, if one of the items is hardware,
nothing but the hardware inventory should be included on the same
sheet. This form, shown in Fig. 19, gives the _description_, the
_purpose for which the material is used_, _quantity in stock_, _unit of
measure_, _unit value_, and _total value_.

_Parts_ and _Finished Stores_. This section is intended to include all
finished parts in a plant manufacturing parts to be later assembled
into complete machines, also any finished stores or semi─completed
parts. Under the latter head would come such items as castings, which
are made in advance, to be used as needed. This inventory is recorded
on the form shown in Fig. 20, giving the _description_, _for what
used_, _the number of the part_, _quantity_, _unit_, _unit value_, and
_total value_.

_Work in Process._ Under the head of _work in process_ is included all
partially completed orders in the plant at the time of inventory. If an
efficient cost system has been maintained, it will not be a difficult
matter to arrive at accurate costs of all such material. Without a cost
system it is necessary to use extreme care in estimating the cost of
material and labor to date.

One of the most important items of information in this inventory is
the last operation, which means the last completed operation. It is
necessary to have this information before we can figure the actual
cost. The form for this inventory, Fig. 21, includes _description_,
_name of last operation_, _cost of material_, _cost of labor_, _per
cent and amount of burden_, and _total value_.

_Manufactured Goods._ The inventory of manufactured goods includes
all goods completed ready for the market. In a trading business this
would include the regular stock in trade. Fig. 22 shows a form for the
inventory of manufactured goods, which, with slight changes, would
answer the purpose for the stock in a trading business. The form shows
the _order number_ (meaning the shop order number on which the goods
were manufactured), the _description_, the _quantity_, the _material
and labor costs_, the _burden_, and _total value_.

When these inventories are completed, and the extensions made, it will
be seen that a complete record of values of all physical property is
provided. From these records the ledger accounts should be adjusted
so that all records will correspond. The records also furnish the
necessary information from which to make the stores record, which is
necessary when installing the system.

These inventory sheets may be filed either in the drawers of a vertical
file or in a loose─leaf binder, though the latter is preferred. The
sheets for each class should be kept by themselves and classified as
explained above. The index may be alphabetical, or blank indexes, on
which the names of the classes are written, may be used. The sheets
in each class should be numbered consecutively and kept in numerical
sequence.

[Illustration: A CORNER IN THE GENERAL OFFICES OF THE DOBIE FOUNDRY &
MACHINE CO., NIAGARA FALLS, N. Y.]

STORES DEPARTMENT A MONEY SAVER

=19.= Although a stores department is the first essential in the
operation of a cost accounting system, manufacturers sometimes hesitate
to install such a department on the ground of expense. Without
considering its valuable features, the claim is made that the operation
of this department involves a larger expenditure than is warranted by
the results. But such claims are not borne out by the experience of
manufacturers who have tested the efficiency of the department. Where
results are found which appear to support this claim, investigation
will invariably reveal faulty installation or faulty operation, or both.

Opposed to this claim, the experiences of many manufacturers show
that the stores department is an actual money saver. If anything like
an efficient cost─accounting system is to be maintained, a stores
department is an absolute necessity; but even if there is no cost
system, a stores department can be made profitable. An adequate system
of records in a well─organized stores department will show at all
times the exact condition of the stock, and this alone should justify
the maintenance of such a department. Slow moving stocks are pointed
out, so that a greater effort may be made to move them; if a stock
is running low, the records give warning before the danger point is
reached. All this applies with the same force to a trading business as
to a manufacturing enterprise. By showing the volume of stock on hand,
by pointing out its movements, a stores─record system prevents the
accumulation of _dead_ stock, yet makes it possible to maintain active
stocks at the lowest volume consistent with safety, and thereby saves
money by keeping the investment at the lowest possible point.

Surprising results in money saving through stores─record systems
have been shown by some manufacturers. In one case which came within
the writer's observation, a reduction of more than $10,000.00 in the
average investment was made. A certain manufacturer of machinery, who
had an inadequate stores system, found that his stock of material
averaged $30,000.00, while the business required a stock of not more
than $20,000.00. He engaged a competent man to install and operate
the system, paid him a liberal salary, and at the end of a year found
that his stock averaged less than $20,000.00. Moreover, the stock
was clean──there being nothing in it that was not needed──was well
arranged, and in every respect in a more satisfactory condition than
before. That meant a saving of the earnings of $10,000.00, and by using
it in extending his business, the money was worth 20% to him.

INSTALLING A STORES SYSTEM

=20.= When the inventory has been completed, the next important step
in the organization of a stores department is to provide the necessary
_storage_ places for all materials and supplies and see that these are
properly stored.

The question, as to what is a proper storage place is one which must be
worked out to fit conditions as found in the individual establishment.
Generally speaking, in a manufacturing business, materials should be
located as closely as possible to the departments in which they will
be used. In a large plant it is usually necessary to have several
storerooms to accommodate the various classes of material, and in
order that they may be located conveniently. The question of proper
storage is a vitally important one in every business, and especially
so in a manufacturing plant. Ideal conditions are impossible to
obtain in all plants, but the first consideration should be to have
a definite storage place for every class of material, and to always
keep the material in that especial place. Go into a plant having no
well─defined system of storage, and you will find workmen spending more
time looking for materials needed than would have been required to take
the same material to a stockroom and withdraw it as needed. In trading
businesses the necessity for systematic stock keeping has long been
recognized. Wholesale houses have their stock arranged in departments
and stored on different floors of the warehouse with special men in
charge of stock keeping. A retailer, no matter whether he is operating
a department store or dealing exclusively in one class of merchandise,
has his goods arranged by departments. But in too many manufacturing
plants the question of storage for raw material and supplies has
received little consideration. A manufacturer will invest dollars in
raw material and keep no record of it; yet the same man would regard
as preposterous the suggestion that he should keep no record of cash.
As a matter of fact, the material should be as well cared for, and
as strictly accounted for, as cash. Every dollar's worth of material
should be regarded in the same light as a dollar in gold.

Next in importance to the location of the storerooms is the question
of the storage of the material itself. The storerooms should be
equipped with such bins, racks, shelves, boxes, and drawers as may be
required for the proper care of the material. In storing the material
the question of its size and weight, and the frequency with which it
will be needed, should be considered. Extremely heavy articles should
not be stored on the floor, but should be raised to about the height
of a truck, thus saving labor both in unloading and loading. Material
which is constantly being called for should be kept on shelves that
are within easy reach. The top shelves and inaccessible corners can
be reserved for articles seldom called for. As far as possible, all
articles of the same class should be kept in the same section of the
storeroom. Above all, a given article should always be kept in the same
place. In some storerooms it is not uncommon to find, hidden away in
some dark corner, articles which are not supposed to be in stock, all
because no definite storage place has been provided. The record system
can be of little value unless the articles are to be found in the
sections allotted to them.

All of this but emphasizes the importance of having the storeroom and
stores system under the exclusive control of one man. No one should
be allowed to interfere with the work of the chief stores clerk. If
there is any cause for criticism it should be taken to his superior.
Suggestions from foremen and others who are obliged to make use of the
storeroom, should, and probably will, be welcomed by the average stores
clerk, but no foreman should instruct one of his men to place material
in the storeroom except as instructed by its head.

Aside from the storeroom proper, the stores clerk will have charge
of material stored outside of the plant. Lumber, fuel, and heavy
castings are examples of material coming under this head. Nevertheless,
his records should include all of this material, and he should have
general supervision over its storage in order that he may more readily
determine, or more closely estimate, quantities in stock.

=21. Receiving.= In the organization of the _stores department_, it
is necessary to provide for a record of the _receipt_ of all material
and supplies. The system must be so constructed that it will not only
insure a record of all goods coming into the establishment, but prevent
the acceptance of goods which should not be received.

All receiving should, therefore, be in charge of one man. In the larger
industrial enterprises, a receiving clerk is employed, whose duty is to
receive and receipt for all goods coming into the establishment, and to
deliver them to the storeroom or the department in which they are to
be used. The stores clerk may, in a small concern, perform all of the
functions of the receiving clerk.

When goods come in, the receiving clerk will refer to his file of
purchase order copies to find if the goods have been ordered. It will
be remembered that an alphabetical file has been recommended for these
orders, which are to be filed under the name of the shipper. The reason
for this is that the package does not always show the nature of its
contents, while the name of the shipper is almost invariably shown
somewhere on the package or on the shipping tag.

Goods should not be accepted by the receiving clerk unless he has an
order. To do so is liable to cause trouble. As an illustration, we will
suppose that the concern has made a contract for material on which
deliveries are to be made at stated intervals. The first shipment
received shows that the material is not up to specifications and the
contract is cancelled. Pending an adjustment, the receiving clerk is
instructed to accept no more material on the contract. If he does so,
the concern will very likely be obliged to pay for it, and it may even
have a bearing on the entire contract.

Another class of shipments which must be carefully watched is the
return of goods by customers of the concern. In some businesses, this
question is not important; in others, great care must be exercised to
insure proper credit. In a manufacturing or a trading business other
than retail, the customer will usually notify the house that he is
returning goods. When such a notice is received, instructions should be
given to the receiving clerk whether to accept or refuse them.

One class of business in which the receipt of returned goods must be
handled with extreme care is the installment business. Most installment
contracts vest title to the goods in the seller until all payments are
made. To avoid payment, a customer may return goods without notice.
Acceptance by the seller cancels the contract at once. A safe rule to
follow, therefore, is to accept no returned goods until authorized to
do so by one in authority.

The receiving slip, Fig. 13, Page 16, is to be filled out by the
receiving clerk. One copy will go to the purchasing agent and the
other to the stores clerk. From these reports the stores clerk makes
his record of material received. In some cases material ordered for the
use of a particular department is to be sent direct to the department
and not to the storeroom. A third copy of the report should be made
which will be sent to the department, from whence it will go to the
stores clerk, properly receipted.

=22. Deliveries.= The stores clerk, being in custody of all stock, is
responsible not alone for its safe keeping but for deliveries. He must
be in a position to show what stock has been delivered, to whom, and
for what purpose.

There is but one method that will insure an accurate record of
deliveries and that is, to deliver no goods without a written order or
requisition, signed by one having authority to authorize withdrawals.

Each department, or shop, should be supplied with storeroom
requisitions, numbered consecutively with the department number or
letter; that is, a requisition from one shop might be numbered _B_ 100,
another _C_ 100. These requisitions should be made in duplicate or
triplicate. When the duplicate form is used, the original is sent to
the stores clerk and the duplicate retained by the foreman. When the
stores clerk has completed his records and the foreman has received the
material, both copies are to be sent to the cost department. One copy
acts as a check against the other, making it impossible for either the
stores clerk or foreman to make false returns. To make identification
easy, the two blanks should be printed on paper of contrasting colors.
In the cost department one copy should be filed according to the
department in which the requisition originated, keeping the numbers
consecutive, and the other under the production or job order number. On
completion of the order, the latter copy can be destroyed as it will no
longer be needed. The departmental copies may also be destroyed, say at
the end of a three months' period.

Sometimes it will be found advisable for the stores clerk to retain a
copy of the requisition, in which event the triplicate form will be
used, two copies being sent to him. He will file his copy by production
order numbers, if for material, or by departmental numbers, if for
supplies.

All requisitions should provide for a record of prices and values,
these to be entered in the cost department. If this is omitted it
will be necessary for the cost clerk to enter the items and extend
cost on another blank; when included, he can post values direct from
the requisition to the permanent cost records. Place should also be
provided on the requisition for the signature of the one who receives
the material.

[Illustration: Fig. 23. Requisition for Material to be Used on a
Production Order]

A form of requisition adapted to the use of the average manufacturing
enterprise is shown in Fig. 23. This form shows the _department
number_, the _date_, the _production order number_, _quantity_,
_description_, _cost_, and _value_. At the bottom the necessary _form
of receipt_ is provided. Usually this form will be found adequate for
both material and supplies. When used for supplies, the purpose for
which they are intended is to be inserted in place of the production
order number. Special forms for supplies and repair material are used
in some plants. These should differ in color from the _material_
requisitions. A form of this character is illustrated in Fig. 24.

STORES RECORDS

=23.= The installation of a stores─record system calls for the exercise
of judgment of the highest order, for the record of material and
supplies is of no less importance than the record of cash. As has
already been stated, material should be accounted for with the same
fidelity as cash; a dollar's worth of material should be regarded as a
dollar in gold.

The stores record system should be an integral part of the accounting
system of a business; it should be checked as carefully as any
account in the ledger. Only by making the stores record a part of the
accounting system can it be operated successfully.

[Illustration: Fig. 24. Special Departmental Requisition for Material]

Stores records may be divided into two classes──one recording both
quantities and values, and one recording quantities only. Frequently
both classes are used in one establishment. In the storeroom a system
is maintained which records quantities without prices; in the cost
department a record of values and quantities may be kept.

The records kept in the storeroom are primarily intended to show
quantities on hand, or rather quantities that should be on hand.
Sometimes these records show prices, but there appears to be no good
reason why this should be done. It is better to have all accounting of
values done in the accounting department.

The records under consideration are those of the storeroom. These
records must show _quantities received_ and _quantities issued_, from
which a record of the quantity on hand can be obtained. To supply
the necessary information, the records must show quantities of each
article or kind of material in stock, which necessitates a system
of units. Some articles will move much more rapidly than others;
therefore, a bound book is not practical. Either cards or loose leaves
can be used successfully, a card or sheet being used for the record of
each article.

In order that the records may be instantly available, they must be
properly classified. The classifications should follow the same lines
as the ledger accounts, which will correspond with the classifications
adopted in recording the original inventory. Records of material and
supplies should be separated, and each divided into classes. The
cards or loose leaves should be filed and indexed according to these
classifications.

For example, we will suppose that one division of the material account
is hardware. On one index will be written the word _Hardware_, the
index forming a main division. Back of the index all cards or sheets
recording articles that come in the hardware classification will be
filed, these records also being properly classified and subdivided.
In the hardware stock will be found screws of several classes, as
round─head bright, round─head blued, flat─head bright, flat─head blued.
In the _S_ section, back of _Hardware_, one index will be headed
_Screws_. This division will be subdivided by indexes headed with the
names of the classes or kinds of screws. The stores record cards or
sheets will then be filed back of these subdivision indexes in the
order of sizes. A card or sheet may be used for each size, or several
sizes may be recorded on the same sheet.

=24. Verification of Stores Records.= When indexed in this manner the
stores record of any article can be quickly located, and the sectional
divisions will assist greatly in verifying the records. While the
stores records are intended merely as records of material in stock,
their accuracy must be verified by an actual inventory, just as the
cash account is verified by a count of cash on hand. However, if
thoroughly classified, it is not necessary to verify all of the stores
records at one time; they can be verified by sections, or the record
of a single article can be verified by an article inventory, without
regard to other records.

Accounts in the ledger should be arranged to correspond with the
stores classifications, that is, purchase accounts should be carried
with materials forming the main divisions of the stores records; as
_Hardware_, _Bar Steel_, _Foundry Material_, _Foundry Supplies_, and
_Factory Supplies_. When the stock of one class, as hardware, is
inventoried, the result should be recorded on the regular inventory
sheet, priced, and extended, and the total compared with the hardware
purchase account in the ledger. Any discrepancies should be adjusted at
once, but if the records are carefully kept, and an inventory of each
class is taken two or three times a year, the discrepancies should be
practically nil.

If the routine prescribed is faithfully followed, there is no
theoretical reason why stores records should not check as closely as
cash, with the possible exception of bulk stores, like fuel and ores,
where estimates are necessary. Even then, if inventories are taken
when these stores are at the lowest point, there should be little
difficulty in arriving at accurate results. However, the greatest
responsibility rests on the chief stores clerk. He must not let a
single pound of material leave the storeroom without an order, for it
is on the accuracy of his records that all of the accounts are based.
The order copies received in the cost department furnish the basis
for all material charges. Here prices are entered and extensions are
made. The chief cost clerk will transmit to the chief accountant weekly
or monthly recapitulations of all material charged out. The chief
accountant will credit his purchase accounts and debit _Manufacturing_,
_Maintenance_, _Repair_, or _Expense_ accounts as the case may be.
_Purchase_ accounts thus become _controlling_ accounts of the stores
records, and the latter takes its legitimate place as an integral part
of the accounting system.

RECORD FORMS

=25.= All forms for stores records, no matter what the class of
material recorded, possess certain characteristics in common; yet the
information required about each special class is usually of such nature
that a special form is advisable. This may mean the use of several
forms in the same establishment.

When installing any system, however, it is more economical to invest
more money in printing and have forms that fit exactly, than to attempt
to make special records conform to forms prepared for other purposes.
If certain specific information is required, the form should be
designed to exhibit just that information, and if the form is properly
designed, the saving of time both in recording and consulting the
record will much more than offset the slight additional cost of special
printing.

The number of forms must not be so large as to cause confusion, but
against the opposite extreme the cost of time must be considered. It
will be found that the value of clerks' time is greater than the cost
of printing.

[Illustration: Fig. 25. Form for a Stock Record of Materials and
Supplies]

=26. Material and Supplies.= For material and supplies the same
form will be found satisfactory in most establishments. The form
should provide for the name of the material, the unit in which it is
purchased, the purpose for which used, the location in the storeroom,
and quantities received and delivered. Fig. 25 shows a form designed
for records of this class. In addition to the headings specified
above, spaces will be noted at the top of this card for _maximum_ and
_minimum_. These refer to the quantities of material to be carried in
stock and represent the high and low limits. These limits should be
established for each article in stock and when any article reaches the
low limit a report should be sent to the purchasing agent on the form
shown in Fig. 11, Page 14. This form provides for a record of order
numbers for all deliveries, a feature which should be incorporated in
all cases where the form is for the use of a manufacturing business. At
the extreme right is a column headed _verified_. When an inventory is
taken, the date and balance on hand is to be entered under this head.

[Illustration: Fig. 26. Stock Record Form showing Orders Placed]

A conventional form is shown in Fig. 26. The special feature of this
form is a column for a record of orders placed. Usually this column
is not required on the record of the stores clerk, but, if used, the
order numbers should be entered from the receiving clerk's copy of the
purchase order. On both of the forms illustrated several columns are
provided for _deliveries_ to one for _receipts_. This is necessary,
as deliveries are in smaller quantities and much more frequent than
receipts.

Fig. 27 shows a form that includes _values_ as well as quantities. This
is not considered necessary, as a rule, for the storeroom, but where
the stores records are kept in the factory office, as is sometimes
done, it is a good plan to include values. On the reverse side of this
form a complete record of orders is kept.

Another form that includes values is shown in Fig. 28. This form is
well adapted for a record of almost any class of material or supplies.

The form illustrated by Fig. 29 is specially adapted for a record of
supplies. Under the head of _distribution_ the department to which the
supplies are issued is entered.

[Illustration: Fig. 27. Front and Reverse of Stores Card Used by a
Manufacturer]

=27. Parts and Finished Stores.= A record of parts and finished stores
is very essential in many manufacturing enterprises. The modern
tendency in machinery manufacture, for instance, is to standardize
production, making all parts interchangeable. Parts are manufactured in
large quantities, on special orders, and placed in stock until needed.

It is very necessary to know the condition of the stock of parts to
insure against overstocking, and to prevent the supply running low. A
record of parts should therefore be maintained on the same lines as
for material and supplies. Usually, a parts storeroom, with a clerk in
charge, is maintained apart from the material storeroom.

[Illustration: Fig. 28. Stores Record Form which Includes Values]

[Illustration: Fig. 29. Special Stores Card for Supplies]

The form illustrated by Fig. 30 is designed for a record of parts
and finished stores. This form provides for a record of the same
information as given for material, with the addition of the number and
size of the part. No change is needed in the form of record of receipts
and deliveries.

[Illustration: Fig. 30. Stores Record of Parts and Finished Stores]

[Illustration: Fig. 31. A Record of Parts in Stock]

Fig. 31 shows another form for parts. The special feature of this form
is the record of values, which is advisable if the records are kept in
the cost department. Parts records are more frequently kept in the cost
department than material and supplies records.

=28. Material Returned to Stock.= When a foreman receives an order
to manufacture a certain article, or part, he estimates the quantity
of material required and draws it from the storeroom. Naturally he
does not always estimate the exact quantity; he may run short or have
material left when the job is completed.

[Illustration: Fig. 32. Record of Material Returned to Stock]

Unless the material can be used immediately on another job, it should
be returned to stock, with a report to the stores department. The form
for such a report is shown in Fig. 32. An essential feature of this
form is the order number for which the material was drawn, this being
the production or shop order number.

When the stores clerk receives unused material and this report, he will
enter the quantity on the stores record under the head of _receipts_,
and forward the report to the cost department. The cost and value will
then be entered and credited on the cost records.

=29. Material Transferred.= When a foreman has left─over material which
can be used on another job, a report is necessary to insure credit to
the job for which it was drawn and a charge to the job on which it
was used. Fig. 33 is a form for this report. This shows the numbers of
the jobs for which the material was drawn and to which the material
has been transferred. After entering the correct quantities on his
stores record, he sends the report to the cost department. If it is not
considered necessary for the stores clerk to make these corrections
on his records, the report may be sent to the cost department by the
foreman.

[Illustration: Fig. 33. Report of Materials Transferred]

MACHINERY AND EQUIPMENT RECORDS

=30.= In every business enterprise there should be kept a record that
will give a full and complete history of every machine or other article
of permanent equipment. There are many ways in which such a record will
prove valuable.

Not infrequently a new part will be needed for a machine which has been
in use for several years. There may be no mark on the machine showing
the name of the manufacturer; perhaps no one remembers from whom it
was purchased. The result is a frenzied search through books and
files──confusion──a vexing delay──all for the want of proper records.

[Illustration: LATHE DEPARTMENT IN THE PLANT OF THE BURROUGHS ADDING
MACHINE CO., DETROIT, MICH.]

Or, there is a fire, resulting in the loss of a machine costing
$3,000.00 that has been in use two years. The adjuster figures
depreciation at, say, 10% a year, or $600.00. There is no record
showing that it cost $400.00 additional to install the machine, or that
repairs have been put on it to maintain its efficiency. At least the
depreciation should be figured on a basis of $3,400.00, the real cost
of the machine.

A proper record would show the original cost, the amount expended for
repairs and additions, and the amount charged off for depreciation.
Such a record should be kept, but no special form is required. The
machine inventory form, Fig. 15, answers the purpose. For the more
important machinery, one of these sheets should be used for each
machine. These sheets constitute a machinery and equipment ledger,
controlled by the machinery and equipment accounts in the general or
special ledger. Thus the connection between these records and the
general accounting system is maintained.

THE TOOL ROOM

=31.= One department of a factory that is either a source of expense
or a factor in saving money, according to the way it is conducted, is
the tool room. The tool storeroom is referred to here, rather than
the department maintained by large manufacturing enterprises for the
manufacture of machine tools.

Every manufacturer is obliged to maintain a complete stock of tools of
sufficient size to meet the requirements of his establishment. Unless
these tools are properly cared for, the investment is very liable to
creep up to a point entirely out of proportion to the requirements.

Perhaps no class of property in a manufacturing plant is so frequently
lost as small tools. When no storage place is provided, workmen
are liable to leave tools where they were last used. They are soon
scattered about the shops and, because they are not readily found, new
tools are purchased.

A special tool room is usually necessary, though in some cases the
tools can be stored and cared for in the material storeroom. In plants
manufacturing machine tools for their own use, the foreman of the tool
department can care for the small tools in connection with his regular
work. It is also the duty of this department to keep the tools in
proper condition for use.

For the storage of tools there should be provided racks and bins in
suitable sizes. All tools should be numbered and the sections of the
tool rack given corresponding numbers. For example, the stock includes
one dozen hammers of a given size and style. This tool is given number
twenty and the number is stamped on each hammer. The hammers are placed
in section number twenty of the tool rack. At the same time twelve
brass checks are stamped with the same number and hung on a hook above
the section containing the tools.

[Illustration: Fig. 34. Section of Rack for the Storage of Small Tools]

A section of such a tool rack, showing the number checks, is
illustrated in Fig. 34.

There are several methods of keeping track of tools issued to workmen.
In some plants a written receipt is required for each tool issued, but
this plan is not recommended for the reason that the workman should not
be asked to take the time to write a receipt, or to wait until it is
made out by the tool─room foreman. He should be given the tool promptly
and the system employed should not cause him to waste time.

To overcome these difficulties, the check system is used. There are
several variations in the operation of this system, but, in the opinion
of the writer, the double check system is the most practical and
satisfactory.

[Illustration: Fig. 35. Board on which Tool Checks are Kept]

First, the tools are numbered, as described above, and a brass check
provided for each tool. Then a board, divided into squares, as shown
in Fig. 35, is prepared. In these squares the names or numbers of the
men obliged to draw tools are written. Each square contains two hooks
on one of which twelve checks bearing the man's number are hung. When
workman No. 2 receives tool No. 15, one of the No. 2 checks is taken
from the board and hung above section No. 15 in the tool rack; at the
same time one of the No. 15 tool checks is hung on the second hook in
the No. 2 square on the board.

It will be readily seen that there must be, at all times, twelve checks
in each square on the board, counting both tool and workman's checks.
Reference to the tool rack will show how many tools have been issued
and what workman has them. The advantage of this system is that it is
practically automatic. A perfect record of the movement of tools is
kept without the necessity of making entries on cards or in books.

Another method of operating the double check system is to supply
the workman with a number of tool checks, these checks bearing the
workman's number. When he wishes to withdraw a tool he presents one
of these checks, which is hung above the tool rack. One of the checks
bearing the tool number is then placed on the hook under the workman's
number on the board.

One disadvantage of this system is that the workman is more liable
to lose checks than he is to lose tools. Theoretically, the number
of checks in possession of the workman at any time, added to the
number of checks on his hook on the board, should equal the number
originally given to him. If, however, he loses a check, it usually
means a dispute, as the workmen naturally does not feel that he should
be penalized by failure to return a check on which no tool has been
issued. All things considered, the method first described is probably
the most satisfactory.

[Illustration: Fig 36. Special Stock Record of Machine Tools]

=32. Tool Records.= While the system described above furnishes a
complete check on the tools, it should be supplemented by a record
which will serve as a perpetual record of values. The tools may be
divided into two classes, namely, _machine_ tools, and _small_ tools,
each requiring a somewhat different form of record.

Fig. 36 is the form of record for machine tools, this being on either a
card or loose leaf. One card is used for each tool required. The record
shows the name of the tool, the number, size, purpose for which used,
and date made. Below this is a complete record of the cost, showing
quantity manufactured, cost of material, labor, and burden. When tools
are destroyed a record is made showing date and value, and the balance
on hand is debited in the last column.

For small tools Fig. 37 is used. This record shows much the same
information as for machine tools. The special feature of this form is
the record of quantities received from time to time, number delivered
and returned, and number destroyed. As a rule, it is unnecessary
to record deliveries on this card, though in the case of some very
expensive tools, it may be advisable to do so.

Both of the forms referred to above are filed in the same manner as
other stores─record cards. The main divisions would be by name, or by
departments, with subdivisions according to size.

[Illustration: Fig. 37. Inventory Form for Small Tools]

[Illustration: THE SHOP ORDER DEPARTMENT This Department Issues all
Manufacturing Orders and by a System of Tracers Follows the Work
through the Various Shops to Completion. Western Gas Construction Co.,
Ft. Wayne, Ind.]

RECORDS OF LABOR AND MANUFACTURING ORDERS

LABOR RECORDS

=1.= The successful outcome of any project, in whatever field of
endeavor, depends on the coöperation of labor. Labor is energy applied.
The intelligence with which the energy is applied determines its
productiveness. The unskilled laborer applies energy, in the form of
his own strength, directly to the task before him. The skilled worker
uses his skill to direct the energy of nature that has been applied to
propel machines and appliances, which in turn have been created by the
skillful manipulation of inanimate properties. Thus the combination
of natural forces and the intelligent application of those forces,
under the direction of a skilled man, result in the highest degree of
productiveness.

In the employment of labor, there are two parties to be considered──the
employer of labor and the seller of labor. The desire of the first is
to secure the results of the labor at the lowest possible cost per unit
of production rather than at the lowest cost per individual. The desire
of the second is to secure the highest price for his labor, based on
the unit of time rather than on the unit of production.

In the final analysis, the desires of the two are found not to be
inconsistent, nor opposed to each other. The employer cares little what
labor costs per unit of time, provided the cost per unit of production
is kept down to the lowest point; the seller of labor cares not how
many units of production result from his labor provided he is paid a
satisfactory wage.

The ideal method of regulating the payment of wages is, therefore, one
which will insure to the laborer a high wage under conditions resulting
in a correspondingly high rate of production. To solve this problem,
to evolve an ideal system, has long been the study of engineers. The
studies of these men are bound to have a far─reaching effect. From
the older method of an exclusive day wage to the modern systems that
combine day wage and piece rates, is a long step. Investigations and
experiments, now going on in all directions, are carrying the movement
forward, and are destined to evolve an ideal system.

WAGE SYSTEMS

=2.= Wage systems, as applied to manufacturing industries, may be
divided into the general classifications of day wage, piece rate, and
premium systems. Besides these three, there are a number of systems,
bearing the names of their originators, which are the result of a
combination of certain features found in two or more of the three
general methods. A study of modern wage systems necessarily involves a
study of the distinguishing features of the three primary methods.

=3. Day Wage.= Of the three general plans on which labor is paid, the
oldest and best known is the day─wage plan. It is the most widely used
because best understood. The day─wage plan contemplates the payment of
a stated wage for a stated unit of time. If all men performing the same
task were equally skillful, or if the wage rate could be adjusted in
conformity with the varying degrees of productiveness found in every
body of workmen, the day─wage plan would be ideal. But neither of these
conditions exists.

Workers are liable to insist on the application of the rule of
organized labor, that all men performing similar tasks shall be paid
the same wage. Since all men are not equally skillful, this results
in certain inequalities. On the one hand, the wage rate is based on
the lowest rate of production, which is unjust to the more skillful
man, who either reduces his productiveness to the level of the least
skillful, or transfers his energies to another field of endeavor. As an
opposite extreme, the rate is based on the highest rate of production,
which is manifestly unfair to the employer.

In actual practice, then, it is necessary, from the standpoint of the
employer, to employ overseers to drive all workmen to a maximum rate of
production, which, theoretically, means the elimination of all workers
who are unable to attain the maximum. Again an injustice results, this
time to the weaker man.

=4. Piece Rate.= The first plan evolved, in the search for a plan that
would remedy the inequalities of the day─wage plan, was the piece─rate
plan. The piece─rate plan contemplates the payment of a stated wage per
unit of production, without consideration of the rate of production.

The argument was advanced that a uniform rate per unit of production
would result in an equitable wage, because based on the productive
skill of the individual. But the plan has failed in many cases to
produce the desired results, for the reason that it does not take into
consideration the factor of time.

In the establishment of a wage rate, the factor of time must be
considered, or the rate will not be equitable as between employer and
employe. The employer must furnish the shop, the tools, the power,
the heat and light. The cost of these items does not necessarily vary
in direct ratio with the increase or decrease in production. These
expenses must be absorbed by the finished product, therefore, even
under a piece─rate plan, the rate of production (the factor of time)
has an actual bearing on the rate per unit.

From the standpoint of the employer, the rate per unit should be based
on the productiveness of the individual, and should insure to the
most skillful, a wage as high as, or slightly higher than, he would
receive under the day─wage plan. This would, in theory, give to the
less skillful man a wage exactly commensurate with his skill. But as
workers become more and more skillful, and increase at the same time
their productiveness and their earning capacity above normal, there is
a tendency on the part of the employer to reduce the rate per unit to
bring the aggregate wage back to normal. The result is that the worker,
fearing a reduction in the rate, limits his production to the number of
units that will insure an average wage.

Thus the system fails in its object. It does not reduce the cost
of production to the lowest point. However, when piece rates are
intelligently applied they are found very satisfactory in certain
lines. But in all cases, the piece rate tends toward a uniform rate of
production, and, while reducing the cost of superintendence, involves
the expense of inspection. The latter, however, is not necessarily an
added expense, for, as a rule, inspection is required regardless of the
wage system in use.

=5. Premium Systems.= To obviate the difficulties found in both the
day─wage and piece─rate plans, the _premium_ or _bonus_ system was
evolved. This improved system of wages is intended to fulfill the
following conditions:

1. A guaranteed rate per hour for each grade of work for a contract
period.

2. An average earning power continuously higher than usual.

3. A lower cost per unit to the employer as wages automatically
increase.

4. A supplemental earning power, or bonus, to the worker above the day
wage, the bonus being based on efficiency.

The premium system is a combination of day wage and piece rate,
involving the establishment of standard times for stated tasks. It
is based on the theory that if, when a standard time has been fairly
established, the worker performs a task in less than standard time, he
is entitled to a bonus, or extra pay, for the time saved. The bonus is
based on the wage rate paid for standard time.

For what part of the time saved the workman should be paid, depends
on circumstances. It might be argued that the workman is entitled
to full pay for all of the time saved, but other factors than the
dexterity of the workman enter into the time saving. The employer
supplies additional power, there is an extra cost for wear and tear on
machinery, and an extra quality of material; all have a bearing on time
saving. The employer is, therefore, entitled to a part of the saving.

The original premium system is known as the _Halsey_ plan. There are,
however, several well─known modifications of the plan, all based on
efficiency, but each having certain distinguishing characteristics. No
more clear presentation of the essential features of the best known
premium systems has been made, than is found in a review by Mr. Carl
Bender, published in the Engineering Magazine, from which the following
is quoted:

HALSEY PREMIUM PLAN

To mitigate to some extent the evil workings of piece rates, Mr. F.
Halsey invented the premium plan shown in Fig. 1.

The slant of the wage line may be at any angle from horizontal,
straight piece rate, to coalescence with day rate line. This system
possesses at least four valuable points:

1. It pays day rates if a longer time is taken than standard.

2. It is a very flexible system and can be adapted to different
conditions.

3. It lessens but does not obviate the necessity of changing rates.

4. It lessens but does not wholly remove the inclination to limit
output.

It is in one respect a step backward, since it substitutes uncertainty
for definiteness as to wage costs. Nevertheless, the Halsey system
was an admirable step in advance. Usually the worker is given either
one─half or one─third the time he saves. Psychologically it is much
better than piece rate, since most workers are more inclined to lessen
their time than to increase the number of pieces turned out. A man
will deliberately decide that he ought not to turn out more than five
pieces a day, but he will not feel the same desire to avoid breaking
his own record of two hours per piece.

Under the Halsey system, no limit is placed on a man's earning power
per hour, and also a minimum piece rate of one─half or one─third the
initial rate per piece is allowed, so that if a man worked on his
own time, he would at least receive per piece one─half or one─third
standard pay.

[Illustration: Fig. 1. Diagram of the Halsey Premium Wage System]

TAYLOR SYSTEM

A fundamental departure was made by Mr. Fred W. Taylor, in his
differential piece─rate system, a diagram of which is shown in Fig. 2.
Mr. Taylor does not establish an initial time by guess or by assuming
a more rapid gait than on day work, nor does he appropriate other
unscientifically determined times. His method is to standardize all
conditions in the shop, to make them as perfect and smoothly acting
as circumstances will permit, and then to determine a reasonable
minimum time in which the job can be done. As a result, Taylor's
standard times are very much lower and also very much more carefully
and accurately determined than any system hitherto considered. Mr.
Taylor scorns the suggestion that by any chance the worker could earn
excessive wages. Any wages that an unusually efficient worker can
earn are legitimately his own. Assuming that under the Taylor system
a worker should do four pieces in four hours, his wages for the time
would be $1.00, but Mr. Taylor allows an increase of 20 per cent, 25
per cent, 30 per cent, or even more, according to the class of work,
for ascertaining standard time. Let us assume 20 per cent increase.
The worker then receives for four pieces in four hours, $1.20, a rate
of $0.30 each. For less than four pieces the maximum hourly rate is
$0.25, therefore $0.25 each. If the worker only delivers three pieces
in four hours, his earnings are only $0.75, or $0.1875 per hour. Mr.
Taylor's system awards, therefore, a heavy and increasing premium for
high efficiency, a heavy penalty for low efficiency.

The method of standard time determination is so rigorous that the
worker cannot figure on curtailing his output. He has to hustle to
make wages even at the low piece rate, and if he succeeds in this, a
very little extra effort will give him a higher piece rate.

The excellence of the system lies in the accuracy with which proper
rates are predetermined. It is, however, somewhat inflexible and not
so well adapted to work in which unforeseeable variations in time
occur.

[Illustration: Fig. 2. Diagram of the Taylor Differential Wage System]

THE GANTT BONUS SYSTEM

Mr. Gantt, a disciple of Mr. Taylor, introduced at the Bethlehem Steel
Company a bonus plan, see Fig. 3.

As in Mr. Taylor's system, the proper time is most carefully and
accurately predetermined. If the worker reaches the proper time, he is
given a bonus of 25 per cent above normal wages for the time. If he
does still better, he is given half of what he makes, as in the Halsey
plan. If he does not reach standard time, he is paid only 75 per cent
of normal wages for the excessive time, provided bonus earned permits
the imposition of this fine. If he had bonus to his credit he would not
be fined, however much he fell below standard.

This system has shown certain psychological disadvantages in practice:

1. The men have made it a point of semi─honor, among themselves, not to
do better than standard times.

2. Although the actual fines for failing to reach standard times were
insignificant, the men claimed that they were being robbed of thousands
of dollars in this manner. Neither fall─downs nor ability to lessen
standard time are always up to the man. It is therefore unfortunate
when a favorable chance occurs to lessen time, that the worker
deliberately holds back. It is also often unjust that he should be
fined for what may not be his fault.

Actual experience with these different wage systems brings out the fact
that psychology accounts for quite as much as any fair condition, and
that a good wage system must not only be fair but must also hit the men
right.

EMERSON EFFICIENCY SYSTEM

The most recent wage system is the Efficiency System, evolved
and perfected in theory by Mr. H. Emerson and his assistants and
practically applied by the officials in the shops of the Santa Fé
Railway.

[Illustration: Fig. 3. Diagram of the Gantt Premium Wage System]

This wage system superficially resembles the Halsey line, Fig. 4,
but in theory and in fact differs radically from all previous wage
systems, although it embodies much that was best in all of them. It
retains the principle of day pay irrespective of performance. It
retains in modified form the principle of a flat piece rate. Like the
Halsey system, it pays more per piece for less competent work. Above
all, it retains Mr. Taylor's and Mr. Gantt's principle of accurate and
scientific shop organization, including standard times for every job
and operation.

It pays a high premium above wage or piece rate for coöperation or
assistant foremanship on the part of the worker, and finally, as part
of regular and daily shop practice, it revises erroneous schedules
whether they be too low or too high, and it makes this revision
without lessening the earning power of the worker. In addition it
substitutes for the costly, annoying, inaccurate time recording of
each job, a general monthly efficiency record which covers the shop as
a whole, each department, gang, foreman, worker and job, and, based
on accurate study and efficiency, it predetermines, before work is
begun, the absolute cost of every operation.

These results are facilitated by recognizing that the attainment of
standard conditions as to all operations depends on four totally
different elements:

(1) The shop itself must be highly organized and efficiently operated.
This is a duty that devolves solely on the management, and for poor
organization and operation the worker is not responsible.

(2) The character of the work itself, the quality of materials, etc.,
may vary greatly on the same job at different times. Neither manager
nor worker is wholly responsible for this variation.

[Illustration: Fig. 4. Diagram of the Emerson Efficiency Wage System]

(3) Assuming standard shop and work conditions, the worker himself
can do much to coöperate with the management in making the other
conditions as well as himself effective.

(4) Costs should be standardized for the shop on a basis of normal
conditions and be adjusted in the counting room on the basis of the
monthly efficiency factor.

(a) As an incident to high shop organization and efficient operation,
the standard time required for every job should be scientifically
ascertained.

(b) To eliminate accidental and unavoidable variations in material,
etc., the worker is allowed to sum the standard time of all his jobs,
gaining on some, losing on others, averaging closely even.

(c) For coöperating with the management in eliminating wastes, the
worker is paid a 20 per cent bonus for the efficiency of 100 per cent,
which means, that the time taken for all his jobs must be equal to
the standard times allowed for all his jobs. If he takes 10 hours on
a 1─hour job and 1 hour on a 10─hour job, his average remains 100 per
cent.

(d) The same work is assumed to be done always in the same standard
manner. Variations from standard are a general charge or credit to
shop efficiency, not a specific variation in cost. A train passenger
is not charged more because his train has been delayed by a snowstorm,
or less because a fair wind and a clear track made the particular
train run less costly than usual.

Under the efficiency system the worker is entitled to standard day
rates, even if he is doing nothing. If, however, by reason of special
individual effort or skill, he does his work faster, he is entitled,
not to a part (one─third or one─half, as in the Halsey system), but he
is entitled to be paid in full for all the time he saves. As he has not
less coöperated with the management, he is, in addition, entitled to 20
per cent bonus for all the time he works.

Therefore, if a worker whose pay is $0.25 per hour delivers 300 hours
of jobs in a month of 250 working hours, he receives:

1. 250 hours at $0.25 $62.50
2. 50 hours saved, at $0.25 12.50
3. 20 per cent on 250 hours' pay 12.50
──────
Total $87.50

If, however, the worker does not so coöperate with the management as to
make the shop operate at high efficiency, himself included, he does not
receive as much extra pay, but a lessening amount until at 67 per cent
and below he is paid day rate and no more.

The diagram shows plainly the efficiency wage line beginning at 6
hours, showing 20 per cent increase at 4 hours, standard time, and
paying 4 hours time even if the work took no time at all──a condition
that arises practically quite often, as when a worker runs two jobs at
the same time, or when he does work on his own time.

While the diagram can be applied to a 4─hour job, the worker is not
paid by the separate job, but is paid straight day wages and a bonus
for his full─pay period efficiency. For each per cent of efficiency
there is a corresponding increase in pay.

For 100 per cent efficiency the increase is 20 per cent, and for each
1 per cent increase in efficiency above an efficiency of 100 per
cent, the pay also increases 1 per cent; therefore, for 120 per cent
efficiency the pay is increased 40 per cent. Below 100 per cent the pay
table runs as follows:

Efficiency Additional Pay
Per Cent Per Cent
67 0.00
74 1.
80 3.27
85 6.17
90 9.91
95 14.53
100 20.

The system has other merits:

(1) It standardizes not only the work of each worker, but also of every
foreman, every department, and of the shop as a whole.

(2) It therefore standardizes the shop cost of every job, whether it is
done by a cheap apprentice in two hours, or a high priced mechanic in
10 hours. The average shop or department efficiency factor equalizes
accidental variations.

(3) It separates absolutely all questions of wage rate from questions
of output, shop conditions, or individual excellence.

(4) It fines the management heavily if shop conditions are not
maintained so as to realize standard times.

(5) It puts no limit on the ambition or earning power of any man.

(6) Standard times are being constantly corrected. If the standard man
cannot average 100 per cent on his schedules, it is evident that some
of them are too short and ought to be lengthened. If on the other hand,
a new machine tool is introduced, new schedules are drawn up for it,
but the worker will not, on that account, make less than he did on the
old schedule.

It is too much to expect that any system of paying wages will
prevent an outbreak of selfish interests whether of employer or wage
earner. There will, however, be a distinct gain if the nature of the
disagreement can be made entirely distinct and plain. Clear thinking
must precede clear acting, and this description of different wage
systems may contribute towards clearer conceptions and more just
practice.

To establish a modern wage system, standard times must be determined
on a scientific basis, and the rate must not only be equitable as
between employer and employe, but, as Mr. Bender has said, "it must
hit the men right." Shop conditions must be right and every facility
given the workmen to attain standard time or better, including teaching
him how to do the work in standard time. The _speeder_ or _task
setter_ employed under the day─wage plan must be superseded by the
_instructor_, who, instead of selecting the most speedy worker and
basing standard times on his operations, first determines as closely
as possible what the time should be, and then teaches his men how to
attain that time. Where stop─watch methods foster discontent and breed
antagonism, instruction is followed by coöperation. The average man
does not object to doing a task in a stated time when he is given the
facilities for doing the work that will make that a reasonable time.
Add to this the incentive of extra pay for equaling or bettering that
time, and his coöperation is insured.

METHODS OF TIME KEEPING

=6.= Time keeping may be divided into two classes. The first class
includes methods of recording the total time that the employe works
during a pay─roll period. The second class includes methods of
recording the results of the labor of each employe──the quantity
produced, expressed in the units adopted by the trade in which he is
employed.

[Illustration: BATTERY OF HYDRAULIC PRESSES (3000 AND 4000 TONS
CAPACITY) IN HEAVY FORGING SHOP OF THE J. G. BRILL COMPANY,
PHILADELPHIA, PENNA.]

Ordinarily, trading concerns require records of the first class only,
the pay of the employe being based on the time spent, rather than on
the quantity of his production. This is because of established custom
and the difficulty of measuring his production. Primarily, the pay of
the employe is based on his efficiency, but it is not always practical
to attempt to reduce the results of that efficiency to standard units.

Manufacturers require records of both classes. Not only is it necessary
to know how many hours each employe has worked, but the quantity of
production must be known.

It is true that a manufacturing business requires the services of some
employes whose productiveness is not readily expressed in standard
units, in which cases the first method only can be used. These are
the men who are necessary to the economical operation of a department
or shop, or of the plant as a whole, but whose time cannot be charged
to a particular job. Labor of this class is termed _indirect_ or
_non─productive_.

The labor of most employes in a manufacturing plant is applied directly
to the production of specific articles, or to the completion of certain
definite jobs. This makes it possible to reduce the results of their
labor to definite units. Labor of this class is termed _direct_ or
_productive_.

Records of production, as well as records of time, are necessary for
two reasons. First, when the piece rate or the more modern premium
system is used, employes are paid according to the number of units
produced. Second, to obtain accurate records of costs, it is necessary
to have accurate records of production.

For the purpose of determining the amount of wages due the piece
worker, time records are not needed; records of production supply the
information required. But to determine the actual labor cost per unit,
time records are needed even in the case of piece workers. Piece rates
are based on continuous production at a uniform rate. A marked falling
off in production means a perceptible increase in the cost per unit for
overhead expense. For example, we will suppose that a manufacturer has
$50,000.00 invested in machines operated by piece workers. One of the
definite items of expense to be apportioned to the product of these
machines is interest, at say five or six per cent. If production falls
to one─half of the normal quantity, because one─half of the machines
are idle, the amount of this one item of expense that must be borne
by each unit of production is doubled. Or, we may have two workers
operating identical machines on the same class of work, the production
of one being twice that of the other. The overhead expense is the
same for each employe and each machine, consequently the cost of the
finished product is affected by the factor of time. The piece worker
who fails to maintain the rate of production established as standard in
his or her trade, is not a profitable worker.

=7. Time─Keeping Systems.= There are several systems or methods of
time keeping in use. No one system is adapted for use under all
conditions. Like all other classes of records, the time─keeping system
must be selected with reference to the conditions under which it is to
be operated. The system used in a factory, where all operatives are
housed in one or more buildings, is not well adapted to the needs of a
contractor whose men may be working on jobs located at points widely
separated.

In this discussion, we will consider first the systems used to record
the total time employed. This will be followed with descriptions of
systems for obtaining records of production.

=8. Time Book and Check Systems.= Of the time─keeping systems that have
been at some time considered standard, the oldest is the time book kept
by the time─keeper. This system required the time─keeper to identify
each man at work, and to record, opposite his name in the time book,
the number of hours worked each day. Sometimes a special time─keeper
was employed, or the foreman might keep the time book for his own men,
the time books of all foremen being turned in for the purpose of making
up the pay─roll. A system so dependent on the memory of one man never
could become satisfactory.

With the object in view of doing away with the mistakes that were
continually being made in the operation of the time─book system, the
check system was introduced. This was probably the first attempt at
automatic time recording.

Under the check system, each man is assigned a number and given a
brass check on which his number is stamped. In entering the works the
men are required to pass in front of the time─keeper's office and to
hand in their checks. The time─keeper has, in his office, a large board
with hooks numbered to correspond with the check numbers. As the checks
are handed in they are hung in their proper places on this board. The
checks on the board show what men are in the works, and from them the
necessary entries are made in the time books.

When the men pass out at noon their checks are handed to them. Every
man must pass out and take his check; otherwise he will not receive
credit for the half─day's time.

The system does not prove entirely satisfactory for several reasons.
It is not exact, for no accurate record of the time a man enters is
possible. Usually the time─keeper's window is closed at starting time
and opened fifteen minutes later to take care of the late arrivals.
Thus the man who is one minute late pays the same penalty in lost time
as the man who comes in fifteen minutes after the whistle blows. As a
natural result, when a man finds that he cannot reach the works on time
he takes the full fifteen minutes.

While the handing in of a check furnishes reasonable proof that the man
has entered the works, it furnishes no proof that he is at his work.
Many a man has turned in his check in the morning, left the works by
another exit, returned a few minutes before noon, received his check
and full pay for the half day.

In some manufacturing plants where the check system is still used, this
difficulty has been overcome to a certain extent. The operation of the
system is reversed, the men receiving their checks from the time─keeper
as they enter the works. In the shops there are check boards on which
the men hang their checks. These boards are hinged and provided with
locks, the keys being carried by the foremen. Five minutes after
starting time the boards are locked, and late arrivals are required to
turn in their checks to the foreman who makes records of the time of
arrival. Once during each working period, the time─keeper makes the
rounds of the shops and takes the time records in his time book. At the
quitting hour the boards are unlocked, the men take their checks as
they pass out, and turn them in at the time─keeper's office.

=9. Time Clocks.= The modern system of time recording makes use of a
time clock or mechanical recorder. Instead of trusting to the accuracy
of a time─keeper, or depending on the workmen to keep records of their
own time, the modern recorder automatically records the time of arrival
and departure of every employe.

Mechanical time recorders, or time clocks, are of two general types,
making two classes of records. One type records the time of one employe
on a single card or sheet; the other makes a record of the time of
several employes on the same sheet. For recording the total time of
employes, both types are used, and certain advantages are claimed for
each.

[Illustration: Fig. 5. Rochester Time Recorder, Manufactured by
International Time Recording Co.]

The records of the first type, most generally used, have a card for
each employe on which a record is made of his time for an entire week
or pay period. In operation, this system is very simple.

At each side of the clock is a card rack, as shown in Fig. 5. One of
these is an "out" rack, the other an "in" rack. At the beginning of
each week or pay period, cards are placed in the numbered pockets of
the out rack, which is nearest the entrance──one card for each man.
These cards bear the numbers or names of the men, or both if desired.

When the employe enters, he takes his card from the out rack, places it
in the slot of the clock, makes an exact record of the time of arrival
by moving a lever, and places the card in the proper numbered pocket
in the in rack. When he leaves, the operation is repeated, this time
the card being deposited in the out rack. In the meantime the recording
device in the clock has been shifted so that it records the leaving
time in the proper column on the card.

The form of record made by one of the best known clocks of this type is
shown in Fig. 6. It will be noted that the recording device prints the
letter representing the day of the week in front of each record──out
or in. Another feature is the dash under the afternoon registrations;
a glance shows whether the registration was made at, for instance, 6
o'clock in the morning or afternoon.

[Illustration: Fig. 6. Weekly Time Pay Card Used in the Rochester
Recorder]

This form requires an exceptionally small number of entries to figure
the time for the week. In the outside column, at the right, is entered
the time lost or the overtime for each day. At the end of the week,
the net total of this column is added to or subtracted from the total
hours representing a full week, which gives the total number of hours
actually worked.

Clocks of the second type record the time of several employes on one
sheet, the record being made for one day, or for any number of days up
to a week. Like the card machine, the record shows the in and out time,
both forenoon and afternoon.

A recorder of this type is illustrated by Fig. 7. To register the time
of arrival or departure, the employe places a key, bearing his number,
in the clock, and gives it one turn. A bell rings, indicating that the
hour and minute of the day have been printed on the record inside the
register.

[Illustration: Fig. 7. The Bundy Time Recorder, Manufactured by
International Time Recorder Co.]

The form of record made by machines of this type is shown in Fig. 8.
The records of all employes appear in numerical order on one sheet,
with the various _ins_ and _outs_ in their proper columns. The record
is inside the clock, under lock and key, and when removed can be used
as a pay─roll sheet.

The fact that the complete record is on one sheet, is one of the
advantages claimed for this type of recorders. On the other hand, an
advantage is claimed for the card machine in the fact that the cards
can be used for other purposes, such as for cost records.

[Illustration: Fig. 8. Weekly Time Record as Made by the Dey Time
Register]

[Illustration: Fig. 9. Work Order with Time and Material Records]

PRODUCTION TIME RECORDS

=10.= All records of time on individual jobs or operations may be
termed _production time records_, since the ultimate object of
keeping such records is to determine the cost of production. To the
manufacturer, these records are fully as important as those showing the
total time worked by each employe. Without such records, a satisfactory
cost system is impossible.

When the importance of obtaining costs of production──knowing what it
costs to manufacture a given article──began to receive consideration,
systems for recording the time spent by the worker on each job were
attempted. There being no other method available, the records were
at first made on cards or slips by the employes themselves. In all
essential features the same system is still largely used; nearly all
cost systems require that the employe keep a record of the time worked
on each job.

[Illustration: Fig. 10. Daily Record of the Time of One Man]

=11. Time Record on Work Orders.= One method of keeping time on
individual jobs is to make the record on the work order. When a job is
assigned to a workman, a written order is issued to him. This order,
Fig. 9, instructs him to do certain work and gives him authority to
draw the necessary material, provided the material is not issued with
the order. He is instructed to report his time on the order, and
sometimes to report the material used.

This form can be used successfully only when one man does the entire
job. It is used principally for repair jobs.

=12. Daily Time Card.= One of the methods of obtaining production time
records is to use daily time cards. Each employe is supplied with
cards, similar in form to Fig. 10, on which he is expected to record
his time for an entire day.

[Illustration: Fig. 11. Daily Time Card for Machine Operations]

At the top, the card bears the name and number of the employe, and
the date. Below the heading, a form is arranged for a record of the
order numbers on which he is employed, a description of the work
done (usually the name of the operation), the time of starting and
finishing, and total time worked on each job.

In some classes of operations it is necessary, if accurate cost records
are to be obtained, to keep a record of performance of the machine,
as well as of the man. A form for a record of this kind, covering the
operation for a day, is illustrated by Fig. 11. This form includes the
number of the machine and a record of the number of pieces produced.
Such a record is used for machine operations when a large number of
similar pieces are operated on by a single machine. The time record is
made when one order number is finished and a new one started. The form
shown provides for an extension of rates and amounts, the extensions
being made in the cost department.

[Illustration: Fig. 12. Coupon Time Card for a Day's Operations]

Fig. 12 is a card for recording a day's operations, arranged on
somewhat different lines. This card is a series of perforated coupons,
one for each job on which the employe works. When a job is finished,
the record is made, the coupon detached and turned in. At the close
of the day the top of the card, with all unused coupons attached, is
turned in.

All of these forms for recording the time of an employe for an
entire day are handed to the foreman, who turns them in to the cost
department. Here, the time cards are compared with the clock records to
find if all of the time for which an employe is paid has been accounted
for. The time records for individual jobs are then transferred to the
cost records. For the latter purpose, the coupons can be distributed
by order numbers. This makes it convenient to retain all time coupons
until the job is finished, when the amounts can be transferred to the
cost records with a considerable saving of labor in the cost department.

There is one serious objection to any form of time card designed
for a day's record. Too much depends upon the accuracy and clerical
ability of the employe. The average factory or shop operative has had
no experience in keeping records. He does not appreciate the importance
of the time records he is expected to keep, and, naturally, becomes
careless. Knowing that a record is expected, his card will show full
time, but the distribution of that time to separate jobs is not
accurate. Frequently, he waits until the close of the day and makes
as close a guess as possible as to the time worked on each job. His
failure to keep accurate records is not due to unwillingness, but to
his lack of training in such work.

[Illustration: Fig. 13. Job Card with Time Chart]

Exceptions are found, as a matter of course, and in some industries the
general character of the operatives employed is such as to practically
insure intelligent record keeping. As a rule, however, it is unwise to
expect the factory employe to keep accurate records.

=13. Job Time Cards.= A method of time keeping which is an advance over
the daily time card, is the use of a separate card for each job. With
this method, accuracy of the records can be practically insured and the
employe relieved of much of the clerical labor.

To attain satisfactory results, it is necessary to operate this system
along somewhat different lines than that described for the daily time
card system. Instead of issuing cards for the entire day, the workman
should be given a new card with each new job on which he works, and
not until he has completed the job last worked on. The time must be
recorded and the card turned in to the foreman on completion of each
job.

It is the duty of the foreman to keep his men supplied with work, and
to have at all times a job ahead. The workmen, knowing that a record of
his time on each job is kept and compared with the clock record, will
naturally insist on having a new job card when each old one is turned
in. If no job is ready, it will be necessary for the foreman to issue
an _idle_ or _non─productive_ card──a condition which he will strive
to avoid──all such time becoming a direct expense charge against his
department.

[Illustration: Fig. 14. Job Card Showing Names of Operations]

To relieve the employe of clerical labor, a card, similar in form to
Fig. 13, is used with quite satisfactory results. The special feature
of this card is the provision made for obtaining a record of time.
Below the heading there is a form representing the time of day, each
hour being divided into ten minute periods, and the whole divided
between forenoon and afternoon.

When a new job is started, the workman makes the record by checking
the time in the proper space. On completion of the job, he makes a
similar check mark in the space that indicates the finishing time. The
exact time is computed in the cost department. To illustrate: Suppose
a job is started at 7 A. M. and is done in 6½ hours. The time will
be checked at 7 A. M. and again, if an hour is allowed for lunch, at
2:30 P. M. This really shows 7½ hours elapsed time, but in the cost
department, the lunch hour will be allowed for, and the computed time
will be correct.

Another form of job card, intended for use where jobs require more than
one day, is shown in Fig. 14. With this card, it is intended that the
starting and finishing time shall be entered in the ordinary way, and
the name of the operation checked.

[Illustration: Fig. 15. Day Time Register for Production Time Records,
Manufactured by International Time Recording Co.]

=14. Mechanical Time Recorders.= For the same reasons that they
are best for making records of total time, for pay─roll purposes,
mechanical time recorders are best for obtaining production time
records. Whether the responsibility of making the record rests on the
workman or a clerk, it is always better to have the actual recording
done automatically whenever it is possible to do so.

While the time recorders used for keeping total time are also used
for obtaining production time records, there are certain advantages
in using recorders of slightly different types. Manufacturers have
made great progress and are now supplying machines which answer every
requirement.

One type of recorder designed for production time records is shown in
Fig. 15. This outfit includes, in addition to the recorder, a rack
for jobs ahead and jobs started, a rack for finished jobs, and a
distribution rack. The first rack contains pockets of the right size to
hold time cards or tickets. These pockets are numbered to correspond
with the men's numbers, two pockets being provided for each man, one
for jobs ahead and one for jobs started. The rack for finished jobs is
divided into compartments bearing the men's numbers, with slots through
which the cards are inserted. The distribution rack is divided into
compartments numbered for the different jobs.

[Illustration: Fig. 16. Individual Job Card Used with the Day Time
Register]

The recorder and card racks are placed near the foreman's desk, which
should be at a central point in the department. The foreman prepares
cards for the different employes and places a card for the next job in
the _jobs ahead_ pocket. The workman, when starting to work, takes the
card for the next job, records the starting time, and places the card
in the _jobs started_ pocket. When the job is finished he again records
the time, on the same card, and places the card in the compartment
bearing his number in the _finished jobs_ rack. At night, if he has an
unfinished job, he records the time, the same as for a finished job,
and either turns in the card to the foreman or places it in a box kept
for suspended jobs. The foreman then makes out new cards and places
them in the _jobs ahead_ rack, while the suspended card is placed in
the _finished jobs_ rack.

Every morning all cards of the previous day are taken from the
_finished jobs_ rack, the time recorded on each man's cards is
computed and compared with the record of the total time recorder, and
the cards distributed by job numbers in the distribution rack. This
checks the job time with the pay─roll time, and permits of leaving
the cards in the distribution rack until the entire job is finished.
The cards are then taken to the cost department and the time records
distributed on the cost sheet.

[Illustration: Fig. 17. Job Time Sheet Used with the Day Time Register]

One form of card used with this type of recorder is shown in Fig. 16.
One card is used for each job on which a man works. It will be noted
that the time is recorded in decimals. Instead of the usual 12 hours,
the recording wheel is divided into 24─hour periods, or if desired,
into 23 hours, automatically eliminating the noon hour. The 23─hour
wheel prints 12 at noon and again at one o'clock, 13 at two o'clock,
etc. At 3:30 P. M., for instance, the clock would record 14.50, meaning
14½ hours. On the card illustrated, the record shows the job to have
been started at 8.08 and finished at 11.40, the elapsed time being 3.32
hours.

[Illustration: Fig. 18. The Calculagraph, Manufactured by the
Calculagraph Company]

A clock of similar type accommodates a sheet of any size, and provides
for as many separate time records on the same sheet as may be desired.
A sheet may record the time of a single employe for an entire day and
show the exact time worked on each job. Or, in some industries, the
card may be made for a job and arranged to accumulate the time of all
employes working on the job. Fig. 17 shows how several time sheets of
this class can be bound together, making a daily time and pay sheet
for each employe. From this sheet the time is distributed to the cost
sheets.

Still another type of time recorder, which offers certain distinct
advantages, is shown in Fig. 18. This machine is used to obtain a time
record for each employe on each separate job or operation.

The distinctive feature of this machine is that it records the elapsed
time. When a man commences work on a new job, he places his card in the
machine and by moving a lever registers the starting time. When the job
is finished, he again places the card in the machine, this time moving
a second lever, and registers the exact time that he has worked on the
job. The advantage is apparent. With an ordinary time stamp printing
the starting and finishing time, it is necessary for a clerk to
mentally compute the elapsed time. With this machine the elapsed time
is mechanically computed and printed, saving the time of the clerks and
doing away with all possibility of clerical errors.

[Illustration: THE MECHANICAL DRAFTING DEPARTMENT AT THE PLANT OF THE
GREEN FUEL ECONOMIZER COMPANY, MATTEAWAN, N. Y.]

Fig. 19 illustrates the form of record made by this machine. The record
shows that workman No. 38 commenced work on job No. 530 at 9:45 A. M.,
that he was employed on this job 2─8/10 hours, and that the operation
was milling.

[Illustration: Fig. 19. Time Record Made by the Calculagraph]

The machine is made to register either hours and minutes, or hours and
tenths of hours. For cost─keeping purposes the latter is preferred for
the reason that it is much easier to figure time at a given rate in
tenths.

A form of card, without the record, is shown in Fig. 20. The card can
be of any size desired, the only requirement being a blank space for
the time record in the upper left─hand corner.

As with other recorders, one of these machines should be located at a
central point in each department. It is advisable to provide a card
rack with compartments bearing the employe's numbers, and to place
cards for jobs ahead in these compartments. The cards for the day are
first sorted by employe's numbers to verify the clock record, and then
by job numbers for the use of the cost department.

[Illustration: Fig. 20. Time Card Used with the Calculagraph]

Another elapsed time recorder, which was placed on the market after the
above was put in type, but before this book went to press, is shown in
Fig. 21, the form of record being shown in Fig. 22.

The device is operated electrically, the impulses being furnished by a
master clock. This may be located anywhere in the building, preferably
in the office, as it will be less affected by vibration and dust. To
the master clock is also fitted the 24─hour elimination or cut─out
wheel described later. This clock transmits electric impulses each
minute all through the building to the various elapsed time mechanisms.
Thus all the machines are exactly the same time and cards may be
registered in on one machine and out on any other and correct results
obtained.

[Illustration: Fig. 21. Elapsed Time Recorder with Master Clock.
Manufactured by International Time Recording Co.]

The mechanism is about nine inches square and is enclosed in a dust
proof iron case. It may be placed on a work bench, on a pedestal, or
it may be sunk flush with the top of the bench or desk. The flat cover
has two openings or slots for the insertion of the cards. One opening
is marked "in" for the first record of a job, the other "out" for
registering when the job is completed. There is also an aperture in the
cover through which may be seen a series of indicating wheels showing
exactly the time of day. There is only one handle to be operated and,
therefore, no confusion can occur in the mind of the operator as to
which handle to pull.

[Illustration: Fig. 22. Time Card Used with the International Elapsed
Time Recorder]

The cards used in the machine may be of any length desired but can only
be of one width, 4¼ inches. In registering in, the card is placed in
the front or starting slot, and the lever pulled over. This prints the
starting time at the top of the card in the space to the left. At the
same time four small holes are punched in the card which individualize
the record. After a job is completed the card is placed in the rear or
stopping slot, the lever pulled over once more, and the stopping time
and actual elapsed time are both printed on the card by one pull of the
handle, thus enabling anyone to compare the two records and prove the
accuracy of the machine for every record.

One of the salient features connected with this device is its ability
to compute only the actual time worked in the factory irrespective of
the times of registration. That is to say, in a factory working ten
hours a day from seven to twelve and one to six the elapsed time will
only be computed during these hours. Any registrations made before
seven o'clock will not begin to count elapsed time until that hour,
and the computation of elapsed time automatically stops at noon to
be resumed at exactly one o'clock, and then continues until quitting
time at night, when again it stops automatically. The clock movement,
however, does not stop, but always shows the correct time exactly the
same as the master clock, and is entirely unaffected by the elimination
of the non─working hours in figuring the elapsed time. The machine can
also be set to record overtime at night if so desired.

In case work on a given job is not completed on the day it is begun, it
is not necessary to ring out on the elapsed time machine until the job
is completed as the machine computes up to 100 hours. A job beginning
on Monday and running through the week until Saturday night, when it is
finished, may be registered on one card, or even for a longer period up
to 100 hours.

The elimination or cut─out wheel referred to as being a part of the
master clock, is responsible for this wonderful piece of work. The
wheel makes one revolution in twenty─four hours and is graduated
in fifteen minute divisions for the purpose of setting the contact
breakers. The contact breakers are bits of hard rubber which are
fastened around the rim of the wheel, and may be moved about at the
will of the custodian of the apparatus by simply loosening the set
screw. These blocks are set on the starting and stopping time and when
they pass the contact breakers the electrical circuit is broken, and
the computing device started or stopped as the case may be.

=15. Cumulative Time Records.= In some factories and shops, the work
is of such nature that economy results if the work order and the time
record follows the job through all of the operations. For example,
hosiery and underwear go through the factory in dozen lots; in a shoe
factory a lot of shoes is kept together until every operation is
finished; in a harness factory, a bridle goes through all operations
on one work order; in a machine shop, one or more rough castings may
pass through several operations in the process of converting them into
finished parts.

[Illustration: Fig. 23. Calculagraph Time Card with Coupons]

When these conditions exist, it is practical to attach a time card to
the work, and to accumulate the time of all employes for the entire
job. At the same time, individual time records are obtained.

A form to be used with the mechanical time recorder, Fig. 18, is shown
in Fig. 23. This form consists of the usual work order to which is
attached a series of coupons, perforated for easy removal. Each coupon
is of the right size to accommodate the time record, and particulars
as to the order number, operation number, man's number, and number of
pieces.

[Illustration: Fig. 24. Cumulative Job Time Card]

[Illustration: Fig. 25. Operations Tag Used in an Underwear Mill]

The man who has the first operation enters his number and records his
starting time on the first coupon. When the operation is finished, the
time employed is recorded, the coupon is detached, and the job goes
forward to the next operator. If the operation is not finished at the
close of the day, the time record is made and the next coupon used by
the same operator.

Each day, all of the detached coupons are sent to the cost department,
where they serve several purposes. They are first sorted by employes'
numbers, to compare the time reported with the clock record; then
sorted by job numbers, to obtain time records for each job. From the
coupons, all necessary information is obtained for a record of jobs in
process, showing just where each job is at all times.

Another form for a cumulative, as well as an individual time record,
is shown in Fig. 24. This card is for use where no time recorders are
provided. Each employe records his time, and, when the last operation
is finished, the card goes to the cost department. If desired, this
card might be made with detachable coupons for the different operations.

PIECE─WORK RECORDS

=16.= Where piece─rate or premium wage systems are in effect, is
it necessary to have accurate records of production, since the pay
of the worker is governed by the number of units of production.
It has already been stated, that to obtain the exact cost per unit
of production, time records must be kept on piece work. It is not,
however, absolutely necessary that the time be recorded for each
separate job or unit of production. The necessary requirement is that
the production records shall be so kept that they can be checked as to
time──that the time required for a given number of units of production
can be obtained, or that the units of production during a stated time
can be definitely known.

[Illustration: Fig. 26. Weekly Time Records for Piece Workers]

[Illustration: Fig. 27. Production Record of a Gang of Piece Workers]

Piece rates are applied to many distinct classes of work, each of
which necessitates a slightly different system of records. One of the
industries in which piece rates are largely used, is the manufacture of
garments of different classes. In this industry, each garment or lot
of garments passes through several operations, each operation being
performed by a different operator. Since practically all operations are
on a piece─rate basis, it is necessary to obtain a record of the name
or number of each operator.

[Illustration: Fig. 28. Individual Time Record Card Used with the
Calculagraph]

[Illustration: Fig. 29. Daily Record of Piece Work]

A form for a record of operations in an underwear mill is shown in Fig.
25. This is in the form of a shipping tag with particulars of the order
at the top, followed by a list of the operations. As fast as the goods
are cut, they are tied in bundles of one dozen garments. The tag is
then attached, the cutters' names or numbers are entered on the lines
opposite their operations, and the bundle is delivered to a storeroom
located conveniently to the machines.

[Illustration: Fig. 30. Record of Unfinished Piece Work]

[Illustration: Fig. 31. Production Record for Determining Piece Rates]

In the mill where this particular system is in operation, each
operator delivers her work to the storeroom and receives more work as
needed──always writing her name on the tag. When the work is received
in the storeroom, a clerk records the last operation on the operator's
time card, Fig. 26. One of these cards is used for each operator and
accommodates the record of work for an entire week. Provision is made
in the column at the left for a record of the kind of work, while
the record of dozens finished each day is shown in the proper daily
columns. At the end of the week, when extensions have been made, this
card shows the amount of wages due, the different kinds of work done,
and the quantities finished. In connection with this, the usual clock
record of total time is kept, and a comparison of the piece work and
clock records will show whether or not the operator is maintaining
standard time on the different classes of work.

[Illustration: Fig. 32. Sheet for a Record of Total Time]

In the manufacture of certain classes of cans, some of the operations
are paid for on a piece─rate basis; but payment is made on the basis of
the production of a crew. The operation of crimping tin ends on certain
cans, requires a crimper and several helpers, the latter preparing the
cans for the operation. For this operation, the pay of all members
of the crew is based on the number of cans finished; that is, if the
number finished by a crew consisting of one crimper and four helpers
is 2,000, the crimper will be paid for that number, while the helpers
will each be paid for 500. The form used for a record of production on
this operation is shown in Fig. 27. This is the assembled record, the
individual time records being made mechanically on a card, Fig. 28.

[Illustration: Fig. 33. Combined Piece Work and Time Record for
Pay─Roll Purposes]

On the operation above referred to, the speed of the helpers is limited
to the speed of the machine, but if three helpers instead of four can
do the work, the pay of each will be increased correspondingly. In the
operations handled by crews, there is nothing to limit production. The
result is that each member of the crew is obliged to maintain the pace
set by the most speedy member, which reduces the cost of production and
enables all members of the crew to earn a higher average wage.

A form of piece─work record, used in a factory where employes are
expected to keep their own time, is shown in Fig. 29. This ticket is
filled in by the employe, _O. K.'d_ by the foreman after inspection of
the work, and forwarded to the cost department. All unfinished piece
work is reported on the form shown in Fig. 30. This report enables
the cost department to determine the actual time of all piece─work
operations.

Before piece rates can be established for new work, it is necessary to
ascertain the average time required for the different operations. This
necessitates a very accurate record of production of employes working
on day wage rates, and the record must represent the average rate of
production of all employes, rather than the rate maintained by a few
of the most skillful. A form used in one factory for such a record
is shown in Fig. 31. When new work is started, one of these cards is
filled in for each employe assigned to the work, and a record kept of
each operation. When the records have been kept for a sufficient length
of time to obtain an average, the records of all employes for the same
operation are combined and, on the average thus obtained, the piece
rates are established.

PAYING EMPLOYES

=17.= The time records of all employes, no matter how kept, must be
assembled for the purpose of making up the pay─roll. Special forms of
time sheets or pay─roll records are designed to meet the requirements
of different classes of business. Several such forms are shown in other
papers in this series; others are illustrated herein.

A conventional form of time sheet is shown in Fig. 32. The names are
grouped on this sheet by departments, and opposite each man's name is
his number. The daily time records are kept for a period of one week,
then totaled, and the amount of wages extended in the last column.

Fig. 33 shows a form of time sheet intended for a tabulation of both
the clock record and job time. The bringing together of the total time
records (as shown by the clock) and the production time records (as
shown by the job time cards) is of very great importance in connection
with any system of cost accounting. One must be checked against the
other, for unless all of the time for which the employe is paid is
accounted for in the cost records, cost figures will be incorrect.

If the two records do not agree, even though the employe is paid for
the time shown by his clock record, the discrepancy should be adjusted.
Theoretically, every minute of a man's time should be accounted for by
his time cards and, when conditions permit, he should be paid only for
the time so accounted for. This rule should not be so rigidly enforced,
however, as to encourage a man in padding the time on individual jobs
to reconcile the total for the day with his clock record; it is far
better to have a few minutes unaccounted for. When a foreman fails to
have work ready, he should give the workman an idle or indirect labor
card, but the man should be impressed with the fact that accurate
records are kept of his time on every job, and that all lost time must
be either reported on an indirect labor card or left unreported.

The cost of time shown on indirect labor cards, and of all time
unaccounted for, should be charged to the department under some such
caption as _Department Waste_, never to the specific jobs on which the
man has worked. Time wasted between jobs or on account of a breakdown
or other unusual occurrence does not affect the legitimate time in
which a particular job should be done. It is rather a legitimate charge
against the efficiency of the department, and the aggregate of all such
inefficiency charges should be applied as an added burden to all of the
jobs in the department during the month.

Costs obtained, after adding this inefficiency burden, may be
considered the actual costs for the month, but cannot be safely used
as standard. Standard costs are the costs obtained under perfect
conditions──when the department, shop, or plant is running full time
at full capacity; when all of the time of every employe is accounted
for by his job time cards; when there is no wasted time or unusual
expense. While standard costs may not be attained──probably never will
be──this should be the goal, to reach which, managers, engineers,
superintendents, foremen, and workmen should strive constantly. As a
matter of record, therefore, to show what obstacles must be overcome
before the ideal is reached, the inefficiency burden should be added as
a separate item after all other items of cost have been computed.

As an example of the effect of the application of this principle
of considering efficiency in figuring costs, we will consider an
imaginary case. We will suppose that, in a certain month, the
pay─roll for direct or productive labor in our shop is $4,000; that
40 completed machines──identical in every respect──are produced; that
every minute of the time of every productive employe is accounted
for by his productive job cards. This gives a labor cost of $100 per
machine. During the next month the same men are employed at the same
cost──$4,000──but owing to an unusual breakdown, 2½% of the time of
these men is wasted; they are idle while the breakdown is repaired, and
but 39 machines are produced.

If the $4,000 wages paid is charged as direct or productive labor it
gives a cost of $102.56 each──an increase in cost with nothing in the
figures that shows the cause. If, however, an inefficiency charge of
$100 (2½% of $4,000) or $2.56 per machine is added as a separate
item, it is seen at once that here is an unusual item of expense. The
amount ($2.56 per machine) is included in the final costs, but in the
right place; there is no cause for confusion on account of an apparent,
but not real, increase in the productive labor cost. If the cost of
$100 per machine obtained during the preceding month is standard
for productive labor, it still is the attainable standard; the fact
of an unusual expense has in no way affected the legitimate cost of
productive labor.

Another great advantage in presenting the labor cost statistics in this
manner is that inefficiencies are shown in an understandable form.
The fact that indirect labor is increased, say 2%, might occasion no
comment; but if an inefficiency charge of even 1% is shown, it calls
for immediate investigation.

The establishment of standard or efficiency labor costs means
predetermined costs. This is a radical departure from established
custom; on its face, contrary to recognized accounting practice;
in results, wonderfully efficient. To determine standards in men,
material, and machines is a function of the engineer; the recording
of facts──the actual cost──is the function of the comptroller or
accountant. The two must work together. Properly prepared accounts,
showing actual costs with the items that make them segregated, show the
engineer how far short of possible standards the plant is running──the
extent of the inefficiency.

[Illustration: Fig. 34. Record Card for Applicants for Employment]

RECORDS OF EMPLOYES

=18.= In connection with the different time records designed to record
hours of service and units of production, there should be a personal
record of employes; and the more intimately personal it can be made,
the more valuable will the record become.

[Illustration: A BIRD'S─EYE VIEW OF THE PLANT OF STUDEBAKER BROS.
MANUFACTURING CO., SOUTH BEND, IND.]

Napoleon, it has been claimed, could call by name every man in his
armies, but, however great value may have been placed on such a memory
feat, the manager of the present─day great business organization, who
can call by name each of his employes, is an exception.

[Illustration: Fig. 35. Card for Record of Applicants]

[Illustration: Fig. 36. Card for Record of Employes]

It is not necessary that he should do so, for, as business is now
specialized and departmentized, he needs to know only the results
of the labor of those employes. By this is not meant that he should
not take an interest in the personality of his organization; on the
contrary, he should be very much interested, but he can be relieved
from burdening his mind with details by means of simple records.

Somewhere in the office there should be as complete a personal
record of each employe as is possible to obtain. This record should
include applicants, employes, and past employes, and it should be
the duty of some person or department to maintain the record. In the
smaller establishments, employes' records should be in charge of
the chief accountant, office manager, or superintendent; in larger
establishments, the employment department will keep these records.

[Illustration: Fig. 37. Card Showing Complete Record of an Employe]

=19. Application Card.= Fig. 34 shows a simple form of application card
to be filled out for every applicant who is not hired immediately,
but whose application receives favorable consideration. This card is
headed with the name of the position applied for, or the trade of the
applicant. Following this is the name and address, and such information
about the applicant as may be considered of special value.

These cards are filed in a regulation card index drawer and indexed
under the trade or position applied for. The index cards are headed
with the names of the trades employed, the departments, or such other
designations as may be best suited to the business. For instance, one
index might be headed _Machinists_. Back of this index the cards of all
applicants for positions as machinists will be filed in alphabetical
order.

A form of application card which provides for more detailed information
along certain lines is shown in Fig. 35. While this card is headed with
the name of the employe, it is filed under the trade, as described for
Fig. 34.

The value of these application records is apparent. When a man is
needed, reference to this file will show who has applied and assist in
getting a man quickly.

=20. Employe's Card.= One form of employe's card is illustrated by
Fig. 36. This card is filed as soon as a man is engaged. At the head
of the card is the name of the employe, the department to which he is
assigned, and his clock number. Following this is the address and other
essential information. Space is also provided for a record of changes
in wages, including both dates and rates. At the bottom of the card,
space is left for notes on the record of the employe, which can be
continued on the back of the card. The final record on this card is the
date the employe quits, or is discharged, with reasons.

[Illustration: Fig. 38. Card Record of a Past Employe]

Another form of employe's card is shown in Fig. 37. The special feature
of this card is that, for each increase in wages, the reason and name
of the person granting the increase is noted.

The cards of present employes are filed alphabetically by name.
However, in very large establishments, it is advisable to subdivide
them by departments and arrange the cards of all employes in the
department in alphabetical order. It is seldom necessary to arrange
the cards by trades for the reason that the names are, as a rule, so
classified on the pay─roll records.

The employe's record proves valuable in many ways. If, for any reason,
an employe is away from his work, and it is desired to communicate with
him, the address is quickly found; in case of an accident, resulting
in injury to the employe, the address is very convenient. Again,
when a man is wanted for a position a little above that occupied by
the average employe, it is best, if possible, to select a man from
the present employes. Whether the position be that of a gang boss,
a foreman, or the head of a department, a condensed record of past
performance, supplementing the personal observations of his superiors,
will be found of considerable assistance in selecting the right man.
Many other advantages might be named, but those given should be
sufficient to demonstrate the advisability of maintaining these records.

=21. Past Employe's Card.= In some respects, a record of past employes
is as important as the record of applicants and present employes. When
more men are needed, it is natural to suppose that past employes,
whose services were satisfactory, will be specially desirable. On the
contrary, a past employe who has been discharged, or whose work was
unsatisfactory, is unlikely to be desirable.

Any record that will show who the past employes are, why they left,
and their past record, will therefore be of value. Such a record
is provided by the card illustrated in Fig. 38. When an employe
leaves, for any reason, one of these cards is filled in and filed
alphabetically. At the same time, the employe's card is transferred
to another section of the file, and indexed under the name of the
department, or the trade or class of employment.

These cards furnish a very complete record of employes, past, present,
and future. If the number is small, all can be filed in one drawer,
with separate indexes to segregate them into classes. Or a large
cabinet, with one or more drawers for each class of records, may be
required, but, in any event, the records are complete.

MANUFACTURING ORDERS

=22.= One of the principles that must be kept in mind when installing a
system of any description is that provision must be made for recording
every detail of the work intended to be cared for by the system. While
this holds true in respect to the systems in every other department of
a business, it is of special importance in the manufacturing branch.
Accurate costs are out of the question unless every detail of the
operations of the plant is properly recorded.

Experience has shown but one method that will insure accurate
records, and that method is to manufacture all goods on definite
orders and to charge all work not applied to a specific manufacturing
order, to expense or operating accounts. The receipt of an order to
manufacture before starting the work, is of the same importance to the
superintendent as that the commercial department shall receive an order
from the customer before shipping goods.

Few managers will accept verbal orders for the manufacture of expensive
goods, without asking for a confirmation in writing. When those
orders are transmitted to the manufacturing department, it is just as
important that they shall be in writing.

Manufacturing orders are of two classes: general orders to the
superintendent to manufacture a certain quantity of goods, and specific
orders to shop foremen to do some part of the work. For convenience,
these orders will be referred to in this discussion as _Production_
orders and _Shop_ orders.

=23. Production Orders.= The production order is the written
instructions to the superintendent to manufacture certain goods. It
is his authority to secure the necessary material, to employ the
required number of men, and to convert that material and labor into the
finished product. The production order may call for the manufacture of
the quantity of goods of a certain type required to fill one or more
customers' orders; the manufacture of a certain quantity of goods to be
placed in stock, from which to fill future orders; the conversion of a
definite quantity of raw material into finished products; or even the
manufacture of an indefinite quantity of raw material into an equally
indefinite quantity of the finished product, but within a definite
period of time.

Usually the production orders of one factory will be confined to
one class, though there are some exceptions. In the first class, we
find shops manufacturing special machinery, jobbing foundries, and
mills manufacturing underwear and hosiery. In the latter business the
goods are sold in advance, from samples, and only the quantities or
particular styles required to fill orders are manufactured.

The second class includes furniture factories, typewriter factories,
the manufacture of tools, and numberless similar industries in which a
stock of standard goods is manufactured for future sale.

An example of the third class is found in a harness factory. In this
business, a certain number of sides of leather are issued to the
cutting room to be cut. Since the leather is not uniform in weight
or texture, it is not possible to cut an entire side of leather into
pieces of the same size, or the same parts of a harness──as lines or
traces. The cutter must use his best judgment, so cutting the leather
that it will produce the largest possible volume of usable stock, with
the least waste. The definite factor is the side of leather which is to
be converted into an indefinite quantity of finished, or semi─finished
product.

The last class is illustrated in the manufacture of salt. The
brine──raw material──is pumped from the wells into storage tanks,
from which it is drawn into evaporating pans or grainers. An order
may be issued to make what is known as _common fine salt_ in three of
these evaporators. Evaporating processes are influenced by atmospheric
conditions──the same heat will evaporate the brine much more rapidly
one day than another. Also, the brine is of different degrees of
strength──the same quantity does not always contain the same amount of
salt. The only definite factor is time──an indefinite quantity of brine
is converted, in a given time, into an indefinite quantity of salt and,
it might be added, of an indefinite quality.

When all these conditions are considered, together with the fact
that each manufacturer has his individual methods of conducting the
business──methods probably different from those of his competitors in
the same line──it will be seen that the variety of forms of production
orders is almost without number. But the important thing is to have an
order of some kind──to provide a record.

If there is one essential feature to be incorporated in the production
order, it can be expressed in two words──definite instructions. The
order should be made perfectly clear, leaving no room for doubt, as to
what is desired. When No. 3 dining─room chairs are wanted, the order
should state the fact very clearly, and not read _chairs_, leaving the
superintendent to guess the style and size.

[Illustration: Fig. 39. Production Order to Superintendent]

[Illustration: Fig. 40. Production Order Which is an Exact Copy of the
Customer's Order]

The form of the production order need not be complicated; indeed, a
simple form will serve the purpose much better, an illustration of
which is shown in Fig. 39. The heading of this order shows the number
and date, with instructions to the superintendent to carry out the
work as specified. The body of the order is blank, providing space for
entering such details as may be necessary. The blank at the bottom,
which is filled in by the superintendent's clerk, shows the date
received, date started, the shop order number, and the date finished.

[Illustration: Fig. 41. Sub─production or Shop Order]

This form is suitable for almost any kind of business or class of
order. The production order should always be made in duplicate, a copy
to be kept in the office. The office copy will be used to follow up the
manufacturing order.

In many lines of business, goods are manufactured only as required
to fill customers' orders. The order to manufacture should, in such
cases, be an exact copy of the customer's order as entered. With the
modern method of entering all orders in manifold──with a copy for each
record required──one blank should be included for the factory, this
becoming the production order. A form of this kind is shown in Fig. 40.
This is an exact copy of the order as entered, the instructions in the
heading taking the place of the name and address of the manufacturer.
The particulars include the number, date received, and date to be
shipped. The body of the order contains the necessary instructions; in
the column at the extreme left──quantity ordered, quantity shipped,
size, and description. This is one of a set of blanks that include the
invoice, office copy, cost department copy, and copy for the shipping
department.

=24. Shop Orders.= The shop order is the written instruction of the
superintendent to the foreman to do certain work or to manufacture
certain articles. The order may call for the manufacture of a certain
article complete, or it may be for parts to be later assembled into
a complete article. Shop orders are as varied in form as production
orders.

[Illustration: Fig. 42. Shop Order Showing Total Work Cards]

When a superintendent desires to start work on a stated production
order, he lays out the work and issues the necessary shop orders to the
foremen of the different departments in which the work is to be done.
A shop order is issued for each shop──usually these are exact copies.
If work on an order requires work to be done in four shops, the four
copies are made on the typewriter, at one writing, by means of carbon
paper.

Fig. 41 shows a convenient form of shop order. This form includes the
shop order number, piece number, drawing number, material, date to be
completed, date of order, production order number on which the shop
order applies, and the date completed. The body of the order is left
blank for a description of the work and the necessary instructions.
Explicit instructions must be given on every shop order──the order
should leave nothing for granted.

[Illustration: Fig. 43. Shop Order with Name of Shop]

[Illustration: Fig. 44. Shop Order Showing Progress of the Work]

The special feature of the shop order shown in Fig. 42 is the space for
_card number_ and _total cards_. When an order is made out, as many
copies are made as there are shops or departments through which the
work must pass. The number of the copies of the order is entered under
the heading _total cards_──that is, if the work is to pass through
four shops, the figure 4 is entered in the space provided for total
cards. The copies are numbered in the order in which the work will be
done──that is, the order for the shop that does the first work is given
No. 1, the second shop No. 2, etc.

There are two special advantages in having the shop orders numbered.
Each foreman knows, when he receives his order, how many operations
are ahead of his own and how many follow, and can lay out his work
accordingly. It does not always follow, however, that because one
foreman receives order No. 3, two other operations must be completed
before his own can be started. Each shop order may call for the
manufacture of a different part, to be sent to the assembly shop, but
if one of these parts is in stock, no order is issued. The foreman
receiving order No. 2, when his number naturally would be 3, knows that
one of the parts is in stock and that his operation must be hurried
accordingly.

The employes in the cost department find the numbering system
invaluable, for it enables them to tell how many operations there are
on a job; also operations which have been completed. This information
is of considerable assistance in tracing orders through the shop.

The shop order shown in Fig. 43 answers the same purpose as the form
shown in Fig. 42. Instead of the system of numbering the order copies,
the plan of inserting the names of all shops is followed. Following the
name of each shop is the name of the operation to be performed. This
also enables the shop foreman to so lay out his work that the order can
be handled promptly when it reaches his shop.

=25. Work Orders.= The work order is the written instruction of the
foreman to the workman to do certain work. As a rule, this order
is made on the production time card, as shown in preceding pages.
Sometimes, however, it is unnecessary to give more explicit directions
than can be written on a small card, which makes it advisable to issue
a special order.

In certain classes of work, also, it is advisable to use one work order
for a job which is to pass through the hands of several men. Such a
work order is shown in Fig. 44. This order shows the numbers of the
men and machines to which the work is to go. Another class of work
for which special orders should be issued is outside repair work──as
plumbing, steam fitting, electrical repairs, etc.

=26. Standing Orders.= Manufacturing is fast developing into a system
of producing standard parts to be assembled into complete machines
and appliances. Every part that goes into a machine is made from a
standard pattern and is interchangeable with the same part in every
other machine of the same style made in the same shop. It is no longer
necessary to design each machine, and each part required to fill an
order──the parts are manufactured in large quantities and carried in
stock till needed. An order from a customer may require the manufacture
of one special part, the balance consisting of parts to be assembled.

The manufacture of parts as standard units is not an accounting
problem, but the accounting department and the manufacturing
departments must coöperate in maintaining proper records of the
manufacture of those parts. The manufacture of one lot of standard
units involves the same operations whenever the same unit is made.
Adopting this principle to accounting, it is advisable to establish
standards in respect to orders. Whenever the same standard part is
needed, the order should be for the same quantity; this, of course,
after a standard quantity has been established. When units and
quantities have been standardized, order numbers should be made
standard──whenever the same work is to be done the _same order number_
should be used. If this plan is followed, orders are soon recognized
by number──and the order number informs the foreman as to the work
required.

Series of order numbers should be assigned for different classes of
work. Numbers 1 to 100 might represent regular plant maintenance and
repair orders; numbers 101 to 200, plant construction and special
repair orders; numbers 201 to 400, the manufacture of special tools;
numbers 401 to 1000, the manufacture of parts; numbers 1001 to 1500,
assembling or production orders for complete machines. Shop orders can
be distinguished by a second series of numbers starting at, say 5000.

Illustrating the above, the superintendent of a typewriter factory
might receive order number 1007, meaning that he is to assemble
1000 No. 7 typewriters. His assembling order to the foreman would
bear the same number. After the parts have been drawn from the parts
storeroom, it may be found that the stock of certain parts is running
low. Production orders are issued for parts, No. 417 being the number
for frames for No. 7 machine. The shop orders may bear the numbers
5060─_a_, 5060─_b_, and 5060─_c_, _a_ being the order for the foundry,
_b_, the order for the machine shop, and _c_, the order for the
finishing department.

[Illustration: Fig. 45. Manufacturing Order Register, Showing Location
of Work in the Shop]

As to expense orders and construction orders, it is very necessary that
the work to be charged against each order number be clearly specified.
When the expenditure involved exceeds a certain amount, or where the
work is of a special nature, a special order should be required.
Explicit instructions for charging all expense items should be given to
each foreman, preferably in printed form──or in typewritten form when
the number of foremen is small. Many concerns issue printed instruction
books containing the order numbers and specifications, with any rules
that may be in force governing the conduct of employes, for general
distribution among employes.

RECORDS OF MANUFACTURING ORDERS

=27.= An essential record in any system of cost or factory accounting,
is a record of manufacturing orders. A system of records shouldbe
maintained, which will show the exact number and nature of the orders
issued to the shop or factory, and from which it will be possible to
locate every order──to determine in what stage each order is, and to
estimate closely the date of completion.

[Illustration: Fig. 46. Front and Reverse of Card Showing Total
Production and Progress of Orders.]

Such records are equal in importance to records of material, both
raw and partly finished, in store at all times. Without them, it is
impossible to obtain authentic information about work in process.
Orders are certain to be side─tracked, and it is extremely difficult to
estimate, with any degree of accuracy, delivery dates for either new or
old orders.

The records should be so complete that it will be literally possible
to run the business from the office──without calling foremen from
the shops, who must return and investigate the condition of an order
before an intelligent answer can be given. The manager who can
conduct his business from the office is following modern ideas; he is
far─seeing──not lucky──for this condition is the result of carefully
made plans to insure records that will show him exactly what he wants
to know.

Along the line of running the business from the office, Mr. F. E.
Webner, in an article in the _Engineering Magazine_, cites an apt
illustration. Two very large corporations with a common line of
product were concerned. Each of these in turn was asked verbally by an
executive officer of a concern which is a large user of the product,
as to what delivery could be made on a stated quantity of goods. One
concern used the long─distance telephone to a number of its plants;
the other concern consulted records within its office and was able to
give a decisive reply within half an hour, and to know just which of
its works was best able to turn out the goods. The first concern had a
number of superintendents on edge looking up data and could not give a
positive answer short of two days.

As in every other department of a business, the expense of maintaining
an adequate system of order records in the manufacturing departments
is infinitesimal, when compared with the results obtained. A single
contract lost for the lack of needed information may mean the loss of a
valuable customer, the profit on whose business would pay the cost of
an adequate system many times over.

=28. Manufacturing Order Register.= The form of the manufacturing
order register necessarily depends on the nature of the business, the
product, and the number of operations or departments through which an
order must pass. It need not be complicated──simple forms always are to
be preferred──the main thing is that all orders be so recorded as to be
readily located.

[Illustration: Fig. 47. Daily Report of the Transfer Clerk]

[Illustration: Fig. 48. Foreman's Daily Report of Shop Production]

A simple and convenient form for a register of manufacturing orders
is shown in Fig. 45. This should be in loose leaf, a sheet being used
for each style or size of machine, part or piece manufactured. If, for
instance, a typewriter is made in five styles, five sheets would be
used──one for each style. Separate sheets would also be used for each
part──as many sheets for each as there are sizes.

The sheets should be indexed under the names of the parts and those in
each division arranged in the order of sizes. Supposing type bars to be
made in ten sizes──numbers 191 to 200──the sheets would be filed in the
order of these numbers. Should the industry be one in which orders are
issued to assemble parts into complete machines, the sheets on which
assembling orders are recorded should be filed with a separate index,
but may be kept in the same binder. It is also advisable to use sheets
of a different color for these orders.

The heading of this form, Fig. 45, shows the name of the part, the
machine on which it is used, the drawing number, pattern number, and
style or part number. Orders to manufacture are entered in the columns
at the left of the body of the form, giving the date, order number,
quantity ordered, and total ordered to date──that is, if 500 parts are
ordered on the 10th and 300 on the 25th, the sum of the two, 800, would
be entered in the total column. Following the order record columns are
columns for the departments, the form illustrated being designed for
a furniture business. Under the heading for each department, a daily
record is made of the quantity received, quantity delivered to the next
department or to stock, and balance in the department, the latter being
in an uncompleted state. This form can be adapted to almost any class
of manufacture by a proper arrangement of departmental columns.

In most all industries, it is practical to keep a continuous record of
all manufacturing orders; sometimes it is best to keep a record for
each order. A form of this class, designed for the use of a machine
shop, is shown in Fig. 46. This form shows the progress of a single
order through all of the departments. A card is used in this case,
both sides being required to accommodate the number of operations, and
they are indexed by order numbers.

=29. Tracing the Order.= The system of tracing orders through the
shop or factory is very important and should be as nearly automatic
in operation as possible. There may be many orders which need not
necessarily be traced, but a system that will automatically keep
the office informed on the progress of _all_ orders, will pay for
itself in the time saved in tracing a single order without proper
records. To attempt to find the exact condition of work in progress
without a tracing and recording system, is not alone expensive, but
unsatisfactory in results; the degree of accuracy is measured by the
ability of foreman to make accurate estimates. Practically, foremen
should be best able to estimate the time required to complete a job,
but their estimates will be found to vary greatly on similar jobs; time
standards are more accurately determined by a comparison of the records
of past performances.

When practical──and it has been found practical in many industries──a
transfer office should be maintained in the works. This office should
be in charge of a transfer clerk, who will record all transfers of work
in progress from one department to another. Theoretically, all work
should pass the transfer office. In the manufacture of small parts,
this can be done without loss of time, provided the transfer office is
centrally located. When heavy work is the rule, it is not practical to
carry out this plan in detail, but such transfers should be conducted
under the supervision of the transfer clerk.

The transfer clerk should maintain records of orders in progress, which
will be duplicates of the office records, reporting all transfers
to the office on the form shown in Fig. 47. This is a simple report
form, giving order numbers, part numbers, quantities, and names of the
departments between which transfers are made.

When no transfer clerk is employed, it is necessary to obtain reports,
in the same form, from the different foremen. This report should
provide for an acknowledgment of the receipt of work, as well as a
record of deliveries. The form shown in Fig. 48 gives a double check,
since the quantities received must agree with the report of deliveries
from the department from which the work was received.

From these reports, the order records are made in the office. In
addition to their value in maintaining a record of orders, the tracers
and reports are used to advantage in compiling an inventory of work in
progress.

[Illustration: COST DEPARTMENT, NATIONAL CASH REGISTER CO., DAYTON,
OHIO]

GENERAL EXPENSE AND COST SUMMARIES

EXPENSE DISTRIBUTION

=1.= In order to obtain a thorough understanding of a subject, and
to gain a clear insight into the various questions involved, so that
one may understand not only its underlying principle, but also its
operation in detail, it is quite essential to know first, _why_ a thing
is done, and second, _how_ to do it. While a general knowledge of a
subject is always desirable, and to be commended, it is often found
insufficient when put to the test. Special subjects require special
consideration and study, especially when the how─to─do─it is involved.

On the subject under consideration this is particularly true, for it
seems to be a common confession among those handling factory accounts,
that while they know in a general way how their expense accounts should
be treated, they seem to be in a maze when it comes to actually doing
it. The "knowing how" is the best asset of a good accountant; and
in these days when the subject of costs is of vital interest to the
manufacturer, the up─to─date accountant has the opportunity to show
his value. To make the necessary repairs to a touring car broken down
on the country road may take but one dollar's worth of the repairer's
actual time, but the "knowing how" may be worth ten dollars to him when
rendering his bill, and usually is.

While it is realized that there are differences of opinion among
accountants on some of the questions considered in the presentation
of this subject, it is the intent of this article to present what is
generally conceded by our leading accounting authorities as the best
practice in a well─organized, up─to─date, industrial plant, and to
so present the subject to the prospective student that he may fully
understand and master the "why" and the "how" of this important
question in factory accounting.

That the subject may be carefully considered in all its various
phases, it will for convenience be developed under the following
general divisions in the order in which they are naturally suggested:

(1) Basis of Expense Distribution.
(2) Methods of Expense Distribution.
(3) Percentage Method Exemplified.

BASIS OF EXPENSE DISTRIBUTION

=2. True Cost──What Is It?= Without trespassing on the general subject
of cost accounts, it is quite essential to clearly establish at the
very outset what constitutes _true cost_. It would be difficult to
conceive of a manufacturer to─day who would simply take the value of
wages paid and material used for a cost price, and to this amount add
the usual percentage of profit he desires to make on his output, and
sell at that price. It would be folly to attempt business on any such
basis. No business can be conducted without expense, and yet, in the
case just cited, the manufacturer has simply ignored it. Suppose the
expense of conducting his business exceeds the percentage he added
for profit, what then? He soon finds he has made a serious error in
figuring his cost, and the item omitted is the cause of his business
losses. His selling price was based on less than the true cost of his
product and it is noted he has made no provision, in making up his cost
price, for covering the expense of operating his factory, his offices,
and general expense, including insurance and taxes. It is apparent
then that this matter of _expense_ has a very important bearing on the
cost, in fact is a part of it, and must be carefully considered in
making up the cost records. The factor of expense is frequently found
to be greater than the direct labor cost itself, and a successful
manufacturer must know how much expense his costs should absorb and how
to figure it. The sales from his product must more than pay for the
direct cost to manufacture and all the expenses of his factory besides,
and if his sales are not sufficient to pay for both there is no profit.
This expense, then, is an indirect charge to the cost of production,
and must be included in it before the selling price can be established.
Many a manufacturer has been ruined by not properly handling his
manufacturing expense, and the necessity for its careful consideration
cannot be emphasized too strongly.

Mr. Clinton E. Woods, one of our leading authorities in factory
organization and accounting, very clearly states that expense and
"overhead" charges must be absorbed into the cost of production as much
as labor and material, by which operation expense is really converted
into an asset.

True cost includes first, _direct labor_; second, _material_; and
third, _expense_. The last item will admit of further subdivision and
originates from two different sources: First, the expense of operating
the work─shop or factory itself; and second, the general expense of
offices and administration.

The cost of production, therefore, resolves itself into the following
elements:

Direct labor $
Material
Factory expense
────────
Factory cost
General expense
────────
Manufacturing cost

=3. Selling Expense.= _Selling expense_, oftentimes spoken of as
_commercial expense_, has no bearing on cost price. The correctness
of this position is easily shown. Two manufacturers, competitors in
the same line of production, both operating up─to─date plants with the
finest equipment, may produce at the same cost. The expense necessary
to market the product from one factory may be so excessive as to cause
one concern to lose business to their competitors who can sell their
output at less expense, while the actual cost to manufacture may be
identical in both shops. Again, while one manufacturer, who can produce
at a low cost but carries a heavy selling expense, may conduct his
business at a loss, his next door rival in trade may not be able to
manufacture as economically but can sell his product with less expense,
and thereby carry on a profitable business. In the two instances cited,
the key to the losses of one manufacturer and to the profits of the
other is in the expense of selling, and not in the cost of production.

In a large plant with an elaborate, well─organized, and expensive
sales division, where the dividing line between the commercial and
production expense is clear cut, these two expense accounts should be
kept entirely separate; the commercial being charged off to _Loss_
and _Gain_ direct, while the latter only should be merged into
manufacturing cost.

In a small plant, where the selling division is conducted through the
general office at an expense so small as not to affect the cost of
administration over what would be necessary for manufacturing purposes
only, or where there is difficulty in separating the selling from the
manufacturing expense, the two are often combined as general expense
and pro─rated as one account into production costs.

Theoretically, selling expense is not a charge to production, but the
dividing line between this view and the practical one in most cases
is a very fine one, and in the interest of simplification instead of
elaboration, the commercial will be treated in this presentation of the
subject as a part of the general expense, and will be considered in
detail later.

=4. Expense Based on Cost Price or Selling Price.= Having shown that
expense is of necessity an item which must enter into true cost, the
question at once arises as to what it is related. Is the amount of
expense to be borne by any article of production based on its cost or
its selling price? While it is noted that some accountants claim the
latter should be the basis for calculation, the consensus of opinion
seems decidedly in favor of the cost price as the correct one, and
there seems to be good argument for the stand thus taken:

(a) Inasmuch as the selling price cannot be established until the
cost price has been ascertained, which is to include the expense, it
is apparent that the expense must be calculated from data already in
hand; either the direct labor or material cost. The selling price is
established after, and contingent on, the cost price, not the reverse.

(b) Again, the selling price may vary according to the demands of
trade; different prices to different classes of customers, as well as
the wholesale and retail prices for the same article. In either case,
the cost price is the same and is not influenced one way or the other
by the selling price. The selling price may fluctuate while the cost
price remains positive and stationary.

(c) While the selling price is theoretically based on cost, it is often
fixed by the trade, or regulated to meet competition regardless of
cost, and the expense accounts are found to continue about the same
each month whether the selling price is high or low.

(d) In times of depression, or when business is slack, it is common
practice to "mark down" the selling price and increase the amount of
sales at a smaller percentage of profit.

(e) It is difficult to see wherein there would be any difference in the
expense of manufacturing an article which sells at $110.00 over what it
would be were the price but $100.00, yet there would be if the selling
price were used as a basis.

Other reasons will suggest themselves, but these just referred to are
quite sufficient to show that the selling price is too erratic and that
expense will be found more reliable when figured at cost price, which
method has, therefore, been adopted as the best practice.

=5. Expense Based on Cost of Labor or Material.= Having decided that
expense should be reduced in some manner from the direct cost price
rather than the selling price, it is remembered that we still have two
items of cost to choose from: The labor cost and that of the material.
There are those who maintain that the material cost is the correct
starting point for calculations, but there are few manufacturers, if
any, who do this.

An attempt has been made to use the combined total of labor cost and
material, but this method is hardly worthy of serious consideration.
The best practice points almost without argument to the labor cost as
the true basis of expense; this is not only the logical conclusion but
common sense:

(a) It is easy to see that the elements which go to make up the expense
of operating a factory──foremen, sub─foremen, supervision, shop clerks,
toolkeepers and grinders, helpers, the up─keep of tools and machines,
lighting, etc.──are all closely related and largely dependent upon
the number of men employed. Reduce the number employed and it will be
seen at once that some of the above mentioned items of expense can
be cut; less supervision is required and the wear and tear on tools
and machinery is also reduced. It is difficult to see wherein any
difference in cost of the material used would of itself cause any
increase or decrease in the factory expense or even be influenced by
it. It is quite contingent on the labor.

(b) That the cost of the material is not a reliable basis for
calculating expense can be quite satisfactorily demonstrated. If the
cost of an article is, say, labor $25.00, material $50.00, with expense
to be figured at 50% on material, or $25.00, it is seen at once that
the manufacturing cost would be:

Labor $25.00
Material 50.00
Expense 25.00
────────
Cost $100.00

Suppose this article were duplicated under the same identical
conditions and cost, using only this time material that cost $60.00.
It is a fair proposition that the total cost would be but $10.00 more
than in the first instance, or $110.00. But if the percentage is added
on the material as before, it is found that the expense this time is
$30.00, which would make the cost appear thus:

Labor $25.00
Material 60.00
Expense 30.00
────────
Cost $115.00

It is now noted that the cost figures $15.00 more than in the first
instance, while we are quite ready to admit it should be but $10.00,
the only difference being in the cost of the material.

=6. Conclusions.= Having established the fact that the expense is a
legitimate charge to the cost of production, we are now quite safe
in laying down for our foundation the proposition that expense is
contingent on, and should be figured from, the direct labor value of
the cost price.

METHODS OF DISTRIBUTION

=7.= Time is continually bringing improvements; old methods once
thought practical and satisfactory are replaced by more efficient
ones to meet the exacting conditions of to─day. Examine a _Practical
Bookkeeping─Manufacturer's Edition_ of thirty or forty years ago
and you will probably find nothing on this subject of _expense
distribution_, while to─day it is one of the most important and most
discussed of any i

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