A duplicate of the purchase requisition is marked with the number to which the bill is to be charged when received. All bills are summarized monthly by sub-classifications in the purchase summary book. From this only the total is posted to the general ledger, the subdivisions being handled in the subsidiary cost ledgers.

It is not possible to charge all bills for expense material to the department which will ultimately use the material. Supplies, tools, and stationery are put in stock and delivered like raw material on requisitions. These requisitions are sent to the shop expense department and transfers made monthly. After all transfers are made, each division of the indirect expense account correctly represents the charges to the various classes of expense work. The fixed charges, power, rent, tool, administration, and sundry divisions of the expense account are incurred in providing and maintaining a suitable place for the operator to work in. The material expense division is incurred in connection with purchasing, receiving, inspecting, handling, and storing raw materials.

There are four methods in use for assessing the indirect expense against jobs. Where the machine equipment of a shop is not homogeneous, the machine unit system gives the best results. In this system the producing units of the same class, that is, costing about the same, consuming about the same amount of power, occupying the same floor space, and tended by the same number of operators, are grouped together. Thus the entire shop, including bench work, is divided up into producing units. Fixed charges are pro rated on the basis of the value of the various groups of producing units; power on the results of meter readings and tests; rent expense on the basis of the number of feet of floor space occupied, and administration expense on the basis of the number of productive operators. The foremen are asked to make a division of tools used between the producing units. Supplies are divided by analysis and estimate. For example, on a group of three Hartford automatic screw machines, which cost $1,382.24, and which were normally run 2,619 hours yearly, the fixed charges were $125.44, the power expense was $383.69, the rent expense was $68.08, the administration expense, when one operator tended the group, $93.80, the tool expense was $707.19, the sundry expense was $254.69. To this amount

must be added the amount of expense incurred in maintaining machinery, classed as miscellaneous, that is, used generally and not on particular jobs. In the case of the three automatic machines, for example, this amounts to $16.32. The total expense assessed against this group, $1,649.21, divided by the number of working hours, 2,619, gives $0.63 as the hourly rate for the group, or $0.21 an hour. Letters indicative of the rate per hour are stamped on plates and fixed to the machines. These are then entered on the operator's time tickets and extended in the same way as the operator's time. Thus, through the machine units, the indirect expense is distributed to the various jobs.

Any idleness of productive centers, of course, leaves some of this indirect expense undistributed, so a supplementary rate is used. This is the percentage which the unallocated expense charges bear to those distributed by the machine unit system. In figuring costs the standard cost is first found and then the supplementary rate added to give the current cost. The advantage of this method is that comparisons of costs of production are more scientific, as obviously the only fair way to compare the cost of doing a job is under conditions as similar as possible.

Though all departments are more or less closely related to the machine departments, it does not follow that the same system of finding costs can be used. For instance, the best unit for distributing indirect expense in the foundry is on the basis of the number of pounds of castings produced. Whereas, in the previous method of distributing expense, everything was chargeable to the order number, it is advisable to depart from this method in finding brass foundry costs of production. The total cost per pound of each mixture made is the aim. By this method the cost of a casting used for a job is found by extending its weight in pounds at the proper price which has been determined for that mixture of which it is made. For each mixture the foreman of the brass foundry has a card on which he records daily the weight of each metal used in making the mixture and the weight of the castings produced.

The third unit for distributing expense is the "man hour." This is principally used in special departments such as the plating, dipping, lacquering, japanning departments and laboratories. Each department is treated as a special department, the proper proportion of fixed charges, power, rent, administration, tools

and sundry expense being transferred from the general expense account to that of each special department. The total expense assessed against a department divided by the number of man hours normally worked gives the rate per hour to be added to each hour worked by the productive operator for indirect expense.

The last method, called the percentage of labor plan, is used to advantage wherever the machine equipment is homogeneous, or where every job passes through all the departments. Monthly the percentage which the expense bears to the productive labor is found for each department, or group of departments, and this percentage is added to the productive labor assessed against the jobs in figuring the costs of production.

That the systems herein outlined are used by up-to-date manufacturing companies is sufficient evidence that they are worth studying and perhaps adopting by cost system experts and shop superintendents.

A Criticism and a Theory.

BY ANDREW A. MURDOCH.

I have read Mr. Whitmore's articles on Machine Shop Costs with much interest, and should like to be allowed to make a few comments, and at the same time to advance a new theory.

At the outset, let me state what I consider the simple analysis of a cost system.

There are three elements of direct or specific cost, the amounts of which must first be determined, as follows:

A. Material.

B. Manual labor.

C. Machine labor.

These being ascertained, all other charges and expenses can be identified as functions of one or more of them and assessed as a "loading" accordingly, until the total expenditure from start to finish has been properly and entirely distributed. This is really all there is to it, and it does not strike one as being surprisingly difficult or complex. In fact, neither the first nor the second of these elementary costs presents any difficulty, as the exact amount of money spent is a matter of book record in each case.

While this is so, I should like to state from my experience that there are very few firms in New York to-day who make any attempt to install a system of costs that is worthy of the name in respect of the method of charging out material. The material actually used on a job forms the basic element of the cost, the very foundation of the work without which the other two elements do not come into existence, and yet we find reputable firms of accountants installing cost systems based on a fixed "bill of material" which probably never agrees with the actual facts as regards value, which cannot possibly reflect the conditions under which goods are issued and returned, and which certainly does not in any way control or minimize the waste. Mr. Whitmore is strong on this point, and rightly so. It is no sort of cost system at all that does not deal with facts where facts are obtainable and that allows excess materials drawn from the storeroom to run riot over the various departments without being duly accounted for; and a client who allows accountants to delude him

with the specious promise that their simple little "bill of material" method will save accountant's fees must be blissfully ignorant of the fact that on a proper system the saving from waste material alone would more than counterbalance the excess fees in less than a year, and continue as an increasing saving year after year.

Leaving material and manual labor as having been exhaustively treated, let us turn to the third element of direct cost. This element, called machine labor-though in a machine shop by far the most important-is not so easily determinable, for the reason that the work done by machines and tools is not directly measured or recorded. It is just around this problem of arriving at a reliable estimate of the value of such work that the first real difficulty crops out and leads into such labyrinthine elaboration. That the machine cost formulated by Mr. Whitmore is too involved to be practicable will be unhesitatingly admitted by every seeker after simplicity in accounting, and that on a closer examination it is in parts not sustainable on sound principle I shali try to prove in what follows:

The cost of manual labor may be said to be the rent for which workmen's services are obtainable, and the corresponding cost of machine labor is the rent for which we might be supposed to hire the machines. Such rent would be figured to cover:

1. Interest on value of machine.

2. Insurance and taxes.

3. Depreciation sinking fund.

In addition to these factors, which constitute the bare return to the owner on his investment, we should have to include the running expenses, as follows:

4. Power expense.

5. Operating and maintenance expense.

Mr. Whitmore insists on half a dozen other charges, in the name of "floor space," covering interest, insurance and taxes on value of land and building as well as repairs, depreciation and other expenses of maintaining the buildings; but these, in my humble opinion, are no more a part of the direct machine cost in a machine shop than they are of the direct labor cost in a factory where all the work is done by hand. Besides, even in a machine shop such charges should not be treated as being exclusively in respect of machines. The site and buildings have