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pose a general ledger account should be opened entitled “ Factory Space Account."

Now I am going to set out the principal working accounts in the general ledger of a machinery manufacturing business, in order that we may see just what they are and what their relations to each other are, and in order to bring out clearly the point at which we have arrived in considering their character and the manner of keeping them, and in order to see what accounts remain to be considered.

First, we have the three accounts which represent the stock of materials, and goods in process of manufacture, and finished goods. I have described the stores account fully to you, and I have partly described the manufacturing account, and I have, I think, pretty fully indicated the way in which the finished stock account is kept, the manner of keeping it being indeed parallel with the manner of keeping the stores account.

Then there are the accounts representing the cost of factory space, being as I have just said, the accounts for interest on investment in land and buildings, and for taxes on land and buildings, and for building repairs and depreciation and insurance, and for light and heat. And against these debit accounts we have the credit account entitled “ Factory Space Account."

Then there are the accounts representing expenses of having and maintaining machinery, and the first of these expenses is the proportionate cost of factory-space, which may be charged to a “Machine Space Account.” These accounts would therefore be:

Machine space.
Interest on investment in machinery.
Repairs to machinery.
Depreciation of machinery.
Taxes on machinery.
Insurance on machinery.
Special supplies.
Special superintendence.
Special tools expense.

And against these debit accounts we have the credit account entitled Machine Rates Account.”

And in the next place there are the accounts representing the cost of power. The first item in this cost is the charge for factory space occupied by the power plant, and a

“ Power Space

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Account " may be opened to take this charge. These accounts will then be:

Power space.

Interest on investment in power plant.
Power plant repairs.
Power plant depreciation.
Firemen's wages.
Engineers' wages.
Power plant supplies.

And against these debit accounts we will open a “ Power Credit Account," which will be credited with the cost of power as it is distributed. The way in which it is distributed is one of the things I want to describe to you this evening.

And then there is the storehouse expense account, of which I have spoken, and this is charged with the storehouse space, storehouse wages, and sundry storehouse expenses. It is also charged with interest on the average investment in materials in the storehouse.

I should perhaps have spoken before of the account to which interest on investment is credited when it is charged to the several divisions of the expenses. This account may be called “ Interest Credit Account.” It is credited with the interest on investment which is part of the factory space charge, and with that which enters into the machine rates, and with that which enters into the expense of power; and then with the interest charged to storehouse expense account; then with interest on the average goods in process of manufacture, which is part of the factory general expenses; and finally with interest on the capital employed at the selling end of the business, which is part of the commercial and not of the manufacturing expenses. So that this “ Interest Credit Account” is credited with interest on all the capital employed in the business. Against this credit there will be found in the regular interest account the expense of interest on borrowed capital, and the difference between the two is interest on the capital stock which we started out to provide in our cost figures.

I think I ought to warn you that this is a method of my own, and that as far as I know it is not used except where I have used

it, and that it is without other authority, unless that authority be found in the logical necessities of the accounting, and in the practical usefulness of the method.

We now have certain remaining expenses which are purely general expenses, that is, general to the operations of the single department or individual shop, or general to the operations of the whole factory. The accounts for these may be:

Shop No. I, general expense.
Shop No. 2, general expense.
Factory general expense.

And the charges to these, and the manner of absorbing these expenses in the cost accounts, is another thing I want to talk to you about this evening.

I have as yet said nothing about the labor accounts. The whole subject of directly productive labor I hope to take up in my next and final talk to you. The treatment of indirect or general labor will be practically covered by what I say this evening concerning the treatment of department, or individual shop, general expenses, and factory general expenses.

Of course directly productive labor is distributed to the cost accounts for the various products, exactly as the labor is recorded as being expended on each; and of course the total of it is charged to the manufacturing account in the general ledger, which must be kept in agreement with the cost accounts. When this is done, and the distribution of the power expense is complete, and the distribution of indirect, or general expenses, is complete, the cost accounts and the debit side of the manufacturing account will be pretty nearly complete also.

If a power plant consisted of one or more boilers supplying steam solely to one or more engines developing power to be transmitted by a common means for the purpose of running the machinery of a single manufacturing plant, and if, as I suggested in my last lecture, no distinction should be made in the cost of the unit of power, which we will consider as the horse-power hour, at the machines, whether the power were transmitted a greater or a lesser distance, we could very easily make a distribution of the power expense to the various cost accounts. Knowing the total of the power expense, it would be necessary to ascertain as closely as possible the units of power delivered at the machines, and dividing the expense by the number of units, charge the respective operations with the resulting figure, multiplied by the number of horse-power taken by the machine in operation, multiplied by the running time of the machine.

There are two ways to ascertain more or less closely the units of power delivered at the machines. One is for the engineer to make a series of determinations of the power developed by the engine, and of the power lost in transmission, to arrive at the power delivered at the machines, these determinations being of sufficient number, and taken at such times, and over a sufficient period of time, so that the average of them shall pretty surely represent the average operation of the shops. And the other is to determine as closely as possible what power each machine takes, on an average of its operations, when actually running, and then to get a record of the running time over a sufficient period, and arrive at one's conclusion by this apparently more direct but still fallible method. By using the two methods in conjunction with each other, and each with care and perseverance, one could doubtless arrive at pretty correct figures.

But the distribution of the power expense is less simple than this, because as a rule the operations of a power plant are of a less simple character. Moreover, the method outlined would by no means be in conformity with the principle of analytical cost accounts, inasmuch as it merely aims to determine a cost figure, and not to show with all the clearness possible the conditions which are affecting the cost.

Steam is generally used from the boilers for more than a single purpose. It may be used for heating, or for the operation of pumps, or for the operation of two or more engines used for eutirely different purposes, or for all of these. It is absolutely necessary under these circumstances to get some measure of the steam furnished by the boilers for the several purposes for which steam is furnished.

For the two purposes of the accounts, viz.: to constantly control the efficiency and the economy of the operations, and to accurately determine and distribute costs, it is necessary first that a current record be made of the steam produced, and the conditions under which it is produced, and the cost of producing it; that is, of the coal consumed, and the water evaporated, and of the temperature of the water that goes into the boilers, and of the boiler pressures. Then a record must be kept of the engines



operated, and the power developed must be arrived at as closely as possible by the means I have described, and the pounds of steam used by each engine for each unit of horse-power developed must be determined, and so an account made of steam consumption to set against the record of steam produced.

It is, however, necessary to make an initial and tentative distribution of the steam expense on the basis of an engineer's calculations, just as the power charges are first made in the cost accounts on the basis of such calculations. If careful and thorough records are kept, the credits for steam and the credits for power set up on the basis of these calculations, will be compared with the records of steam and power generated and with the cost of the same, and calculations will be gradually corrected.

The steam expense of course includes the charge for boiler space and fuel storage space, and interest on the investment in boilers, and all the expenses of operating the boilers and keeping them in repair, and writing depreciation off from them. The total steam expense having been arrived at and divided up in the first place according to the engineer's calculations of the ways in which the steam is used, we have the beginning of our calculation of the cost of power furnished to the machines.

The cost of power furnished by an engine consists of the proportionate charge against the engine for factory space, interest on the investment in the engine, expense of operating, and repairs and depreciation, and the cost of steam used. The total of these being arrived at, and the average power developed by the engine and the average power consumed in transmission having been determined, the total expense is divided by the horse-power calculated to be available at the machines, and the cost per horsepower is arrived at.

You will remember that I said to you that while it is somewhat laborious to determine accurately the expense of the individual machine per annum in order to arrive at a just hourly machine-rate, nothing is simpler than the use, in the cost accounts, of the machine-rates, once determined. In the same way, while it is somewhat laborious to determine even approximately the cost of the unit of power taken by the machines, the use in the cost accounts of this figure, once determined, is as simple as making any other conceivable charge in the costs accounts to represent the expense of power. And while in all factory accounting it must

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