be carefully aimed to secure economy in the current work, pains must not be spared in the occasional and special work which should give the current work both simplicity and soundness.

We now have the engineer's calculation of the average power taken by each machine when running, and we have a calculation of the cost of the unit of power at the machines. We need a record of the actual running time of the machines, and we can then make the charge for power in the various cost accounts, charging the total to the general ledger manufacturing account and crediting it to the general ledger "Power Credit Account."

You will remember that I told you that the labor tickets made out by every workman doing directly productive work for each job worked on, show the workman's number, and the job, and the machine tool used, and the time; and that this information is transcribed on the workman's weekly sheet where his wages are determined, and that the postings of machine time are made from these weekly sheets to the machine rates ledger, in which an account is kept for each machine, and that from the machine rates ledger postings of machine rates are made to the cost accounts.

I want now to explain to you how the power charge is brought into the machine rates ledger, and how the posting from the machine rates ledger to the cost accounts includes both the machine rate and the power rate.

We have the total time the machine is engaged on the job, and inasmuch as the machine is not actually running the whole of this time, we need to know the non-running time in order to deduct it and arrive at the time for which power is chargeable.

For this purpose a record of the non-running time is kept in the shops. The sheet used for the purpose is like this:

And now I want to show you the complete machine rates ledger form:-See Figure 1 next page.

As far as the "Total Time" column the entry is made from the workmen's weekly wages sheets, and the "Power Time" is arrived at by taking the non-running time sheet for the same

week and deducting the non-running time recorded for the particular job and the particular machine.

It is not attempted to record on the non-running time sheet every little interruption of the running. The plan is to make a record of the time taken to adjust machines for the jobs, and to put the materials in the machines; and of the time elapsing after the machine stops running until it is actually released for the next job; and in no case to record non-running time under a certain limit, at which it is seen that the difference in the power charge begins to be immaterial.

You will see that the accuracy of all extensions and all footings in the machine rates ledger can be easily proved by extending the footings of total time and power time at the respective rates at the head of the account.

And further, concerning the machine rates ledger, I will repeat to you what I said last week, changing it only so as to include the power item which I was excluding then, because I had not yet explained it to you:

"The charges of machine time and of power having been posted to the machine rates ledger for a given period, which it is convenient to make even weeks instead of the month, inasmuch as the postings are made from weekly sheets, a statement is drawn off from this ledger in the following form:

the idle time for each machine being, of course, the difference between the time charged, and, if the period is a four weeks' period, four fifty-second parts of the number of hours into which the machine expense for the year was divided. Then a journal entry is made:

-Dr.

Manufacturing Account

Idle Capacity Account

-Cr.

Machine Rates Account
Power Credit Account

the debit to the manufacturing account being for the charged machine time and the power, these being what are posted into the cost accounts."

And now it is necessary that I describe to you the ruling of the cost accounts, because I am coming to the matter of the charges in these accounts for indirect expenses; and as the charges of indirect expenses are based on two or three classes of direct charges separately, it is necessary to provide separate columns for these different classes of direct charges, so that the total of each may be readily available and the charges for indirect expenses made accordingly.

The form of the cost ledger account will then be something like this:

Now the storehouse expense account, which, as I have told you, consists of the charge for factory space, storehouse wages and sundry expenses, and the charge for interest on the average investment in materials in the storehouse, is absorbed in the cost accounts by charging a percentage on the total of the materials. column. This percentage corresponds to the ratio between the annual storehouse expense and the value of the materials drawn out of store in the course of the year.

Next we have the department, or individual shop, expense accounts. These consist in each case of the department foreman's wages, the wages of any clerks in the department, and any other wages of purely indirect and general labor; then the expense of sundry general supplies; then a proportion of the expense of the tool department furnishing small tools for general uses to the

departments as they need them, and receiving them back from the departments when the purpose for which they were obtained is fulfilled. And finally any other purely general expenses of the department.

And then there is the factory general expense, which includes all manufacturing expenses which not only cannot be connected with any particular job, but that also cannot be connected with any particular department. Such are the general superintendent's salary, and the charge for factory space for the general factory offices, the wages of watchmen and timekeepers, and interest on the average investment in work in process.

Each department, of course, bears its own general expenses, and the productive departments together bear the factory general expenses. The basis of distribution which I shall propose is the same in the two cases.

You will see that we have clearly established the incidence of a very large part of the total factory expenses, and that there is nothing left but expenses which have no special traceable incidence, and that must be regarded as falling on all the operations impartially. The operations are operations of men and machines, the machine expense rising and the labor expense falling, or the machine expense falling and the labor expense rising throughout. So intimately are these two expenses related to and dependent upon each other that they were, in a quotation I read to you in my first lecture, called together the "total labor cost." I do not therefore propose to separate them, choosing one and rejecting the other, when I need figures which are representative of the total operations as a basis for the distribution of expenses which, as I have said, are without any special traceable incidence, and must be regarded as falling on all the operations impartially.

The charge for the general expenses of a department is therefore made by means of a percentage corresponding to the ratio between the total machine rates in the department plus the total direct labor to operate the machines fully, and the amount of the department general expenses; and this percentage is added in the cost accounts to the direct labor and machine rates of that department.

And the charge for the factory general expenses is made by means of a percentage corresponding to the ratio between the total machine rates in the factory plus the total direct labor to

operate the machines in the factory fully, and the amount of the factory general expenses; and this percentage is added in the cost accounts to all the direct labor and machine rates.

In practice the two percentages are combined. That is to say, if the general expense percentage for Department No. 1 were 20 per cent. and for Department No. 2 25 per cent., with the general factory expense 20 per cent., then in the cost amounts the only figure used would be 40 per cent. to add to direct labor and machine rates in Department No. 1, and 45 per cent. to add to direct labor and machine rates in Department No. 2.

It will be noticed that these debits to the cost accounts are not posted from a statement previously compiled, but originate in the cost ledgers. It is therefore necessary to create a record of them, and this is done by having an account in the cost ledgers headed general expense credits, and when the debits are made in the cost accounts, corresponding credits are made in this general expense credits account in the cost ledger, and the total of them is thence journalized for the general ledger, as follows:

Manufacturing Account

To General Expense Credit Account. so we have a general expense credit account in the general ledger also.

Now you will notice that the percentages for general expenses were determined on the basis of full operation of the machines, and consequently a full pay-roll. How much the month's machine rates charged and actual pay-roll fall short of the full figures used as a basis can be easily ascertained, and the percentages upon the differences in the respective departments figured and a journal entry made for the amount:

Idle Capacity Account

To General Expense Credit Account. Then the idle capacity account is charged with the whole expense of idle capacity, and the machine rates ledger shows just what capacity idle is resulting in that expense; and the cost figures are freed from the fluctuating and confusing element of the expense of capacity idle that ought to be operated; and profits are determined on the basis of these cost figures; but against these profits is always set out the idle capacity expense that has to be deducted from them, giving thus the net result of the operations, subject always to certain adjustments of values that have to be made in respect of any shrinkages from the book value of any current assets.