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UBC Theses and Dissertations

Costing principles Beech, William Kenneth 1924

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COSTIITG  P E U C  by William Eeimeth Beech  000O000  A Thesis sttbmitted for the Degree of MASSER OP ARTS in the Department of BCOIIOMICS  1  —-000O000—-  THE UITIVERarJY OF 3RT.TI8K COIUIIEIA A] r i l , 1 9 2 4 .  I P I £ S  w  It is astonishing how few business rien hâve any exact notion of what their unit costs hâve been; and the resuit has been a fréquent failure to conduct their business on a profitable basis, a condition which may be due not only to selling below costs, but also to inability to bid accurately in compétition with more exactly informed competitors. Howadays, fortunately, raost business organisations hâve installed oost-keeping devices of some sort or another, and it is even apparent that before long the last stronghold of ignorance in this raatter, the farra will be won over to better ménagement. "Page 330, "Business Organization and Combinationy Lewis H. Haney.  " Cost accounting, as a vital factor of successful business administration, has,in the last few years, been brought home in various ways to manyraanufacturerswho before had never seriously appreciated its importance. The Fédéral Trade Commission, working with more stable conditions, has conducted a widespread campaign of eduoation, explaining in détail what a oost accounting System is, how it is operated, and the resulting business advantages. Various manufacturers' associations hâve first paid skilled accountants to devise cost-finding methods suited to their spécial trade conditions, and then hâve instituted a vigorous propaganda to induce ail engaged in their own particular industry to adopt them, thus making thèse methods uniform in the trade and securing uniformity of selling priées and the end of reckless and ignorant price-cutting. Kow the government, with its need to levy taxes and its conséquent necessity for searching investigation into income and excess profits, requires that estimâtes and approximations as to production costs and profits shall give place to rational accounting Systems giving actual M figures by uniform methods'.' Gost Accounting" by J. Lee Nicholson, page 3, Préface.  TABLE Qg COilTElITS  pages Bookkeepdng by Single Entry. 1—o _ Bookkeeping by Double Entry. 5—15 Controlling Accounts Explained. 15—19 Costing Defined 19—'20 lfeeessity of Cost Systems .20—»23 Eléments of Cost 25—27 Classification of Accounts .27—31 The Toucher System Esrplained 31—35 Raw Materials 35—39 Productive Lnbor. * • • • • «40—41 \inge Systems 41—45 Aocounting for Labor. 45—46 Cost Sheets 47—42 Indirect Expansés 49—53 Dépréciations 53—54 Causes of Dépréciations 55 Methods of Estimation of Dépréciation 55—58 Distribution of Overhead 50—59 Uethods of Distribution... 59—62 Application of Uethods 62—65 Manufacturing Statements 65—80 Vancouver Fumiture Co. Statements..... Trial Balance 80—82 Adjuotments & Inventories 82 Cost iof Manufacture Statement......82—83 Cost of Goods Sold Statement 83 Profit & Loss Statement 84—85 Balance Sheet-Assets 85 Balance Sheet-Li&bilities .86 Closing Journal Entries 87_—89 Manufacturing Account 90 Selling Account. 90 Profit & Loss Account .91 Surplus Account ........91 Post-Closing Trial Balance - 92 Bibliography. 93—94  COSTIITG KîIlTCIPEES Accounting has been defined as the nev/est of the professions; and the newest branch of this profession is "Costing" or Factory Cost Finding. Obviously, book-keeping in some for m has been necessary frorn the earliest time, vvhen mon began to exchange their products or their services for othor men's products or services. It began vvith the division of labor. When a mémorandum in any for m is ma de "Books sre kept" and araong primitive peoples, or araong peoples doing business in a primitive way, the mémorandum form still persista. In a Chinese Laundry the systera of book-keeping is the "mémo" type. If nothing more than a written record of nome kind is neoessary, the simple "mémo" is suffioient» The whole atory is there,written in a book. But the weakness of this simple method, as in simple, unscientifio methods in rnost aotivitiea lies in its cumbersome-ness. It has been estimated that if ail the exchanges or business transactions which oocur in o single àvy in the Ford Factories were reoorded in every-dey , non-technical language, as, memoranda, they would fill one thousand volumes of five hundred pages eaoh. It is a far road from the simple barter transactions of a primitive commun!ty to the highly oomplioatedraachineryof modem business. Systématisation and scientific classification of simple mémo records is ail that the raost highly trfiined expert in accounti,ng is able to do to-day, but hère lies the whole story. Until the later years of the fifteenth century the systematization of records was very simple and unscientifio. The book-keeper gathered data from the "blotter" or"8.ay book" or"roemo record sheets" and clao3ified his data in one other book, oalled the Ledger. We do this today, and call it posting. If he had had dealings with various peoples each of thèse was given a space in the ledger, end to eech person crédit was given for goods received from him or services rendered by him, and he was charged or "debited" for goods given to him or for services rendered to him. This "Single Entry" systemis used today, in many modified forma, but the same iinderlying principles are there. The village blacksmith, the corner grocery keeper, or the nvri v/ho tells you thet he has "invented" hiw own System, ail keep books by Single Sntry. It's the "mémo" System of the Chinese laundryman, with records posted to peraonal accounts in a second book or ledger. Even by means of this very primitive method, astonishingly accurate and satisfactory résulta may be obtained, providing the recording work has been done with an eye to aceuracy.  — 2 — To Illustrate: Mr Jones keeps a store in Vancouver. On January 1, 1923, he took an inventory of his assets and liabilities and found hiraself in the following financial position: He had cash on hand, $200: A bank balance of .$1,000; a stock of goods worth $4,000. for which he owed the Wholesale Houses, $1,200; he held notes against sundry persons totalling $500, and book accounts against his customers amountlng to $2,500. He owed sundry notes to creditors, $700. He conducts his business for the year, replenishing his stock frora the wholesale houses when needed, and paying off his indebtedness to thern as fast as his bank account warrants. He sells to ail his old customers, and wins raany new ones. To some he gives crédit, and thèse "pay upM more or less regularly. Many of his sales are made for cash. He pays rent, light, téléphone, heat, insurance, taxes, advertising, delivery expenses, clerk hire, etc., as neeessity demands. He buys wrapping paper and string. He. drawe frora stock and frora the till in cash, $150 per month as salary, which he considéra the business owes for Personal services. Is he gaining or losing? If so how much? VVhat is the source of his gains? What of his losses? V/ould it be more profitable for this man to invest his raoney in Victory Bonds which earn 5j$t and work for the Hudson' s Bey Co., on a salary of $150 a month, than to conduct his own business? Many a so-called business man, has conducted business for a^time anâ has corisoled hiraself with the fact that his tjade was increasing, that he W B S busy serving the public thatraoneyseeraed plentiful, and by thinking that profits must be large, but one day found his crédit being questioned, and that his bank account had dwindled while bills had been piling up. The leaks were not discovered in tirae and his financial craft filled and sank before his very eyes. More than a décade ago the Président of the Ontario Chartered Accouhtants' Association, Mr. J. W# Johnson, F. C. A., made this stateraent to the writer: "Fully fifty percent of ail the business failures in this country are due to the faulty or no accounting records? Reverting to Mr. Jones the Groceryman: Did he keep books? Yes, he kept a simple set, sufficient for his purpose, as he thought. He made araemorandaof ail transactions with his customers, if they bought on crédit. Every evening when the shou was closed.he posted to his ledger, oharging thern from the mémo items for goods bought, and crediting thern when they paid anything on account. 'His ledger was a"complète record of his standing with his customers. in this same ledger he had accounts with eech of the wholesale houses from v/hich he made purchases, crediting thern with an invoice of goods arrived  —  3  —  ?nd charging them for payments he made from time to time. This was the extent of his book-keeping. It is an excellent illustration of the Single Entry Method. At the end of the year, December 31,1923, Mr Jones décides that he will take stock and escertain the résulta of his years opérations, and make sorne estimate of his présent financiol standing. He takes stock, valuing his oods, of course, at cost price, and finds them worth 4,600. He goes over his books.and ascertains that his customers now owe him $3,000, and that he owes the Wholesale houses $1,500 on open account and $500 on trfde acceptances. His bank balance has gro?/n to $2,000, and during the year he has bought a new delivery truck for $2,000, paying $1,000 in cash and giving a lien note for the balance. The truck is now second hand and he estimâtes it worth $1,800. With this data before hirn Mr. Jones is not just sure v/hat he has accornplished, so he hand s the memoranda to an eccountant and the following statements ftte the resuit:  f  Exhibit A H. Jones & Co., STATEUENT OF AFËIlRS JANUARY 1, 1923  LIABILITIE3 Accounts Payable $1,200 .Notes P a y a b l e . . . . 70C Présent ïïorth.... 6,30C  ASSET3 Cash on hand !.. $200.00 Bank Balance 1,000.00 Groods on hand. 4,000.00 Notes Receivable.... 500.00 Accounts Receivable.2.500.00 18,200.017  $ 8,20C  Exhibit B R. JONES & C O . . STATEMENT OF APPAIRS  EEeETIBËR 5 1 , 1955 ASSSTS Cash on hand $ 300*00 Bank Balance...' 2,000.00 Goods on hand 4,600.00 Accounts Receivable..3,000.00 Delivery Truck 1,800.00 _ ifo.3. ,700.011  LIABILITIES Aocounte payable Notes payable Lien Notes Présent Worth  $1,500 500 1,000 8,700  fil.ïnn  -- 4 — Exhibit C. R. JOITES & CO.. PROFIT & LOSS SIATEMENT DBCEMBER 31. 1925 Présent Worth, December 31,1923 (Exhibit B) Présent Worth, january 1,1923 (Exhibit A)  $8,700.00 6,300.00  Increase i n ïïet V7orth, or p r o f i t s l e f t i n the business P r o f i t s withdrawn, $L50.00 per month for 12 months.  $2,400.00  Total Profits for the year earned by the fin»  4,200.00  1,800.00  To Mr. Jones the above stateiaent may be highly satisfactory, but to the merchant who conducts a larger business, to the shareholder or the trading company, to the banker from who'm he may désire a loan, much more ex#énded and much more detailed information is required. The following are some of the questions such men would ask: What was the source of your greatest profit, that is on whst line of goods that you oarry did you nake the most? Did any lines carried resuit in actual losa? What per cent of your gross profit was absorbed in expenses? How did your sales compare month by month? How did your sales compare with those of previous years? Could you prépare from your books statementsshowing, Cost of goods sold, Gross Profit, Net Profit after deducting Selling and Administrative Expenses? What checks hâve you on the honesty of clerks and employées? Does your olerk hâve access to the cash drawer, and if so are you sure that nothing is stoien in cash, or in goods? Are any of your book accôunts bad, and if so what percentage? If you do tny manufacturing, such as canning raw fruit, or making clothing, from goods, can you give the exact cost of each process of each article or each line manufactured? Do you keep a -nerpetual inventory, if not, in case of fire how would you make good your claim to the Insurance Company? The Standard Dictionary defines Book-keeping as follows: "The art, method or practice of recording business transactions distincjtly and systematically, in blank books provided for the purpose, so as to show the goods and raoney received, disposed of and on hand, the crédits given, and the assets, liabilities, and gênerai status of the business, erson or house" he Single Entry or Mémorandum system does not do this* . satisfactorily, and neitner does ît permit that scientiiic and periodlc analysis, now so necessary in any business. But there is a system which does. It is called the Double  ?  — 5 — Entry System. This System has been in use a little over four hundred years, and is en Invention of the Italian City States of the 16th Gentury. The first written treatise describing it was puhlished in 1494 by Luoa Paciolo, a Venetian merchant. Although the systera has heen enJarged, modified, and made to fit thousands of différent kinds of business sinee that time, the underlying principles remain the same, although the author would possibly hâve some difficulty in recogniaing it, were he to endeavor to decipher the tortuous entries which follow the manufacturing prooess of an automobile, or a locomotive, or any other large machine, in factories where "Costing" has beoome so detailed and accurate, that the aceoxmtant can tell to the tenth décimal place of a cent, the cost of each part and each process in the whole factory, every hour of the day. PRINCIPLES OF DOUBLE ENTRY Double Entry, stripped of ail its rich embellishments, graphical and statistieal analyses, nnd its far-reaching coluranar and controlling-aceount devices, and reduced to its simple skeleton fundaraentals, pivots nround the unalterable single law nFor every débit, there must be a corresponding crédit? Interpreted, this may be exprèssed as follows: The ledger, or book of accounts, is made selfbel ancing, the total débits equal the total crédits, and must include not only personal accounts, either singly , if the business is a small one, or collectively,if the business is a large onfe necessitating subsidiary ledgers, but also accounts for ail other assets, liabilities, purchcses, sales,expenses, extraneous profita and losses, aocruals, deferred charges, dépréciations, réserves, etc., etc., There must be an entry on the débit Bide for (a) Increase in an asset, fbj decrease of a liability, (c) Loss or expense end fd) Proprietorship withdrav/al, either from capital or from profits, such as dividends paid to shareholders of companies, etc., On the Creûit side an entry must be made for (a) Deorease of an asset, (b) Increase in a liability, (c) Gain, (d) a Proprietorship investirent from private capital into the business. At the end of the period the ledger contains a full record of every transaction and reveals the following: (l) If the débit side of any account is the larger the différence between the two aides shows an asset or a loss, the former if the amount represents some tangible or intangible asset, or a debt owing us by some debtor, and the latter if the item representsa revenue expenditure. At this point the accountant and auditor meots, at times, perplexing problems of classification. Is the expenditure for capital'or for revenue? In this connection Greenlinger, fUccounting ?roblern3" Volume 1, Page 197. -Business Book Bureau, llew York)  — 6 -the eminent American authority says: "By the terra "Capital Expenditure" is meant, expenses incurred for the sake of acquiring, or completingrthe plant and équipaient of an enterprise, with the view of placing it or, a. revenue-earning bâsis, Whereas by the term"Revenue Expenditure" is meant ail those expenses incurred in connection with the earning of revenue. In dffferentiating between capital and revenue expenditure we must bear in mind what the outlay is for» If it is such that will improve the equipment, and thus increase the capacity tt earn revenue, it shouldt.be charged as capital expenditvire, otherwise as revenue. "Dicksee, (Advanced Accounting-L.R. Dicksee,, Page 164) the English authority expresses it in this way: "The distinction between Capital and Revenue Expenditure is one of Primary importance, as bearing upon the fondamental question of what profits heve actually been made by sn undertaking during any given period. But it is thought that much unnecessary complication has been introduced in discussing this subject, and that, when thèse wholly irrelevant matters are brushed aside, the fundamental question will be found to be simplicity itself. Shortly stated, the question cari in any event be answered by finding the answer to the following question: "Has the particular expenditure incurred in any individual case been incurred for the sake of improving the earning capacity of the undertaking?" If the answer to this question is in the affirmative, then, and to that extent, the expenditure in question is capital expenditure. But if ît has only had tlie effect of putting the earning capacity of the undertaking upon the same footing as that which had previously obtained ( and which has since declined by the orûinary process of wear and tear, or the effluxion of time, in respect of which no provision has been made) it must be charged against revenue. The précise rneaning of this latter qualification is that the mère renewal of wasting assets, not otherwise provided for, cannot be cnlled capital expenditure, but that any extension, or the acquiring of fresh assets, is in the nature of capital expenditure? The author has found that the directors of joint stock companies, and municipal councils generally, the former to make a good showing of profits, and the latter to win votes on the score of public economy, hâve a tendency towards classifying many revenue expenditures as capital, while on the other hand, especially since the Fédéral Grovernraent has imposed certain taxes on profits, certain companies now place many items among revenue expenditures which properly belong to the capital expenditure class. In considering the crédit items in the ledger accounts , the same difficulty arises, although hère it la less critical. If the excess débits show either losses or assets, the excess crédits, will adversely, show either gains or  llabilities. Since a debt is a debt, and is easily recognized, the classification is nruch easier, although such items as reserves, Rest, Secret Réserves, Contingent Liabilities, Reserves for Dépréciations, etc., etc., soroe'times give rise to a variance of opinion. It usually happens, that at the end of the financial year, when statements ère to be prepared, many items must be considered, which hâve not found their way through the books to the ledger, some of which, by way of illustration, are as follows: (1) During the year an insurance policy may hâve been bought for three years, and the premium paid in advance. It i8 évident that the unexpired insurance is not chargeable to the current year1s activities. (2) The saine difficulties as mentioned in (l), arise when there is prepaid rent, advertising, taxes, etc., and ail require adjusting. (Z) Retail Merchants in Canada are more and more resorting to the method of drawing on their largest custorners, sometîraes for accounts owing, and sometirnes for accommodation. Thèse papers are sold to the bank under the firme indorsewrat, and discount is charged by the banks. If thèse papers become due some weeks or even rnonths after the end of the fiscal year, it is évident that theffiscountcharged by the banks, which appear as losses on the firm's books, oannot ail be charged to the period under survey. Incidentally, another difficulty arises hère. AB endorsers on the p&per sold to the bank, the firm are secondary debtors, and this fact must'not be over-looked when statements are prepared. During the financial crisis of 1907, many Wholesale houses failed, and in their wake they carried down hundreds of small firrns throughout the country • Many of thèse small firms had felt honored when asked to accept the large firm's paper for accommodation, a few months previous. Since 1907 this "Kite Flying" process has been "Tabooed" by the srnall retailers who happened to hâve been through the crisis in 1907. (4) When the firm has given interest bearing notes, and thèse notes are not yet due, although sometime may hâve elapsed since they were issued, it is évident that the aocrued interest to date must appear as a loss and a liability in the statements. Conversely, v/hen the firm holds paper, which is interest bearing, the eccruals in favor of the firm to the end of the fiscal date must be considered. (5) Salaries and wages are generally paid on certrin dates. Msny large firms now pay on the 15th of the month, and if the end of the financial period cornes at the end of some month, it is évident that two weeks salaries and wages are owing, but not yet due, and hâve not fourni their way through the books.  —  8 --  (6)  Dépréciations are going on de.y after day, but no record of thèse losses israade,except at the end of the year. Thousand of dollars may hâve been lost in this way, although the ledger bas no record of such, unt.il steps are taken to close the boots and prépare statements. (7) In the pertnership agreement (if the business is conducted as a partnership organisation) allowances are made for interest on capital, and charged on vithdrawals, also allowances for spécial services called partners1 salaries. Thèse interest allowances (or déductions as the case may be) and thèse salary allowances do not appear on the ledger, and therefore nice adjustinents are often necessary. By way of illustrâting let us suppose that a double entry ledger of a email' mnnufacturing company is before us; thet we hâve added ail the aocounts, finding sortie larger on the débit side and some larger on the crédit side. That we hâve placed thèse différences or balances in two respective columns and hâve added them and found them*in balance. The company has kept its books by Double Bntry, but no attempt has been made to introduce Factory Costa Acoounts. In addition to the Ledger balances we find some of the items mentioned above, which hâve not as yet found their way into the ledger, but nevertheless, must be considered, before attempting to ascertain either the resuit of the year's opérations, or the présent financlal standing. We shall now see, just what conclusion may be arrived at frorn this Double Entry System, and the recorde it contains, by first presenting the Ledger Balances, which is technically called the "Trial Balance", and ^fehen preparing fror: this, and the addltional information given us, certain statements showing (a) the gain or loss for the period and (b) the présent' standing of the firra and of each of the partners: EXHIBIT A ADAMS & BROYAT .TRIAL BALANCE DECELER 51, 19S3 ACCOUIITS  DEBITS  James Adams, Capital Robert Brown,Capital James Adams, Drawings Robert Brown,Drawings  CREDITS | 45,000.00 • 29,300.00  $ 9,450.00 5,700.00  ïïotes Payable  5,578.00 ( Continued on Page 9)  -- 9 — TRIAL BALANCE ACCOUIITS  - Continued DEBITS  992.00 Botta Receivable $ Soods on Hand Jan.1,1923 35,620.00 Machinery 33,848.00 Real Estate & Buildings 9,852.00 Purehasea 67,794.00 Debtors 13,200.00 Sales Wages 41,858.00 Creditors Office Furniture 2,280.00 Rent 3,000.00 852.00 Cash Power, Light, etc., 2,728.00 Commission 2,282.00 Travelling Expenses 1,258.00 Freight Out 858.00 Discounts to Custorners 1,564.00 Pire Insuranoe 968.00 Discount off Purchases Rebetes to CustornerB 752.00 Interest & Bank Charges 592.00 Delivery Expenses .700.00 Royalties paid on Sales 924.00 Sundry Expenses , 2,562.00 Àdvertising 782.00 Bad Debts Written Off 9M.00 SS4l.350.0Q  CREDITS  $157,886.00 2,594.00  992.00  $ 241.350.00  As indicated above (pages <J*»Î>' it rarely happens that fill the information necessary for prepàring atateraents frora a Double Entry Ledger,raaybe found in the Ledger. In the business, the Trial Balance of which immédiately précèdes, it was found that the following adjustraents were necessary: (1) The inventory v;as taken of stock, and at cost price was found to consist of goods valued at ^35,280. (2( It was estimated that èc/o of ail Botes Receivable and Accounts Receivable were not collectable, and were therefore to be written off as Bad Debts. (3) The liachinery had depreciated during the last year 51. (4) The Office Furniture was bought during the yesr for the amount indicated, but is now worth not more than $2,000.  ~ 10 -(5) The Dépréciation on Buildings, included in the account Reol Estâte and Buildings, had also depreciated $L,000< (6) The Pire Insurance Policy was for three years, and but 18 months had expired, and it was therefore, necessary to value the Policy et $484. (7) By the articles of CorPartnership the Partners were to be allowed &/Q on the Capital to the crédit of eech &t the beginning of the year, and nothing was to be charged to drawings, provided they each took out less than |10,000. (8) It was also leamed thst the Partners were to draw salaries as follows; Adams,$6,000, and Brown,$5000. The salary adjustments for the year had not been made. (9) Interest was accrued on Ilotes Receivable, $45,70, and on Hôtes Payable, $60. The Bank had just credited the firm with interest on Savings Account, $85.75. Thèse three interest items had not been entered. (10) The Partners both gave their full tirae to the business and profits were to be shared equally. "BXHIBIT B ADAH3 & BROWK PROFIT & L0S3 "3TTTEMENT JAIUARY 1, 1923 to DECSHPER 51, 192g SALES  $L57,886.00  Deduct: COST 0? GOODS SOLP' l a v e n t o r y , J a n u a r y 1, 1923 $ 35,620.00 Purchases 67,794.00 Wages-Productive labor 41,858.00 Machinery Dépréciation 1.692.00 Pinished goods to be accounted for 146,964.00 Less:Inventory, Dec. 31,1923 35.280.00 GROSS PROFIT OIT SALES Deduct SELLOG EXBEIJSES âdvertising 782.00 R o y a l t i e s on S a l e s 924.00 D e l i v e r y ExnenBes 700.00 Freight-Out' 858.00 Commission- Salesmen 2,282.00 Travelling Expense-Salesrnen 1,258.00 HET PROFIT OIT SALES Deduct ADMINISTRATIVE EXPOSES  $111,684.00 46,  6,804.00 $ 39,397.60  (Continued on Page 11)  — 11 — S3033 PHO?IT 01? SAIES, Cf-rried Forwr.rd  $ 3 9 , 397.bC  Administrative Sxpenaea Sitndry Expenses Pire Insurance $968.00 L « S B ; Unexpired 484.00 Hebatea to Customers " Disoounts to Customers Power,Light etc., Rent Dépréciations on Buildings ^1,000.00 On Office Fumiture 280.00 Bad Debts fritten Off During Yeer $ 934.00 Notes Reoeivable 6ÇÊ 49,00 Aoots.Reoeivable 5^ 660.00 Interest & Bank Charges~692.00 " Add. Int. Aoc. on N.Pay 60.00 653,00 Less : Int» On N. Reo. ^45.70 Bank Interest 85.75 131,46 Partners' 8alariea Adams Brown  $6,000.00 5,000.00  Interest On Capital Adnros  484.00 75E.00 1,564.00 2,728.00 3,000.00 1,280.00  1,643.60  620.55  11,000.00  2,700.00  Brown 1.768.00 TOTAL ADMINISTRATIVE BXPENHB ______ 2 9 , 9 9 2 . 1 5 Less: Discount off Purchases 992.00 NET PROFIT FOR THE YEAR  $2t56£.00  29,000.1. &L0.397.4E  -  I-  SXHI3IT c  Dr. TFZr  Bec. 31 D e c 31  Cr.  JAITS3 ADA!!3 - r r o p r l e t o r -JLW3  Drawinps $9,450.00 Het Worth49,448.72  Ji»n. Doo. Deo. Dec.  1 31 31 31  Balance $45,000.OC I n t e r e a t f:, 700.OC Sfltiry 6,000.00 Profits&Ojo 5,198,72  "3CB.ÏÏW.T2  $55,8*8.72 TSU—  Bûlanoe $49,448.7£  Jan. 1  *«  ROBERT BROTOT-Proprietor  *•**  Deo. 31 Deo. 31  Drawings 5 , 7 0 0 . 0 0 Bet Wcrth35,556.73  1923 J&tu Deo. Dec. Deo.  41.556.7g  1 31 31 31  Cr.  Balance $ 8 9 , 3 0 0 . 0 0 Lnterest 1,768.CM Salary 5,000.0! Profita 5,196.7 50>  § 41.SE6.7 1924 Jim.ï  Bfcle^ee £ ?5 t hRe.71  — 13 — BXHIBIT D.  ADAMS & BROWH BALANCE SKEEg DECEMBER 81. 1925 ASSBTS CTJHKBNI  Cash Notes Reoeivable $992.00 Lésa: 5$ off 49.60 Aoeotmts Reoeivable 13,800.00 Less: 5$ off 660.00 Marchandise Inventory  $852.00 942.40 12,540.00 35,280.00  ,614.40  FIXBD Machinery  ,  $ 33,848.00  T»fiR ft 5^a  Dépréciation Real Estete & Buildings $ Less Dépréciation "Office Furniture Less Dépréciation  1.692.40 #32,155.60 9,858.00 1.000.00 2,280.00 280.00  8,852.00 2,000.00  43,007.60  DBFERRED CHARGES 484.00  Unexpired Insurance ACCRUALS: Interest on Notes Reoeivable Interest on Bank Balance  45.70 85.75  131.45 |93f237.45  —  14 —  ADAMS & BROWN BALANCE SHEBT DECEHBER 31. 1923 HABILITEES CURRBNT  £5,578.00 2.594.00  Hôtes Payable Aooounts Payable  #8,172.00  ACCHUALS Interest on Notes Payable  60.00  PROPRIETORSHIP JAMES ADAMS,  ROBERT BROWN,  Investment Salary Interest Profits -50e/ Total Crédit Less : Drawings  45,000.00 6,000.00 S,700.00 5.198.72  Investment Salary Interest Profits-50/ Total Crédits less: Drawings  #29,200.00 5, 000.00 1,758.00 5,198.75 $ 41,256.73 5,700.00  58;Ô98.72  9,450.00  49,448.72  55,556.73 $93,237.45  -- 15 — From the above it will be seen that many advantages of Double Entry over Single Entry are évident, a few of which are as follows: (1) In the Former system the ITet Gain, Net Loss, ITet Worth or ITet Insolvency of a business may be obtained by différent ways, via., by the Resource and Liability Method, or by the Loss and Gain Method. In Single Entry the former method only is available. The System which introâiices a complète check on the Accountant's work is the one the Public demande in this âge  (2}  (3) (4) (5)  (6)  (7)  While the total gain or total loss may be found with a considérable degree of accuracy in Single Entry in Double Bntry we may prépare détailed stateraents, showing the sources of the gains, or the causes of the losses. The dual system offers a oheck on the postings, and while errors may go undetected in Single Entry, it is practically impossible in Dotxble Entry. Double Entry is more scientific and is capable of gréater Expansion. In firrns working under the Joint Stock Company organisation it is only in the Double Entry System that the Accountant can prépare in proper form the information reqnired by the Dominion Carapanies Act, or any of the various Provincial Company Acts. The Dominion and Provincial Incorne Tax Acts also require certain detailed information in their yearly returns which can be furniehed only when a complète set of Double Entry Books are kept. For our présent purpose, it is very important to remember that it is through the Double Entry System only, that a complète and workable system of Cost Accounta can be insta.ll éd.  COIJTROLLING ACOOUIITS Although we hâve given an outline of Double Entry Principles which will form the large gênerai basis for studying Costing î.îethods, it will be necessary to consider a spécial modem principle, introduced within the last décade, and upon which very specifically dépends the possibility of intelligently studying "Costs" as undsrstood by manufacturera,today . The principle to which I refer.is that of the SelfBalancing Ledger and Controlling Accounts. This feature will be considered under the following Headings: (1) Yftiat are Self-Balancing Ledger§, and why they are necessary, (2) General Theory of the Self-Balancing Principle,  - - 16 — and how i t raay be a p p l i e d to miy b u s i n e s s Trading or ka.nufacturing. (1) Self-balancing ledgers nay be defined as Ledgers in which the total débits equnl the total crédits, and to that extent ail double entry ledgers are self-balancing. But in a firm of any magnitude, the Ledgers rnust be sub-divided, and sometimes resubdivided rnany times. The sub-division may be ma de and generally is so mode, on the basis of some convenient classification of the accounts theraselves, such as Accounts Receivable, or Customers' Ledger Creditors' or Accounts Payable Ledger, and General Ledger. If the Customers* are rnany, it becomes necesaary to sub-divide the Customers' Ledger, and this is done generally in one or two ways: (a) Alphabetically, A-C, D-F, G-K, L-0, P-S, T-Z, depending on the number of accounts, (b) Geographically; Vancouver City, Vancouver Island, New Westminster, and District, British Columbia, Alberta, Saskatchewan, Manitoba, General. The Writer is fami^ar with the books of two large Wholesale1 firms in Vancouver, and their SaleB or Customers Ledgers are divided respectively according to the above plans. If the General Division of the Ledger is General Ledger, -Sales Ledger, Purohase Ledger, it is évident that if postings are done in ail, and that the simple principle is carried out of making a débit for every corresponding crédit, and vice versa, the totale of the débits of the three ledgers raust equal the totale on the Crédit sides of the three ledgers, it matters not how voluminous or how numerous thèse ledgers may be. At the beginning of the sub-division, this is what wvÀ) done, but it was soon found that necessity compelled some différent plan since, (1) It was necessary for many olerks to post at the sane time to dvertake the work, and some Bohême for locating the errors of each clerk had to be found, and (2) The Heod Accountant must be in a position to construct a Trial Balance on the shortest possible notice and to control in his General Ledger the ostings of each of his sub-ordinates. he General T^ory and its application may be briefly described as follows: It is necessary for the merchant to keep as books of Original Entry, A Sales Book, A Purchase Book, a Cash Book, A Bills payable Book, a Bills Receivah>le Book, a General Journal and perhrps a Sales Return Book and a purchase Returns Book. The rulings and spécial columns in ail thèse will dépend upon the clrss and volumne of business he is doing. In ail cases, one ha s to know the spécial circumstances of the case, when installing a system for any business.  Ç  — 17 - The s a l e s w i l l be recorded i n the Sales Book (or Sales Journal) as they are made, and the customers w i l l be chargea with the amounts of t h e i r purchases i n the Sales or Customers 1 l e d g e r . At the end of the month(or week or terra) the s a l e s w i l l be t o t a l l e d and in the Gene r a l Journal such an entry r.s the following w i l l be ma de Sales Ledger Controlling Account Dr To Sales... This will be posted in the General Ledger. If the Sales Ledger is tojpself-balancing also it will be necessary to crédit sorae account in the Sales Ledger to offset the total débits which hcve been made to the rsrious r>erRon»l accoimts. l'his * account is generally oalletf the GENERAL LEDGER ADJUSÏMEHT ACCOURT, and in the Sales Book itself it might be indicated as follows: Cr. General Ledger Adjustment Account... (Total) Ail Purchases must be recorded in a purchase book or Purchase Journal and the Creditors credited for each item in the Purchase or Creditors' Ledger, At the end of the period the Purchase Book would also be totalled and the followlng entry made in the General Journal: Purchases Dr To Purchase Ledger Controlling Account This would be posted to the General Ledger. If the Purchase Ledger, in its turn, is to be made selfbalancing it will be necessnry to débit some account in the Purchase Ledger to offset the totals to the crédits of the various creditors1 accounts. This account is generally called the GENERAL LEDGER ADJUSTIÎENT ACCOUNT. The amount may be indicated in the Purchase Journal as follows: Dr» General Ledger Adjustment Account (Total) The Cash Book or Cash Journal contains the record of ail receipts and disbursements of the business, and it must be provided with spécial columns, on the débit side to show receipts from customers, and on the Crédit side to show payrnents to creditors. As the payments are made the creditors would be debited in the Purchase Ledger and at the end of thé terra the totals of the colurnn would be debited to the Purchase Ledger Controlling Account in the General Ledger. Again, if the Purchase Ledger is to be self-balancing an entry must be nade in the General Ledger as follows: Sundries Dr (Total of Spécial) ( Colurnn ) To General Ledger Adjustment Account.. Only the Crédit of thir should be posted, since the débits hâve already been recorded in the Purchase Ledger.  — 18 — Receipts from eustorners are recorded i n a s i m i l a r way; as cash i s reeeived the custorners ère credited in the Sales Ledger, end a t the end of the terra the t o t a l of t h i s column would be posted to the c r é d i t of the Sales Ledger Controlling Account i n the General Ledger. If the Sales Ledger i s to be self-balancing an entry would be rnade i n the. General Journal as follows: General Ledger  Adjustment Account Dr  .(Total of ) (Column )  Sundri es As the sundries hâve already been posted, it will only be necessary to post the débit, in the General Ledger Adjustment Account in the General Ledger. In handling Notes Receivable and Ilotes Payable, exactly the -same principle would be follpwed: V/hen a custorner gives us a note on account, he sjpuld be oredited in the Sales Ledger and at the end of the month the following entry would be made in the General Journal* Notes Receivable Dr... (Total of Hôtes Reo.Book) Sales Ledger Controlling Account If the Sales Ledger is to be made self-balancing, the General Ledger Adjustment Account in the Sales Ledger muet be debited with the total arnount of Hôtes Heceived from various custorners. When issuing a note to a creditor the entry would be made, of course, in the Hôtes Payable Journal, and the creditor debited through his personal accotmt in the Purchase Ledger., At the end of the term the follov/ing entry would be rnade in the General Journal: îurchase Ledger Controlling Account Dr.... ( Totals Ilotes P) Notes Payable .' This and the previous entry would be posted to the General Ledger. If the Purchase Ledger is to be Self-balancing, the General Ledger Adjustment Account in the Purchase Ledger would be credited with the total of the notes issued. In handling Purchese and Spies Returns, the same Principle would be followed, only entries would be the reverse of those in the Purchase and ""les Books. In the above necessarily brief outline, I hâve indicated how ail the ledgers nay be made self-balancing, but in ectual pr^ct'ice it would be neeessary to hâve only the Geneyal Ledger in balance. The Controlling Açeounts in the General Ledger would.show the condition pf the oondiftioii of -th« Ledgera which they control. That is, the différence between the sides, or the excess of débits over crédits of the Sales Ledger Controlling Account in the General Ledger would show the différence between the total débits and crédits of the various custorners* accounts in the Sales Ledger, while the excess of the  — 19 — crédits over the débits of the Purchase Ledger Controlling Account in the General Ledger would be the same as the différence between the totals of the various creditcrs* accounts in the Purchase Ledger. A great raany variations to the above simple rules and applications thereof, rnoy be found in the ordinary Traders' Books, but it is in Costing Systems that the greatest diversity exista. In the following pages, where the principles of "Costing" will be discussed at some length, we shnll find it necessary to build up many of our explanations around and upon the principles of Controlling Aocounts. COSTIITG DEPIIŒD Where any System keeps a record of the cost of goods sold and «the éléments which enter into, or make up those costs we hâve strictly speaking, a cost System. But it is to manufacturera* accounts thst the terra is now speeifically applied by experts in accounting. Cost accounting, or Costing, or Factory Cost Eeeping may, therefore, be defined as the method or process of determining, through the gênerai book-keeping System, the actual cost of each job, or the cost per unit (pound Gallon, bushel, yard, barrel, etc.,) of each product manufacturée! and the cost of jobs or goods in process of manufacture at the close of the fiscal period, and the best cost System is the one that permits thèse résulta to be shown at thè tiine each particulfir job or process is corapleted* Efficient Costing Systems are a very récent addition to the Profession of Accountancy, but are every day becoming more popular,more efficient and more indispensable to the manufacturer. In this connection it is a pertinent fact that fully 90Jb pf ail the literature published on the subject, has found itsc way into print during the past ten years;'and probably 80 /o within the last six years. Some of the books published are raere theoretical dissertations, developmènts of some branch of économies; others are oldfashioned and endeavor to plan a System of accounts which mry be useful in one spécial line of business, of not too great a magnitude. But the best Systems in vogue hâve aever found their way into a printed text-book, and hâve been developed by practical men, v/ho hâve "worked out" a plen compelled by the necessity of the case. At the beginning of the war , many manufacturing firms turned their attention to the making of munitions, guns, etc., and in mf?ny cases the plant was taken over by the Government. It was soon found that it was a practically impossible task to Pscertain with eny degree of accuracy the cost of the various articles, and a large number of  — £0 — exporta v.rere eïigaged by the government to install proper .-.ystesns. ïïven in Great Britoin, where manufacturing h ad bee earrled on in great îi ctories for many years, the same ttncertainty existed, and nore than 100 American Cost Accountants were en/?aged by the British Government for this v.-ork. The American Government found in 1915 that of the over quarter of a million manufacturing firms in that ccuntry sorne 70^ wereraakingles?; than the salary of a v/ell-paid University Prcfessor, and it is a significant fact that of thèse firms less thun b'/o knew v;ith nny degree of accnracy wh» t their goods were actually costing theni. 'To the young inan with the proper training in Economies i-nâ Mftheraatics, no field todây offers greater opportunities Jhe Association of Certified public Accountants of the United States hâve nade the announcernent that in their Country fully 50,000 of snch trained experte are needed, and that not more than 10,<> of that nuraber in now avail; ble. In Canada, the need is correspondingly great. At the conclusion of the Vv; r, Sir Thomas White, is reported vs aaying: "The need of our country is trained experts. The resourees are hère in abundance, and the markets of the world are open. Soientific knowladge of burinées is more and more neoessary to the young rrsen of Canada',' 3ome day the Universities will take up this natter, ?nd courses will be given covering this important field. UHY ARE COST ^YSTET.S IIHIDIS)? It may be asked, "If BO many large and prosperous firrns DP we hâve in Canada now hâve been fble to build up enormous plants and to sueceed so well without cost système why are they neoessary now"? To this I would say; " We are living in a Dynamic and not a. statio society, i nd if our manufacturera are content to rest on their oars and to be satLsfied with past and présent conditions, our country will never progress as it should. Compétition is keener in every brench of industry than it ever w^s before, th* transportation and coramunication facilities are mfking more and more the world one vast market, and if the products of our own factories cannot oompete in that market, we ;3hall never progrèssï The reesone, therefore, why coet systerne are needed by manufacturera r,ay be briefly stated as follows: (1) For Priée Uniformity. The American Association of Printers, for exemple, hfVe adopted a uniform system of Cost Account8 and as a resuit a gênerai level of priées la nrintained, throughout the United States. It is not araonop^jLyin eny eense^f the word. Uniformity does not necesaarily mean monop^J.y« 3ome variations in priées fer job printing there are pure to be, rince ragea are not uniform in ail parts of the Union, but uniform cost  -- 21 —  (2)  (3)  (4)  (1)  methods hâve revealed forjust v/hat priées work may be doue, and thèse scientifio methods hâve led, almost autcraatically to uniform prices. The Sherman Act, we know, forbids manufacturera to agrée on a xmiforrn selling price, but this do es net prevent the adoption of uniform records of their work. The more advanced a country is, commercially, the more uniform will be the gênerai level of prices. In Chine, buyers tell us t prioes of manufacturera vary greatly in localities only afevv miles apart, in some instances as rauch as one hundred percent. Such conditions could not long prevail in a Y.'estern Country. For the prévention of compétitive and often unreasonable price cutting. V/hen bidding for jobs, especially by the rnethod of sealed tenders, over-zealous contractera hâve often undertaken v/ork, the cost of which was araereguess, and hâve,as a resuit of their ridiculously low tenders, either been compelled to relinquish a half-finished contract, or hâve been forced into liquidation. It is just such unscientific business engineers who v;reck the trains of finance. Excessive price-cuttinglike période of price-inflation, disorganizes business conditions, and often leads to periods of dépression and financial panic. The rivera and streams of trade should flow with strong but steady currents, but this cannot happen unlesa the rocks and whirlpoola of guess-methods are absent. For the détection of leaks. A plant may be manufacturing several' lines, some at a profit, others at a loss, and yet the management may not be able to place its finger on the weak spots. In each department also, oost systema will detect the poor workman, the defective work the wosted time, the thefts of matériel, poor supervision, inefficient and obsolète machines, etc., ail of which may pass unobserved without efficient records Por the suppl?/xng o^r data necessary for the standardization purposes, such as, (a) Finding the proper proportion of output in each department necessary for a well-balanced plant. (b) Devising schemes of' payment which will satisfy workmen and yet obtain the maximum of service, (c) ïïstablishing a basis for the routing of orders from the manager through the various stages to the sales rooms. Dr. H. M. Rowe, (Rowe's Book-keeping and Accounting Page 209) in his excellent little v/ork on Cost Systems gives the advantages of such as follows;^ To know the exact cost of the matériels enteringAto each manufactured article, order or job, and to hâve ail material purchased and used correctly accounted for, so that the balance shown by the m,* terials account may agrée with the inventory vrlue of the rnaterials in the  I  storeroom. (2) To know the amount and wage value of time spent on each article opération or order, and to know the degree of efficiency of each workman so that those who are high in efficiency may be rewarded and those who are low may be dispensed with; and particularly to assign tasks to each workman in proportion to his ski11. and ebility to perforra them well and efficiently. . (3) To know the relative cost of production by the use of improved machines over old and less efficient types, and to know the cost per day or hour of operating each machine separately or in groupa departments or producing centres. (4) To know the actual cost of "burden" expenses of the factory or shop, or of "overhead" expenses of the office or administrative dapartment, and of dépréciation which should be included in the cost of manufacture and dis(5) tributed over the product. To know the location, the condition, and the advaneement of each unfinished article, order or contract, «•t any given time while in the process of manufacture. (6) To know by running book inventories, supported by oontrolling accounts, how mnch of each kind of matériel, supplies, and finished goods is on hand, so that, with the smallest investment of capital, orders may be plaoed in right quantities and at proper times to meet ail requirements, and to prove thèse accounts at stated intervais by actn.al inventories ;of stock on hand. (7) To show on manufaçturing, trading arà profit and loss statement3, or on statements suppl eurent ing thern-, ail essentiel éléments of cost and production in whatever détail they are desired, (8) Toraakepossible the préparation of statistical and other statements, so arranged that the information contained therein may be compared with similar statements of other fiscal periods to ascertain: (a) increase or decrease of total out-put; (b) increase or decrease of monthly out-put; (c) increase or decrease of idle time; (d) increase or decrease of labor efficiency and of machinery efficiency; (e) increase or decrease of co3t of production per order, job or contract or ver other convenient unit of comparison; (f) increase or decrease of selling expenses, of administrative expenses, of gross profit and of net profitj (g) relative efficiency and cost of différent classes of labor. (9) To hâve such results available as will disclose defects in organizrtion or administration, so that they may be rectified. (10) To know the productive value of every unit or factor available for use in J:he factory plant, so that the exact cost of each item entering into the manufacture  -- 23 — of any given article or product, end its factory cost mny be correctly and accurotoly aacertained in estimâting the cost and selling price of goods called for in prospective orders, jobs or contracta. (11) To know the percentages or cmounts v/hich must be added to factory cost to cover overhead and other expenses necesaary to produce and market the goods at h profit, called for in estimating on prospective orâers, jobs or contracta, or otherwise. (12) To hâve information at hvnd. that will provide a basis for calculating the allowances v/hioh should be made for unexpected contingencies and losses in estimating the cost of goods called for in prospective orders, jobs or contracta» From the above it will be seen that an efficient cost systera enables the manufacturer to decrease costs and increase production and profits in many ways which would otherwise be impossible, such as: (1) To reduce the cost of and waste in moterial and tine used. (2) To increase labor production and secure higher effioiency in workmen by assigning maximum tasks which they are willing snd compétent to perforra. (3) To reduce cost and increase production by the use of improved ond strict!ymodern machinery. (4) To reduoe expenses in factory, or office by increasing the efficienoy of employées and dispensing with unneoessary labor and inefficient service» (5) To know the maximum capacity of the factory or plant in n given prooe,ss, group, deptrtment or producing oenter for a given tirne, that work may be so distributed as to maintr.in the fsctory or plfmt, as r- v/hole, at the highest point of productive efficiency. fô) To establish woge Systems thrt will secure to the diligent the proper rewards for industry and that will encourage and stimulate workmen to perfect themselves in ''bility and producing capncity. (7) To know the goods that moy be manufactured and sold at the Irrgest profit and to kr.ow those goods which cannot be manufactured and sold at a fair profit, no that the sales of the former nui y be increased and those of the latter âiminished cr discontinued. (8) To estinnte accurately and expeditiouely on spécifications of prospective orders or contracta. KLELS2TTS Off COST The total cost of anyrarnufacturedarticle ic made up of a very large nurcber of components, as any student of économies knowa, and fron the accountant1s tandpoint the chief difficulty arises in a proper vvA work.'ble classification of thèse componenta. Gradually a  — 24 — 4 uniform and standard system of classification is being adopted» and in using this system certain terme hâve now becorae standardïzed, a few of the most important are aa follows: Prime oost me ans simply the ooet of the raw matériels together with the wages of the worlÈ* men engaged la ohanglng that raw matériel into the finished product. Thia Labor la known as Direct Labor, or Productive Labor» But other factory expansés there are in addition to the materials pnrchaeed and the direct labor employed, for example, wages of foremen, superintendents» etc., factory rent, taxes, insurance etc., etc., This factory expenee whioh must be added to the Prime Cost is gereralïy spoken of as Factory Onoost or Factory Overhead, or Lianufacturing Overhead. But the Prime Oost and the Factory Onooet whioh may l>e defined as the Factory Ooet or the cost to make, do not hy any means include the v/hole oost of the finished article. In office and administrative staff le necessary, end hère we cône to such items as Officers, Salariée, Pay-roll and suppliée, lent of Office, fuel & Light, Postage, Stationery, Telegr&ms, Téléphonée, ail of whioh make up what le oalled the General Oneost. Then again after the artioie has been raade, It must be sold, and hère again we raeet Advertising, Salesraen's Salaries and Commissions, Delivery Charges, and e long list of suoh charges, whioh are generally classified as Selling Expenses. Again» in finanolng the business, certain Administrative expenses ocour, suoh as interest on Capital, Discounts for loans, interest en Bank loans, discounts given to customers as additlonel indueement for them to buy the product. Bad debts, oost of collections and attorney's fées, salaries of superintendents, ménagers, direct or e, ( if a Joint Stock conoern) eto«. eto., Added to the whole ooet. we find the profit , whioh must be added, giving us the Selling Prioe. I shall indioate the total oost and the éléments composing it in several ways ony of which assist us in understanding the varions cost éléments: (1) First or Prime Cost equals cost of Materials plus Direct Labor» Prime Cost plus Factory Expansés or Factory Onoost equals Feotory Cost or CoBt to Make, or Paotory Coet of Production. Factory Cost plus Selling Expenses equals the Selling Oost, and this added to the Administrative Expenses gives total oost of the goods sold. Add to this the profit and we hâve the total selling priée*  — 25 - ]  /  i  Profits 32$o  Selling Price 100>  Selling Cost Byo  Cost to Make m a . Sell 68^  -  Factorr Oncost fm Materials 30%  i'  Faetory Prime Cost 50<£  Labor 20^  Cost eofa  •  S e l l i n g P r i c e $506. €  -'".  I n c l u s i v e of lïc».3 Cost $420,  -  «P--  Works or No. 2 Cost , $400--—  <_-.. Prim« t j } 0 . 1 $265.  !  '•  'i i  ! !  Katerial $125  Wages ,  i  1  $140 •  Shop Charges $135  General Establishment C h a r g e s $2C  Profit $86  11 —  26 Profit  $20 General ûverhead $25 .  Selling Price $100  -  Total Manufactura ing Pactory Overhea d $10 Cost Labor $15  $55  Raw  Prime Côst  Materials  $45  Cost $80  f,1 } Tha Selling Priée of any article is made up of two things: Total Coat to whioh is added the profit* The total oost includeft three distinct parts: Factory Coat, Selling Expansés and Administrative Expansés* Under Faotory Cost we egain hâve Prime Oost and Indirect Charges or Factory Onoost, the former is made up of (a) Baw Material and (b) Direct Labor, while the latter is ooiaposed of three distinoe éléments, vis*, Indirect Matériel, Indirect Labor, and Indirect Expenses. Under Indirect Material we fine suoh items as: Baterials whioh oaimot be applied in a direct nanner, supplies, soraps, small tools, etc., under Indirect Labor we plaoe suoh things as Supervision» Inspection, Defective VYorlc, Expérimental Work» eto*, while Indirect Expenses should inolude, Rent Taxes, Maintenance, Repnirs, Renewala, Power, Light, Eent, Miecelleneous Faotory Expansés, etc., The Selling Expenses whioh we mentioned as one of the three éléments of Total Cost would inolude: Advertising, Sample Costa, Commissions, Saleamen'a Salaries, and Travelling Expensee, Expensea of the Sales Office, suoh as Rent» Clerk's Salaries, Téléphone and Telegraph, Printing and Stationery, Poatage, Freight and Cartage Ont, Shipping Department Expensea» Fini8hed Stock Warehouse Sxpeneee, eto*, while In the third depnrtment of Total Coat, i.e. Administrative Expensea we place suoh items aa: Offioers'Salariée, Office Salariée, Executive Ex* pensée, Auditing Expensea, Légal Expenaea, and ail the expensee aoimeoted with the Adninietrative Office suoh as. Salariée» Rent, Light, and Heat, Printing, poetage, Office Suppliée eto*,eto*  I notice a probleu set by the Wisconsin Association of Public Acoountants for their Exrmination of candidates for the degree of C. P* A», the solution of whioh analyses the différent oompcnents of oost as well as elaesiftes H'"H the aseeta and liabilities in the balance aheet* I sha11 -J-f give the problem as it appears on the exnmination paper, and submit ray solution of it* THE PROBLEM OXasaify and group the followlng acoonnts of a manufactur» ing oompany aoocrding to klnd of asset, liability, loss or §|in, 1* Accounts Payable &• Bad Debts Wrltten off 2* Aooounta Receivable • 6. Bille Payable S* Aocrued Salariée & tfogee ». Bille Receivable 4. Advertising e. Bond Disoount  (28) 9. 10. 11. 12. 13. 14.  Bond Premium Pond Interest aecrued Capital Stock Cash Crédit Dept. Expenses Dépréciation of Buildings Machinery & Plent 15. Dépréciation of Workmen's Cottages 16. Directors1 Fées 17.- Discount on Purchases 18. Discount on Sales 19. Fédéral Corporation Tax 20. First Mortgage Bonds 21. Freight & Cartoge In 22. Freight & Cartage Out 23. Général Office Expenses 24. Goodwill 25. Insuranôe ' 26. Insuranoe Premiuras Unexpired 27. Interest on Bills Payable 28. Interest on Bonds 29. Income from Investraents 30. Inventory of Raw Materials 31. Inventory of Goods in Process 32. Inventory of Manufectured Goods. 33. Investraents Outside 34. Maintenance of Machinery Machinery & Plant. 35. Maintenance of Workmen's Cottages 36. Manufacturing Power, Heat and Light 37. Miscellaneous Factory Expenses 38. Miscellaneous Selling Expenses 39. Non-Productive Labor 40. Office Equipment 41. Office Salaries 42. Officers' Salaries & Ex pense. 43. Organization Expenses 44. Patent Rights 45. Patterns & Drcv7ings 46. Plont Site 47. Plant Buildings  48. Plant Machinery & Equpment 49. Product3.ve Labor 50. Purohasing Department Expenses 51. Raw Materials Purchased 52. Rent of Workmen's Cottages 53. Reserve for Dépréciation Buildings, etc., 54. Reserve for Dépréciation Workmen's Cottages. 55. Reserve for Doubtful Debts 56. Reserve for Sinking Fund. 57. Returns •& Allowances on Purchases 58. Returns & Allowances on Sales §9. Sales of Waste Material ê0# Sales of Manufactared Goods 61. Sales Agents Commissions. 62. Salesmens' Salaries 63. Salesmens' Expenses 64. Sinking Fund Investments 65. Surplus 66. Taxes on Plant & Equipment 67. Taxes Accrued 68. Workmen's Cottages.  The Classification of the above ehould be as follows;  — (29) — L0SSE3  Operating Expendltures Manufacturing: (57)(51) Eaw Materials Purohased, less Heturns and Allowances (21) Freight and Cartage Inv/ard (49) Productive Labor (50) Purchasing Department Expenses (39) Non-Productive Labor (66) Taxes on Plnnt & Equipment (36) Manufacturing Power, Light & Heat (14) Dépréciation on Buildings,Mochinery and 131 ant. (37) Miscellaneou3 Factory Expenses. (34) Maintenance of Buildings Machiiiery and Plant. Selling (4) Advertising (13 ) Crédit Department Expenses (22) Freight & Cartage Out (61) Sales Agents Commissions (62) Salesrner * s Salaries (63) Selesmen's Expenses (38) Miscelleneous Selling Expenses (5) Bad Debts Written Off Administrative  T4TT (42) (25) (16) (19) (43) ( 23 ) Financial '(18) (27) (28)  (8 ) (15) (35)  Office Salaries Offioers* Salarier and Expenses Insurance Directors' Fées Fédéral Corporation Tax Share of Organisation Expenses Cène rai 0 ff 1 e e 8a la. ries  Discounts on Sales Interest on Eills Payais Interest on Bonds Proportion of Bond Interest Dépréciation of Wor&nen's Cottages Maintenance of Uorkmen's Cottages G A I I  Operating; (59)(58) (60)  Sales of Manufactured Coods, Less Beturns and Allowanees Sales of Waste Material  — 30 —  Financial (17) (S9) (68) (9 )  Discount on Purchases Inoorne fron Investnents Rent of V/orkraen'a Cottages Proportion of Bond I n t e r e s t A S S S T 3  Oucrjnt  (12) (7 ) (2 ) (30) (31) (32) (35) (64)  Cash Bill8 Receivrble AccountB Receivnble Inventory, Raw Matériel Inventory, Goods in Prooeas Inventory, lîanufactured ftoods Investirent a, (outside) Sinking Fond Inrestinents  (40) (46) (47)  Office Equipnent Plant Site Fiant Buildings Plant, LIaohinery and Equipnent Patterna & Drawings WorkmeB'8 Cottages.  yixtd  .-> i S (68) întanflib}» (£4) (44)  Ooodwill Patent Righta  Deferred Chargea (8) Bond Interest (43) Organisâtion Expenaes (E6) Insurance Premiuina Unexpired L I A B . U I  I S S  Carrent (1)  Bill8 Payable Accounta Payable  Àoornais (67) (10)  Aocrued Salaries & Wrges Taxes Accrîied Bond Interest Aoorued.  —  (si) —  LIAPIIITIES  - Continued  Funded: (20)  First Mortgage Bonds  Deferred Crédits (9)  Bond Premium  Réserves ~(53) (54) (55) (56) Ail reserves may appear hère or as contra against respective fixed assets. Capital (11) ( 65 )  Capital Stock Surplus (7)  1. 5. 3. 4 6*  Materials (Prime Cost) Direct Debor (Mfg. Gost) Manufacturing Bnrden ( Selling Selling Expense ( Cost General and Administrative ( Expense (Total Cost( 6. Net Profit ( ( ( Sell( ing , (Erice Before proceeding with detailed description as to the methods of cost keeping, it v/ill be necessary to mddify sorae gênerai statenents JBLS made when introducing our subjec by a gênerai description of the principles cf the Double Entry. We saw thst on page 15, Part 2, how necessary it is for the merchant to keep separate books for such items as Sales, Cash Receipts and Disbursements, Purchases, etc., In Manufacturing it is equally necessary to keep records of thèse items, but Acoountants hâve recently devised an ingenious device for Purchase Record, and since no System of Manufacturers' Accounts is now complète without it, a brief description hère is necessary. I refer to the s Voncher System. The 7otioher System of Bookkeeping In a trading concern the goods dealt in are purchased ready to be re-sold, and a Purchase Journal is ail that is necessary to record thèse purchases. Such items as wages, indirect labor, etc., do ncrt enter materially into  —  38  ~  the oost of the froode, and therofore not BO nuoh cere need be exeroiaed in the reoord of them. In a Manufacturing Conoern, however, the purohnses of raw materialB la only one of the many items entering into the oost of the finished product, and not only thèse but full records of the varioua faotory expenses are noceasary, ainoe information of thia kind la indinpenauble to the management and muât be available on the shortest notice. Êven la a Trading Conoern the Purohase Journal may be en* larged and extended to containrauchmore than the total puoheees and namea of oreditors. In a Department Buaineea for examnle, the PurohaBe Journal may be glren several oolumns, one for eaoh U n e of purohases, the total of eaoh oolumn ohowing at certain intsrvals the total purohases. It waa the extension of the prinolple of the 8peolal oolumns in the Purohase Journal whioh *4iM i* waa the beginnlng of the Voucher System, but it 1B muoh ~ more than the old purohase Jq^urnal with speoTHir odTumne• Had the évolution of this reoord stopped hère the reeultlng gala would hâve been secured at high oost. The entry of ail expansé purohases in the purchaBe journal oreates the neoessity of opening aooounts on the ledger with the numeroue oreditors for amall purohases, as well as the more important items , bothto show the llability iaourred and to provide a means of oanoelling it when payment is raade» In large corporations, where often the policy of seouring bids on ail purohases is followed, resulting la a constant ohanging of firme from whom purohases are made and no regularly estsbllehed trade with any of them, the burden of hnndling the oreditors* Ledger beoomes aa increasingly heavy one with little or no gala la désirable inronnation fornl*hed by it* Accordi^"lj» a further development of the old purohase Journal took place whioh éliminâted the neoessity of opening réguler acoounte with every créditer, but instead made every transaction, whether one orraenywere entered into with the aame individual, independent of ail othere. Thls makea possible the rshowing of the settlement of that tranaaotioa la the place where its original record was adOt without opening up a ledger aooount for it* tester»s Acoounting Part U.Page 87-28)  T  The "Toucher System" requirea a voucher for each debt contracted, whether it be fier matériel purohases, wages paid, advancernenta to the Petty Cash Pund under the Imprest System, Preight Cartage, Wages9 Salaries, Expenses, Of ail kinds, eto., etc. The Touchers are often oalled Toucher Jaokete) and they are nur.bered consécutively« On the lnside*ie a record in détail of the transaction containing the foUlor/lng: Date, Creditor'e Name end addreaa,  —  33  —  terciB of payment, détails cf invoice, or work done, or obligations asruroed, togetker with the signatures of reaponsible rnembers of the firm, su oh es the Mane ger, 3uperintendent and .Accountant; On the reverse aide are gèneraily two columns , one oalled the Distribution oolumn and the other the Récapitulation column. In the former are placed détails of the aoeounts to be charged auch as, Materials (class) Labor (Olass) Selling Expense, Administra tive Expenne, etc., while in the latter we hâve a brief reoapitulation of the information oontained on the inside. It is folded and this récapitulation is m eful for fillng purposes and for références* It also provides a place for the Audi ter1s Bignatureafter he hae examined it* Attaohed to the Vouoher is a chèque v/hioh when made out and mailed or handed to the creditor pays the debt. When the ohenue is issued a record of it is made in the Cash Book, showing the date and the anonnt and the vouoher number. This is ail the information neoessary in the Cash Book, since the vouoher number is also entered in the Voucher Register, whôre a full record is made of the items chargea i e. > The Voucher Register, is a book of many columns, and is, as we pointed ont above, an évolution of the Purchase Journal* Columns are provided as follows: Date. Voucher Nuraher, Nane of Creditor, Explanation, Terris of Payment, etc., Total Voucher Payable. Purchase Discount, Raw Materials, In Freight, Cartage, Direct Lrbor, Indirect Labor, Pactory Expenne, Salaries of various classes, Office Expenses, and columns neoessary for purchases and exper.ses of the spécial business. There is also one column headed, "Sundry Charges" in which are entered ail items for v.hich spécial coliinns are not provided* At the end of the fincal period. The Voucher Record is posted directly to the ledger in the following manner: II) Ail columns are added and the additional end other mechanical processes snoh as entries, amounts, etc., are checked. (2) Since the totale of the amounts in ail the columns other than the Aooonnte Payable or Touohers Payable Column muet be equal to the total of the latter column, this check must be applied before posting can be proeeeded with* (3) Vouchers Payable Account in the Général Ledger is thenlksx credited with thetotal of that column in the Vouohers Payable Record. (4) The amounts shown by the totals of the Other columns are then posted to the débita of their respective ledger accounts in the Général Ledger. That is, if the total of theAdvertising Column in the Vouohere Payable Record le $500, .that amount le debited to  -- 54 7  —  the Advertising Account in the General Ledger. (5)After posting ail spécial columns as oufined Bbove, the varions individuel entries in the Sundries Column must then be posted in their respective accounts on the débit aide in the General Ledger. (6)3ince the totale are correct and hâve been tested by the check applied (ae ln"t"}, f-nd if ail débits of the varioue oolnmns together with the individual emounts in the Sundries or General Column equal the one total of the Touchera Payable Column, it is obvious that the Ledger will be in balance after the popting of the Toucher Record has been complète*^ The more concise anl the more compact a record is, the nore ia it likely to omit certain détails necessary for a full and détailed record of the transaction. Synoptio Journal s snd Cash Booiis hâve recently become very wide" ly need in busineeses of ail classes, but within the past year leading acoountants hâve lest no opportunity to point out to their employers and their clients this Tery weakness • llr. Frank. 0* Short, 0* A», in the Préface to nie little book on ( Exercises on Synoptio Journal s ?• 0* Short, The Commercial Text-book Company, Toronto) "Synoptio Journals" sayfe/ 0 It (The Synoptie Journal) is not regarded with any great favor by praotising accountants beeause a book adapted to handle ail entries that ooenr in an ordinary business with a minimum of c?er1cal labor must of necessity, be very oumbersome. It also makes it extrernely difficult for more than one bookkeeper to work on the books at one time, making it unv/orkable in a large businessV The Vouchers Payable, or the Toucher Pecord is necessarlly a Ssjtoptic System, and while it has become indispensable in serne form to any Costing System one muet never lose sight of thejfaot that it is subjeot to certain critioisms, a»* ingénions devices hâve been employed by leading oos t £ccountants tt^- "vprft^ft thèse cri tic i. s iras» Valuable as thèse are apace will not permit: the author to go SO far afield as to analyse thèse devices, but he must content himself with the brief référence hère rrTTe to thenu ~~ Having suromarized in the smallest possible space the gênerai principles of the Double Entry System, and having anelylzed the varions comronents of oost entérine; into the manufacture of any product, whether an automobile, s locomotive, an ooean liner, or a loaf of bread, we are now in a position to follow the entries of the records of thèse coraponents through both the General rnd Financial Books and also the spécial Subsidiary Costing Records, The Prime Oost of any manufactured article is made up of  E. •  ?• —  35 —  two components, viz., I.îaterials and Productive labor. It Vvill be our tas!: to nov/ denl with thèse, taking them in their logical order first Materials, second Labor. RAW MATERIALS lo  materials are those matériels which are purchased -ourcnased for the pnrpose of being changea J.nto articles ready for the direct consumer. For exÙ emple in a furniture factory, wood, paint, varnish, nsils, glue, iron, steel and upholstering matériels, may eonsidered as the raw materials. The economist will tell us that none of thèse are aetually rav; matériels. Steel for instance, has elready gone through meny processes, and has possibly passed through many factorise, each of which brought itfcearerto its présent state. Similerly the wood we purchase has already had mu oh labor applied to it, since it stood in Northern Ontario as an Oal: tree in the forest. But for our présent purpose, thèse matériels are in the raw state. Our finished product is furniture for our sales rooms, while our raw matériels are those articles we buy for the purpose fre tifrr—]rrrrof converting them into that finished product, >The logger may hâve eonsidered the tree standing in the forest his raw matériel, and the log eut, trimraed of its branches, and carried to the mill his finished product, The saw-mill ov/ner has probably considered the log he received his raw material, and the rough lumber hi- finished product, Similarly the planing-mill has purchased its raw material in the form of rough luiaber from the ssw-mill, and has turned out its finished product in the planed and grooved luiaber we nov; purchase, True it is that modem industry is tending nore and more towards "Vertical Combination", but this is beside our présent purpose. For the aceounting records it is necessary to consider the planed and grooved lumber, if purchased as such, simply rav/ material. A©--^»-ÎWMS^  V*  Ail pur chas es of materials are generally made tnrougla an order from the management, or forenan, or superintendent, knovm as a "Purchase Réquisition',' This order takes various forms depending on the size and character of the business, It bears a number, a date, and generally 8-necifies the Department for which the matériels are to'be obtained . The quantity, description, price and such like appear in the body of the order and following this it bears the signature of the officiai and is sometimes counter-signed by a second officiai. Acting upon this réquisition, the purchasing department  —  36  3eoure8 the matériel required. In a large factory meny forms «re often neoessary from the moment %*m raffulMtion le reoeired until euoh time as the noterial in placed in the store-room. For example,the purchasing department, a eting on the authority of the réquisition raay fill ont a standard fcrtn of "PurchaseOrder" to be forwarded to the selling conoern. Thèse forme are, of course in duplicata or triplicate, eaoh a différent color, a copy of rhioh le returned to the officiai giring the réquisition, another copy pleoed on file by the stores clerk, and still another copy retained by the purohasing department» The •arious departments will enter t^ese for oonraniance in their individuel Reglstera of Purohase Orders. As soon rn the rarterials are recelvod, the olerk in charge fills out another form oalled a receiving record, egain in duplicata or triplicate, one copy for ench department. The store olerk places the nrteriais in the bin or room usad for this claee of mate ri al, and entera the itema, amounta, etc., in his stock record, which is an élaborât ely ruled and apeciol oolumn book devised espeoielly for the purpoaa. Prom nie oopy of the Purohfse and Receiving Order the Aocountant in the General Office entera the transaction in the Voucher Record, créditIng the firm from whom the purohase wan mr.de in the Vouchers Payable Column, asd debiting the raw r.aterial or indirect matériel,in-freight, drayage, and any other exrense 0011" naotad with the spécial purohase. 3ince spécial oolunns are provided in the Vouchers Record for ail the varioua oomponenta, it is but a matter of eccurRta mdohenicel ro* cord and will likelylcdone by a olerk aaaignad to this olass of work. The record ia usually nade from the Voucher Jack et itérer, on the back of which, as we hâve noted rbova, the distribution oolumn rhor/s the Tardons aooounta to be charged. As aoon aa the chèque attached to the Vouoher haa been slgned and malled to the selling firm, the numbar of the chèque and the d' te ia enterod in the Voucher Register, showing that the bill hf s been paid, and on the crédit or paytnent aide of the cash book, where Vouchers payable will be debited, and where alao the oheque nuraber and the vouoher nimber is reocrded. Sinoe the total Of the Vouchers payable Column in the Vouoher Record is entered on the Crédit sida of the Vouchers Payable Acoount in the General Ledger, and the total of the Vouohera Payable Colunn on the Crédit aide Of the Cash Book ia entered on the débit sida of the aar.e nocount in the General Ledger, the différence bwf a a n thèse two sides, that is, the excèss of the crédit O T O T the débit will show the total amount of unpaid vouohers which will eppear aa a Current Liability in the final Balance Sheet of the Firm*  — 37 — The raw materials were purchased fer manufaoturing purposes. In the General Books the Raw Materials Account has been charged with the cost of thèse, while in the Oost Records in the Store Boom the stock records show the materials in the bin or room. As they are needed in the factory. they will of course be taken from the store room to the factory, and hère another séries of accounting records must be made* It must be rernecïbered that in every oost System a dual record must be kept for such items as stores, one in the gênerai or finanoial books and another in the subsidiary oost records. In anjprdinary trrding concern the latter is not necessary, because ail goods purohased are immédiately ready for sale. In his excellent little book, "Prin•iples of Factory Cost Keeping, Page 2Zf Dr. Lloxley calls attention to thls point in such an effective v/ay that I oannot resist the tsmptation to quote him Verbatim: "Subsidiary Records constitute one of the distinctive t«attires of a really effective syetem of côst accounting. The différence between modem Systems of factory Cost keeping and a system of accounts not including subsidiary oost records, can he clearly shov/n by the respective method8 of hendling stores. In a business v/hiçh does not keep stores records, the inventory at the beginning of the period is used as a startinj? point in order to find the oost of materials consumed.To this amount is added the oost of the purohases during the period, which gives the total amount availahle for the period. If from this amount is deduoted the value of the materials on hand at the end of the period ascertained through aotual inventory of the stock on hand at that time, the différence is supposed to be the oost of the materials consumed. V/hether this is true or not dépends on the aoouraoy of the inventories, and in the absence or prssenoe of leaks resulting in shortages of material during the period. It is as if a man starting out with $100 in money and receiving during the year $1,200 more hâving thus §1500 to spend,should keep no account ôf his expenditures,.but, taking account of his money at the end of the period, and finding that he has on hand $500, should conclude that he has paid out $1,000 during the year. Certainly $1,000 has gone in some way; but v/hether he has actually spent that amount and received value for it oannot be determined. It oan only be inferred. Under this method there is no me ans rhatever of knowing v/hether or not any money s hâve been stolen or lost. An accurate oost systsm does not , however, work on the basis of conjecture or inference. Starting with the Inventory at the beginning of the period, the cost of ail purchases is added to this, and a careful account is kept of the consumption during the same time. The balance of the. accounts at the end of the period then shows the amount whioh should be on hand,  ~ 38 -arid whether or not, this is actually so can be ascertained through the physical inventory. If the "book inventory" and the actual inventory do not agrée, something is wrong, and it must be traoed down. If they do agrée, the presuraption is thot there hrve been no leaks or other losses. We hâve seen tliat when the stores were received they were entered in the stook record. What record must be kept when they are taken from the stock to be placed in the factory? Also, on what authority may they be *j handed ont to the factory and how is thiy record keptj Ji^s ^^-^ and reconciled on the two sets of records? The store clerk must hâve some authority for parting with the stores in his keeping, and for which he will be held responsible, and that authority is generally given him by means of a written order known as a"Material Réquisition? The form of the Material Réquisition will dépend on the class of the Manufacturing Conoem, and to some extent §n the size of the factory. It will oontain the date, the number, end the signature of the foreman who mïkes it. The job number for which the materials ère required will also be stated together with a detailed list of the various matériels asked for. If the firra is a job printing concern thèse would be paper of a certain class, size, color, etc., ink of a certain class, color, etc., and at the bottom of the form the date of issue woul<. be inserted and the signature of the clerk who gave out the materials. As soon as the etore3 were teken from stock the détails would be entered in the stores journal or record, against the amount on hand, the différence between the stores received and the stores issued giving the perpétuai book inventory of the remaining stock on hand, which should be verified as often as possible by a pyheical courit or inventory of the stores in the bin or room. If the materials requisiticned are nox ?11 needed fer the particular job or process, the tmueed balance will be returned to stock. This return of Materials to the stockroom ia done also through a regular form known as the "Matériel Returned Stook Form", and is similar in form to the Réquisition For Materials Form. It refers to the Department, Number of Réquisition and of Order of Process, and contains a detailed list of the matériels not used and returned. It should be made out in triplicate and carry the signature of both of the for emen who made the original renuisition and the storekeeper who passed them out. As soon as the Materials are received in the  -- 39 -Stock-room the record will beraadein the Stores Journal or Ledger showing that the Inventory contains thèse. The storekeeper must ever keep in mind the fact that his stock of meterials on hand must actually agrée with the balance shown in his perpétuai inventory, whether that perpétuai inventory record takes the form of an Inventory Sheet, A Stores Journal, or a Stores Ledger, or a Combination of the three. Discrepancies there are sure to be on account of shrinkages, faulty materials, ioss of weight, breakages, etc., but thèse will be accounted for through an ad^ustrnent account known as "Shrinkage Account" which will be kept in the General Ledger, and the entries for which must be made through a regular journal or some specially devised book for the purpose, from the détails given to the accountant by the Stores Glerk from his Youohers. At the end of certain periods a sumraary is made of ail Materials taken from the stores for the purpose of manufacture» This is donefi*omthe records outlined above. For this purpose the Stores Journals must agrée with the totals of ail Réquisitions from which, of course, is deducted the Returns to Stores. In the General Books, Materials Account ia Credited and Gooda in Process Account Debited. If Raw Materials are occasionally sold direct from the stores, before they pas s through the process of manufacture, the Raw Materials Account must be credited with thèse, and the Stock Records must also show thèse déductions. ' We are now in a postion to give a summary form for the Raw Mrterials Account in the General Ledger,,which will be as follows: Dr. 1923 Jan.l Dec.31 Dec.31  Dec.31  ] Cr. 1923 Balance on Hand $10,000,00 Dec. 31 Materials Purchases 160,000.00 Requisitioned 150,000 Freight, ExDec. 31 Returned presa, Drayage Purchases 5,000 on Raw Materials Fur. 5,000.00 Dec. 31 Sales of Raw Materials Raw MaterReturned to St. 500.00 ials 1,000 v * Hand 19,500 RAW MATERIALS  ? 1924 Jan. 1. Balance on Hand  $19,500.60  175,500  ~  40 --  PRODUCTIVE LABOR Sooialistic Writers, basing their arguments on the teachings of Karl Mar/È, tell us that the value of an article dépends entirely on the labor expended in producing that article. Their définitions of "làbot" in this regard are not uniform, since the y tell us that labor means Phyaical efforts applied to the gifts of Nature" or"the social necessary labor" so applied, They seera to disregard ail labor which is not physical, and in a marrafacturing concem suoh labor 6a clérical or managerial work does not seera to count. The whole "Labor Theory of Value1' is unsound, sinoe tne amount of labor applied is no criterian of the value of the article produced. There must be a demand before there is exchange value, How can one estirnato the value of the products of an expérimenter or an inventer, if the expérimenta or inventions are not successful? A berry-grower in Vernon this year lost his entire capital because he could not sell his crop. How can one "square" the Labor Theory of Value with this case? If ail the fermera in Canada grew nothinf? but potatoes in 1924, what woulâ be the value of the potatoes produced? Would they be worth the cost of the labor applied? It is very probable that not more than lfo would ever be used, and yet the labor was applied. ïhe accountant who spends his life in making analyses ^^J of cost components, views such a theory absurd. He *» ^knows that there' is aTong liât of laborers working in large factories, whose services are indispensable, fnd yet the cost of their labor cannot be called "Direôt Labor" Two things he mu^t be able to do and do v/ell, else his System becomes a hopeless muddle. He must be able to elessify and to aystematize. Such problème as the follov/ing are ever before him: What percentage of the foreman'a wages should be charged to this job, espeeially if this foreman is supervising the work on fifty jobs of différent kinds at the same -time, or if he is dividing his time betv/een several departments at the same time? What proportion of such things as Insurance on Plant, Repairs on Plant, Taxes, Dépréciation on Machines, Patents, Patterns, Buildings, Power Plant, etc., can be chargeable to this one job , or this one contract, or this one process, if during the year thousands of jobs of différent cost, and passing through various departments and nrocessea', must ail be reST>onsible for thèse oncosts? With such problems to analyse,' the trained accountant sees Birect Labor Cost , as only one of a myrid of other components entering into the final cost of the manufacturée article. In the following pages I  - - 41 — (In tîae f o l l o w i n g pages l\ s h a l l endeavcr to d e v i s e a s c i e n t i f i c method f o r t h e atroointment of F a c t o r y Onccst, and ^Pa l s o for General Overhead, "but for t h e p r é s e n t we must "T^ confine o u r s e l v e a to t h e second component of Prime Cost, which î s P r o d u c t i v e Labor. WAGE SYSTEMS When c o n s i d e r i n g some of the numerous wage Systems iiaed i n l a r g e f a c t o r i e s , we r e f e r s p e c i f i c a l l y t o the wages paid to t h o s e workers who spend t h e i r t i n e d i r e c t l y on r&v o i a t e r i a l s , f o r t h e p u r p o s e of changing t h è s e raw m a t e r i a l s i n t o t h e f i n i s h e d o u t - p u t of t h e f a c t o r y . If t h e f a c t o r y i s mannfacturing f u m i t u r e , f o r example, a i l t h e hands employed i n p l a n i n g , l a t h i n g , t u r n i n g , p o l i s h i n g , p a î n t i n g v a r n i s h i n g , e t c . , w i l l "be c o n s i d e r e d t h e d i r e c t o r p r o d u c t i v e l a b o r e r s , while such items a s l o s t t i m e , i d l e time, wages for h e l p e r s , sweepers, c l e a n e r s , t r u c k e r s , s u p e r v i s o r s , foremen, s u p e r i n t e n d e n t s, i n s p e c t e r a , o l e r k s , e x p e r i m e n t o r s , c h e r a i e t s , e t c . , e t c . , v / i l l he l e f t to t h a t d i v i s i o n of components knovm as i n d i r e c t labor. There a r e many Systems for wage pryraent, and i t would be i m p o s s i b l e t o d é c i d e c o n c l u s i v e l y which i s t h e b e s t , u n t i l t h e d é t a i l s of t h e s p é c i a l b u s i n e s s i s known. The o b j e c t of any system i s t w o - f o l d , f i r s t , t o s a t i à f y t h e workers t h e m s e l v e s t h a t t h e most e f f i c i e n t worker i s by i t a b l e to e a r n h i s p r o p e r p r o p o r t i o n of wage, and s e c ond, t o g e t a workeble system which w i l l n o t be too expens i v e , and which w i l l encourage e f f i c i e n c y , t h o r o u g h n e s s , and i n d u s t r y . The principal» systeraSor some m o d i f i c a t i o n t h e r e o f , now u s e d i n the l a r g e s t f a c t o r i e s a r e a s f o l l o w s : (1) D a y - r a t e s y s t e m . By t h i s System the worker i s p a i d so ranch p e r h o u r , day or week, and siince it is the simplest, it is the most comraon yet in use, although the least P^ scientific. n the day-rate system considération is often given to the length of time the eiaployee has worked for the concern, and some schedule of increases may he used in this connection. Teaohers in public and high schools in nearly ail cities in Canada are generally engaged et the minimum rate, and increases are allowed for each yeor's services, until at the end of the term of say, ten.years, the teacher hns reached her maximum. The system is unscientifio and decidedly unfair to the raost efficient and the best qurlified teachers. There are teachera on the high sohool staffs in every ci ty who hâve climg to their jobs through social influence, or some other "pulï* political and otherwise, who because of their  WJ  j*  —  42 —  long tenure in office are now drawing the maximum salaries, and yet otlier teachers, younger, more âmbitious, end with better scholastic qualifications are compelled to work for only a fraction of this se.la.ry. The writer personally fcnows of one woman who is a high school teacher, but who has less than a third-class certificate, and who is drawing $50 a month more than other women on the same staff,, nlthough the latter are university graduâtes. While this condition may be more pronounced in such a quasi-professional work as teaching, the same tendency towards un-equality of wage v/ill always be seen under this system. The writer knows of one oity in Ontario which has this sliding schedule for teachers' salaries, and their policy has always been to keep teachers but a short time, say two or three years, and by this means the whole staff is generally working on the low-end of the schedule. It- is obvious then that under the day-rate system there are two disadvanteges: (a) Lack of incentive to effort on the part of the worker, and (b) Diffioulty in finding exact labor costs. The worker certainly has no incentive to either do a very full amount of work in a given time, or to prépare himself by study or reading to become more efficient. Then too, every job requires work of many différent kinds, requiring many grades of efficiency. If ail workmen are paid generally thesame wage, how is one to estimate the exact labor costs for this class of work? (2) Piece-work Systems, By this system the worker is paid so rrmch per pièce, job or process that he is able to do in a given time. It gives incentives for rapid and efficient work, and for this reason is generally denounced by the Unions. Mr. A. is an efficient and capable worker. He has f.'pent years in préparation and study, and is always alert to learn sornething new about his trade. Mr. B. is a poor workman, andraakesno effort to improve. The former is heppy in his work, the latter unhappy. The former does twice as many pièces per day , and yet the over-head involved in his work is no more"than that involved in the latter's work. IMr. A. is not only worth twice as much as Mr. B, hut la good deal more, since the psychological influence on the other workrnen can hardly be £&lima£ed. The disgruntled worker is the poor worKer, end being on the margin is the first to be dropped when work falls off. The pure white light of science is never welcomed by the weak. It reveals the weak spots, and for this reason is shunned by the poor and lazy workman. Labor Unions usually denounce the piecework Systems.  — 43 — The Differential-Pieoe-Rate Plan: Mr. J. Lee Nicholson, C.P.A. (Cost Aoeounting, fficholson • Page 103)raakesthe following observations on this System: " The differential-piece-rate plan is a speciallzed piece-work raethod by an application of time rate to the work. The idea is to pay a fixed pièce rate up to a certain amount of production in a given time, and, if by rapid work the employée ean prodnce more than that anount, to pay him a higher pièce rate, either on the whole amount produced or only on the out-put above the standards set. The considérations nnà. cautions mentioned in the straight piecework plan are nll applicable hère, and with double force since the ideas are the same but emphasized. The plan la specially devised to speed up production where the Indirect expenses are high In proportion to material and labor costs. To get the beat recuits in such a case the productive capacity must be made as effective as possible, even'at a higher payraent for labor cost. Wh&t is lost on the high pièce rate will be raore than mrde up by the distribution of the large amount of Indirect expenses over an increased output. The point of great importance in the differ* •ntial-piece-rate plan is the making of a fair rate at its introduction. An ill-judged rate at this time may be fatal and the utmoat ski11 and judgeraent are neoessary to guard against such a mistake. The plan aiso oalla for a well-organized supervising corps, the actuai inorease of cost for thls depending entirely on local conditions, the nature of the shop and the organisation? Premium and bonus Systems: By thèse syrtems, of which there are many modifications, The worker reoeives so muoh per pièce or per dey as a basis and this is increased by means of e bonus if the worker is able to do more than the allotted amount in z the given time. Let us suppose that eaoh workman reçoives $2.00 per day and that the averag» number of pièces la 200. He nlso is to reoelve ljf extra per iece on ail pièces over the 200 that he finlahes. If workman finishes 186 pièces he reçoives §£.00, but if he finishes 260 pièces he reçoives §2.o0. Another modification of this system is fonnd In the differential-bonns plan which gives a higher bonus for the greater number of pièces completéd. In the above example the bonus mny be ltf for ail over 200 up to 838, and 2 d for ell over 220 up to 230, and Zf for ail over 230. In thls case the worker referred^ to would earn, #2*00, plus 20/ plus 20/ plus 60/ or'$3.00. The Gantt system known as "Taak work with a bonus* la another application of the bonus system. By lt the workman reçoives a regular day wage and if he reaohes  E  —  44 —  a certain ef.fi ci ency a bonus of Z&fs or ZOfo of M a réguler wage is added. A nov'el feature of the Gantt System is that the foreman shares in the bonus of the men under hira, and this.gives every incentive not only to the workmen tnem-' selves but fllgo to the foreman to secure the best workmen and to assist thern in every possible way. The spirit of émulation is encouraged, and the various teams enjoy the keen spirit of this compétition. The ssme keen spirit of wantingto win which characterizes a base-bail match between two teams from the same factory, is seen at work in the-Gantt System. ànother application of the bonus system is called the "stint" System. In this the worker may go home if he finishea his allotted work by a certain time. (5) ïrofit-sharing Systems. Of récent years many concerne are holding out to employées certain inducenents towards becoming co-sharers of profits along with the employers and'owners themselves. They say to the employées,"This business is jours as well as ours. , You are giving your • lebor as we hâve given our capital and erganization expérience; our living is obtained from this business, your living and our'living. If we work together we can make good profits, and ail may gfere. If we do not work together, we ail suffer. Let us become mutuel helpers. Let us pull -together. As Employers we shali divide ail profits with you over and ?ibove a small minimum, v/hich is but a small interest return on our capital invested. A percentage of this profit will be uaid to you in 'cash at the end of the fiscal year, and the balance will be paid to you as shares in the Company'.' While the plan looks well, and somewhat appeeling to the majority of the employées, it hrs not worked out as well as was exrected. The ressons fer this are obvious: (l) Workmen who h^ve not been trained in the matters of finance , expect too much, and wherltheir shares are nnnounoed at the end of the year are dis-" appointed and become soured. $10,000 to a single employer is a cornfortable amount, 'but when divided among 1600 workmen, it is disappointing and does more harra than good. A large trading ooncern in Vancouver in 1919 rnade such a plan with the employées. At the end of the year each employée received sorne $50. bonus. The small amount was ridiculed by the majority and they actually refused to enter into such an arrangement for the coming year. While oveft. :$5,000 was actually distributed, the employées had nxpected many tirnes that much» (2) ît often"promotes jealousy and ill-feeling among-the workers* Since the shares are nsually and most equitably proportioned among the workers in ratio to the usual wages of the various employées, some will  — 45 —  r e c e i v e a l a r g e r " p r e s e n t " a t t h e end of the y e a r t h a n o t h e r s . "Why" t h e y a s k , " s h o u l d Jones g e t $80 and I g e t only $50?" To thera t h e whole System seorns p a r t i a l s i n e e t h o s e a l r e a d y r e c e i v i n g rauch should g e t more. They cannot apply the Biblical Injunction. ACCQUÏÏTIïïO ffOB LABOR In modem f a c t o r i e s t h e raost s c i e n t i f i o methods a r e employed for keeping r e c o r d s of n o t only t h e t o t a l time t h e worker has. heen a t work d u r i n g t h e day, b u t a l s o t h e amount of t i m e he has given to e a c h j o b , p r o c e s s or cont r a p t , f:nd t h e arnount of time he has l o s t throtigh changing from.one job to a n o t h e r , o i l i n g h i s machine, s h a r p e n i n g h i s t o o l s , washing and c l e a n i n g h i s machines e t c . , e t c . The o l d - t i m e methods d e s c r i b e d i n n o v e l s of a décade ago, may he d e s c r i b e d as f o l l o w s : A g a t e k e e p e r s t o o d a t the g â t e , and r e c o r d e d t h e tirae t h e v?orker e n t e r e d and t h e time he l e f t . This time was supposed t o hâve beerrçm aoourate e s t i m a t e of t h e t o t a l time s p e n t on the work. I f t h e worker was f i v e minutes l a t e ' he vms"docked"for a h a l f - h o u r , a s n o t h i n g sraoller t h a n a h a l f - h o u r s work w&s c o n s i d e r e d of s u f f i c i o n t importance t o be t r k e n i n t o cons i d é r a t i o n . The fa e t t h a t t h e man had gone i n t h e f a c t o r y was s u f f i c i e n t to assume t h a t he was a t work, b u t such was n o t always t h e c a s e . There a r e a hundred ways of k i l l i n g t i m e . Another method v/as to p r o v i d e each man w i t h B b r a s s check. Thèse were hung on a board a t t h e door of t h e o f f i c e end when the b e g i n n i n g time w h i s t l e blew, a i l the checks which had n o t been t a k e n off t h e board and dropued i n t o t h e s l o t , were t a k e n i n t h e o f f i c e , and t h e worker had t o corne and ask for i t , and i n t h i s way exposed h i m s e l f to t h e o f f i c i a i , who knew he was l a t e . As l o n g as t h e check had been dropped i n t o t h e s l o t i t was assumed t h a t the worker was t h e r e , b u t t h i s did n o t a l ways prove t r u e . A f r i end rnay drop h i s check for hira,, or the worker may drop i n h i s check and th.en climb over t h e fence and go home. There were mrny ways of c h e a t i n g a t the garae. A more modem system is to provide the workman with two forms when he enters the fPûtory. One called a time card, on which his entïre time is punched by a timekeeper and the other a work ticket on which he records the time he spent on'each job during the day. The différence between the totals on the latter card and the time recorded on the former would :=how the exact time lost in changing from one job or prooess to another, end since this time is included inthe pay-roll and cannot be charged to any job as productive labor it is included in the gênerai non-proauctive labor account and a^portioned in much the sarne way as other Onoosts. Both the time-card and the work ticket show the employée's name, his num ber, date and hours  ( 46 ) worked on each job, job number, and machine number, if a machine is iised; end in the case of indirect labor the denartment sud nature of the no ri: must be shown in lieu of the job number; Thèse time eards and tickets are sent into the office each dey and the direct labor is posted to the job cost sheets, one of v.'hich is provided for each job, and the indirect labor entered on e summar;; sheet with the columns headed by the naines of the departnerta so that the totals can be posted to the de~ partrne^it ersiense account et the end of" the week, monta or fiscal period. The productive houra are also entered on another summary, both for nan-hours and for machine hours, which is totalled at the end of the month. If the work ia correctly done the totala on this summary will equfil the total s of the po§tings nade on the job cost sheets. Between the llaterials Account and the Labor Account there is this important différence: Uhen the matériels are purchased the Pew Matériels are debited and the Selling Pirra Credited, and since thèse matériels are to be used in the future, there will nlv/nys be nn inventory on hand: the pey-roll is not made up nor the entry made until after the wages hâve been earned, so that when they are poid,.a debt is cancelled and not one contracted, like the purchase cf matériels. At the end of each week or at the end of each month, or serai-month the pey-roll is made up frcrn the time-sheets and after being properly vouched for by the officiais, time-clerks etc., is passée! through the Youcher System a Youcher Jacket is prepared , and a check for the total ornount made out. The pay-master prépares envelopes containing the amount due each workraen, and on a carte in day thèse are handed to hlm, after which he signs the pey-roll in the column provided for thèse signatures. In the meantime the P^y-roll is entered in the Youcher Eegister where the date, the Youcher Ilumber, the totale and the distributions -: re recordéd. As the chèque is generally made as soon as the Youcher is ready the voucher v.'ill be marked paid in the Youcher Kegister, and entry ma.de on the crédit ride of the Cash Book, debiting Youchers payable for the total, and. showlng also the Youcher Ilumber, the Chèque Number etc., At the end of the month when the Vcrucher Kecord is posted , Youchers Payable v.'ill be credited and the varions distributions debited. The principttJt/ distributions will of course be Labor-.Productive, and Labor-îlonproductive. If the Salary of the Fectory Superinter dent is included in the pey-roll', this will hâve been distributed to that column and will at the end of the-month find ita way to the débit of the Superintendant' s Salary Account in the General Ledger.  —  47 -  In the Cost Ledger every Job or Process has a sepaaàtev Cost Sheet, on which is recorded every détail of ail the Materials , Direct Labor, Indirect Eabor, Share of Oncost, and General Overhead tog»ther with the profit and selling price. This is "essentially a Subsldiary Ledger and is n distinctive feature of a Cost System. Thèse cost sheets are of an infinité variety of forms, dépending on the line cf manufacturing the firni is engagea in* I hâve befcre me a cancelled cost sheet of a local urinter and on it I find the following: Date, lïujper of Job, Naine of Customer, iiddress, Quantity and Description of Gooda ordered, lîunber delivered and Dote of Delivery under the column "Materials" I find the réquisition mutfber which was ma de- l>y the foreman to the Stores Clerk, and a detailed description of ail the paper and ink used in this order and the cost of the saine. Under the labor columns I find, four nain divisions called Composition, Press Work, Bindery, and Stockroom, Each division contains columns for: Date on which the work was clone, number of employée or employées, and and kind of work designated also by mimbers, followed by the number cf hotirs and minutes each workïaan speiit on the job. In the other coTumns, i.e., for Bindery Stockroom, etc., the numbers of the Machines are given, the employée's number, the kind of work, designated by number, and the exact time in minutes spent on this machine for the particular job . Following this a summary of ail the eosts, which are as follows: Stock $50.26, Inl: $2.00. Machine Composition, 39 hours 30 minutes, $51.35, MAchine /Itérations, G hours, 45 minutes, :$8.75, Kand Composition, 92 hours and 5 minutes, $93.93, Hrnd Altérâtions,58 hours $59.16, Cylinder, 21 hours and 35 minutes, .$82.66, Jobber, 11 hours 45 minutes, $6.46, Machine Bindery, 20 Hours, 10 minutes, $12.10, Hand Bindery, 4 hours, 30 minutes $2.12, Stockroom, 7 hours 50 minutes, $7.91. The total cost is shown to be- $316.70 to which is added $01.53 for Altération Work. The lîstimate given by the foreman when the contra et vrao given vras :|310., and the Selling Price, #391.53, shov/ing the profit to be $74,80 I give the détails of this sheet so that the reader may fonn some little idea of the minuteness of the analysis to which ever'y job is subjected in an efficient eesting systern. Printing is a comparât!vely simple form of manufacturing, end one may from this analysis imagine the cost sheet for an automobile, manufactitred m the Ford Factories, where the most detailed records are kept. From the summaries of the time carda and the work tickets,  - 48 --  a gr;md suramary is rna.de of ail the productive and nonproductive labor for the month. Thèse muet "square' with the total s shown on the Gost Sheets, and frorn thèse the Accountant ajusta the entries in the gênerai books. We are now in a position to understand another General Ledger Account, spécial to Manufacturera1 Aceounts, known as the Goods in Procès;- Account, as follows: Dr.  GOODS HT PROCESS  1923  1923 Bal. of matériels Dec. 31 in Process ' !$5,000.00  Je il. 1  Dec. 31  Cr.  Materials received Deo. 31 from stores on réquisition 50,000.00  1924  Dec. 31 #55,000.00  Jan. 1, Balance  Stores returned to Stock $1,000 Cost of Materials used on ail completed jobs 51,000 SALAIT CE 3,000  ;,ooo.oo  îhis "balrnce of '$3,000 représenta the cost of ail the raaterials which are in process of manufacture at the end of the year, and raust correspond exactly with the total cost of matériels used on the uncompleted jobs as shown on the cost sheets of the cost ledger. îhis aecount in the General Ledger controlls the charges for raaterials used in the process of "manufacture. Another General Ledger Account may aise be studied now; the Labor Account as follows: Dr. 19SS Jan.l Dec.31  Cr.  LABOR Balance $1,000 Araount paid for direct  1921 Doo 31  labor through t h e P a y - r o l l s $100,000  $ 101,000  1924 Jan.  Balance  53,000  ZDec*  3 1  Cost of a i l l a b o r expended d u r i n g the year on c o m p l e t e d jobs, as per cost sheets $98,000 Bal. 3,000 $101,000  !  -- 49 -The balance of $3,000 represents the arnount of labor which has been expended on unfinished jobs shovm on the oost sheets of the cost ledger. The account contrôle, the direct labor costs on the tirae cards and the cost sheets in the Costing Records. IKDIFJSQT BXPEITSES The total cost of labor and rnaterial gives the Prime Cost but to tîiis must be added the Factory Oncost, or Factory Overhead, or Manufacturing 3xpense, before the accurate cost of the job, contract or process can be accurately ascertained . The writer recently visi*e& a local factory where the management assured hira that a complète costing system had been installe! . Ee found that a comparâtively efficient system was in opération, as far as finding the Prime Cost was coneeraed, but it stopped there. The system was briefly this: The Prime Cost of each job was ascertained, that is the cost of thernaterialand the cost of the direct labor; to this was added a certain gênerai percentage to cover the other expenses and this total was assumed to be the exact.cost of the job. The firm was making money, because the arnount added to the Prime Cost to cover the Oncost was a very libéral arnount, but the system did not give the exact cost of any single job, it only approximated it, and on some jobs abnormally large profits were being made , whifcty others were on the margin, and in a few cases there was actually a lcss. This firm was able to carry on and make money because compétition in this line in Vancouver is not keen. If the firm was located in some large manufecturing centre, it would soon be compelled to carry its cont analyses much further than to the point of finding the Prime Cost, for two reasons: (l) It would be compelled to bid on contracts, amd the bidding would be more or less guess-work. If the bid gave a safe margin of profit, other firms would do the work for less, and if the bid was too low , it would get the job or contract , butlose money, and not know exactly how much. (2) By losing money on contracts • received, and by not obtaining the contracts where a safe margin was assured, the firm would find itself in the position of gradually going undér, much to the amazement of the management. The Interstate Commerce Commission actually found this condition prevailing among thousands of smallraanufacturingconcerns in the U. S. , and since thèse firms hâve installed cost Systems, many of them are now on a sound financial footing. What appl'ies to the U. S. applies to Canada. If this country is to become a sound manufacturing community, the first thing to do , it to train a small army of trained Cost  -- 50 — Accountanta. This is not heing done, because Collèges and Universities do not realise the position, Teachers and Prof essors of this work too, are scarce, because if a man is really qualified for the work, he finds it meny tirnes more profitable to practice his profession in sorneraanufacturingcity than to engage in teaching the work on a salary paid to collège nen. What are the indirect expenses to which we refer? The answer to this question will dépend entirely on the cless of business, and the line of manufacture, as well as to the proportion of machine opérations, and vice versa, However there are certain gênerai indirect expenses which are comrnon to ail manufacturing concerns, sorne of which are, Rent, Fire Insurance, Liahility, Insuranoe Taxes, Interest, Power, Light, Heat, Freight & CartageIn when not considered as part of the cost of material purohases, Over, Short Fc Damage Itéras, Misoellaneoùs, factory expenses, Maintenance and Repairs, Renewals and Dépréciations of Buildings, Dépréciations of Ma chinery, etc.» Patents, Pattems, Royalties, etc., eto. When Payinent i3 rnade on account of ail the above, with the exception of the Dépréciations, it is done through the Touchers Record and Cash Book, in a manner outlined above. Thèse are then posted to the débit sides of the respective accounts in the General Ledger, and are finally collected in the Mantifaoturing Account in that book. The Manufacturing Account or sorie similar account is then credited with the distribution, and the finished goods a'ceount charged with the arnount. The following entries will give then a suramary of what entries are made from the tine the Raw Mrterials are purchased to the time when they finally reach the Finished Goods Account. (a) Raw Materials are purchrsed for the purpose of manufacture. Raw Matériels Dr. Vouchers Payable Gr. When the goods are purchased.  Voueher Record Book  Vouchers Payable Dr. Gash Book Cash Gr. When the Voucher is paid by chèque. (b) Raw Materials are taken frorn the Stores on Réquisition and put in process of manufacture: Goods in Process Dr. Raw Materials Cr. For the cost of ail Raw Materials plrced in  —  ( 51) —  Procès3 of Manufacture. (o) Eaw Materials not nsed returned to Stores. Raw Meterials Dr. Goods in Process Or. For the cost of Raw M? terials returned to Stores, having been formerly requisitloned. (d) Raw Materials sold direct from Stores. Raw Materials sales Dr. Raw Lia terials Cr. Sale of Raw Materials direct from Stores. (e) Cash received for the sale of Raw Materials Cash Dr. Raw Materials Sales Cr. Reoeived for sale of Raw Materials. (f) When the Pay-roll is met, including both direct and indirect lahor. Direct Lut»or Dr. Indirect Lahor Dr. Voucher Record. Vouchers Payable Cr. Touchers Payable Dr. Cash 3ook Cash , Cr. Recording in Voucher Record and the Cash Book the payraents through the pay-roll. (g) When pryment is made for indirect expense of manu-» facturing. Rent Dr. Insurance Dr. Voucher Record Taxes Dr. Dr. Interest Power, Light Heat Dr. Vouchers Payable Cr. Passing entries for indirect expenses through Voucher Record. Vouchers Payable Dr. Cash Book Cash Cr. Paying voucher eovering indirect expenses.  (h)  When Direct and I n d i r e c t L< bor are di to the Fini."hed "oodo. FlRluhed Goodr? Dr. Direct -ebor Cr. I n d i r e c t ]>bor Cr. Churging the f inï r«hc-d rooda r-:th the oc; t c f d i r e c t ••.ru i n d i r e c t l'ibcr.  (1)  When Goodj in I r o c e a i are ehé-rr-ed to t ' e Fininhed Gooda. Fininhed Gouda Dr. froode in l'rooeao Cr. Charging Flniahed Gooda Aoootuit w i t h the ht w M a t e r i a l s Manufacture*.  (j)  Closing the I n d i r e c t "îxpennea i n t o Honufaoturi ag Account. itejwfncturing Account  Dr.  Rent Cr. Insurance Cr. Taxée Cr. Internet Cr. Power, Light Ho&t Cr. Charging the Manufacturirig ; ecount with the cent of the Indirect Exponaes actuflly incurred for the period» (k)  When the Uanufaoturing Kxpar.oea are dirtribr.ted. Flniahed Gooda  Dr.  IIt,nufnctr>r\np Aceount D i a t r i b n t i n g the Kxyenoea i n c l n d e d i n the ï.'anuf a c t n r i n g Account to Fîr.i.rhed Gooda A c c c r - t . (1)  When fini 'hed goeds ?;re ;"cld. Accounta Seeeirabîe Dr. Salea Book Sales Cr. Charging ou^torcers vri tb iYc «aléa of fïr.!r*bed gooda, >• When thesie ficor.ur.t:' are eell< eteà. Cash Dr. Soles Discount Dr. Caah rcok Acoeunts Eoceivahle Cr. For the Pajment of Créditera a ecount s  (ai) ïïher. the Ccst of Sales î ; credited te the FirSehed  __ 53 -Soods. Cost of Sales Dr. Finished Soods Cr. Charging the cost cf sales to the proi^er acceunt and crediting Finished Soods with ail Finished Gocds sold. DEPRECIATIONS Ho branch of accounting has received during récent years, more attention, thnn the study of dépréciations. The reasons for this are obvions. Since the tirne of the Industriel Révolution until the présent day, machinery has steadily replaced every h-nd opération possible. Adam Smith told us that it took 18 men^o make a pin; to- , day it takes 180 m en and hundreàs of machine opérations. Within the lost décade, the village shoemaker, Cabinet maker, ?/aggon maker, horness maker, hâve practically disappeared from the country village. The city factory makes ail thèse articles, r-nd it does it. largely by nachinery. LIodern factories are great machine storehouses where millionajcf dollars worth of capital is tiedup. The graduai absorption of the snaller firm by the larger, the graduai increase of the mimbers employeft tj the larger firms, and the rapid increase in the total values of machines used are the présent tendencies in manufecturing. I quote from the Annuel Report of the Department of Labor of this Province, to prove that the tendency towards larger manufacturing units prevails as well in British Columbir. On page 15 of the 1922 Report I find the fclloring: "Some attention ras attracted last year by a list given in our Annw1 Report of large indus-tri'" 1 firms of the Province v/ith r ?ay-roll of over 3100,000 for the year. In the returns received for 1921 there v;ere 110 such firms included; but this year the nuraber has grov/n to 164. Thèse figures take no account of any public authorities, Dominion, Provincial, or Municipal, or of the trans-continental railways, v/holesale and retail merchants, end deep-sea shipping. The greatest imprevement v/as in the lumbering industries, in vhich there v;ere 79 firms rho passed the §100,000 mark as ageinst 47 in the previous yearV Agein on page 10, "The salary nnd*v;age naynents made by the 2,809 firms durin?? the year ameunted to :}06, 192,190.75. This compares with o total of $79,748,300.10, paid ont in the previous year by 2,275 firms. The nmotmt paid to officers, superintendents, and managers, §7,730,624. 73, is rhout $500,000 more then in the previous year. The amount paid to purely .industrial wage-e&rners  — 54 — représenta an increase of nearly $6,000,000 over the previous year, the total for 1921 being $71,524,416.39*: With the increase in the size of the firrn nomes a proportional increase in the size of Plrnts nnd Î.'J chinery. The larger the capital investment in such, the Irrger the annual dépréciations. The decrease in value of a ratchine eosting $100,000 is n much larger item of overhead than the decrease in value of a $1,000 one. Hence the lprger the concern the greater is the capital investment in fixed assets, and the greater the loss in dépréciations. ^Por thèse ressens the management has fotind it necessary to give more attention to the finding of some scientifio raethod cf estimating this increasingly larger item of overhead. What is meant hy dépréciation: Professor Kester defines it as follows: "The loss erising from years of service, in the value of the investment in perishable property. It is the explred canital outlt-y'.' Earl A. Sali ers in his "îrinciplea o£ Dépréciation" says, "This loss of value whether tangible or intangible in form, resulting frora physical decay , or from obsolescence or inadeqiucy, which indicate functional decay, is knovrn as dépréciation. It nécessitâtes repairs,renewals, and replacements. Did it not occur, every out-lay on plant would add to the investment. It does not resuit from one cause but from many ceuses, and this sometimes leods to the helief that it cannot be scientificnlly handled. But some adéquate method of handling is not merely désirable but necessary to a solution of the probleçis arising in the valuation of public utility-prope'rties, and in the management of industrial enterprises generallyîf The causes are many, It is a lav; of nature, and this applies to fjnimate as well as inanimate objecte, that sooner or later, détérioration begins. There is nothing truer thah the U n e in the old hyinn which. says: "Change and decay in ail f- round I née'.' Such physical f retors as wear and tear; such funotional faotors as inedequr-cy '-ad Pbsolescence; added to thèse are accidents or contingent causes. The words "Decond-Hand" means a lessening in price. If you buy H new car today for $5*000 and use it a week, you cculd not sell it for 05,000 by a nargin of ^ anything lésa than 10^o. The psychological factor must never be omitted. Ail v.v chinery is on an irrésistible march to the junk heap. On the folloiving page I sht.ll give in abbreviated form a chart t/hich gives us in a concise form the chlef causes of dépréciation.  —  55  —  CAUSES 0? DEPRECIATION 1. 1.  Phyaical  <  V,'ear un& te- r fror.1 oper• etion  £. Decreptitude. Action of tine nnà the éléments  1 . Inadequrcy or Si:perses?,! on S.  Functioriel  C. O b s o l e r c e n e e . ( 1.négligence { T Pire ( { Lightning 1. ( ( Efiil A c c i d e n t s ( 2 . E l e - ( V/ater (ments ( V/ind ( ( Température  Tangible Prcperty  (  3. Contingent  (3. (1 (2. (3. ( (4. (5. 2 ( Diseuses ( (  S t r u c t u r a l Pefr-cts Parasites P o l l u t i o n of ïïater Grov/ths i n V/ater Uains; Electrolysis Cryatalliaation Minerai, Animal  Vegetable,  3 (A. ïïatural liiminution i n Supply( Gas (B. Water (  Intangible ( Property {  Right8  1. Limited in tir;>e. { ::. Abandoned.  M2ÎH0D3 FOR E3TIMATI1IG DEPRECIATION There a r e s e v e r a l rnethods now i n up.e, b u t none r r e l e s s s e i e n t i f i c thrm t h r t allov/ed by t h e Con^dian Incone Tax Act v/hich employs an n r b i t a r y method as f o l l o w s : On Conorete B u i l d i n g s , t h e a c t r e n d s , r l l o w 2;o, on b r i c k b u i l d i n g s , E&S, on frone b u i l d i n g s , 5}o, on P l a n t vn&.  -- 56 — Maohinery, 10$S, on Furniture and Fixttires 10fa, on Motor oars and Trucks- - vnrious rates. Who is to estimate the latter ? Is the déduction to "be made on the original value or on the diminishing value? I leave thèse queries with the reader. There are fourraethods,one of v/hich is now usually employed.• They are es follows: 1. The straight line method 2. The fixed percentage on dirninishing "balance nethod. 3. The annuity raethod 4. The production unit method. !•  In the straight line nethod the line of the asset is estinated and the cost of r.ueh asset less its scrap value is v/ritten off over such estinated life. A machine costing -131,000 estinated to last ten years» with a scrap value of $100 would he depreciated at the rate of $90 per year. 2. In the fixed percentage on dininishing "balance nethod it is customary to estimate a. minimum life of the esset and then depreciote on the remaining "balance after previous charges for dépréciation hâve "been deducted. In the case stated under lïo. 1, the dépréciation the first year at 10)o vvould be Ol^O» "the second year it would "be 10yo on the depreciated balance, or $90, and so on.. At the end of ten years there would still "be an undepreciated balance of about §348, v/hich would be either adjusted or further depreciated if the maohine'was still in use» Instead of estimating the rate of dépréciation at 10;o annually, nuch a rate may be determined upon as will exactly use up the cost of the machine during the period of its estinated life. 3. In the annuity nethod the plan is to estimate an amount which if annually set aside at interest, v/ould at the end of the life of the machine amount to the différence between cost and scrap values. This is a scientific method which is more correct than the two previous nethods, but is not often uped. 4. The production unit nethod contemplâtes an estinated life of a machine baaed on the amount of its production. If a given machine is designed to produce 1.000,000 units and costs $1,000 the dépréciation charge for each unit will be 1 mi11. In a month showing a production of 200 units, the dépréciation charge would be 20 cents on that machine, in text-bboks written ten years ago it was alv/ays recommended that the yearly dépréciations should be entered on the crédit side of the account, and the account closed, and the balance brought down to begin the next period. As follows:  - - 5? — Dr. 1923 Jan. 1  Balance  IIACKIE^RY ACCOUITT 1923 $20,000 Deo.31 D é p r é c i a t i o n Dec.31 Balance  $£0,000"  Cr. $1,000 19,000  % 16. ow  1924 Jan. 1 . Bel»-ne e $10,000 The modem method i s sonewhat d i f f é r e n t v.'ith t h e e x c e p t i o n s of c o m p a r a t i v e l y s m a l l e s s e t a c c o u n t s , such as f n r n i t u r e showing r. co:-t v e l u e of n o t more t h a n $500 o r even $1000. With l a r g e r fixed a s s e t n e c o u n t s , t h e o r i g i n a l aeeount r o mains u n o l o s e d , and i m n e d i a t e l y under i t i s added a n o t h e r a c c o u n t showin?? t h e r e s e r v e for D é p r é c i a t i o n f o r t h i s p a r t i c u l a r fixed a s s e t . Py t h i e method r- dxial s é r i e s of a c c o u n t s a r e o a r r i e d f o r each f i x e d and vrasting a s s e t . ïo I l l u s t r a t e : L e t u s suppose t h a t t h e f i x e d a s s e t i s lîachlnory, v/ith an o r i g i n a l v a l u e of $20,000, and t h a t i t i s d e p r e c i a t e d a t 10>b per annuio. The r e c o r d s f o r tr/o ? r e^ra' d é p r é c i a t i o n v/ould De r e c o r d e d as f o l l o w s : Dr* 29gg Jan. 1 Dr.  Machinery Cost  Cr.  $$20,000 RESERVE FOR DEPRECIATION ON  Cr.  LIÀCHINEHY  1922 Dec. 31 1923 Dec. 31  Dépréciation  $1,000  Dépréciation  $1,000  I n t h e Balance 3heet the TT* c h i n e r y Account v/ould appear as follows: A33ETS ?IXED  Machinery Less: Reserve for Dep.  .^20,000.00 2,000.00  $18,000.00  The one Important advantag»* of t h i a method over the p r e vious one i s t h i s : In b o t h t h e b a l a n c e s h e e t and i n t h e a o c u n t i t s e l f t h e o r i g i n a l c o s t of t h e machinery i s never l o s t s i g h t of« In tho p r e v i o u s nnd old method, n f t e r  —  58 --  several years* dépréciations hâve been entered and the original account closed as many times, the original cost vvill be buried under the raass of figures and nuniber of "closings'.' Another advantage is also usually given. It is this: If an old machine is sold, the adjusting entry is more easily made and more easily unâerstood. To illustrâte frorn the above: One of the machines in the above, costing originally 0500 is sold. A glance at the Reserve Account shows that the original cost has been "Written down" 10;o, or 5$ for two years. If the machine is sold for the amount it now "stands" on the books, the sellihg price rnust be §450. If suc h a price is ohtained the adjusting entry will now be as follows: Cash Dr. Reserve for Dep. on Machinery Dr. Ma chine ry Ac c ount  $450 50.00 §500.00  After the above entry has been posted the accounts will appear as follows: Macninery Account will now show a débit balance of $19,500, which représenta the exact buying price of the machinery now on hand, while the Reserve for Dépréciation Account will show a crédit balance of $1,950'or the dépréciation written off the the §19,500 for two years at 5fo per year. The advantage is selfevident. DISTRIBUTION OF FACTOBY 0YERII2A3) Dépréciation is, as we hâve Been, a cost component, and must be distributed the same as any other overhead. As pointed out above, this élément of cost is often disregarded, but the ever increasing value of the machinery used in modem fnetories nécessitâtes a closer attention to this cost factor, as v;ell as a more scientific method of estiraating this dépréciation and a correct method of distributing, it. We hâve seen that Materials an? Direct labor together constitute the Prime Cost, but we hâve a!5*se seen that many other charges accrue in the modem factory system. The whole problem now is to find some method of estimating jnst how much of this Oneost is chargeable to each job, contract or process. Diagrametica'lly the problem présents itself as follows. Indirect Labor Oncost or Power Pacte ry Foreiaen Expens e Light Man.Expense etc. Eeat .'  ;)50.00 60.00 100.00 9.60 20.70  - - 59 — Repairs :J 1 6 . 5 0 Depreoif-. t i o n l 6 . 8 0 .Taxes 9.60 Totale if 2 8 3 . 2 0 Job 1 . Materials Labor Oncost Total Coat  &57.60 16.90 ? ?  Job 2 . $56.90 3.80 ? ?  Job 3 . 0iïueo 1.80 9 8 . 6GO 0  Job 5 . Materials $158.70 Labor 98.00 Oncoat ?_ Total Cost ?  Job 6 . $56.80 650.50 ? ?  Job 77.. $!^S 5 66..8800 .60 ?9 ?  Job 4. .'$50.00 50.00  9  •?  Job G £50.00 75.00 ? 7  Eow much o f t h e $ 2 8 3 . 2 0 s h o u l d lie c h a r g e d t o ench o f t h e eight jobs? The v t ' r i o u s rnethodr: w l l l b e d i s o u R P e d on t h e n e x t and f o l l o w i n g p a g e s . On t h e method c h o s e n w i l l d é pend t h e t o t a l c o s t of each of the e i g h t j o b s , a q u e s t i o n o f e r a i n e n t i m p o r t a n c e t o t h e m a n u f a c t u r e r , r.nd e s p e c i * l l y so i f c o m p é t i t i o n î s k e e n . 30MS METH0D3 OF DISTRIBUTION 1.  D i r e c t L a b o r C o s t I^ethod T h i s method i s b a s e d on t h e t h e o r y t h a t t h e p r o d u c t i n c r e a s e s i n v a l u e i n p r o p o r t i o n t o the o o e t of l e b o r e n t é r i n e i n t o i t , and t h a t t h e p r e ? t e r t h e a a - u n t c f l f b o r i n v o l v e d i n t h e p r o c e s s of m a n u f a c t u r e t h e g r e a t e r t h e e x p e n s e r e q u i r e d t o s u p e r v i s e t h e l a b o r and concluct t h e f a ' o t o r y , o r s h o p , r n d t h a t , c o n o e q u e n t l y t h e b u r u e n Bhould be d i s t r i b u t e d i n t h e p r o p o r t i o n V the l a b o r errroloyed on a p i v e n j o b , c o n t r a e t c r p r o cefio b e a r s to* t h e t o t a l v/àges p a i d f o r t h e p o r i o d of time. T h i s m e t h o d , V" r e a â o n c f 'i t a s i n p l i e i t y , 1s t h e one rnost comrnonly u s o â . I t i a hov/ever, t h e l e a s t r c i e n t i f i c and i s l i k e l y t o d ' . f n p p e a r pr? clu- l l y fcc _ b e t t e r methods a r e a d o p t e d . The r a t e t o b e u c e d i n d i s t r i b u t i n g t h e b u r d e n by t h l a n e t h o d i s feund by s i m p l y d i v i d i n g t h e t o t a l <-. :our.t of e r t i n a t e d r.vîïuf a o t u r i n g e x p e n s e s f o r t h e p o r i o d by t h e t o t a l c o s t of t h e d i r e c t 1.abor f o r t h e same p e r i o d o f t i m e . Illustration: T o t a l f» c t o r y e x p e n s e o r s v e r h e a d ;jL000 T o t a l r/ïigec f e r t h e sa ne p e r i o d 3000 The p e r c e n t a g e o r r a t i o o f p a c t o r y e x p e n s e t o v.Tper la, t h e r e f o r e , 1 ; 3 , o r 3 3 1/3,0.  - - 60 - IIODS 0? piBgElEU'JIOH  Cont.  I f a joh has c o s t ;j£>0 f o r M a t e r i a i and $27 for Lrcbor, "the t o t a l cost shoulcl b e ; iiit u G j r i B j . s » . • • • • • • • « » • • » . » • • i JAJU » uu Labor.. '27.00 Oncost ZZ l/'â-l of O^V 9.00 T o t a l C0 3t to make ffi6.00  Critloisms:  (a)  (b)  Sone a r t i c l e s s t i l l require o l a r g e margin of expenses due to d i r e c t labor, v;hile cthera may be ronde v/ith u very sn'ill «nouât of hand labor, the l a t t e r being ecnpleted alraost c r t i r e l y by machinery. If the i n d i r e c t expenses are d i s t r i b u t e d by the above nethod, the a r t i c l e requiring the mest hand Isbor v/ill be chargea vvith too l a r g e a share of the oncost, v-hile conversely, those a r t i c l e s v-'hieh «re r l n c s t e n t i r e l y nachine-made, w i l l be charged vrith too s n a l l a proportion of the oncost, and y e t , ? n:/ arodueing agent such as rnaohinory, eupht to hear s higher proportion of the oncost, becnu.se M g r e a t e r fixed c a p i t a l i s necessnry in n factory i n v/hioh the v>crk i s done l a r g l y by ,»f chinery. Theoretical économiste, oyerlook thi's fi'et vîirn they tel?, us t h a t hond-m^de a r t i c l e s nre rmcli nore expennive to nake th n n mnehine-rnade a r t i c l e s . Their contention i s t m e as far ns i t foes, but they may base t h e i r argnements on the fa et t h a t in the'same factory s orne spécial a r t i c l e roqairing hand-labor" nlmos't e n t i r e l y , v/ill cost n great déni nore th un the saine a r t i c l e woulo. cost, i f i t coula be made by machinery. I t may not , i n r e r l i t y cost se rnuch nore, i f the rnethod of dis t r i b u t i n g overhead, or oncost vvere more scient!fie. I n f a c t o r i e s where the v/crk i s done alrnost e n t i r e l y by machinery, d i f f é r e n t types of machines turning out the same a r t i c l e by d i f f é r e n t raethods may r e quire the same amonnt of labor, but différent amonnts of oncost, due to v a r i a b l e uses of power,tine e t c . , Two types of machines nre used for producing r i v e t s . In the f i r s t type a single révolution of the f l y wheel produces r. nerfect r i v e t , v/hile in the 3econd type (oalled the four-hainmer machine) four révolutions of the fly-v/heel are neoessary. The labor cost i s -.-rractically the same in both, but  — 61 — the i n d i r e c t c o s t on the second machine i s h i g h e r t h a n on t h e f i r s t . The c o a t f o r d i r e c t l a b o r f o r mnking r i v e t s on h o t h machines, b e i n g the saine, the i n d i r e c t c o s t would he a p p o r t i o n e d e q u a l l y , and y e t t h e a c t u a l copt of making r i v e t s on t h e second machine i s Rrach h i g h e r t h a n on t h e f i r s t . I f t h e two t y p e s a r e used i n t h e saine f a c t o r y ( as the y o f t e n a r e ) , i t i s é v i d e n t t h a t sorne o t h e r rnethod s h oui d he nsed f o r d i s t r i h u t i n g t h e Oncost. 2 . P r o d u c t i v e Lebor Hour Ilethod Under t h i s rnethod t h é t o t a l p r o d u e i n g honrs of 1E hor a r e reduced t o a "per-raan h o u r " b a s i s . Por e x a m p l e ' i f a P l a n t employa 200 workrnan, each of whom a v e r a g e s 3000 hours ]->er y e a r , t h e t o t a l tirne of the e n t i r e « o r k i n g f o r c e w i l l be 600,000 man-hours. I f we d i v i d e t h i s tirne i n t o t h e t o t a l i n d i r e c t e m e n s e s f o r t h e y e a r the r e s n l t w i l l g i v e the d i r e c t expense p e r man-hour. To the Prime Cost of eny p i è c e of work i s added t h e p e r man-hour r a t e , deterrnined a s above, m u l t i p l i e d by t h e nurnber of p r o ducing rnan h o u r s s p e n t upon t h e j o b . This rnethod i s p r é f é r a b l e t o t h e ^ B i r e c t Labor Cost Ilethod" b e c a u s e t h e g r e a t e r nurnber of hours devoted to the work, the h i g h e r w i l l be t h e amount chargea f o r t h e i n d i r e c t e x p e n s e s , i r r e s p e c t i v e of l a b o r c o s t . Criticiam This rnethod i s p r é f é r a b l e t o the f i r s t rnethod because i t i s more s c i e n t i f i c and becans e i t e o u a l i z e s t h e c o s t more a c c u r e t e l y i n a f> c t o r y where l a b o r and machine work v a r y w i t h ever;/" .job completed. But l i k e the f i r s t rnethod i t g i v e s only the average r e s u i t i n s t e a d of a d i r e c t assignaient of t h e e x a c t c o s t of the a r t i c l e produoed. 3 . Prime Coat Ilethod Thisrnethodis similar to the first, except that the Prime Cost (Labor end Mfterial) is used instead of the Labor only. I l l u s t r a t i o n : T o t a l f a c t o r y expense o r overhead $1,000 T o t a l Wages 4,000 T o t a l lia t e r i a l used 2,000 The p e r c e n t a g e or r a t e of f a c t o r y expense to Prime Cost i s , t h e r e f o r e , 1:6 or 16 2 / 3 $ ($1,000: $4,000. plus $2,000). I f the job has c o s t $30 f o r l a b o r and ;p50 for Ha t e r i a l , the t o t a l c o s t would b e : Materials $50.00 Labor 30.00 Prime Cost 380.00 Oncost (16 B/35S of ;$80) r1 5 . 3 3 T o t a l Cost "T 9373T~  —  62 —  Machine Hour Rate I.!ethodj_ By thisraethodrëfToîijob is chargea, v/ith the oost of operating the rarchine, this cost including interest on investment, dépréciation, repairs, rent, fbased on the floor spaoe occupied by the mrchine) insuronce, wages of the operator, and »11 the varions other charges that are included in the cost of operating the machine. It is the most sciontific method, and for this reason the most difficult to operate; the eceountant must be an expert, and even cost accountants are not always compétent to apply the System. If the factory is equipped v?ith machines of the eeme type and size, the diffioulty is not as great, since uniformity in any line is more simple than diversity. If the machines are not uniform a portion of the diffioulty is overcome to some extent hy grouping the machines into a production factor or centre. Jïïhen the production factor is used the factGr may include not only the machines, but also v/orkmen's benches, or even an open space used for assembling parts. ASCERTAIITIITG THE IIAIIUFACTURINP EXPEÏÏSE It is not practicel to ascertain the exact amount of the oncost for the period, except under spécial conditions, and this diffioulty is overcoraeby trking the Oncost of the next preceding period. Generally, the average oncost for a number of preceding periods is distributed over the period. \7hen this is done the year is usually divided intc a number *cost periods" sometimes tweljftve, sometimes four, sometimes two, depending on the size and output of the factory. Unless "the output reaches at least half a million per armum, I should not advise more than the quarterly division . APPLICATION 0? THE ABOVE IITAHODS For the purpose of applying the above nethods I hnve selected a problem which appeared on the O.P.A. Examinâtion pnpers ofïïieconsinin 1915. I sh? 11 first give the problem as it appeared on the paper, >nà then I shall submit my solution of it: The Problem: (a)  From the following data, illustrate the four methods of distributing the indirect expenses of a factory to production:  -(03)-The Problem cont.. Dept. A. Dept. B. Dept. C. Matériels ^57ôlJoTo"o $L0,000.00 $5,000. DO §5 Productive Wnges P,500.00 3,200.00 3,500.00 Productive Labor Koure 8,000.00 10,000.00 5,000.00 4,000.00 I n d i r e c t Bxpensea C,500.00 ,000.00 The factory is supposée to run r;,40Ô hours a year. Apply the results chtainei* in "a" to the facte given below for job Ho. 10, in order to show the différent total job costs obtained by each of the méthode. Assume the matériel and labor (value and tirr.e) chargeable to job 10, to be as follows: Dept. A.  # 1.00  Material Labor Value Labor Houre  1.60 4  Dept. B.  Dept. C. Total  $.00 ' § ï.tJO 1.50 3  $4'. 00  1.05 3  4.15 10  THE SOLUTION (a) Direct Labor Coet Method Dept A. Indirect Expenses Wages Paid Results obtained  Dept. B.  $4.000 |S;SÛO 125$*  Dept. C $£,800  §3,500 100>o  805*  Productive Lebor Hour Method: Indirect Expenses Labor Hours Results obtained Prime Cost Method  Dept. A. $4.000 "" 8,000 50^  Dept. B.  Dent. G.  ss.soo 5,000 50/  10,000  De-ct. A. Indirect Expcnses Materialfi:Labor Results  obtained  2,800 Dept. C. B;5ÔO  4,000  13,800 30.355  33 l/3>»  32.94;ô  -- 64 — Solution cont.. 4,  Machine Hour Rate Method: Dept. A.  Dept. G.  Der> u.  I n d i r e c t Expansés Machine Hours  4,0QQ 2,400  Résulta obtained  #1.66 2/3  2.800 2,400  2,500 ~2~74~00~ $1.04 l / ô  $1.16 2/3  (h) We shall now apply the reaults obtained in "a" to the facta given for job 10. Material Labor F a c t o r y Burden T o t a l Cost Job  D e p t . A. $1.00 1.60 2.00 $ 4.60  io  _ B . D e p t . G. T o t a l "52,00 ~ ÇL.00 $4.00 1,50 1.05 4.15 1.50 84 4.54 ,F â 5.00 à 2.89 T2749" :—  *•  •±  The burden in each department waa obtained as follows: D e p a r t m e n t A, Department B. D e p a r t m e n t C. 2.  125$ of $1.60 equala $2.00 100$ of $1.50 1.50 80$ of $ 1 . 0 5 .84 -g4T3T Total  D e p t . A. Dept. B. D e p t . C, Total Material $ 1.00 $1.00 ' $2.00 Labor 1.60 1.05 1.50 4.15 B a c t o r y Burden 2 , 0 0 .84 1.50 4.34 T o t a l Cost | 4.60~ "57D73 $12.49 Job. 10 The Burden in ench Department was obtained as follows: D e n a r t m e n t A. 4 h r s . © 50c' equals $2.00 Department B. 3 H r s . © 50^ " 1.50 D e n o r t m e n t C. 3 H r s . ©28 jf " . .84 Total g 4.54 ( P l e a s e n o t e t h a t t h e n e t r é s u l t a o b t a i n e d by t h e a h o v e two d i s t i n c t l y d i f f é r e n t m e t h o d s a r e i d e n t i c a l ) Deut. A Dept.B, D e p t . C< Total Material $1.00 Ip^OÔ" $ 1.00 $4.00 Labor 1.60 1.50 1.05 4,15 P a c t o r y Burden .79 1.17 .68 2.64 T o t a l C o s t Job 35753 $2.73 $10'. 79 • ( ;4.67 10  — 65 — The Burden i n each Department v/as o b t a i n e d as f o l l o v / s : Depté A. Dept. B. Dept. G.  30.3% of SE.60 33 1/3 cf :|3.50 32.94$ of $8.05  ( M a t e r i a l à Lrbor) ( » ) ( " " ) Total  is is is  .79 1.17 .68 g2.64  4.  Dept. A. Lia t e r i a l &L.00 Labor 1.60 Factory Bur-b*65 den T o t a l Cost ^9.25 • Job. 10  Dept. B. C2.00 1.50 3*12  Dept. o. §Ï7Î50" 1.05 5.50  §6.62  $5.55  The Burden i n each Department « a s o b t a i n e d Dept, A. 4 hoairs Q : | l . 6 6 2 / 3 equfils Dept. B. 3 hours CI $1.04 1/6 eouals Dent. C. 3 Hours ^ $1.16 2 / 3 e q û a l s Totala  .  Total $.4.00 4.15 13.27 $ 21.42  as follov/s : $6.65 33.12 §5.50 &L3.2  LIAHUPACTUBINQ STATUENT S On pages 10-13 we made an analysis of the business of an ordinary trading concern, v.'hieh made no^ attempt to distinguish the cost of manufactnring from the cost of the goods sold. We are now in a position to ùnderstand statements of a more advanced type, i.e., Those which show the cost of goods manxifactured as well as the cost of goods sold. Foi; the purpose we shall sélect two problème from widely différent sources, one from the examinations of the Institute of Ghartered' Acconntants of Ontario, the other from the final O.P.A. papers of the State of Louisiana, of 1915. The first problem appeared on the Ontario C. A. Papers os followa: The Trial Balance of s nanufacturing oonpany on the 30th of April at the end of a month's opération shows as followa: Cash on hand in Bank $5,357.50 Accounts Beceivable 136,650.50 Raw Materials 96,800.00 Inventory March 31, ;|38,500.00 Purchases 58,300.00 Work in Process 45,000.00 Inventory March 31 33,300.00 Productive Labor • 11,700.00 Pinished Goods 15,800.00 Inventory March 31 15,800.00  - - 66 - T r i a l Balance Continued Lîachinery & Plant .104,000.00 Office Equipaient 4,200.00 Deferred Charges 1,882.50 Goodwill 50,000.00 Aocounts Payable Accrued Wogea Réserve for Bad Debts Réserve for Dépréciation, Plant & Maohinery Reserve for Dépréciation Office Equipnent. Capital Stock P r o f i t Pc IOSB Balance Mar.31 Factory Overhead §9,265.00 Seneral Overhead 17,696.50 Warehouse & Shipping Bxpense, $5,800.00 S e l l i n g Expenses $ 7,500.00 Office end Administrative Bxpense, :|3,800.00 Discount on Sales $ 596.50 Net Sales §466,660.00  121,345.00 800.00 4,877.50 22,500.00 800.00 225,000.00 28,837.50  62 y 500.00 0466,660.00  I t i s noted.however, t h a t a nunber of e n t r i e s hâve not v yet "been nade re the following. 1.  3.  Raw Materials ioaued froin s t o r e s âuring the mor.th, $42,785.00. The Produotion of the factory for the n o n t h . a t Factory cost, anounted to ;?52,300.00 Plant and Lîachinery hr.n aenreciated a t the r a t e of 10vo per annum. Office Equipraent has depreciated at the r a t e of 10> per rmnum. Wages in a d d i t i o n to nmount already provided for Prodxictive Lnbor enount to $900. Wages i n a d d i t i o n to amount P l r ' " d y j .rovided for NonProductive Labor anount to 0250.00 I t i s estimr.ted t h a t lg/o of the Sales T?ill be Bad Debts. Factory Overhead la to be epportioned on a b r e i e of 80)o of Productive Labor. General Overhead i s to be d i s t r i b u t e d on a b a s i s of 50^o of Factory Co?t. The Factory Cont of the r-oods PO3C5 fer the nonth i s $37,150.00 „ •  4. 5. 6. 7. 8. 9. 10.  -- 67 -Trial Balance continued. Pron the abcve prépare: (a) Journal entries tdjusting the ebcve. (h) Detailed Ledger Accounts for Raw Ivlrteriale, Work in Process, Finished Goods, Factory Overhead, and General Overhead. Explain what the "balance représenta in each of thèse accounts. (c) Reviaed Trial Balance of the Général Ledger, after the edjuatnents hr.ve heen rnade.  (a)  THE SOLUTION Work in Process §42,785.00 Raw l'aterials Charging work in Process with the Raw Matériels requiaitioned fror.i Stores for the purpose of manufacture. Finished Goods #52,300.00 Work in Process Charging the finished goods aocount w? th the goods transferred fron the Factory to the Salesroom.  Foctory Overhead Reserve for Dépréciation on Plent and Unchinery Reservinf? for Deprnointion et the rnte of 10$ on Plant ,:nd LIachinery..  :)42, 786.00  $52,300.00  700.00 $700.00  General Overhead 35.00 Reserve for Dépréciation on Office Furniture Reserving for Dépréciation at the rate of 10$ on Office Furniture.  35.00  Work in process 900.00 Wages Aocrued Adding the Accrued and unpaid wages to the Work in Process.  900.00  — 68 —  The S o l u t i o n ConW F a c t o r y Overhead $250.00 Wages Accrued Adding t h e accrued and tinpaid n o n - p r o d u c t i v e wages t o the f a c t o r y once s t .  General Overhead $937.50 Reserve f o r Bad Debts Reserving lfcj> of t h e Sales f o r Bad Debts.  Work in Prooess 10,080.00 Factory Overhead Distributing the Factory Overhead on the basis of B0:/o of Productive Labor. ïiniahed Goods 18,575.00 General Overhead Dintributing the General • Overhead on the basis of 505» of Factory Gost.  Cost of Sales $ 55,725.00 Finished Goods Charging the Cost of Sales Account with the total cost of goods sold.  $250.00  $937.50  10,080.00  18,575.00  $55,725.00  (h)  Dr.  RAW MATERIALS  OR.  Mar. 31. Inventory ;|38, 500.00 Work in Process 0*2,785.00 Api. 30 Purchsses 58.500.00 Balance 54,015.00 * ' $96.800.05" 396.600.00 1923 .... • May 1, Balance #54,015.00 This balance représenta the raw matériels on hand at the lseginning of the fcllowing month.  — 69 - Dr. WORK III IHOCESS T9"23 Ï^2S H a r . 31 I n v e n t o r y $ 3 8 , 3 0 0 . 0 0 April A p i . 30 P r o d u c t i v e Le "bor 11,700.00 30 Rnw L l a t e r i aie 42,785.00 30 A o c r u e d ïïrgea 900.00 30 P î ï c t o r y O v e r head 10,000,00  Z  CR 30.FirJ.shed Goodg $ 5 2 , 3 0 0 . 0 0  A p r i l 30 B a l a n c e  $ OB!vSslOQ—  1923 Api» 30 I n v e n t o r y  46,465.00  % 98,765.00"  46,465.00  T h i a i n v e n t o r y r e p r é s e n t a t h e poeda i n t h e p r o o e a s of manu f a c t u r e a t t h e h e g i n n i n ç r of t h e f o l l o v d n g m o n t h . FIIII3IIZD nr00D3  Dr. M a r , 31 A p i . 30 " 30 •'  Cr.  Inventory $ 1 5 , 8 0 0 . 0 0 A p i . 30 C o e t o f Work i n r r o o e a s 5 £ , 3 0 0 . 0 0 S a l e s C 55,725.0*) G e n e r a l Over»* head 10,575.00 Api. 30.Balance 30,950.9) Q 06,675.00" 1^6,675.0)  9  y3l Inventory 0 30,950.00 T h i a i n v e n t o r y r e p r é s e n t a t h e f i n i f i h e à g o o d s on hr.nd a t t h e b e g i n n i n ç : of t h e f o l l o t / i n p n o n t h . Dr> Î923 Ha*. 31  Api. 30 rt  30  1923 May 1 .  G3SHEBAL OYaKIISAD 1 £ J23 Ba-nce $ 9 , 2 6 5 . 0 0 A p i . 30  Cr. Work i n  Proceee  $10,080.01)  Bflanoe  125.Op  Plant Deprecivtion 700.00 lion-productive Acorued WapeR 2 5 0 . 0 0  Inventory  T h i s "balance f e p r e ^ e n t a pn I.îny 1 .  A p i . 30  . $135.00 t h e u n d i s t r i h u t e d F a c t o r y Overhead  L.  --  70 —  Dr. GEITERAL 07ER7I3AD CE. 1923 19E3 Api. 3 0 . Warehouse & S h i p Api.30 PiBished p i n g Experts es $5,000 goods $18,575.00 " 30 S e l l i n g Expenses 7,500 Api. 30 Balance 94.00 30 O f f i c e and Admini s t r a t i v e Expenses 3,800 "T 30 D i s c o u n t s on S c i e s 596.50 * 30 D é p r é c i a t i o n on Office F u r n i t u r e 35.00 " 30 E s t i m e t e d Bad Dehts 937.50 ft 18,669.00 $ 16,66"9TÔ0~ 19^a MBy 1 . Balance # 94.00— 3*&is "balance représenta the undistrihuted General Overhead on May I s t .  (Solution to Part ftC" on the follov/ing page)  — 71 — c)  RSVIS5I' 'JRIAL BALA1JCE, APRIL 3 0 ,  Cash Acccunts Receivable Rew LÏPterials Wôrk in Process Finished Goods Machinery & Plant Office Equiprnent Deferred'Charges  1925  ;|5,357.50 136,658.50 54,015.00 4-6,405.00 20,950.00 84,000.00 4,200.00 1,882.50  Ooodwill 50,000.00 Accounts Payable Accrued V/aprea Heserve for Bad Debts Reserve for Denricistion Plent & I'achinery Reserve f o r Dépréciation Office Equipaient Capital Stock P r o f i t St Loas Balance Pactory Overhead 135.00 General Overhead 94.00 Cost of Sales 55,725.00 $ 469,482.50  $121,346.00 1,950.00 5,815.00 23,200.00 835.00 £25, 000.00 28,837.50 62,500.00 _ Q469,482.67T  The second proble-n I submit i s tnken frbm the O.P.A. Association Ex^ninf-tion pupera of the State of Louisiana, for the yoar 1915 . The problem i-ppeared on the pBper as follows: The follovrinp i.s the. t r i a l balance of the United Cotton H i l l s a t the close of business on Peceraber 31, 1934. Innda §230,450.00 Buildings & I.Irchinery 360,000.00 Dwelliiujs 10,000.00 Addition;: ?«nd Iraprovereenta 9,500.00 Cash 15,400.00 Accounts Receivable 100,375.00 Advances to Employées 350.00 I n t e r e s t on Bonds 5,500.00 I n t e r e s t on DinoountslO,000,00  - - 72 - Revised T r i a l Balance C e n t . , I n v e n t o r y , December 3 1 , 1 913: Monufaetured Ooods Goods i n P r o c e s s EDW Cotton Discounts Cotton Pur chas e d Maintenance and René 1rs labo r Fiiel & S u p p l i e s Dyeing Expense S e l l i n g Expense Salaries Office Expenses P o s t a g e , Telegrams e t c . , Insurance Taxes I n c i d e n t e ! Expenses Real 3 s t a t e Expenses Cn-oital Stock F i r s t lïortgage Bonds Hôtes Payable Account s Payable Snles-lîarruif'ctured Goods Sel es ïïaste Rent P r o f i t & Los s  $50 ,500.00 34 ,000.00 5 ,500.00 1 3 ,150.00 346 ,000.00 10 ,560.50 100 ,285.50 35 ,000.00 37 ,£50.00 6 950.00 1 3 ,500.00 o  ,100.00 050.00 750.00 n 500.00 O 1 150.00 530.00 O  $1,407  :}400t 000.00 100,000.00 150,000.00 S,500.00 650,505.00 10,100.50 960.00 93,£05.50 351.00$! ,407,351.00  The Inventories on Peoerber 31, 1914 wera as follcwe lïanufactured Goods Goods in Process of Unnufacture Raw Cotton on Ha nd Puel fe S u p u l i o s  $43,6£6.80 35,000.00 6,500.00 1,789.60  During t h e y e a r t h e f a c t o r y produced 2,710,200 I h s . , of c o t t o n goods. Trepf ici I n s u r a n c e v.-as §750; uuearned i n t e f e s t $2,500: f a c t o r y n a y - r o l l s a c c r u e * , tmt n o t p a i e $970. The f i r a t Mortgage Ponds ont s t a n d i n g "bear i n t e r o s t a t t h e r a t e of 6$ p e r unnvn, p a y a b l e Berni-annually on June 1 end December 1 . A r é s e r v e of $2,350 shou!d Le made for d i s counts. At a meeting h e l d on December 3 1 , 1914, the Board of  -  73  D i r e c t o r s d e c l a r e d a d i r i c î e n d of 6^0 on t h e c o p i t & l e t o o k p n y r o l e on Jam>ary 1 5 , 1 9 1 5 , raid r e n e r v e d (-18,000 f o r d e " rreeietion. 'Ton trie "G B ^ P r e : ( I j C l o w n s ï ï n t r i e s , ( 2 ) 2 x h i " b i t of o p é r a t i o n s encî P t a t e ^ o n t o f r r o f i t end l o s e , ( 3 ) B a l a n c e Shoot nhov.lnr- t h e c o n d i t i o n of t h e Company on l e c e r / b e r 3 1 , 1 - 1 4 . {4} H e t n r n o f a r m u n l n e t incerne u n d e r I n c c r e Tax Lav:. OLU'JIC i* (1)  *. "**\ . - v . - r - -  i. w  SC BLEU  l i t n - i f a c t n r e d Gocds I r . v e n t o r y ( B e w ) Goods i n P r o c e s s (Uew) RÎ;W C o t t o n (llev/j F u e l 1 S u p p l i e s I n v e r . t o r y (llev;) Uarm f a c t u r e d G 0 o d s ( 01 d ) Cotton in Process (Olâj Cotton Inventery (Old) Puel h Supplies  Unexpired I r s u r o n c e Inirrranoe  I n t é r ê t t P t i d i n Advtaice I n t e r e s t k Diucounta  Iabor Muge® A e c m e d  Interest 0r; Bonds Intérêtt Aocrued or Bondo  Discount Réserve on DincountH  D i v i d e n d s iiee'.U>red Dividonds pnyoble  043,028.80 35,000.00 6,500.00 1,7C9.G0  43,028.60 55,000.00 C,500.00 1,709.GO  750.00 750.00  C 2,500.00 500.00  970.00 970.00 500.00 500.00  2,350.00 2,350.00 24.000.00 24,000.00  —  74 --  Solution Continued P r o v i s i o n for Réserve f o r Dépréciation Oie ,000. 00 Reserve for D é p r é c i a t i o n 18,000.00 3 ' i l e s - U a n u f a c t u r e d Goods y 650 505, 00 10 ,100, 50 o u ï e s Waste Rent 960,,00 00 Goods i n P r o o e s s - I n v e n t o r y 000, 11 00 Cotton Inventory 000, 1, I n t e r e s t on Bonde 6,000.00 I n t e r e s t & Discounts 7,500.00 Menufactured Goodc I n v e n t c r y 6,671.00 Discounts 15,500.00 Raw Cotton 346,000.00 Maintenance & Repaire 10,560.50 Lîibor 101,£55.50 Fuel & SupplieB 33,210.40 Dyeing Expansé 37,250.00 S e l l i n g Expertse 6,950.00 Salaries 13,500.00 Offioe Expense 2,10C.00 P o s t a g e , Tel é c r a n s & Téléphone 3,050,00 Insurence 2,000.00 Taxes 3,500.00 Incidental Expertes 1,150.00 Real E s t a t e Expense 530.00 Provision for Dépréciation 16,000.00 P r o f i t & -Loss 4B,637.90 P r o f i t & Loss Dividends D e c l s r e d  $£4, 000. 00 P4,000.00  (2)  UITITED COTTON HILLS LIKITSD PROFIT & LOSS ST^T^ilDlIT JÀIIILÙRY 1 . 1914, to DECKL&ER 3 1 , 1 9 1 4 . SALES î ï a n u f a c t u r e d Goods Lésa:Discounts  $650, 505.00 15,500.00  0635 ; 005 .'US Waste  10,100.50  645,105,  to  -- 75  — SAIES, Cont.  §645,105.50  Beduct COST OF G-QOLS SOLD: Raw Materials Purchased $346,000.00 Less; Increaae Inven tory 1,000.00 Labor Fuel & Sirrplies Dyeing Expense Maintenance & Hepairs Total Lésa Inorease in Inven tory, G-oocls in Procèss of Manufacture  $346,000.00 101,255.50 33,210.40 37,250.00 10,560.50  §527",276.40 1,000,00 § 526,276.40  AJXD: Decrease in Inventory, Mo:rru$6.871,20 factured goods GR0S3 PROFIT OH SALES SELLIHG EXEEÏÏSES HET PROFIT OH SAIES Deduct ADMINISTRATIVE EXPSÎÎ3ES: Salaries Office Expenaes fostage Telegroms & Tel. Incidental Expenses Insurance Taxes Bond Interest Interests & Discounts Real Estâte Expense Dépréciations (less: Incoroe from P.ent)  $533,147.60 '  5111,95'/. 90 ' 6,950.00 §105,007.90  $13,500.00 2,100.00 3,050.00 1,150.00 2,000.00 3,500.00 6,000.00 7,500.00 530.00 18,000.00 §57,330.00" 960.00  Het PROFIT FOR THE YEAR  556,370.00 " §48, 637". OÙ '  Deduct DIVIDEHD DECLARED: Profit Added to Surplus  24,000.00 " §24',"637, 90  Add: PRE7I0US SURPLUS: Balance carried from iiast Year SURPLUS A3 PER BALANCE SHEEÏ  $93,285.50 $ 117,923.40  "  --  76 —  3. UîTIgED COTTOII HILLS BALANCE SHEET DECSHBBR 3 1 , 1914 ASSETS CUERMT: Cash  $15,400.00  Accounts Receivable $100,375.00 Less: Reserve for Bad Lebts 2,350.00 98,025.00 Advances to Employées 350.00  §113,775.00  WOBEIHS & TRADING: Manufaoturered Goods Goods in Process of Manufacture Raw Cotton Fuel 8c Supplies  $43,628.80 35,000.00 6,500.00 1,789.60  86,918.40  FIXED .^230,450.00 Lands Buildings & Machinery $360,000.00 Less Reserve for Dépréciation § 18,000.00 342,000.00 Dwellings 10,000.00 Additions & 9,500.00 Improvements  591,950.00  Deferred Charges Insurance Unexpired Interest Paid in Advance  750.00 t 2500.00  3,250.00 | 795,893".40  BÀU:;CK  sn-T  r-zc-a^HB^ 33 t J.vi4 jtfApiU?I£  Iîot«8 PfynVÎ « Acco-.inta Vnyiù.l»  ?1 BO, •" OO .00 ï!,fino.0C  ACCBPAX3 » # • • Aeerieà Int*r**8t on Bondsi i&enraed  970.'"'O 6OC..0O  l,<?D.ro  FIXKD Firnt lîortr»F« Bord»  V<0,\" &<?.("•<)  CAPITAL .V BESHirKS iiwiNii—uii»iiw.T-|Wi— i ir-ini«..«n> - m  ^ . I I U I iiimiiiiii ' IHMWMOi—«  C r r t t n l 3tock - P u l l y T ' i d -H<X>, :vO.CC Surfl'-ia—nor l*ro.f*t k LOB» M  -  70 - -  UIÏITÎÏD ÇCTT01T HILLS ?j-:? mN 0F"nTnnm~lar: r r ^ o i î s hi:ry:H I:ÏCO:T, T/.X UV; T  1.  T o t a l nraount o u t r - f n d i n g Q-P- ,.r jà-nts e î - p i t c l etoclt a t c l o s e of t h e y e a r . 0400,000.00  2.  T o t a l amount of bonded end o t h e r i n t e r e o t b e a r i n g indebtodneoa outntfrscl i n g fît tV e c l o s e of t h e y e e r  3.  4.  Gross In corne: (a) Frora opérations ;& 94,234.7*0 (b) From rentnls 9GO.00 (o) From interest none (d) From dividonds received none nort (e) From other sources È...  6.  e 9.  $£.96,194.30  Déductions: (a (b  5.  100,000.00  (a (b (c (a (b (a (b  k General Exnenses 211, 556.40 Payments i n l i e u none tU" Lo8seP stistair.ed none 1 8 , 000,00 Dépréciation none D e p l e t i o n (!îatitrai Bep I n t e r e s t Poid 155, 500.00 I n t e r e s t poid by b r n k s on depoait none Taxes, Doraestlo p o i d 3 , 500.00 none Taxes, F o r e i g n pnitf Net Incorne Tox A o s e s s n b l e  HOTE  £46.566,40 406.28  The £;bove f o r a i s u.Uirted îror.\ the fors: r e q u i r e d by t h e U . S . ?,cverrr'or.t f o r I n oone 7ax pnr> o.^es. In 1915 the r t t e of t a x a t i o n w ^ ' l , ! , b u t i n 1916 i t heaume  — 79 -ïïe hâve now followed the records of the manufacturer, from the time the rav: materials are purchaseâ until such time that the finished product is pin ceci in the sales-rooms and finally dispos ed of to the pur chas ers. V/e hâve siven tue final ststenents v;hich rould be presented to the shâreholders at their annuel meeting, and hâve edded the Incarne Tax Statement .reqnired by the Go ve rament. The preceding nages contain in the hriefest possible sus ce an outline of the principles of Costing, rs they are" met in the fectory today. In Canada, mannfacturing is in its infancy, and this applies more partioularly to the Y/e^tern Provinces. Dur Raw Materials sre abundant, but capital is not. labor is ex-pensive, and managerial ability is attracted to the United States and to the larger and more wealthy cities of Eastern Canada. A large and sparcely settled eountry does not f u m i s h that nee&ed stimulus to highly specialized. indnstry, since home msrhets are v;ant,ing. One oould not imagine meeting in Pittsburg, bill-boards erablazoned v?ith the slogan "Buy Penns yl vt ni a ? r o du c t s '.' In the eountry tov;n the merchant sells everything from automobiles to toothpicks. Spécialisation is impossible because his customers f:re few. In the large centres it is possible. The same principle applies to the manufacturer. In C M c a g o a large fa et or y ma y be.in opération tt/enty-fonr hours a day, p rd every day in the year, mannfacturing bed-springs, but in Vancouver such a factory must also manufacture frames, mattresses, pillov/s, chaira, chesterfields, bedding, etc., etc. With very rare exceptions, cur manufacturera are also trading mer chanta. They manufacture one 13 no, and buy and sell one or tv;o others. They are johbors as v/ell as manufacturers. And hère the accointant meets another problom. Kov for instance, can he submit statements s-ovdng the profits on the rnanafaoturing as v;ell as profits on the trading, not elone on the goods manufactnred an<1 thon sold, but also'on the fini-'hed geods bought and sold? As a-uditor for such a concern the vriter ha a recently cornpiled sV.tenents v;3iichjftniF. difficulty, satlsfying both the shareholâers of ths concern and the Income Tax Anthorities. The concern manufacturera one U n e • nd buys another. It sells beth U n e s at a profit. The statoments are snbmitted, but the nome of the firm is fictitious. To obscure the identity of the firm the two lires are given other n?smes also. On the follov;ing page I give the Trial Balance of the gênerai ledger of this concern, together vith the additional infortantioii necoasary for the compilation of staternents and  ou —  "belf.nce sheet, and then provient the s ta ter. en t s aud ent v/hieh v/ere necessary i n t h i s "OL r t i c u l e r i n s t a n c e . 4.XU-J  < A l l'-rtJ ly V i - i \  1: UiU.l J. j . UJ.UJ  DECE11BER K l .  Capital Stock tfnissiieû Stock Surplus Land Buildings Reserve for Dépréciations On Buildings Eeal Estate Mortgage, ù% Ha chinery & Tools Delivery Truck îhirniture & Fixtures Patenta I n v e n t o r i e s J o n , l . 1923 Raw I.Iaterials Goûda i n Process Finished Goods-Cerpets Ce.rpets Purchases-Raw l ï a t e r i & l s Ereîght-Raw M a t e r i a l s Wages-Productive Labor Weges-Kon-procluctive Seïes F u r n i t u r e Sale s "Car pet s Returned Sales-Furniture Returned Sales-Carpets Purchases-Carpets Freight Carpets Stationery & Printing Office Expensea-Liiscellaneous Discount on Sales Discount on Purchases Interest on Ilotes Payable Interest on ilotes Receivable Interest on Bad Debts Written Off Kent of Office Postage, Téléphone, Telegroph Office Salaries Iïisvranoe V/arehouse Stock Bent of Warchouse Fnctory Superintendent  IJU»,  JJJ.J  1923  $4'0,ooo  à-r, ^300,000  45,600 10,000 50,000 5,000 20,000 104 t000 10,,000 7 ,000 5 ,000 32 ,000 23 000 22, 000 68 ,500 201, 240 P. 200 40 600 15, 840 403,280 198,600 10, 000 8,000 151, 800 C 500 800 500 8,100 6,000  100 530  1 200 100 1. c* 500 540 7 000 1,100 ,000 5,000 * 850 "620  39TO70ÏB"  — 81 - T o t a l e Brought Forv/ard Power, L i g h t & lïeat Salesmen's Salaries Taxes Advertising Salesmen's Travelling ]2xpense Shop Supplies Reserve for Dépréciation on Machiner/ & Tools Building Repairs Machinery Se Tools-Repeirs Facto ry Expense-Miscellaneous Gartage Insurance-Factcry Buildings Delivery Trucic ïïxpense Notes Reeeivable Petty Cash Bank of Montréal Acoounts ReGeiva"ble Notes Payable Accounts Payable  $060,620  §979,010  4.300 » 10,000 3,000 15,000 3,800 1,520 11,000 900 1,100 450 5,000 5,100 3,100 60,000 100 14,186 141,000  jrmrgrivïï"  54,000 75,166  $1.119,176  The following Ad jus tin ont s and Inventories had to be taken into considération: 1. 2. 3.  4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.  Unexpired Insurance-Buildings, $1,600 " " -Warehouse Stock :J400.00 Inventories Deceraber 31, 1923: Haw Materials $30,000 Goods in Process, $20,000 Pinished Goods-Furnlture, 022,000 Car-oots, $61,500 Taxes Accrued, $500.00 Interest Accrued on Notes Reeeivable, ;]>520.00 Interest Accrued on Notes Payable, .)700.00 Dépréciation of Buildings, ïf/o on Diminishing Values. " " Liachinery & Tools 10c/o on Diminishing Values "• " Delivery Trucks 10^o per annimu " " Furniture & Fixtures lOJa per annum. » " patents 10>« per annum. Bad Debts are estimated at $1,500 Delivery Truok Expansé, Dépréciations on Delivery Trucks and Gartage cftargeable -g to Manufacturing and \ to Selling. Dépréciation on Buildings, liachinery & Tools, chargeable to Manufacturing.  15.  — 82 -- • Taxes chargeable, 2/3 to Uanufacturing and 1 /3 to Profit & Loss. The Vancouver Furniture Company, Liraitaâ. is , like thé rnajority of CpnpAinn Lîannfacturers, 'both a Trading and Lïannfacturing Goncern. They buy raw material in.the shape of lunber, varnish, paint, upholstering,7 etc., and turn thèse into fin*$hed fur-* niture. The;, buy C^rpets already manufactured, and aell both the furniture and càrpets. The Auditor v/as required to prépare atatementa \ showing the Cost of Furniture Hanufactured, and the OOst of "both furniture and carpets sold. Ile v/as nlao required to compile atatementa showing- the Groas Profita on 3ale8, the Net Profita on S?les, end theïïetProfits on ail operationa. In additon to the above he was asked to prépare a Balance Sheet, showing the financial position of the firm on December 31, 1923 and to prépare the Cloaing Journal Entries to .close the General Ledger. The above are given in détail aa followa:  EXHIBIT A. THB VANCOUVER FUPNITUR3 COMPANY, LTD. t STATEMEHT SHOWING CQST OF II/-1TUFACTURE Se COST OP GOODS SOLD JANUARY 1, 1923, to DECSÎIBER 31. 1923. FUPNITURB G03T OF MANUFACTURE Good3 i n p r o c e s a , J a n 1 , 1 9 2 3 . §25,000 Raw M a t e r l a i a I n v e n t o r y Jan. 1 , 1923 $32,000.00 Purchaaea $£01,240.00 Freifrht-in 5,£00.00 206,440.00  Leaa Inventory, Dec. 31 1923 Wap'ea * Productive Labor Non-Productive Manufacturing Expenses: F a c t o r y Superintenclent Power, Ligïit & Heat Taxea z/Z Shop Suppliea  1^-55^3 3_0.000.00 $2~0"8,440.00 $48,600.00 15,840.00  $6,000.00 4,300.00 2,333.33 1,520.00  — BÎ5 - M&mifHotur inrç E x p e n s e s ( c ^ n t i n n e d  )  l u s t î r e a n c e - F a c t o r y Bui 1 d i nga Building Repaire Machinery & Tools Repairs M i s c e l l a n e o u s F a c t o r y Exper.se a Cartage, l / s D e l i v e r y Truck Expenses Dépréciation-Buildings " M a c h i n e r y fc ^ o o l s " Delivery Tmeks " Patents L e a s : I n v e n t o r y floods i n P r o c e s s COST OF GOQD3 I.UNUFâCTUPED  #5, 500.00 900.00 1,100.00 450.00 2,500.00 1,550.00 2,250.00 9,200.00 500.00 500.00 # 5 , 7 0 3 . T.3 Dec.31  20,000.00 T*^T^5ÏÏF7STT  Add; F i n i s h ed Ooods I n v e n t o r y , D e c . 3 1 1923.  22,000.00  D e d u c t F i n i s h e d Cîoods I n v e n t o r y 1923 G0ST 0F FURIÎITURE SOLD  £2.000.00  Bec.31  CARTET3 Cost of Cerpets solft: Inventory Jan. 1, 1923 Purchases Freight on Puroheses Deduct: Inv. Dec. 31, 1923 TOTAL C03T OF GOODS SOLD  §60,500.00 151,000.00 6,500.00 61,500.00  165,300,00  ^76;oea.ëg  — 84 —  EZHIBIT B THE 7AKC0UVER FURIIITURS COI.!?i-!JY. LTD., PROFIT & LOSS STATEHEIIT • i mi  •  —I.I,  i n  i ••-••  .  •  - •  . —  • —^^^PW^i^—  JAITUARY 1 , 1 9 2 5 -DECEUBER 5 1 , 1 9 2 3  CARPKT3  FUEITI2URE  TOTAL  $ 198,600.00 4 0 3 , 2 8 0 . 0 0 8,000.00 10,000.00 Sales 393,3WT0"0 f 190,600.00 Deduct* Coat of Goods 165,300.00 511,583.33 Sold (Exhibit A) 81.696.~6? GROSS PROFIT OH SAXEB $ 25,30570*0"  SALES Lésa; Retumed gEI SALES  601,880.00 16,000.00 583,880.00 476,083.55 106,996,67  Deduot: SELLINS EXPEIISES;  §10,000.00 15,000.00 3,800.00 2,500.00 Cartage l/t 1,560.00 Delivery Truck Expense,l/2 500.00 Dépréciation on Delivery Trucka 1/& p7S* 646^67 MET PROFIT OIT SALES Salesmen"s Salaries Advertising Salesmen's Travelling Expenses  Deduot: GENERAL ADMINISTRATIYE EXPEIISES: Stationery & Printing Misoellaneous Office Expense Discounts on Seles 02,100 Interest on Notes Peypble 700 Add: Interest Accrued Interest on Mortgage 1,100 Bad Debts 1,500 Add: Estimated Rent of Office Postage, Téléphone & Tel. Office Salaries 1,100 Insurance Warehouse Stock 400 Less: Unexpired Rent-Warehouse Taxes l/3 Depreciation-Furniture & Fixtures  800.00 500.00 100.00 B, 800.00 200.00 1. ,600.00 ,500.00 540,00 000.00  700.00 S,Q00.00 1,166.67 700.00 606.57 po~  —  85 —  EXHIBIT B Pont. Deduot:  D i s c o u n t s on T o r c h a s e s 6 , 0 0 0 I n t e r e s t on H ô t e s E e c . 1,050 7,050.00 23,556.61 IT2I I?RCFIT- JAHITARY l , 1923 TO SECT3IPSR 3 1 , 1 9 2 3 _ f"E0,090.TÏÏ  SXHIBIT C TJZ VANCOUVER FUKIHTïïRE CO., LIMITED B:\TJ.1ICE SÏÏ.HCT DECE2.IBER 5 1 , 1 9 2 3  ASS2TS CUHEBHT ÊTnk of Montréal $14,186.00 P e t t y Cash 100.00 014,£86.00 Hôtes B e o e i v a b l e 60,000.00 Àccounts R e c e i v a b l e 141,000.00 L e s s ; Reserve f o r Bcd Debts 1,500.00 _ 139, 500.00 Inventories: Raw Materials 30,000.00 Goods in Prooess 20,000.00 Finished Soods -Furnitrre 22,000.00 Carnets ' 61,500.00 135,600.00 ^'£47,286.00 FIXED Land Buildings Less: Réserve for Depre.  10,000.00 50,000.00 7,250.00  Haohinery & Tools ÏDT/DTToToTT Less Reserve for Depre. _ 2 0 , 0 0 0 . 0 0 Delivery ïruoks lZ7,13o"0TU0~~  Less: Dépréciation Fur ni tu re & -Fixtures Less;Depreciation Patents Le3S Dépréciation  1,000.00 T,T500.00 700.00 5707)0.00 ' J^JL».°P_  42,750.00 83,700.00  9,000.00 6,300.00 riTÊ", 2 5 0 . 0 0 4,500.00 v  AccrualB I n t e r e s t a c c r u e d on I l o t e s R e c e i v a b l e 520.00 DEFERRED CID\RGES : ÏÏhexpired Insu r an c e - B u i l d i n g s 1,600.00 Warehouse S t o c k 4 0 0 . 0 0 2 . 0 0 0 . 0 0 £356.00'  —  86 —  EXHIBIT C  THE VANCOUVER FUHKIgTJRE CO., LHIITKD BALANCE SHBET . SECÏCHBER 51» 193g. LIABILITI33 CUKREHT Notes Payable Aocounta Payable  $54,000.00 75,166.00  §129,166.OC  FIXEE; Mortgage Payable  20,000.00  ACCRUAL3 Interest on Ilotes Payable Taxes-Unpaid  700.00 500.00  1,200.00  CAPITAL & SURPLUS Capital Stock Less: Unissued Capital Fully Paid Surplus ^45,600 Add P r o f i t â t E x . B ) _ 5 0 x 0 9 0  $300,000.00 40,000.00 260,000.00 95.690.00  fg 506,056.7% 555.690.OC  —  87 —  Journal Entries closing the bocks: Unexpired Insurance-Builclings § 1,600.00 Unexpired Insurance-Y/arehouse Stic» 400.00 Insurance on Buildings Insurance on Y/arehouse Stock. Taxes  1,600.00 400.00  500.00 Taxes Accrued  500.00  Interest Accrued 520.00 Interest on Ilotes Receivc'ble  520,00  Interest on Notes Payable Interest Accrued  700.00  700.00  Dépréciation 13,750.00 Reserve for Dep. "Buildings " " " Hoch.és Tools Delivery Trucks Furniture Se Fixtures patents Bad Délits  2,250.00 9,300.00 1,000.00 700.00 500.00  1,500.00 Réserve f e r Ead Délits  1,500.00  Purchases-Rrw Hr-teri&ls 37,200.00 Raw M a t é r i e l s Inventory Freight on Raw U n t e r i a l s  52,000.00 5,F00.00  Raw lia t e ri a l s I n " erctor y Purchases Raw Materials  30,000.00 30,000.00  Manufacturing Account Goods i n Procesa  23,000.00  Goods i n Process I l a n n f u c t u r i n g Ace t .  23,000.00 $ 20,000.00 20,000.00  -- GO -Selling Account Finished Goods InventeryFurniture  2J1.000.00 K2,000.00  Pinished Goods Inventery Selling Account  22, 000.00  Purchases-Carnets Carpet3 Inventery  60, 500.00  Carpets Inventory Carpeta Purchases  Gl, 500.00  22,000.00  60,500.00  61,500.00  Manufacturing Account 308, 583.35 Purchases Raw Materials Wages-Productive Wages**Non-i>roductive Factory Superintendence Power» Bight & ïïeat Taxes - 2/3 Shop Supplies Build ing Repai rs Machinery & Tools Reprdrs Miacellaneous Factory exp. Cartage - 1/S Insurance-Factory Bldgs. Delivery Tmck Experte 1/2 Dépréciation Buildings " Llfchinery & Tools Dépréciation Delivery Truck Dépréciation on Patents Selling Accounts Manufacturing Account Charging Selling Acat, with the cost of goods (Furniture) sold  011, 583.33  Sal es-Cari-: ets Sales-Furniture Heturned Salea-Carpets Heturned Sales*-Furniture  0,000.00 10. 000.00  208,440.00 48,600.00 15,840.00 5,000.00 4,300.00 2,333.33 1,520.00 900.00 1,100.00 450.00 2,500.00 3,500.00 1,550.00 2,550.00 9,300.00 500.00 500.00  311,583.33  8,000.00 10,000.00  -les  -  ••les —  ret  Furniture Carpets Selling : a couvât  pu r e l i a s en on  :*393,080.00 190.600.00 ^303,080.00 G,500.00 6,500.00  it.ft  S e l l i r o r Accourit  £13,650.00 .CO,300.00 10,000.00 15,000.00  C'rpet Ourchascs S a l e sinon* s S r i ; . r i ? 3 Adverti.sing Sale3:aer!3 'Travellinp  Expenses Garture l/2 . D e l i v e r y Truek R e c e n s e 1, 0. . D é p r é c i a t i o n E t O n v e r y Traclis 1/2 Advertising Selling  Accourt p r o f i t à, l o t i s  P r o f i t & Losa Surplus  500.00 15.000.00  73,640.67 73,646.67  30,606.57 P r o f i t & LOBS Account S t n t i o n e r y h P r l r t ing U i 3 c e l l a n e o u 3 O f f i c e 2:cp. D i s c o u n t s on 0 - 1 e s I n t e r e s t on H ô t e s r > ; r r l l e I n t e r e s t on î ' o r t ^ p e Bvd Délit H S e r t of O f f i c e P o s t a r e , TelerrariiB & T e l p h Office 3 - l R r i e s In :.mra r c e~0*.T! r eh ou o e 3 t o ck Rent-Vtorehcufje Taxe3 - l / 3 D é p r é c i a t i o n " Pu-": i t ^ r e 0 r i x t ;roc I n t e r e s t on N o t e s P a y a b l e D i s c o u n t s on P u r c l m s e a P r o f J t & Losa  3,600.00 C,500.00 1,050.00  800.00 500.00 0,100.00 P., 8 0 0 . 0 0 1,000.00 0,600.00 .'",500.00 500' . 0 0 7,000.00 700.00 5,000.00 1,166.07 700.00  1,050.00 6,000.00 7.050.00 50,090.00 ^0,090.00  .- on — A f t e r P o 0 t i n g t h e a"bove e n t r l o s t h e H* : nufnct\irir.g, S n l l i n g , P r o f i t ïï L- sa and S u r p l u s A o c o u n t s n p p e a r t s f o l l o v / s ; Dr» 11AKUFACTUI;IITC ACCOU'Î" 1923 D e c . 3 1 Goods i n P r o c e s a £ 2 3 , 0 0 0 . 0 0 i>cc. '• Raw Ma t . p u r . 308,4-40.00 u Wages-froductive 48,000.00 n Wogea-Non-Prod. 15,840.00 ?! Superintendance 5,000.00 t» Power,Light,Beat 4,300.00 » Taxer; 2,333.55 H Sliop S u p p l i e s 1,520.00 i< Building Repairs 900.00 Tt Repairs-M & Tools 1,100.00 n M a n f ' i ng Exp e n s e 450,00 it Cartage 2,500.00 »» Insurance-Fae t . B . 3,500.00 u B e l , ïïruok E x p , 1,550.00 il Bepre c i a t i o n - B 2,250.00 n 9 ,300.00 -mi it -D&T 500.00 tt -Pat 500.00 331,583.33  cr. Crooûs i n Prccese $20,000 Selling Account 211,503.3b  _£  Dr. 1923 Deo.31  •i 'T  331,583.3 3  SELLIHO ACC0U11T Purn Inv-e n t o r y , $ 2 2 , 0 0 0 . 0 0 Maimfacturing Account 311,583.33 Caro e t Pur d i s e s l G5,300.00 Salée S a l a r i e s 10,000.00 " Trav.Exp. 3,800.00 Oartage-l/2 ' 2,500.00 Bel.Truok Expl/2 1,500.00 Dépréciation D.ï. 500.00 Advertising 15,000.00 P r o f i t & Loss 3.C46.G7 Account $605 ,080.1)0"  CR. 1923 Dec.31  n  •»  Finished Goods Inventory 22,000.00 S a l e s of Purniture393,280.00 S a l e s of Carpets 190,600.00  $605,68071)0'  — 91 — • Dr  1983 Dec.31 >i  M  f»  (1  « 1»  tt  »> »» H t» Tt  H  Dr. 1923 Dec.31.  PROFIT AITD LOSS ACCCUDT 1923 Stationery & Dec.31 Printing 800.00 Offiee Expenne 500.00 D i s c o u n t s on " Sales 8,100.00 I n t e r B s t On ïïotes Payable S,800.00 I n t . on Mort, Payable 1,200.00 Bad Délits 2,600.00 Office Rent 2,500.00 Postage e t c . , 540.00 Office S t a t i o nery 7,000.00 Insurance Warehouse S. 700.00 Rent-Warehouse 2,000.00 Taxes l / 3 1,166.67 Dep. F.& F . 700.00 Surplus 50,090.00 ^80.696.67  Cr. Selliug Acct. 0?3,646.67 I n t . o n iï.R 1,050.00 Dis.on Pur. 6,000.00  $80,696.67  SURPLUS ACC0U1IT 19?3 Dec. 31  Balance a v a i l a b l e for Dividends  $95,690.00 $95,690.00  Cr.  Balance fron Last y e a r $45,600.00 lîet P r o f i t g 5 0 , 0 9 0 . 0 0 $95,690.00  1923 Dec.31 Balance available for., . Diviaends  $95,690.0 o  — 92 — THE YiJTCOUVSR PUPJTITiJRlil COLLEY, LTD., POST-CLOBIHG TRIAL BALAliCE DISCELÎBSR. 3 1 . 1 9 2 3 . G é n i t a l Stock Unissued C a p i t a l Stock $40,000.00 Surulua Lan'd 10,000.00 Buildings 50,000.00 R é s e r v e f o r D é p r é c i a t i o n on Buildings Real Ë s t a t e Mortgage Machinery & Tools 104,000.00 R e s e r v e f o r D e p . Mac. & T o o l s D e l i v e r y Truoks 9,000.00 Furnlture &Pixtures 6,300.00 Patents 4,500.00 Raw M a t é r i e l I n v e n t o r y 30,000.00 Goods i n P r o c e s s I n v e n t o r y 20,000.00 P i n i s h e d Goods I n v e n t o r y 22,000.00 Carpets Inventory 61,500.00 Notes Receivable 60,000.00 P e t t y Cash 100.00 Benl: o f M o n t r é a l 14,106.00 A c e o u n t s ReoeiVa"ble 141,000.00 Notes Payable Aceounts Payable Unexpired I n s u r a n o e - B u i l d i n g s 1,600.00 Unexpired Insuronce-Warehouse S. 400.00 Taxes I n t e r e s t Accrued 520.CO R e s e r v e f o r Bad D e b t s _ •) 5VF.l06.00  $500,000.00 95,690.00  7,250.00 20,000.00 20,800.00  54,000.00 75,166.00 500.00 700.00 1,500*00 m $575,106.00  — 93 — BI2II0GBAPKY Cost Accounting P r o c e d u r e - C a s t e n o l z . La S a l l e E x t e n s i o n IJ) i i v e r s 11< y p r o s r • Cost A c c o u n t i n g - ï ï i c h o l s o n S; Rorhlnch.The Ronald P r e s s . Cost Accounts i n P r i n e i p l e fc P r n c t i c e - Ridgvmy. I r s a c Pitm.an & Sons. P r i n c i p l e a of Facto ry Cost Eeeping-Moxey. The Ronald P r e s s . Manufacturer s ' Accourt s - Eddis fc T i n d e l l . p u b l i f h e d h y t h e Au th. o r s , Kanning Charniers, Toronto. X3oat A c c o u n t i n g , - Jordan & H a r r i s . The Roiuld P r e s a , I7ev; York Co8t Accounts - L.W» ïïawkina, Qee & Co., London, England. Bookkeeping and A c c o u n t i n g , - S p i c e r & P e g l e r , II. Fonlk3, l y n c h & Company, Lcndon, England. Rowe's A c c o u n t i n g , - H. M. Rowe. The H. il. Rcve Go., Baltimore. Gost Accounting for I n s t i t u t i o n s - Gole. The Ronald P r e s s . P u b l i c Accounting "c A u d i t i n g -Sherwood. The South-yVoFtern p u h l i s h i n g Company, C i n c i n n a t i 20th Century Bookkeeping, P a r t IV, Baker. The South-Western Puhlishing Co., Cincinnati, Coating Theory & P r n c t i c e . E.W. ïïewman. MacMlllnn & Co.London Gost Accounting P r i n c i p l e a & P r a c t i c e , J . P . Jordan and G.L. ïïarris. MecMillcn k Co. London The f o l l b v i n g may he s e c u r e d from t h e Canadinn Agents, The Commercial Text-Book Co. t 383 Chùroh S t r e e t , T o r o n t o , O n t a r i o . C o s t i n g , Gold Mine Accounts, G.W. T a i t . Mrnual of Cost Accounts - H. J u l i u s L u n t . Cost Accounts for the Métal I n d u s t r i e s -H. E. p a r k e a . B u s i n e s s Costa - D.C. E g g l e s t o n & P . B. Rcbinsoii Prohlems i n Cost Accounting- D. C. E g g l e s t o n . I n d u s t r i e l P l a n t s , The: r Arrangement Se C o n s t r u c t i o n . C . Day. The Complète Cost Keeper - H . S. Arnold. The Pactory Manager - H. 3. Arnold. The Dépréciation of Factories - S. Mathenon. Modem Accounting - H. R. Eatfield. Expense Burden - A. Eumilton Church. Printers' Accounts - Cnd Edition - H. L. 3m:; th. Publishers' Accounts -C. E. Allen. Pactory Administration in Practice- ïï. J. Kiscox. D e r r e c i r t i o n pc ïïasting A s s e t s - p . P . L e r k e . E l e c t r i c i t y Suppljr a c (c o u n t s - G. Johnson P a c t o r y O r g a n i s a t i o n ; Costa - J. T.. I ï i c h o l s o n . Lumher Manufactnring Acoomita, - A. J. J o n e s . Coœraercial Gocdwill- P. D. Leake. The P h i l o s o p h y of Accounts- C h a r l e s E. Sprague.  — 94 - BIBLIQ"?..Ï?HY Coût., The A o c o i m t s n t s ' YacLe lleerna — G.E.S. Whctley. Sinking anû Réserve Punda - J. II. Burton. Rr-ilway Aoeounts — A. G. Anderson. Bunkers Advunces- F. R, Steud»  

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