How to find factory costs

Front matter

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Contents

Chapter Page

I WHAT A GOOD COST SYSTEM MEANS TO YOU . 11

How a cost system would have saved a company $32,000 in one item alone — One of the chief benefits usually secured from a' good cost system correctly handled — How a cost system helps you to decide whether or not changes in design or method are desirable — Cutting down on labor and equipment through an accurate knowledge of costs — How accurate costs influence the production of several lines of articles with respect to their sale at a profit

II What Are Cost Accounts ?

The chief distinction between financial accounting and cost accounting is that the former deals exclusively with the money and credit transactions of a business, while the latter deals with these same transactions, but with reference to the cost of products and operations. The unit of financial accounting isi the unit of money, whether the dollar, the pound or the franc, while the units of cost accounting are the units of money plus the units of operations, of sales, of product and of time.

The fact that cost accounting includes some of the elements of financial accounting makes possible the interlocking of cost with financial accounts. This is indispensable for checking purposes, and without it a system of cost accounts may easily, and often does, go completely astray.

The object of cost accounting is to charge each element or unit of product with its share of all the expense to which the business has been subject, inasmuch as there is no certainty of making a profit on the sale of the product unless all this expense is absorbed in it and covered by the selling price.

The kinds of costs that a manager wants to get vary not only with the type of industry, but within each industry itself according to the purpose for which they are wanted.

In a continuous or tonnage type of industry the aim usually is to ascertain the cost per unit of weight or length for each of the comparatively limited number of products, such as tons of

HOW THE WORK IS DIRECTED

In this room the work of a part of the Pullman Company's plant— or it might be a small independent plant, of course— is mapped out. The two men are receiving instructions which are marked with a time stamp. The boards are arranged by machines, and provide for instructions covering three jobs,— the one in hand, the one next ahead, and even the second ahead

COST OF MATERIAL

COST OF DIRECT LABOR

DEPARTMENTAL AND GENERAL EXPENSE

SELLING EXPENSE

PROFIT

PRIME COST i

FACTORY COST i

TOTAL COST TO MAKE AND SELL i

SELLING PRICE i

DIAGRAM I

Here is a graphic representation of the main components of the selling price and their relations to each other. On page 23 you will find a detailed explanation of this diagram.

WHAT ARE COST ACCOUNTS? 21

castings or yards or pounds of yarn or cloth. This result is attained by getting departmental costs on the product as it makes its way through each department, totaling these and adding to them the general administrative expenses to secure the entire factory cost. These costs are specific in so far as they relate to individual lines of product.

HOW A PROPERLY ARRANGED COST SYSTEM ENABLES YOU QUICKLY TO GET TOTAL FACTORY COST

The other type of industry, the assembling type, is not so much interested in general costs as it is in specific job costs and the cost of operations. To be sure, in some instances where the product is uniform, or consists of only a few lines of articles comparatively simple in their construction, it may be sufficient to get general costs in much the same way as in a tonnage industry. But, as a rule, in assembling plants the types of product are numerous and varied, and it is important to get the cost of each individual line and each operation on each line. The sum of the operation costs, added to the cost of materials, plus that proportion of the specific departmental costs and the general administrative expenses which should be apportioned to the unit of product under consideration, constitutes the total factory cost of such product. A properly contrived cost system makes it possible to secure these costs in minute detail and to combine them quickly and accurately in whichever way is the most useful for the particular purpose in hand.

There are types of industry in which it is advisable, either on account of uniformity of the product, or for the exactly opposite reason — the extreme diversity of the product — to take costs on typical items only. This is the case with a company manufacturing low-grade pottery, such as flower pots, and with another which makes machine specialties.

One f act; that has retarded the extension of cost accounting is the unnecessary and the expensive refinement to which it is sometimes carried. There can be no objection on principle to red tape when that tape is necessary to tie together the organization; but sometimes there may be too much of it, more than is either necessary or useful.

It must be clearly recognized from the start that any cost system involves a considerable element of judgment and can not therefore be as accurate as are engineering specifications which are based upon natural laws. There is bound to be an uncertain percentage of error in every cost estimate no matter how much care is taken to make it accurate. This being the case, it is a waste of valuable time and energy to attempt to make each detail of the estimate absolutely correct. The fact is that no amount of effort is going to eliminate inaccuracy from all the details, and unless all the inaccuracies are on the same side — plus or minus — they are pretty apt to offset each other, so that the net result will not be far from the truth.

This principle is laid down, not as an excuse for the rough approximations that sometimes go by the name of "cost accounts," but as a warning against over-refinement.

Ill

WHAT GOES TO MAKE UP YOUR COSTS

Costs are made up of combinations of units of time, such as the hour, day, week, month or year; of product, such as the yard, ton, piece, machine or job; of production, such as the operator or the operation; and of money. In many cases, several of these combinations of units are used at once, as when the daily costs are accumulated in weekly or monthly summaries.

It is not uncommon in textile plants to get costs both by the ton and by the job. Sometimes one unit may be used in certain departments of a plant while other units are the bases of costs in other departments of the same plant. For example, costs may be had by operators in departments where hand- work predominates and by operations where work is mainly by machine. The one universal and invariable element is money, and as money is the unit also of the commercial accounts, it is the money statement of costs which makes possible the interlocking with commercial accounts which is necessary as a check on the accuracy of the costs.

It is customary to divide total cost into two main elements : factory cost and selling cost, which, taken together, and with the profit added, constitute the selling price. ( See Diagram I.) Factory costs again are usually divided into prime costs and indirect expense. The latter includes all the expenses of administration and supervision. It is also variously known as

"overhead," "burden," and "non-productive" expense, and comprises all expenditure for labor and materials which does not enter directly into, nor is sold with, the product. This expense is further subdivided, in some cases, into departmental expense: that is, all indirect expense which may be charged directly to a department, and administrative expense, which includes all other indirect factory expense.

Administrative expense is still further analyzed into auxiliary expense, which includes all indirect expenditures actually necessary to the running of the plant, such as those for power, stock-rooms, and the like, and administrative expense proper, which covers those departments necessary for the handling of the business, but in the absence of which the factory, as such, nevertheless could be run physically. To this latter class belong the expenses for accounting and legal departments. The line between these is sometimes difficult to draw, and in any case this is a refinement which often may be unnecessary, (See Diagrams II and III on pages 26 and 28).

DISTINGUISHING BETWEEN "PRODUCTIVE," "NON-PRODUCTIVE," AND "SUPERFLUOUS" COSTS

Just a word as to the use of the term "non-productive." Any expenditure for labor or material is either necessary for the efficient management of the plant and the making of the product, or it is entirely superfluous and should be eliminated. If the expenditure is necessary it must be in some sense productive.

This is fairly obvious even to those who insist on using the terms "non-productive" and "non-producer.' ' Nevertheless those terms seem to carry some kind of stigma, involved in the suggestion that there is necessarily something wasteful about "non-productive" expenditures. There follows a tendency to reduce "non-productive^ expense to a minimum which is really inconsistent with the proper management of a plant.

A favorite method of doing this is to have most of the alleged non-productive work performed by so-called "productive"

DIRECT COSTS U

labor, as when an operator is required to do his own planning, get his own materials, and the like, thus charging this work to "productive" accounts and incidentally losing all possibility of controlling it. When this type of necessary activity is called "indirect" rather than "non-productive," there is not the same implication of wasteful and unnecessary expenditure. There is no longer the same objection to bringing it out into the open, charging it properly, and organizing it for the most effective control.

Direct costs are chargeable easily and immediately to the product, while indirect costs, which must be included in one way or another, have to be added by some method of distribution. It is perfectly evident what materials and what labor go directly into the product. Hence the securing of direct costs is easy and common.

Most of the simple cost systems, one-form systems and oneman systems, so dear to popular business literature, deal exclusively with this necessary but obvious detail. In view of the fact, however, that indirect costs may amount in some instances to as much as two or three hundred per cent of direct costs, failure to take them into consideration may lead speedily into bankruptcy.

NEGLECT OP THE "INDIRECT COST" MADE A DD7FERENCE OF 30% IN THIS BUSINESS MAN'S OVERHEAD

Recently an automobile agent assured me that he was losing money in his "service-station," and, although he had a cost system, he could not locate the leak. A series of questions soon brought out the fact that the 80% he was charging for overhead had omitted such items as rent, interest on stock carried, work done under guarantee without charge, work done for the sales department, and idle time. When these items were included, the percentage to be added to direct labor on account of overhead turned out to be 110% and on this basis seventyfive cents an hour would just barely pay expenses if his men were occupied all the time.

MATERIALS

DIRECT EXPENSE

ADMINISTRATION

SUPERVISION

RENT

HEAT

LIGHT

POWER

WASTE

DEPRECIATION

. INDIRECT FACTORY EXPENSE

SUPPLIES

TOOLS

INSURANCE

TAXES

TRANSPORTATION

EXPERIMENTS

ROYALTIES

LEGAL ADVICE

RECLAMATION OF ERRORS

WELFARE AND SAFETY

SALARIES

COMMISSIONS

TRAVELING EXPENSES

ADVERTISING

SOLING EXPENSE

' ESTIMATES

SKETCHES

. — — ■ ~~ ____ — ~~^^5^

DEMONSTRATIONS

EXPERIMENTS

SCHOOLS

DIAGRAM II

This is a graphic analysis of the main constituents of direct expense, indirect factory expense and selling expense. This diagram should be considered in connection with Diagrams I and III,

To find out what these indirect costs are, and to get them into the selling price of the product, through which they must sooner or later be recovered, and to do this accurately and with justice to the various items of the product concerned, is no simple or easy matter, while at the same time it is just as necessary as the ascertainment of direct costs. Simplicity is a relative virtue only. What is appropriately simple for a child is puerile for a man. With an increasing complexity of conditions there must go a corresponding complexity of system. A cost system should be as simple as is consistent with effectiveness.

HOW KNOWLEDGE OF TOTAL COST HELPS TO FIX THE SELLING PRICE AT A PROFIT

The components of total cost, then, are direct expense, including labor and materials; indirect factory expense, including cost of administration, supervision, rent, heat, light, power, waste, repairs, depreciation* supplies, tools, insurance, taxes, transportation, experiments, royalties, legal advice and reclamation of errors; and, finally, selling cost, including salaries commissions, traveling expenses, and the cost' of advertising, estimates, sketches, demonstrations, experiments and "schools." When the proper share of indirect factory cost and selling cost is added to the direct labor and material cost of the product, and the margin of profit added to these, we have the selling price.

Methods of finding direct labor and material costs will be discussed in this chapter, while methods of finding and distributing indirect costs will be developed in succeeding chapters.

There are two ways of finding direct labor costs, depending on the nature of the product. With a tonnage product, the total of the units produced in a given time, say a day, week or month, is divided into the total of the labor cost of the workmen actually engaged on that product during the given period. This gives a direct labor cost per ton or per pound.

PRODUCTION EXPENSE

CHARGES

FACTORY EXPENSE

ADMINISTRATION

AND SELLING

MATERIAL ft

BOOK COST

FACTORY COST

ACTUAL COST

DIAGRAM III

This diagram pictures another classification of factory costs and will prove most helpful when used in connection with Diagrams I and II and the detailed explanation on page 2k>

The time spent by the workmen is ascertained from their daily time cards (Form 1) ; and the statements of the workmen or foremen, or of both, to the effect that their time was spent on the work under consideration, are accepted. In some cases the time card alone is used, for it is assumed that if the men were in the plant as shown by the cards, they could only have been engaged on the lot or order known to be under way in their departments.

THE RESULT OF CARELESSNESS IN CHECKING JOB CARDS AND HOW IT AFFECTS THE INDIRECT LABOR COST

In the types of industry where it is desired to get more specific costs on parts or units of products, it is customary to use the daily time card showing the number of hours the workmen were present in the plant, and usually to supplement this by a daily job card on which the operator notes the number of jobs that have passed through his hands during the day and the time he has spent on each (Forms 2, 3 and 4) . This record, usually O. K'd. by the foreman, is turned in to the factory office at the end of the day, or at the completion of the job, if more than one day is required for the work, and posted in the cost department to the summary sheet, which, as explained later, summarizes the direct cost and the portion of indirect expense chargeable to each job.

While these methods are fairly effective, they are as a rule quite inaccurate, especially where there are a large number of jobs going through each operator's hands in the course of a day; but, what is more important, they usually fail entirely to account for that portion of the operator's time which is occupied with indirect labor or which is genuinely non-productive — that is, idle.

The operator who sits down at the end of the day, or even at the end of the morning, and attempts to fill out his job card with the number of orders and the time spent on each, is usually more intent on showing he was working on something every minute while he was in the plant, than in figuring the number

JOB CARD

m. order mi

ALLOWED

WAGES

TAKEN

AT

BONUS

PREMIUM TOTAL HOURS

OAY

IN

OUT

IN

OUT

F

A.M.

P.M.

S

A.M.

P.M.

Sun.

A.M.

P.M.

M

A.M.

P.M.

T

A.M.

P.M.

W

A.M.

P.M.

T

A.M.

P.M.

NAME.

WEEKE

NDINB

EfflBU

N

Card Do.

HELMAN, SIMPSON and Company

foreman's Report of

Oay Work

Dona fay

Workman's So. Date

Commenced Work Quit Work lob No.

NO. of Hrs.

Article

No. of Operation

Dept No.

FORM 1

This is a typical job card for use in connection

with ordinary day or premium work.

FORM 2

The foreman makes up this type of day-work

card for keeping track of productive labor.

MAN'S No.

NAME

DEPT. No.

PART No.

PIECEWORK

DAY WORK TIME

INSPECTION LOSS

HRS.

MIN.

RATE PER 100

AML

HRS.

MIN.

HOUR

RATE

AMT.

COST PER 100

CAUSE

FORM 3

Here is a type of work card which is made up by the workman and approved by the foreman. It

covers both piece and day work, and provides for dementing the operator with defective work.

of minutes taken on each job. The foreman's O. K. is generally nothing more than a formality.

"If work in a factory begins at half past seven, but the workman does not start his machine on a piece until seven forty, that job goes down just the same as beginning at half past seven. If the worker knocks off at eleven fifty, the job is charged up to twelve o'clock. If the machine breaks down in the course of the morning and is out of commission for half an hour, that time is charged to the job, just the same. If jobs are changed during the morning and twenty minutes delay is occasioned by not having materials or tools at hand immediately the finished job is taken off the machine, that idle time is sure to be charged to one or the other jobs."

This is what a foreman told me in explanation of his refusal to accept the job cards as indications of the time it really had taken to perform the work as detailed on them.

MAKING SURE THAT JOB CARDS INDICATE THE TIME ACTUALLY REQUIRED TO PERFORM THE WORK

For industries where it is important to know the exact cost, and especially for those which are so organized that they can take advantage of a real knowledge of the time occupied in actual production and that expended in indirect labor, whether productive or non-productive, it is advisable to use an individual job card for each job, order or lot (Forms 5 and 6) . This card is changed each time a workman changes his job; except that in special cases where the operator works only a few minutes on each job, numbers of them may be grouped together and changed periodically.

This card contains, among other facts, the job number and the workman's name. It is stamped with the times the worker begins and ends his job. If there is serious interruption, the job card is taken up and a new one issued to cover the interruption.

The last card is again taken up when the job is resumed, while on the job card, or a duplicate, is carried the time actually

SHOP WORK

ITEMIZE ALL ENTRIES

NO. HOURS

WORK

BEGAN

QUIT

UNLOADING MATERIAL

SWEEPING AND OILING

HANDLING STOCK

RUNNING ERRANDS

CORRECTING MISTAKES l»

OUT

HJJ

OUT flVERBMEjPERMH

0ATC *p?Tn

?CHFftKM<v-6600 y urn«i80B

.

>- OVERTIME All, 0WFD . ** HOURS

I

FORM 4 This card is used with Forms 2 and 3 to keep track of time consumed by non-productive work.

FORM 7 This card shows in advance the amount of overtime allowed, and is signed by the foreman.

IN

OUT

S

DEPARTMENT D M

IF JOB IS NOT FINISHED SCRATCH OUT THIS «T

F

CHARGE SYMBOL n»v um

IF JOB IS FINISHED SCRATCH OUT THIS SV

NF

P

NO. OF PIECES FINISHED

MAN'S TIME

MACHINE TIME u

MACHINE NO.

NT M

IF JOB IS NOT FINISHED SCRATCH OUT THIS W

F

IF JOB IS FINISHED SCRATCH OUT THIS UT

NF

NO. OF PIECES FINISHED

MAN'S TIME

MACHINE TIME

MACHINE NO

WORKMAN'S NAME MAN'S NO.

DM

1 HAVE CHECKED THESE ENTRIES H SI

D BELIEVE THEM TO BE CORRECT: ,ned by Foreman or His Representative

ROUTE SHEETS

PAY

SHEET

COST SHEET

WORKMAN'S NAME MAN'S NO.

DM

MAN'S

MACHINE

OAY WORK ;' M T E E

CHECKED THESE ENTRIES AND BELIEVE THEM TO BE CORRECT: Signed by Foreman or His Representative

ROUTE SHEETS

BONUS

RECORD

PAY

SHEET

COST SHEET

MAN'S

MACHINE r

PUNU

> vvuifr

[ NOTE

FORMS 5 AND 6

The planning department issues these job cards for day work and piece work. The job number is entered opposite "C;" the time issued is stamped after "In," and the time completed after "Out."

DIRECT COSTS S3

taken on the work in hand. This gives an accurate record, not only of the work done, but of the losses of time from delays, whether necessary or unnecessary. As such, it is the basis of accurate labor costs, besides serving several other purposes in the administration of the work which are beyond the scope of this discussion.

Not the least among the advantages of this card is the fact that it eliminates the costly time card system used to show the time the workman enters and leaves the plant. The job cards are made out the day before, or overnight, for each workman and are stamped with the opening time in the morning. These cards are placed in racks under the workman's number.

The racks are opened so that each man gets his card as he enters, showing the job on which he is to begin and the time he entered. At opening time, say at seventy thirty, the racks are closed and all cards not yet taken out by workmen are sent to some part of the factory office, to which all late workmen have to go to get a card on which to do their work and draw their pay. This card emphasizes their lateness, and being stamped with the time they actually begin, allows for appropriate deductions on account of tardiness.

ONE MANAGER, USING THIS SIMPLE DEVICE, PREVENTED WORKMEN FROM TURNING IN EXCESS OVERTIME

Accounting for overtime presents no great difficulty, as it is usually taken care of by spaces on the job cards, or separate overtime cards, and by additional spaces on the payroll sheets. Every manager knows, however, the great temptation that workmen are under to get as much overtime, at straight rates or "time-and-a-half," as they can squeeze in, and how easily foremen become careless about checking this tendency. The "overtime permit" (Form 7) shown on page 32 provides a means of control at the same time that it gives a record of the overtime actually put in. It must be signed by the foreman, and indicate in advance the number of hours of overtime to be allowed. By looking over these cards fairly often the super-

S4

ORDERS FOR PATTERNS

ORDERS FOR CASTINGS

DUPLICATE TO OFFICE

REQUISITION ON PURCHASING DEPT FOR MATERIAL BOUGHT OUTSIDE

COMPLETE LIST OF ALL PARTS TO SHOP

SHOP ORDERS PERTAINING TO PLANT REPAIRS, BETTERMENT.

AND GENERAL SHOP EXPENSE

NON-PRODUCTIVE

"PINK" ORDERS COVERING ITEMS OF CONSIDERABLE COST SHOP CRANES AND THE LIKE

"BLUE" ORDERS TOOL ROOM COVERING ITEMS FOR EXPENSIVE REPAIRS TO SHOP TOOLS

"BROWN" ORDERS CARPENTER SHOP COVERING ITEMS FOR EXPENSIVE- REPAIRS TO BUILDINGS, ALSO NEW BUILDINGS, ADDITIONS, ETC.

SMALL ITEMS, REPAIRS, EXPENSE. BETTERMENT, ETC, PER FIXED ORDER NUMBER SMALL BOOK

SHOP

NOS. 1801 TO 1813 INCLUSIVE

NOS. 1820 TO 1828 INCLUSIVE

BETTERMENT

NOS. 1840 TO 1849 INCLUSIVE

DIAGRAM IV

This is a diagrammatic analysis of one company's order system. In conjunction with a rule book for charging time, it supplies this concern's key to the recording and figuring of all its costs.

intendent or manager can keep close track of the overtime, and quickly stop any tendency toward abuse.

It is usually advisable to chart the course followed by job cards and orders so that all clerks handling them may know exactly what they have to do, where the cards and orders come from and where they have to go. These charts are as useful for office work as routing diagrams are for showing the course of the product through the factory. Diagrams IV, V and VI show how orders, job cards and material are routed through one plant. With such a chart and instructions it' is harder for a clerk to make a mistake than it is to do the job right.

WHY IT IS OF GREAT IMPORTANCE TO MAKE SURE THAT EVEN THE SMALLEST ITEMS ARE REPRESENTED IN YOUR FINAL COST FIGURES

For some curious reason, accuracy in accounting for materials is not generally considered as important as in accounting for direct labor. Every manager likes to feel that every minute of the labor that he buys is accounted for on some order, but it does not seem to worry him if two or three per cent, or more, of his materials is unaccounted for, or if even a larger portion is charged wrongly. Why this should be so, when materials cost real money just like labor, is one of the puzzles of current managerial practice.

Perhaps one explanation lies in the fact that so few concerns have adequate facilities for the proper storage and handling of materials. Money must come in and be stored in definite places in the safe or the petty cash drawer, and the same is true of stamps, probably because they have the price marked on them and may pass for money.

Yet raw materials, whether intended to go into the product or into supplies, and partly finished stock waiting for assembling, may be, and frequently are, dumped anywhere according to the convenience of the foremen or the truckmen, are issued to, or taken by, anybody who may be presumed to have a use for them, and accounted for or not, according as to whether or not anybody has the time or willingness to make the proper

CHARGEABLE IN DETAIL TO

OBTAINED FROM

■ PART NUMBER-

NEW YORK ORDER NUMBER YELLOW ORDER NUMBER ENGINE NUMBER HOIST NUMBER BOILER NUMBER HEATER NUMBER

STANDING SHOP ORDER NO. 1601

TO 1819 INCLUSIVE

DEPARTMENT ORDER NO. PINK,

BROWN, BLUE

STANDING SHOP CROER NO. 1820 TO 1839 INCLUSIVE

DEPARTMENT ORDER NO. PINK.

BROWN, BLUE

STANDING SHOP ORDER NO. 1840 TO 1850 INCLUSIVE

CEPARTMENT ORDER NO. PINK.

BROWN. BLUE

INVENTORY MEMORANDA BOOK _ (PURCHASING CLERK*

FOUNDRY WEIGHTS SMITH SHOP CHARGES CARPENTER SHOP CHARGES BILLS FOR CASTINGS AND SUPPLIES

FOUNORY WEIGHTS SMITH SHOP CHARGES CARPENTER SHOP CHARGES PATTERN SHOP CHARGES PIPE FITTERS' CHARGES STORE ROOM CHARGES TOOL ROOM CHARGES BOILER SHOP CHARGES ERECTING SHOP CHARGES SHAFT WEIGHTS BILLS

MATERIAL PER STANDARD LISTS MATERIAL PER DRAWING ROOM MEMORANDA BOLTS. NUTS. WASHERS

AND SUNDRIES NOT OTHERWISE CHARGEABLE

MACHINE TOOLS; SPECIAL APPLIANCES; FIXTURES;.NEW BUILDINGS, AND IN GENERAL ALL MATERIAL BOUGHT OUT- RIGHT NOT TO BE CHANGED OR DIVIDED OR TO HAVE LABOR EXPENDED ON, AND WHICH WILL APPEAR ON IN* VENTORY BOOKS AS A DIS- TINCT ASSET

STANDING SHOP ORDER NO. 1801 I

TO 1839 INCLUSIVE

DEPARTMENT ORDER NO. PINK.

BROWN. BLUE

STEAM COAL; SMITN SHOP COAL; FEED OIL; GAS; WATER; WASTE; FILES; SMALL TOOLS; BELTS; GLUE; OFFICE SUPPLIES; PAINT; FERRY AGE; FREIGHT AND EXPRESSAGE; TRUCKAGE; BILLS FOR REPAIRS ANO EXPENSES; FOUNDRY SUPPLIES; SUNDRIES

DIAGRAM V

Here is a graphic representation of one plan for subdividing labor charges throughout a plant, A diagram of this type may prove very helpful when figuring your own costs.

records. Under these conditions it is obviously impossible accurately to keep track of all the materials handled.

The first requisite in accounting for materials is some form of stores system by which all materials are kept definitely in charge of responsible storekeepers and are issued only on written orders specifying the lot or job on which they are to be used (Forms 8 and 9). Some kind of a perpetual inventory by means of which a record is constantly kept showing the receipt and disbursement of materials, is a necessity for other purposes than those discussed in this book and is a useful adjunct to cost-keeping.

THE USE OF THIS PERPETUAL INVENTORY ELIMINATES ANY CHANCE OF MATERIAL BEING MISSED

This perpetual inventory may vary in detail and completeness all the way from a simple card or sheet showing amounts received and amounts issued, with balances and dates (Form 10) to the elaborate balance sheets used in the most advanced forms of management, which show the amounts ordered on single orders and accumulated orders, requisition numbers, purchase order numbers with dates and prices: quantities received, with dates; quantities issued, with dates and order numbers on which issued ; prices per unit and per issue ; quantities reserved for orders to be executed in the future, together with dates of reservations and of issue, and order numbers; quantities available for reservation, which is the difference between quantities on hand, plus those on order, and amounts reserved; and, finally, the total quantity of material required for the execution of all orders on hand, from which is deducted the quantity purchased on each separate order, leaving the amount still to be bought (Form 11).

All materials should be issued on written requisitions showing the order number for which issued, date, quantity, and the price of the issue, this price including freight and expense, as well as purchase prices (Form 9) . These prices can be taken from a perpetual inventory sheet which takes them from purchase orders and freight and express vouchers, or, if it is not desired to have this information available to perpetual inventory clerks, they should be at hand in the cost department where they will be entered on each requisition after the materials have actually been issued. From these requisitions the prices are posted to cost summary sheets for each job in the same way as direct labor.