Estimating. Cost keeping. Productive and non-productive costs. Diversity of opinion among accountants. Errors of the old systems. Popular idea that the expense of a proper cost system is greater than its benefits. Good judgment necessary. Lumping non-productive expenses. "All costs are productive costs." Ascertaining costs by a fixed machine and man rate. A percentage by averaging the total costs except those for labor and material. Dividing expenses into an unnecessarily large number of classes. The life of the machine taken into account. Accounting for the burden of fixed charges is the problem. Qualifications of a cost clerk. The "simple plan" is not a cost system. The two general plans. The time, or hourly plan. The labor cost plan. What are fixed charges. The expense burden. Supplemental expenses. The general burden. The proper system. Cost of land and buildings. Cost of light, heat, and power plants, and permanent fixtures. Insurance, taxes, water rates, maintenance, depreciation, etc. Area of floor surface. Non-productive expenses. Ascertaining the expense burden of a machine. Depreciation and interest. Classifying machines as to cost. The burden of idle machines. Importance of this factor. Faults of the old system of equipping the departments. A practical illustration. The proper method. The five factors of cost. Drawing room and pattern shop expenses. The floor space plan. Machine burden in the pattern shop. Charging the cost of regular patterns. Tool room costs. Work on regular orders. Work on tools, jigs, and fixtures. Burden of idle machines. Cost of consumable tools and supplies. Cost of transportation of material. Cost of machine repairs. Rebuilt machines. Calculating the cost of power, lighting, heating, etc. The value of this cost system. Important facts may be ascertained. Pointers for better management. Shows what departments are the more efficiently managed. Unnecessary machines. The fluctuations of business. Not a relatively expensive system. Showing where the troubles are.

The purpose of this chapter is to point out the methods for ascertaining and apportioning the fixed charges, office and salary, as well as the miscellaneous expenses, including those for interest and depreciation of machines and allowances for idle machines, all usually comprised under the general head of "burden." A prominent writer on the management of machine shop plants as commercial enterprises once wrote, "Upon the ability of the proper official to make correct estimates depends, to a very large extent, the commercial success of all manufacturing enterprises"; and in this aphorism he embodied much truth. Admitting the truth and importance of his statement, we are nevertheless forced to the conclusion that were he to write of machine shop management in these times of sharp competition and close calculations he would also give a prominent place to the system of cost keeping and its numerous ramifications, pervading as they do every kind and class of material, from the time it enters the building up to its shipment.

The urgent desire for information is well illustrated by the editor of a mechanical journal, who says, "There is no inquiry which comes to this office more often than the request for sources of information on machine shop cost keeping." And he might have added that in this search for information there could hardly be a question upon which there would be a greater diversity of opinion. The reason for this is not far to seek since the science of correct cost keeping (if we may so dignify it) is as yet but imperfectly understood and the ever varying conditions where it must be attempted render the application of any large number of fixed rules impracticable.

It has often been said that there are many ways of accounting for the time spent on the different jobs in the shop, and for dividing the so-called productive from the non-productive expenses in this direction, but there is a still greater diversity of opinion and practice in accounting for the burden of fixed and miscellaneous expenses, as well as for properly ascertaining them.

When they are all considered and brought out in all their diversified aspects, and in proper relation to each other, the result may surprise many good accountants as well as business men and proprietors, who have used the old methods of assessing a certain percentage of the cost of material and labor as the proper burden which they should bear in calculating the actual cost of the product. This being a level percentage (though jobs may be in large variety and done at a bench, or on a power-driven thousand-dollar machine), is usually in error, sometimes too great, but often too small, and the result, even if the entire establishment pays a profit, still leaves uncertainty as to its source, since there are parts of the work done more economically than others, and some departments which should properly be credited with producing more profit owing to the better local management.

In the case above cited, the head of a department who manages his working force and his equipment with the greater skill and forethought has to assume a part of the burden that another foreman partly avoids. When the cost of individual parts, or separate operations upon them, is not known, we lose sight of opportunities for improving upon manufacturing methods.

Many realize the practical advantages that might accrue from a thorough knowledge of manufacturing costs, but have an idea that the expense would be greater than the benefit. It is, however, practicable to ascertain with considerable accuracy just what portion of the product has been manufactured at a loss and what portion was sold at a sufficient profit, as well as to ascertain what departments of the shop are the more efficient, in order that the proper investigation and remedy may be applied to those which are not up to the proper standard.