While some of the results here enumerated are not, strictly speaking, within the province of the cost system, and belong more particularly to the work of shop management, these two branches of the work are so interwoven with each other that it is not practicable to discuss the one without including more or less of the other.

In inaugurating a cost system there are certain calculations to be made as to the fixed charges or expenses that are of the utmost importance, and without which it is impossible to formulate a complete or accurate system of cost accounting. It is not sufficient to say that there are commercial costs with which the manufacturing department have nothing to do, but which will be properly taken care of by the bookkeepers. It is not possible to obtain accurate costs of manufacturing operations, and properly distributed as commercial charges after the product is turned out.

Interest, taxes, insurance, and like charges are as properly a part of the cost of manufacturing as the wages of the workmen or the cost of material.

Machines vary greatly in first cost, hence there is much difference in interest charges. They also vary in a similar degree as to power to drive them and the cost to house them, hence in the real estate and similar charges properly assessed against their operation and output.

There are many other and equally good reasons why all these expenses should be taken into the accounts of manufacturing operations at the earliest possible moment.

By accurate accounting for manufacturing operations is not meant simply all the expenses of a department as compared with all the output of that department. Costs should be in detail and not only cover an order for a machine, but the cost of its several parts, and if a portion of a regular production order, we should have the costs of the different operations on the parts, and also the cost of assembling the groups of related parts and that of erection, finishing, and testing the machine or device. Therefore we must arrange the plan of the general accounts and work out the necessary calculations before entering upon the detailed work of the plan. The classification of accounts and the methods of using them will be as follows, namely:

First. Real Estate

(a) Interest, 5 per cent on the cost of the land and preparing it for the buildings, and on the cost of the buildings and the fire equipment for them; (b) Depreciation of real estate, unless the charge is balanced by the appreciated value of the land; (c) Maintenance and renewal of buildings; (d) Fire insurance and taxes.

The sum of these expenses for a year is divided by the number of square feet of floor surface of the entire plant. This gives a burden per square foot per year. It is reduced to an hourly rate by dividing it by 2500.

Second. Power

(a) Interest, 5 per cent on the cost of equipment for power generation and transmission, and its installation; (6) Depreciation, 5 per cent; (c) Maintenance and renewals; (d) Fire and boiler insurance; (e) Floor rate of boiler and engine rooms as ascertained in first paragraph; (f) Cost of fuel, water, and supplies; (g) Wages of engineer and fireman.

The sum of these expenses for a year divided by the horse power generated, and this amount by 2500, gives the cost per horse power hour.

Third. Lighting

(a) Interest, 5 per cent on equipment and its installation; (6) Depreciation, 6 per cent; (c) Maintenance and renewals; (d) Power, charged per horse power hour as in the second paragraph; (e) Supplies, wages of electrician, etc.

The sum of these expenses for a year divided by the number of lights, on the basis of incandescent lamps (allowing 10 incandescent lamps as equal to one arc lamp), and dividing this amount by the number of hours of lighting during the year, will give a cost of maintaining each light. With this factor the cost of lighting any and all departments is readily computed. As there will be considerable variation from month to month, this account should be made up monthly.

Fourth. Heating

(a) Interest, 5 per cent on the cost of equipment and its installation; (6) Depreciation, 6 per cent; (c) Maintenance and renewals; (d) Power, or its equivalent in steam, for heating; (e) Labor as may be necessary.

The sum of these expenses divided by the space to be heated (100 cubic feet being taken as a unit) gives the cost of heating, from which the expense of heating any room or department may be calculated. This account is to be made up monthly as it will fluctuate considerably from month to month.

Fifth. Shop Transportation

Shop tracks, cars, elevators, cranes, etc. (a) Interest, 5 per cent on equipment and its installation; (6) Depreciation, 5 per cent; (c) Maintenance and renewals; (d) Power to operate cranes, elevators, etc.; (e) Wages of operators.

This being a general account floor rate is not charged.

Sixth. Tools And Fixtures

(a) Attachments and fixtures made and used upon a certain machine are considered a part of that machine and added to its value; (b) Regular hand tools, as drills, reamers, taps, dies, etc., are a part of the shop equipment and the interest on their cost, plus the expense for maintenance and renewals should be added to the general expense; (c) Special tools necessary for work on a certain order are charged to that order. If the order finally becomes a regular line of work, then tools will be charged to the general expense as above.

Seventh. Materials

This includes all raw and manufactured materials and supplies, purchased parts, whether in the rough, partly or completely finished, which are applied directly to the product. It will require space to store this material, men to handle, issue, and account for it; these expenses become a part of the general expense account and are charged as overhead burden. The items will be: (a) Floor rate for space occupied for storage; (6) Interest, 5 per cent on the average amount invested in material; (c) Insurance on material; (d) Lighting and heating store room; (e) Labor, handling, and accounting for material.