I. Prime Cost.

1. Labor in (a) Machine Shop; (b)

Foundry; (c) Drawing Room.

2. Material. II. Fixed Charges.

1. Insurance.

2. Depreciation.

3. Indirect (Non-productive) Labor.

4. Repairs. III. Selling Expense.

1. Office.

2. Salesmen.

3. Traveling.

4. Advertising.

5. Estimating.

(a) General.

(b) Drawing Room. Profit. Selling Price.- Referring to the foregoing outline it will be seen that the selling price is made up of two main elements, (1) Cost (to make and sell- sometimes called factory cost) and profit. The selling price is not fixed by cost, but by demand and supply. No matter how cheaply a product may be made, if there is no demand it can not find a sale. If producing cost is so high as to be nearly prohibitive, the demand must be strong enough to pay the necessary price. This condition is often obscured by the fact that many manufacturers regulate their prices by those of their competitors.


By cost, as used above, is meant all those expenses necessary to complete the product and place it on the market- in other words-- selling price less profit.

Prime Cost

The material cost and labor cost of producing an article by manufacture is prime cost.


The labor entering into prime cost, is direct labor, that is, the worker actually produces or aids in the production of the thing made. Direct labor is synonymous with non-productive labor.


That which is used in the manufacture of an industrial product is termed material.

Fixed Charges

This term is a general one, comprehending those elements entering into cost which are an expense and yet not directly chargeable through the process of manufacture to the finished product. These as given are: (1) Insurance; (2) depreciation; (3) indirect labor; (4) repairs.


Expense for indemnity against loss of any kind is comprehended in the term insurance. The most common form is insurance against fire, but almost any possible contingency may be insured against.


Depreciation is a lessening in value from age and contributory causes. Buildings, machinery, etc., used in any process lose in value by wear, use, introduction of new processes, and many other causes. Only the land on which a factory stands commonly appreciates in value, and such appreciation is commonly not reckoned in cost computations.

Indirect Labor

Labor which is necessary to make direct labor effective, though not of itself producing anything, or which is necessary as an adjunct to direct labor is termed indirect labor.


Various operations become necessary to restore worn, depreciated, or damaged machines, fixtures or buildings, such labor or material used being known as repairs and being a part of fixed charges.

Selling Expense

If a product were salable at the factory door, no allowance would need to be made for expenses necessary to make a sale. Modern commercial methods necessitate the maintenance of an office or often a series of offices to arrange, catalogue, and otherwise prepare for and assist in the sale of the product of the factory or works. Salesmen must be employed to dispose of the output, traveling expense must be allowed them and others attending to necessary business, and various charges must be met for advertising.


Estimates fall under two heads: (1) General, as those drawn up for a concern not requiring special machines; (2) drawing room, as those requiring the special work of designers and draftsmen. If expensive drafts and patterns are made for use in the production of one machine and are actually used in its manufacture, this machine bears the expense of the patterns made, providing they are of no further use. If they may be of use in future work, they may be figured as investment. If drawn up to further a sale and not used, selling expense is charged.


From a technical standpoint, profit is not a part of production cost. The manufacturer adds to the cost to him such per cent as is possible for him to secure, this giving the selling price or cost to consumer.


There are many methods of recording the time of employees, the most common being the use of some form of mechanical device imprinting on an individual time-card the time of coming and going. From these the time book or pay roll is made up.

Record Of Time On Piecework

To apportion correctly the time spent on each piece of work, the employe is provided with a card on which he notes the time of beginning and finishing, this time being charged against the particular job on which he was at work.

Analysis Of Wages

The individual time cards being turned in and charged against the proper jobs, the total of these cards will agree with the amount of weekly wages paid and will serve as an exact guide to the amount of work required upon all similar processes. This record can be as minute as desired, embodying a record for each separate process, branch of manufacture, works order or stock number to which the items may be charged, cross columns indicating the different classes or even individual workmen employed


There should be a system for the accurate recording of all transactions affecting stores. In a factory having several sections or branches each having a separate stores department a requisition should issue from the head of each department to the head office for such stores as will probably be necessary in the course of manufacture. The requisition should show: (1) Description of material or article; (2) quantity; (3) use designed for; (4) time required; (5) last supply furnished ; (6) by whom supplied; (7) remarks.

If cost accounts are kept for each works, separate invoices should be required for each division, but one is necessary where the account is kept at the head office.

Issue Of Stores

Duplicate orders consecutively numbered and made out by the foreman or manager of the department requiring stores are required before such stores are issued. When issued, the issue is verified by the signature of the one ordering the goods. An exact record of stores on hand should be kept at all times or made up for reports at a specified time. A periodical analysis covering the same time as the wage analysis should be prepared, unless the requisitions themselves are turned over to the head office for the finding of prime cost data.

Work Orders And Stock Orders

In large manufacturing plants no general expenditure of above a certain sum, as $100, should be made without the authority of the manager to be evidenced by a work order bearing an estimate and authorization.

In factories manufacturing such articles as carriages, furniture or similar smaller articles for stock, a stock order should be issued for the making, to determine the cost of the article or articles manufactured and all expenditures should be charged against this stock order number.

In continuous process factories as a sugar factory, an arbitrary subdivision is generally made and charges made against such subdivision.

Disposition Of Scrap

To obtain a fair price at which scrap is to be rated, a standard should be fixed for usual classes of material and changed only to conform to market values.


Where coal or other fuel is bought in bulk a record showing how it is distributed is kept and the proper charge made against each division of the factory.

Systems In Use

There are a large variety of systems of finding and recording costs in use, simple or complex, depending upon the size of the factory or works and complexity of the process employed. The finding of costs is not an exact science, as it depends for a part of its data upon inexact information, while accounting authorities differ as to the correct disposal of many charges and credits. Every manufacturer should consider some system essential to a correct administration of affairs.