The so-called cost system. Bookkeepers and shop men. A growth but not a system. Requirements of an efficient cost system. Analysis of requirements. Relation between the cost system and the shop management. What is an accurate accounting for manufacturing operations? Real estate. Power Lighting. Heating. Shop transportation. Tools and fixtures. Materials. Non-productive labor. General office. Machine rate. Man rate. Productive labor. Sales department. The various forms of orders. Progress of orders. Drawing material. Inaugurating a cost system. Careful examination of conditions and accurate analysis necessary to success.

There should be no argument as to the necessity of a well formulated and accurate system for ascertaining the actual costs of the product, including every item of expenditure that may have been incurred directly in turning it out, completely finished and ready for shipment.

Yet if we examine the so-called cost systems in many manufacturing establishments of the present day, we shall find that what is by courtesy called a cost system has grown out of the old-time methods of commercial bookkeeping, to which has been added from time to time a plan, a card, or blank, for this detail or that; the method having been arranged sometimes by one man and sometimes by another, with no general plan to guide and direct these detail matters. Thus, if a detail is a matter of shop work, a shop man is likely to arrange it from a shop man's point of view without much regard to its effect upon the commercial accounts or the office methods of the concern.

In a similar manner, if the matter should come to the attention of the manager, he is likely to set a bookkeeper to devise a plan, and he, being prone to view the matter from the bookkeeper's position without regard to the shop condition which may effect, or which may be effected by it, will arrange some plan entirely at variance with good shop practice.

Therefore, the work of attempted cost accounting becomes a thing of shreds and patches, a growth, but not a system in any proper sense of the word. Much of the work is duplicated, and there is very liable to be a maximum of expense and a minimum of efficiency. The information gained under such circumstances and by such methods is of an uncertain character and of no great value in determining actual facts in relation to the conditions of the business. The effect on the management and efficiency of the shop is rather to discourage honest effort toward better conditions than to be any incentive to increasing the output or raising its standard.

An efficient cost system should work to the advantage of both the shop and the office. In fact, it ought to have a beneficial effect upon the sales department as well, thus increasing the efficiency of the administrative, the manufacturing, and the selling of the product.

The requirements of a good cost system are quite definite and important in the management of a manufacturing enterprise as well as in the duty of accurately accounting for the cost of the work. The most prominent of these requirements are as follows:


To give, within a reasonable time after the work is completed, the actual and complete costs, including every item of expense to the ownership of the plant, of the operation of the plant as a whole; of the operations of each department of the plant; of the costs of each operation, and the cost of each machine part; of the cost of assembling the groups of related parts; of the cost of erecting the completed machine; of finishing, testing, and shipping it; and the cost of advertising, and selling, or marketing the product.


It should tend to the closest economy in the purchase of all material, and in the care, issue, accounting for, and the use of it.


It should secure the greatest economy of the wages paid for labor, not through lowering wages, but through increasing the efficiency of the workmen by accurately accounting for their work and providing for special remuneration for special individual effort and efficiency.


To decrease the cost of all manufacturing operations through accurate records of past and present performances, and their logical analysis and comparison, by which improved methods may be formulated and the efficiency of men and machines secured.


To increase the volume of output of the concern by means of the economies mentioned in the last paragraph, whereby the increase of efficiency, the shortening of the time necessary to do the work, and the decrease of costs have combined to largely increase the producing capacity of the plant.


To increase the profits of the concern, by reason of the fact that costs of all parts of the work having been accurately determined, correct estimates may be given with confidence, and closer figures may be made upon proposed work than is possible with a rival firm not so accurately informed as to costs; whereby the concern stands upon a better basis in getting new business. Losses are also avoided, as an accurate knowledge of costs shows the manager what works to avoid as unprofitable.

The cost system must not only show a correct record of all manufacturing operations and all fluctuations of costs, but it must show why these fluctuations have occurred and fix the responsibility, first, upon the proper department, and, second, upon the official or individual who may be held responsible.

There is a close relation between the cost system, the shop methods, and the commercial accounts. It should be thoroughly understood that the cost system and the shop methods must not only work in harmony with each other, but, also, with the general accounting system of the concern, so that each may assist and support the other in attaining that success which comes from the union of effort on the part of all concerned.