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material, or in other words between stores and stock. The utility may not be at once apparent of passing through the Stock Books, as distinguished from the Stores Books, commodities manufactured to supply a definite order, and which are not likely to form part either of the normal, or of the exceptional, stock in hand of the business, but it will be evident that there is a distinct advantage in treating all orders to manufacture in the same way, whether they be of a special or of a standard nature. Confusion necessarily arises if part of an order for articles made in the factory is treated as if supplied from stock, and another part as if supplied from stores. We recommend therefore that all material and parts required for purposes of manufacture should be withdrawn from store and charged to their proper stock orders. If the article has in reality been manufactured in execution of a customer's order, it should be withdrawn from the warehouse, and credited to the stock accounts, by the process described. The importance of uniformity in the treatment of the orders to manufacture is particularly exemplified when the cost of

any article which has not previously been made, or made only to a very limited extent, is to be taken as the basis of calculations in view of more extensive transactions. A simple illustration will make our meaning clear. If a customer orders a suite of furniture to be made, we maintain that instead of the expense of executing that order being debited to one account, the several pieces making up the suite should be made to separate stock orders. In this way, while the cost of each individual piece would be known, the cost of the suite would be ascertainable by aggregating the costs of all the pieces, whereas, if the whole of the labour and

stage of manufacture.

material required for the production of the complete suite had been indiscriminately charged to one account, it would be difficult to determine the cost of any one piece, should it be required to be replaced or to be manufactured more extensively. It is well to exclude all probable sources of error, and this is largely promoted by clearly recognising the distinction we have drawn between material and manufactured goods.

It having been decided to manufacture certain commodities, the instruction referred to in the preceding Initiatory chapter (Specimen No. 28) will be issued.

One part of the form will convey to the

manager or foreman instructions to manufacture; the other is for the use of the clerk keeping the Prime Cost Ledger, and will be taken by him as an advice of what orders are in hand and as a guide to the folios to be reserved for such orders in his Ledger. The counterfoil, to which the forms can be attached upon the completion of the order, will be retained by the principal.

It is not only important to know the cost of each individual article produced, but equally so to ascertain

the cost of any particular part, or of any parCost of each

ticular process of manufacture. Localization

of cost should be carried as far as possible, so that the varying rates of realizable profit on parts may be known, and the pressure to minimise cost of production be applied in the right direction. The tendency to the specialization of labour has grown, and is growing, with the extension of the factory system, and the economy thereby induced can only be rendered thoroughly effective by a complete analysis of cost. As a well-known writer on this subject has said, “One of

separate process.

the first advantages which suggests itself as likely to arise from a correct analysis of the expense of the several processes of any manufacture is the indication which it would furnish of the course in which improvement should be directed. If any method could be contrived of diminishing by one-fourth the time required for fixing on the heads of pins, the expense of making them would be reduced about thirteen per cent. ; whilst a reduction of one-half the time employed in spinning the coil of wire out of which the heads are cut, would scarcely make any sensible difference in the cost of manufacturing the whole article. It is therefore obvious that the attention would be much more advantageously directed to shortening the former than the latter process.'

The fact that since this passage was written the process of manufacturing pins has been shortened and cheapened in the way referred to, serves to bring into · clear relief the truth of the principles enunciated by the writer.

A description of the advantages arising out of the division of labour from a politico-economical point of view does not fall within the scope of this treatise. Suffice it, therefore, to say that these advantages have been ably expounded by Mr. Babbage, and more recently by Professor Alfred Marshall and Mary Paley Marshall.t

The principles applied in these pages to recording the cost of production of any article are equally applicable

• “On the Economy of Machinery and Manufactures," by Charles Babbage. 4th edition. London: John Murray.

† “The Economics of Industry,” by Alfred Marshall and Mary Paley Marshall. London: Macmillan & Co.

clature of

to recording the cost of any or all of the parts of that article. Either subsidiary stock orders numbered consecutively may be passed, or the stock orders for parts may be denoted by the number of the original stock order and a letter of the alphabet. Upon the completion of all the component parts, the accounts in the Prime Cost Ledger of the various stock orders could be grouped, so as to constitute in the aggregate the cost of the complete article.

For the purpose of booking, with the minimum amount of labour, the expenditure upon small parts, a

nomenclature enabling every detail to be Nomen

accurately and concisely defined by a symbol parts.

is exceedingly desirable. It would, on account of the labour involved, be an obstacle to the consummation of the object in view if the size, purpose, and relative position of every separate piece had to be expressed in ordinary language. It affords us much satisfaction, therefore, to be able to reproduce, through the courtesy of the author, a paper by Mr. Oberlin Smith,* in which is suggested a symbolic nomenclature of the kind required, if the system of taking out prime cost is to be applied to small parts.

As all labour and material are not directly spent in Expenditure the manufacture of articles, but are partly other than devoted to the maintenance, repair, or refor manufacturing pur. newal of buildings and plant, and to other

objects, it becomes necessary to record the expenditure upon the subsidiary purposes, and to provide for its distribution over the various manufacturing operations or orders. Whilst the cost of setting tools and machinery to per

See Appendix A.


form certain operations may be charged directly to the stock order on which the expenditure is incurred, labour or material spent in the erection of additional, or the maintenance, repair, and renewal of existing machinery, cannot directly be apportioned to any particular stock order, as the cost of the use of machinery in every case is mainly dependent on the life of the machine. The considerations which should determine the amount to be debited to any stock order on this account will be most conveniently referred to in the chapter on Fixed Capital in connection with the question of the charges to be made for the use of machinery. Another direction of expenditure lies in the maintenance, repair, and renewal, extension, or erection of workshops, warehouses, stores, and other buildings. All such expenditure may be recorded under general or various sub-headings in the Prime Cost Ledger, or preferably in separate Plant and Buildings Ledgers. The utility of these separate ledgers

will be more apparent after a perusal of the Localization

chapter already referred to. The recurring items in the maintenance of machinery and

buildings may, so as to insure the maximum amount of localization of cost, receive a distinctive series of numbers, and thus the cost for each floor, or wing of a building, may be ascertained. For expenditure on such recurring items, the manager of the works may receive standing instructions; but expenditure on special items of maintenance, or of additions to fixed capital should be estimated for, and authorised in the same way as the execution of Stock Orders (pages 51-2). When in order to proceed with a certain stock order, it is necessary to make special tools to enable the work to be done, it will be convenient to charge all time and

of main. tonanco expenses.

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