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calculations made by the prime cost clerk as to the cost at which the commodities are being manufactured. This contingency will only arise where it is found inexpedient to proceed concurrently with the manufacture of all the articles comprised under the Stock Order No. to which labour and material are being booked. That is to say, while all materials required for the manufacture of a given number of articles may have been withdrawn from store, it may be found necessary to complete and consign to the warehouse a smaller number of the articles first, instead of proceeding, pari passu, with the manufacture of all. But this difficulty is more apparent than real, inasmuch as any debit or credit balances which, upon completion of an order, may be found to exist, can be adjusted by the commodities last produced to that order being taken into stock, at prices slightly reduced or increased to the extent of the difference; or the balance may, if preferred-and must necessarily if all the articles comprised in the Stock Order are disposed of-be at once carried to the debit or credit of trading account, or the sales account of any particular branch.

Having shown that all the direct channels of expenditure can be summarised in the Prime Cost Ledger, it Allocation remains for us to show how the incidence of of factory

the shop expenses capable of direct apporgeneral chargos. tionment, and the cost of factory superintendence, may, by means of a Prime Cost Journal, be fairly distributed over the various manufacturing operations.

In some establishments the direct expenditure in wages and materials only is considered to constitute the cost; and no attempt is made to allocate to the various working or stock orders any portion of the indirect expenses. Under this system the difference between the sum of the wages and materials expended on the articles and their selling price constitutes the gross profit, which is carried in the aggregate to the credit of profit and loss, the indirect factory expenses already referred to, together with the establishment expenses and depreciation, being particularised on the debit side of that account. This method has certainly simplicity in its favour, but a more efficient check upon the indirect expenses would be obtained by establishing a relation between them and the direct expenses. This may be done by distributing all the indirect expenses, such as wages of foremen, rent of factory, fuel, lighting, heating, and cleaning, &c. (but not the salaries of clerks, office rent, stationery and other establishment charges to be referred to later), over the various jobs, as a percentage, either upon the wages expended upon the jobs respectively, or upon the cost of both wages and materials. If, for example, the aggregate wages expended in manufacture during the year amount to £10,000, and the materials consumed to £6,000, while the indirect factory expenses amount to £800, then if the latter are to be distributed in proportion to the wages paid, the cost of each job would be increased by 8 per cent. of the labour expended upon it; or if the indirect expenses are to be distributed in proportion to the first cost in wages and materials, each job would be increased 5 per cent. of the amount of its prime cost. In the majority of undertakings it will prove a sounder method to charge the indirect expenses as a percentage upon the direct wages only, and not upon the material, for the prices of some raw materials fluctuate so very widely that the other method described would render the cost

unskilled labour.

comparisons of one year with another to some extent misleading.

In referring to the allocation of factory expenses in proportion to the labour expended upon the articles

manufactured, we have taken the amount of Skilled and

wages paid as one of the factors in the equa

tion, but it is quite conceivable that the wages paid respectively for skilled and for unskilled labour may vary so largely as to make such an equation fallacious in particular cases, though quite correct in the aggregate; and that a relation based upon the time during which the labour is employed, instead of upon the amount of the wages paid, would be more accurate. For instance, unskilled labour of a given amount is employed during a much longer period than skilled labour of the same cost, and it does not appear quite reasonable that it should bear only the same proportionate charge for superintendence, lighting, fuel, and such other expenses, the amount of which is greater or less according to the time the workmen are employed. When dealing with the question of the depreciation of plant, we shall have occasion to describe in some detail a method of distributing the incidence of a charge over a variety of objects upon the time basis, and that method can, if it be adopted for the purpose for which it is primarily devised, also be made applicable to the case under consideration.

The item of Depreciation may, for the purpose of taking out the cost, simply be included in the cateDepreciation. gory of the indirect expenses of the factory, and be distributed over the various enterprises in the same way as those expenses may be allocated; or it may be dealt with separately and more correctly

Establishment expenses.

in the manner already alluded to and hereafter to be

fully described. The establishment expenses and interest on capital should not, however,

in any case form part of the cost of production. There is no advantage in distributing these items over the various transactions or articles produced. They do not vary proportionately with the volume of business. A large increase in the value of orders received would not necessitate a like augmentation of the office staff, nor would a sudden and serious falling off in trade enable a firm to effect an immediate or proportionate reduction of general expenditure. The establishment charges are, in the aggregate, more or less constant, while the manufacturing costs fluctuate with the cost of labour and the price of material. To distribute the charges over the articles manufactured would, therefore, have the effect of disproportionately reducing the cost of production with every increase, and the reverse with every diminution, of business. Such a result is greatly to be deprecated, as tending neither to economy of management nor to accuracy in estimating for contracts. The principals of a business can always judge what percentage of gross profit upon cost is necessary to cover fixed establishment charges and interest on capital.

Owing to the diversity of methods of dealing with the matters under review, it has not been thought advisable

to complicate the Prime Cost Ledger (SpeciSpecimen prime cost men No. 34), by the addition of one or more ledger.

columns to meet the requirements of any particular mode of allocating the indirect expenses, especially as no difficulty will be experienced in adapting the book to suit any system of taking out the cost that may be decided upon, provided the methods described in the previous chapters of booking the cost of labour and material be adhered to. In most cases, however, it will suffice simply to enter the percentages of indirect factory expenses and depreciation at the end of each account in the Prime Cost Ledger. The latter, when embracing any items of indirect expenses, should strictly be termed the Cost Ledger; but to avoid unnecessary complexity, we have adhered to the term Prime Cost Ledger, even when the book so referred to registers cost of production and not merely prime cost.

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