been expanded to take the time of nine clerks. The saving to this one company alone made the cost of installation and maintenance of its system less than a small fraction of 1 per cent of the sales. The management readily admitted that their sales and profits have appreciably improved since they have known how to estimate their sales prices. The Man in Charge When the committee has finished discussing how it will proceed and has determined that simplicity will be the keynote of its efforts it can then hire a cost man who is open to conviction. He can study the industry and do all the detail work for the committee. It is sometimes desirable to have him go from one plant to another where successful cost systems are already in operation, in order that he may select from each system the best way to handle costs as applied to his particular If the committee does not desire to retain an individual to do this a cost firm may be employed, but it is far better to have one man do the work, one in whom all have confidence and who will not carry from one mill to another the information he may find. The Cost Report The committee should always write or approve the report when it is prepared for the association and should personally recommend its adoption by the individual members of the association. The report will, of course, include the specification and recommendation of simple cost principles, which may be called a system. The committee will have to spend some time in arguing with some of the members who are hesitant about the plan. In preparing the report all technical and elaborated suggestions should, in so far as possible, be eliminated, and the matter should be presented as if the reader were entirely ignorant of cost work. When the report is presented to the association at its meeting it will help to have large wall charts giving such information as can be graphically expressed. Expense To return to the question of expense. At first, very likely, the plan will have to be carried by a few, but in a short while every member will want to participate, not only in the cost system but in the expense of installation. Associations may hesitate about proceeding in this matter in case they receive from some cost firm an exorbitant estimate as to the expense of installation, but in a small organization a system can readily be installed, as above suggested, for about $5,000. Not Uniform Prices A uniform cost system for an association does not mean uniform costs or uniform prices. Costs will vary as the location and physical equipment of plants vary. If a manufacturer is wise or fortunate enough to locate his plant where he has a good water-power, thus reducing his expense for maintaining steam-power, he certainly is entitled to that saving in his costs. So it is with all items of cost according to the equipment or location of the plant. Advantages as to coal, labor, freight, nearness to raw material, etc., cause a variation in costs and hence a variation in sales prices. Some persons feel that the only way to correct a demoralized and unprofitable market is to agree on prices. That is not only illegal but illogical. It is placing the cart before the horse. Prices are the result; costs are the cause. If costs are right, then in a majority of cases the prices are right when they are based not on competition, but on those costs. Destructive competition is due not only to a lack of knowledge of general market conditions, that is, of trade information which an association should disseminate, but also to a lack of knowledge of individual manufacturing costs. Correct costs mean fair competitive prices. Costs Basis of Competition "But," says the man who wants to agree on prices, "if there is this variation in costs and sales prices what is the use of a uniform cost system?" The answer is that fair prices and fair open competition result when all use the same cost system. It is the best kind of competition to compete with the man who knows his costs. In such competition there is nothing which is false; everything is intelligent, sound, and clear. A uniform cost system creates a sane and satisfactory market with just enough variation, caused by the individualities of human nature, to make it interesting. If members of an industry were half as much interested in one another's costs as they are in one another's prices the market would be greatly benefited. A Simple Form of Cost Record A good illustration of simple methods of obtaining costs is that used by an association of tablet manufacturers. This method consists of a simple estimate sheet. While it does not by any means constitute a complete cost system it is a step in the right direction. The problem that confronted the association was that of inducing each manufacturer to include in his estimates all necessary items of cost. After an investigation of the industry by a cost accountant it was found that the steps were very simple. The cost form illustrated in Form 8 was recommended by the committee and adopted and is now in use. When an association has to face all the complications of manufacturing, a much more extensive set of cost records becomes necessary. The general report reprinted below shows how such problems were met by an association in which manufacturing details were most intricate, and how a system of cost records was devised, relatively simple in form and definite in presentation of fundamentals. The system has proved most satisfactory, and has served as a model for many others. GENERAL REPORT1 GROWING DESIRE FOR ACCURATE AND UNIFORM COSTS Conditions surrounding the production of paper are somewhat more complicated than in many other lines of manufacture, and for this reason many mills have in the past failed to realize the possibilities in the use of accurate and uniform costs. Progressive manufacturers, however, today realize the importance of and the necessity for complete cost records, and your committee is glad to note a growing desire that present varying methods be carefully considered and such changes as seem necessary be made for the sake of inestimable advantages to be gained through standardization and uniformity. As paper is manufactured under widely varying conditions, it is obvious that no one rigid system will adequately serve all mills; but it is possible to maintain uniformity in principles and general methods, although details must necessarily vary with conditions. RESULTS ACCOMPLISHED IN OTHER LINES OF INDUSTRY At this point your committee desires to call to the attention of the Association members, the beneficial results which have already been obtained in such an organization as the United Typothetae of America. The Typothetae Bulletin, which is published regularly, contains reports and information regarding the progress of their work which are a revelation to any who have not realized the great value to be obtained in handling costs and statistics for a whole industry on a uniform basis; and all members should obtain and read carefully the general text matter in the Typothetae pamphlet entitled "Standard Cost Finding System." The remarkable results obtained by the Typothetae Association through their uniform cost system, and the many other beneficial influences emanating from their work, should serve as an inspiration to other associations. 1 Realizing the importance of uniform terminology in cost accounting, this report was accompanied with explicit definitions of the terms used therein. These definitions are reproduced on pages 201-204. |