A. A. BULLETIN...May 1, 1938 N. A. C. A. Bulletin the facts regarding assets and liabilities and the operating activi-ties of each manufacturing unit. Current assets and current lia-bilities

-.t= Y

A. A. BULLETIN.

Vol May 1, 1938

N T W O SECT IO N S

Section I

ON OF�

1919

ININ THIS ISSUE

A Standard Cost System for a Sta-

tionery Manufacturing Concern,by Omar K. Edes ............... 1005

T h i s Bul l e t in is pub l i s he d semi -t non t h l y by the N a t i on a l

As s oci a t i on of Cost Ac c ou n t an t s , 385 M ad i s on Ave nu e ,

Ne w Y o r k . S ubs cr i p t i on pr i ce , $ 10 . 00 pe r ye ar . E n t e re d

at t he P os t Of f i ce , Ne w Y ork , N . Y . , as s e cond -c l as s tnat-

te r Au gu s t 28 , 19 25 , un d e r t he Ac t of M a r c h 3 , 1879 .

EDITORIAL DEPARTMENT NOTE

Articles of the case study type have been popular withN.A.C.A. members. We are all interested in accounting prin-ciples, but are better able to grasp and appreciate a principlewhen we see how it has been applied to a specific case. Then,so much of the accountant's work is concerned with applicationof ways and means to meet a specific objective after the prin-ciples involved have been agreed on. In the case study type ofarticle we learn how the other fellow is meeting similar prac-tical problems which cannot help but give us help with ourown. It is this type of article which is being presented inthis issue of the Bulletin. Here we have a description of astandard cost system which has proven successful in a companymanufacturing stationery. Many of the methods described areapplicable to fields other than stationery manufacture.

The author of this article is Omar K. Edes, a product ofthe rock -bound coast of Maine. After graduating from theUniversity of Maine in 1916, Mr. Edes served as Bookkeeperfor the Merrill Trust Co. of Dexter, Me., Auditor of the NorthEast Telephone & Telegraph Co., and High School Principalat Stoneham, Me., before joining the Army during the WorldWar. Upon his return to civilian life he entered the employof Patterson, Teele & Dennis of Boston, where he now servesas Senior Accountant. Mr. Edes is a Massachusetts C.P.A.and a member of our Boston Chapter.

COPYRIGHTED BY THE

NATIONAL ASSOCIATION OFCOST ACCOUNTANTS

MAY 1, 1938

A STANDARD COST SYSTEM FOR A STATIONERY

MANUFACTURING CONCERN

By Omar K. Edes, Senior Accountant, Patterson, Teele and

Dennis, Boston, Mass.

THE standard cost system, as outlined in the following pages,was installed in the stationery converting plant of a concern

which we will call the Standard Paper Company. This costsystem was designed to furnish monthly book inventories for thepreparation of financial statements and current cost informa-tion regarding variances between the actual and standard costof materials, manufacturing labor and factory overhead expenses,with a minimum expense for cost - finding labor. It happens thatthe Standard Paper Company not only converts flat paper intostationery but also manufactures the flat papers that it uses atthe stationery factory, and which it charges to the factory atprices which the company would be forced to pay if these paperswere obtained from outside vendors. Naturally, under these con-ditions there is an element of inter - divisional profit in the flatpaper in the box of finished stationery which must be consideredwhen inventories are applied at the end of the year and profitsarrived at for Federal and State income tax purposes. At thattime this unrealized profit is shown on the books as a reserveagainst the factory inventory. Inasmuch as there is little changefrom year to year in the finished stationery inventory, the annualadjustment to the above - mentioned reserve is generally of a minornature. Consequently, for monthly statements, this element of un-realized profit may be disregarded.

Nature of the Company's Product

The Standard Paper Company manufactures all of the usualclasses of high grade stationery which it stocks for sale. Thedifferent lines include over i,800 style numbers, with variations instyle being caused by such matters as size of sheet, style of en-velope, nature of paper or purpose for which the stationery isintended. The paper may be styled for wedding announcements,social correspondence, mourning stationery or business, with eachline requiring a separate and distinct type of box. It will beseen that each change in the style of paper or box creates a new

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N. A. C. A.Bulletin May 1, 1938

line number, and such changes may affect the cost of the finishedproduct.

The company also manufactures many items for special de-livery on customers' orders. These special orders may requirespecial preparation of standard paper and envelopes or specialboxing of paper designed and made for particular customers. In-asmuch as this product of special manufacture represents lessthan 3o per cent of the company's stationery business, the essen-tials of the standard cost system are predicated on variances fromstandard in the manufacture of the regular stock items. How-ever, it should be pointed out that while these items of specialmanufacture represent less than 30 per cent of the dollar volumeof sales, nevertheless, the different special items manufacturedgreatly outnumber the stock items produced. Frequently specialorders will be taken for quantities as small as 125 or 2 5 o en-velopes, boxed, and it is obvious that to cost each individualspecial order would result in a large outlay for cost finding ex-pense. Therefore, the management is content to review monthlythe gross profit on specials sold and job cost only the largeritems where such procedure seems necessary.

After taking into consideration the fact that a great manysmall orders were completed in a short space of time and thatthe principal part of the finished product was represented by theflat paper therein, it seemed most practical to charge all labor,overhead and sundry materials on specials directly to the costof specials for the period under review. As a result, only flatstock on specials is followed by jobs into work in process - specials,and from that account to cost of specials sold. While it is truethat there is slight distortion in the monthly book inventory ofwork in process - specials, due to the elimination of the expensementioned above, nevertheless this inaccuracy is more than com-pensated for by the savings which result. The manner in whichmaterials, labor and overhead expense with respect to specialsare accumulated, is described later herein.

Bookkeeping RecordsBecause of the scope of the company's interests, the cash books

and journal are arranged with columnar controls for each man-ufacturing unit and a columnar ledger is also used in assembling

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May 1, 1938 N. A. C. A. Bulletin

the facts regarding assets and liabilities and the operating activi-ties of each manufacturing unit. Current assets and current lia-bilities are arranged in a manner to facilitate the preparation ofmonthly statements and each manufacturing division is given itsown series of account numbers in the general ledger. For ex-ample, the accounts of the stationery factory have been given thebase number Soo, and the income and expense accounts for thatunit are numbered as follows:

#503 Materials-1 Writing Papers -5 Wrappers-2 Cards -6 Tissues and Book -Slips-3 Cover Papers -7 Linings-4 Box Board -8 Bands, Labels and Box Tops

#504 Ribbons, Leafs and Miscellaneous Materials-1 Ribbons -4 Inks - Bordering-2 Leaf -Gold and Silver - Gilding -5 Paints - Decorating

Dept. -6 Inks - Ruling-3 Ink, Size and Bronze - Stamp- -7 Leaf Gold and Silver- Stamp-

ing ing

#505 Gum Arabic, Glue, etc.-1 Envelope Dept. -2 Box Dept.

#507 Salaries and Wages-1 Direct Labor -4 Heat, Light and Power-2 Indirect Labor -5 Factory, Production and Cost-3 Factory Salaries Office

#508 Repairs-1 Labor- Repair Dept. -4 Miscellaneous Equipment -Ma--2 Machinery and Equipment- terials and Outside Labor

Materials and Outside Labor -5 Repairs by Other Divisions

#509 Fixed Charges-1 Taxes -Local -3 Liability Insurance - Payroll-2 Insurance -Plant -4 Depreciation

#510 Electricity-1 Power -2 Lights

#513 Supplies-1 Lubricants -7 Factory Stationery and Print --2 Manufacturing Supplies ing-5 Fuel -8 Miscellaneous

#515 Welfare Expense-1 Welfare -2 Cafeteria Expense (net)

#516 Miscellaneous Manufacturing Expense-1 Miscellaneous -4 Expense of Reconditioning-2 Laboratory Expense Stationery-3 Factory Office Expense

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N. A. C. A.Bulletin May 1, 1938

#517 Social Security Taxes-1 State Unemployment -2 Federal Old Age Pensions

#518 Expense - Automobiles

#519 Manufacturing Done Outside-1 Stock -2 Specials

#520 Sketches, Dies and Electros

#521 Paper used for Advertising, etc. (Credit Acct.)

#526 Work for Others (Credit Acct.)

#527 Inventory—In Process — Beginning of Period#528 Inventory— Finished— Beginning of Period

Cost Ledger AccountsPractically all of the accounts shown above are shown also in

the cost ledger. Materials accounts, after the elimination of vari-ances, are transferred to work in process accounts, while thefactory overhead expenses are transferred to the account of thatname in the cost ledger and distributed to the proper burden cen-ters in the burden ledger. In order to avoid repetition, I haveshown below only the additional accounts not shown in the generalledger with respect to the activities of the stationery factory:

Finished Stock}returned GoodsWork in Process —StockWork in Process — SpecialsWork in Process — Samp1esCost of Stock Items Sold —At

Standard ValueCost of Specials Sold —At Actual

ValueFactory Overhead Expense

Standard Cost Estimates

Unearned BurdenUndistributed BurdenSpoilagePrice VarianceStock Labor VarianceUsage Variance Accounts for Ma-

terialsVariance SamplesVariance —Short DeliveriesGeneral Ledger Control

Before a new item of stationery is put on the market, thestandard cost and the estimated selling price is computed on theform shown in Exhibit i (at the end of this article). As a re-sult of extensive time studies, a large part of the factory is ona piece -work basis, with the several hundred piece -work ratescollated in rate manuals. The employees charged with the prep-aration of the new cost standards are necessarily familiar withthe steps incidental to the construction of the completed box ofstationery. However, in the event of the introduction of a box

1008


radically different in design, it is often necessary to obtain theco- operation of the box shop foreman in determining whetherthe box must be made by hand or by machine, and the operationsnecessary to complete the product. Once the cost of materialsand labor incidental to the completion of a certain number of unitsof the product, such as Soo boxes, is obtained, it is a simple mat-ter to compute the factory cost and desired selling price.

Production Orders

Manufacturing orders for stock merchandise and for specialsare sent to the production office to be translated into productionorders for the factory. These orders are typed in sextuplet onforms, the original of which is shown in Exhibit 2. Orders forstock merchandise are numbered consecutively from i up to5,000 and specials are numbered up from 5,001. By this pro-cedure the production number always identifies the class ofmerchandise and aids in the cost analysis of stock items and spe-cials. As a further check on production orders, all stock itemsare detailed on white production sheets, while specials are de-tailed on yellow sheets. The original order, shown in Exhibit 2,is used as the requisition for flat stock and accompanies the orderin its progress through the factory. It will be noted that Ex-hibits 2 and 3 contain perforated piece work coupons on the lowerpart of each sheet. These coupons are detached as needed in theseveral departments where the rate clerk fills in the unit andpreparation prices. The other information is supplied by theemployee who attaches her piece -work slips to her daily timereport, Exhibit 5. The first copy of the order, Exhibit 3, is sentto the box shop, the second copy, Exhibit 4, is sent to the costoffice. When stationery containing both paper and envelopes isto be manufactured, production copies are made for both thepaper cutting department and the envelope cutting department.As production begins, duplicate production orders, known as issuecopies, are sent to the supervisors of the above departments andused in following up production. As orders are moved to otherdepartments, the follow -up copies are removed from the super-visors' uncompleted file and used by the following supervisors inthe same manner. When the order is completed and sent tothe finished stock room or the shipping room, the assembly de-

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N. A. C. A. Bulletin May 1, 1938

partment prepares a delivery ticket showing delivery date andactual number of boxes delivered. This delivery ticket is for-warded to the stock ledger and thence to the cost office.

Standard Cost of Materials and Purchase Price VarianceStandard material costs are furnished by the purchasing de-

partment and when invoices for materials are received, the unitsshown thereon are extended at the standard rates mentionedabove. The difference between the standard cost and the actualcost of materials is carried to a price variance account in thecost ledger. Only a substantial change in the actual price ofmaterials will cause a change in the standard for that material,since it seems most practical to allow small changes in actualprices to be reflected in the price variance account. In a stationerymanufacturing concern the value of the paper and card repre-sents a very large part of the dollar value of materials in theproduct, so that a change in the price of other materials is rela-tively unimportant. Flat paper, or flat stock, as it is called by thetrade, is always billed to the factory by grade at three standardprices for perfect, medium or broke paper. In instances wheremedium or broke papers are furnished, the amounts sent tothe factory are increased proportionately, but careful cutting ofthis paper will often result in savings that are revealed in theflat stock variance account at the end of the month.

Standard Cost of Stock Labor and Variances TherefromAll direct labor in the factory may be divided into four general

classifications: ( t ) labor on stock items, (a) labor on specials,(3) labor on samples and sales promotion work, and (4) labor onjobs for other manufacturing units or departments. Althoughtime clock cards are provided for all workers, each employee inthe factory is required also to submit a daily time ticket similarto Exhibit 5, with the exception of the bordering department, as-sembly tables and box shop, where job time clocks are usedto record the time spent on each order. To assist the factoryand cost department employees in analyzing the time spent onthe different types of work, production sheets and piece -workcoupons for stock items are printed on white sheets and carry lowproduction numbers, while production sheets and piece -work cou-

1010


pons for specials are printed on buff colored paper and carryhigh production numbers. Production orders for samples, salespromotional work and other special jobs are printed on pinksheets and carry distinctive job numbers.

When piece -work coupons are used, only the information atthe top of the daily time ticket is filled in by the employee, and thecoupons are attached to the time ticket. Time workers are re-quired to fill in the amount of time spent on each order and identifythe job by the production number. In the payroll department thetickets are reviewed and extended at the employee's actual rate,while in the cost department these jobs are extended at the stand-ard rate (in the case of stock items) and summarized daily inthe place provided on the back of the daily time ticket. Thesetime tickets form a record for comparison between actual andstandard cost of production in all departments except bordering,assembly tables and the box shop. Here the multiplicity of detailrenders it impractical to extend each time card at standard cost,and the standard cost of production in these departments is ob-tained by costing the number of units completed daily, as re-ported on Production Report —Stock Items, shown in Exhibit 6.

Weekly and monthly statements are prepared showing theactual and standard cost of manufacturing labor on stock itemsin each department. These statements are scrutinized by themanagement and any unusual labor variances from manufactur-ing standards are made the subject of investigation. As an illus-tration of the effectiveness of the weekly comparisons of actualand standard labor on stock items, I mention one variance whichwas quickly corrected. Before the introduction of standard costs,the foreman of a department frequently found himself with in-sufficient production to keep his employees fully occupied dur-ing the day. As a result he would divide a large order, whichwas originally scheduled with one preparation charge, betweenseveral girls and each girl would charge for make -ready or "prep"time. As a result of this practice, the actual cost of the orderwas greatly in excess of the desired cost. I desire to explain thatmake -ready or "prep" time represents the cost incidental to pre-paring the order for actual manufacture or fitting the machinefor the order at hand. At present, waiting time is charged to aspecial account and furnishes the management with one gauge

1011


to the efficiency with which production is scheduled and such idletime eliminated.

Inasmuch as direct labor is credited with the actual time spenton specials and sales promotional work, the difference betweenthe standard labor cost for the month and the balance remainingin the cost account for direct labor is carried to the variance ac-count. When standard labor on stock items is transferred tothe account for work in process- stock, departmental overhead ex-pense is added on the basis of a percentage of the standard laborin the department, as discussed more fully in a subsequent para-graph.

Actual Cost of Specials Labor

I have pointed out that labor on specials is identified by highproduction numbers or yellow piece -work tickets. Thousands ofthe specials items handled are for a small amount of paper orenvelopes and it has seemed impractical to attempt to ascertainthe actual cost of each order. On the other hand, if a large orderis being manufactured, it is possible to cost the actual materialsand labor with respect to that order, but the company makes suchcosting the exception rather than the rule. In view of the factthat most specials are finished and shipped within a very shortspace of time, a large amount of clerical work is eliminated in thecost department by charging all actual labor on specials madeduring the month to the cost of specials. The cost of specialsis also charged with departmental overhead expense by applyingthe same percentages to departmental labor on specials that areused in the case of standard labor on stock items.

Standard Cost of Materials for Stock Items and Variances fromStandard

The cost office copy of the production report (Exhibit 4), con-tains a list of the materials entering into the construction of theorder. In the cost department the standard value of each ofthe required materials, as shown by the cost standards, is en-tered on the production orders which are held in suspense untilword is received that the flat stock has been delivered to thefactory and work begun on the order. The production report is

1012


then dated and filed under the classification of materials put intowork in process -stock during the month. At the end of themonth these reports are collated and the standard value of eachof the different materials is arrived at under separate totals. —, d

Flat papers are billed to the factory at prices which such pa-pers would bring to outside customers. The flat stock account iscredited with flat paper sales to factory customers and with theactual cost of flat stock used on customers' specials. The differ-ence between the balance of the account and the standard cost offlat paper put into process for stock items during the period rep-resents the flat stock variance on stock items.

Cover papers, labels and box tops, box board, linings, ribbons,tissues, bookslips and wrappers, and envelope and box shop glueare issued from stock on requisition. Requisitions are collatedas to stock or specials items and then costed at standard value.The material costs for stock items thus arrived at are then com-pared with the standards previously obtained and any differences,which must represent usage variances, since the materials havealready been purged of any price variance, are, transferred to vari-ance accounts.

Materials such as blotters, gold and silver leaf, and inks for theseveral departments are maintained for the most part in the de-partments that use them. Inasmuch as small quantities of thesematerials are constantly being consumed, it has seemed imprac-tical to requisition withdrawals of such materials from stock.Because of the relatively small inventory value and yearly con-sumption of such materials, hypothetical actual monthly costshave been established therefor. These hypothetical costs havebeen arrived at by obtaining the ratio of the above - mentioned ma-terials used during the previous year to the standard value of flatstock consumed during the same period. These percentages areused in arriving at the actual cost of the above materials forboth stock or specials items manufactured. The amounts arrivedat in this manner for stock items are then compared with thestandard material costs previously obtained, and any differenceis carried to a sundry materials variance account. Undoubtedlysome critically minded will object to this method of accounting forsundry materials, but it has been the experience of the companythat this practice results in very small differences between the

1013


book and physical inventories for these materials at the endof the accounting year.

Manufactured Stock Used in Manufacture of Specials

Customers frequently order stock items embellished with blackor colored borders, special bands, special labels, and stock paperand envelopes put up in special boxes. In such instances theorder department issues production orders and if it is believedthat too much work is not necessary on these orders, the produc-tion orders will specify that finished stationery of a certain stencilnumber be taken from stock. When this happens the cost de-partment ascertains the number and standard cost of the itemsto be transferred to work in process - specials, and the value of thisfinished product is shown under the caption of Finished Stockon the cost office copy of the production report. At the end ofthe month specials in process are charged and finished goods arecredited for all such items used from finished stock.

Variance Due to Short Deliveries to Finished Stock

During the month the cost department receives reports fromthe finished stock room showing partial or complete deliveries ofeach order and when the delivery ticket marked "complete" is re-ceived, the total number of boxes delivered on each order is ascer-tained and this number entered on the production order. If i thappens that the total delivery to finished stock differs from theamount called for on the making order, the cost department ob-tains the ratio of the boxes delivered to the boxes called for onthe production report, and the total standard cost of materials,as entered on the making order, is re- extended at the percentageobtained. This procedure produces a standard cost of materialsfor the stationery actually delivered to finished stock and thedifference between this amount and the original standard cost ofmaterials shown on the report is charged to the variance accountfor short deliveries to finished stock.

Deliveries from Work in Process -Stock to Finished Goods

Delivery slips are received daily from the factory (by stencilnumber) with respect to the different items of stock delivered to

1014


stock room. Such reports are sent first to the stock ledgers forrecord and then to the cost department. Production reports in thework in process file are reviewed in conjunction with these de-livery slips, and each report is stamped with the date of deliveryand the quantity of stationery so delivered. At the end of themonth the quantities shown as delivered on the production reportsare extended at the standard cost for the item, and the total valueof all such deliveries for the month are charged to finished goodsand credited to work in process- stock.

Delivery of "Overs" to Finished Stock

At frequent intervals the cost department receives reports fromthe finished stock department indicating that certain items of sta-tionery, once part of regular production orders, but overlookedduring manufacture, have been assembled and forwarded to thestock room. Inasmuch as the original production orders have beenclosed and materials accounts adjusted for shortages on such or-ders, when finished stock is charged with this additional mer-chandise at standard cost, 70 per cent of the cost thereof iscredited to the account, "Variance Due to Short Deliveries toFinished Stock," 15 per cent is credited to the labor varianceaccount, and the balance of cost is credited to work in process -stock, as a reserve. The foregoing percentages are used as theyapproximate the percentage of materials, labor and overhead ex-pense which comprise the standard cost of the average box ofstationery. Having regard to the fact that the value of "overs"delivered during the month to finished stock is extremely smalland that a credit to factory overhead expense involves the distri-bution of this amount to several burden centers, it has seemed mostpractical to credit the amount applicable to overhead expense di-rectly to work in process -stock as a reserve against any decreasein the valuation of the physical inventory of work in process atthe end of the accounting period, when compared with the bookvalue for that asset.

Standard Cost of Sales

Sales invoices are typed in quadruplicate. The original is sentto the customer, the first copy (Exhibit 7), is for the statistical

1015


department, the second copy is for the salesman, and the thirdcopy is for the files. As you will note from Exhibit 7, space isprovided on the left of the statistical copy to show the sellingvalue and standard cost of each item on the invoice. Invoices arecollated daily by salesmen on forms similar to Exhibit 8 (super-imposed on Exhibit 7), and a monthly summary of stock sales andthe standard cost of sales, analyzed in the manner shown on Ex-hibit 7, is prepared for the review of the company officials.

Factory Overhead Expenses

Purchase invoices affecting the cost accounts of the factory arereviewed by the cost accountant and the details thereon posted tothe manufacturing accounts in the cost ledger, with a correspond-ing net credit to the general ledger control account in the costledger. The monthly overhead expenses brought on the cost rec-ords under individual expense accounts are closed into an accountentitled "Factory Overhead Expenses." At the same time suchexpenses are posted in detail to departmental burden accounts inthe burden ledger. The manner in which the factory has beendivided into operating or burden centers is shown in the follow-

ing summary:BURDEN CENTERS

Paper Cut, Count, and Fold Box ShopCard Wrap and StencilGilding Stationery AssemblyStamping SortingPlatemarking Bulk Goods StorageAir Color General Mill BurdenEnvelope Cut, Gum, Machine, Land and Building

Fold, and Imprint Steam PlantEnvelope Hand Fold and Line Sample DepartmentBordering Packing and Shipping

Factory Burden Ledger

Exhibits 9 and io are copies of the two burden sheets whichused together in a post binder, form a yearly burden sheet foreach factory department. These sheets have been provided withmonthly columns for recording the overhead expense of the bur-den center and side captions to show the nature of the expense.At the bottom of the sheets spaces have been provided to showthe total monthly expense of the burden center , the unabsorbedburden (the difference between the actual burden and the earned

1016


burden) and the departmental direct labor which is used as thebasis for arriving at the earned burden for the month.

Factory Burden RatesA stationery factory has no "neck of the bottle," such as the

paper machine in the paper mill, through which all raw materialsmust pass. Consequently, it has seemed best to apply overhead ineach department on the basis of standard labor for stock itemsand actual labor for special items. At the close of each year aninvestigation is made of the actual overhead expenses for theperiod and also of the probable overhead expenses with the fac-tory operating under what the company officials term normalbusiness conditions. Such normal overhead expenses are dis-tributed to the burden or manufacturing centers, and the yearlyexpense of each department thus arrived at is compared withthe budgeted direct labor necessary to operate each departmentunder "normal" conditions. These normal burden rates are usedin the preparation of the standard cost estimates.

Unearned or Overearned BurdenAt the end of each month the standard stock labor and actual

specials labor are summarized by departments, and departmentalburden is added on the basis of the burden rates arrived at in themanner described in the previous paragraph. When labor andoverhead expense is transferred to work in process -stock or costof specials, as the case may be, the amounts with respect to over-head expense absorbed in manufacturing activities are credited intotal to the account for Factory Overhead Expense and in detailto the various burden accounts in the burden ledger. The bal-ance of the Factory Overhead Expense account at the end of themonth should agree with the aggregate of the balances of un-earned or overearned burden on each burden center sheet. Anybalance remaining in this account is transferred monthly to anaccount entitled "Unabsorbed Burden" and is supported by a de-partmental analysis which furnishes the following information:

For Month For Year to DateActual Burden Actual BurdenEarned Burden Earned BurdenUnabsorbed Burden Unabsorbed BurdenRatio of Unabsorbed Burden to Ratio of Unabsorbed Burden to

Actual Burden Actual Burden

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General Control on Factory Cost Ledger

In connection with the foregoing outline I wish to emphasize thefact that while the cost ledger details of the factory are tied upwith the details in the factory section of the company's generalledger, none of the entries in connection with the monthly ad-justments to inventory accounts and variances from standards,is entered in the general ledger. I realize that this may soundlike heresy to a great many private and public accountants, butsuch entries have been eliminated from the general ledger for sev-eral reasons. Under the bookkeeping system operated by theStandard Paper Company, control columns are maintained in thecash books, voucher register and general journal for each manu-facturing unit. Thus it is a simple matter for the cost accountantat the factory to ascertain the charges and credits applicable tohis records for the period under review.

After the cost ledger has been posted for the month and bookinventories, standard cost of sales and variances therefrom ar-rived at, such book inventories are reported to the general ledgerbookkeeper. Since the inventories shown on the general ledger atthe beginning of the accounting period, with respect to the factoryaccounts, were incidental with those shown at that time on thefactory cost records, it is obvious that the application of the bookinventories to the general ledger accounts should result in the ac-tual cost of sales, using standard inventories, and should agreewith the standard cost of sales less net debit variances, arrivedat by the cost accountant. When the two net operating resultsare not in agreement, the cost accountant and bookkeeper mustlocate any differences before the standard book inventories willbe accepted for use in preparing the financial statements.

This method of operating a cost ledger has several obviousadvantages: the cost accountant may work on his records at thesame time that the general ledger bookkeeper is posting his rec-ords; the cost accountant has more opportunity to scrutinize thepostings which he makes monthly in the cost ledger and reviewthe book inventories before they are submitted to the generalbookkeeper for his use; the monthly financial statements presenta complete analysis of the materials and expenses applicable tothe products manufactured and are supported by a statement

1018


showing the standard cost of sales and variances therefrom; andlast but not least, an exhaustive amount of work is saved at theend of the year when it becomes necessary to analyze operatingaccounts for the preparation of State and Federal income taxreturns. The chief objection to the operation of a cost ledgeras a separate record is the fear of the controller that items of acost nature will not be entered on the cost ledger, but it is my firmbelief that proper co- operation between the cost accountant and thegeneral ledger bookkeeper will always act as a sufficient safeguardin this matter.

1019

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E X H I B I T 2

1022

May 1, 1938 N. A. C. A. Bulle tin

BOX ORDER P R O M I S E D A T t _ - -

pu A M T I T \ ' __ DESCRi PrION —

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E X H I B I T 3

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NO.

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D A I L Y T I M E T I C K E T

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D A I L Y P A Y R O L L S U M M A R Y

EXHIBIT 5 (BACK)

1025


Date

PRODUCTION REPORT - STOCK ITEMS

Department

stencil Number Order Number Quantity Standard Amount

EXHIBIT 6

1026

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T he Technical Program Commit tee

for the

NINE TEE NTH INT E RNAT I ONALCOST CONFERENCE

Palmer House, Chicago, Ill.

June 2 0 , 2 1 , 2 2 and 23, 1 9 3 8

c,4nnouncesSPEAKERS FOR THE TUESDAY SESSIONS

CHAIRMAN FOR TUESDAY —M. A. MOORE, CONTROLLER, HYATT ROLLERBEARING CO., HARRISON, N. J.

Tuesday Morning, June 2 1

Theme —COST CON TROL AND ECON OMIC PROG RESS

1. COST CONTROL AS A BASIC PROBLEM OF INDUSTRY

Speaker: B. C. Heacock, President, Caterpillar TractorCo., Peoria, Ill.

2. THE ACCOUNTANTS' RELATION TO COST CONTROL

Speaker: Warren H. Sapp, General Manager, Armour& Co., Chicago, Ill.

Tuesday Afternoon, June 21

Theme— ESSENTIALS OF COST CONTROL1. UNDERLYING PRINCIPLES

Speaker: J. Hugh Jackson, Dean, Graduate School ofBusiness, Stanford University, Palo Alto, Calif.

2. THE TOOLS OF COST CONTROL

Speaker: William E. Perry, Controller, The ScrantonLace Co., Scranton, Pa.

Speakers for the Wednesday and Thursday Sessions will be announcedin the next issue of the Bulletin.

Documents

A. A. BULLETIN...May 1, 1938 N. A. C. A. Bulletin the facts regarding assets and liabilities and the operating activi-ties of each manufacturing unit. Current assets and current lia-bilities