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factor in increasing the efficiency of the machine, although they are really intended for the better and more prompt instruction of the operator; and

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having them at hand is of much assistance, not only in securing the proper sequence of operations, but in the rapidity with which the changes from one operation to another can be made. At the same time they give confidence and support to the operator in his work.

among which

In the use of these sheets and the handling of all new tools, jigs, and fixtures the efficiency of the men will be greatly increased by the presence and advice of a trained and expert instructor, who spends considerable time in investigating and recording much detailed information which is exceedingly useful in handling the work economically and efficiently.

There are some other aids to increasing the efficiency of the workmen. Managing officials should endeavor to provide good, agreeable, and sanitary conditions among

may be mentioned: plenty of light, natural or artificial; shops comfortably warm in winter, and always well ventilated; good sanitary arrangements, ample and clean lavatories and individual lockers for the workmen; as high-grade associates or "shop mates” as the character of the work demands. The system of payments should be convenient. Most state laws require weekly payments. The practice of "holding over” two or three days' pay should not be in use. Special rewards or bonus payment for special effort should be promptly made, accompanying the weekly payment, if possible, and certainly not deferred for more than a week.

The selection of a class of foremen who understand human nature and have the ability to study men as well as conditions and adapt their methods of discipline to the personal characteristics of the men, so as to hold their esteem and respect and increase their personal interest in the work they do from day to day. To be really leaders and not drivers of the working force. Experience shows that all these matters make for success in shop administration and should be carefully studied and made use of as occasion may require.

CHAPTER XXXV

THE RELATION OF THE OVERHEAD BURDEN TO THE FLAT COST

The overhead burden. Complex problems. Operating expenses. Classification of accounts.

A “going concern.” Fixed charges. The expense burden. The supplemental burden. Apportioning the overhead burden to the flat cost. Labor cost. Material cost. Administrative expenses. Selling expenses. Profit. Component factors. The hourly plan. Its defects. The percentage plan. Its fallacies. A comprehensive view. Productive and non-productive labor. Cost of power. Machine rate. Man rate. Floor rate. Idle machines. Good effects.

That bugbear of all accountants "the overhead burden” is one of the most potent factors in the problem of cost accounting and one which requires the most careful consideration and expert analysis. Still the problems of cost accounting in manufacturing operations are many and various. Often those which at first appear to be simple and readily solved prove to be exceedingly perplexing and difficult to satisfactorily handle.

Probably the one point upon which there is the greatest amount of disagreement and perplexing argument is that of the proper handling of the overhead burden or overhead charges, or, as variously called, the "fixed charges,” “the expense burden,” or the “expense account,” and of the proportioning or prorating it by some equitable method over the product turned out by the plant, so that each job or each order shall bear its fair share of the burden of the general expense of the manufacturing departments of the

concern.

Realizing the immense importance and the far-reaching results of a proper and accurate handling of this matter of overhead burden in the routine of manufacturing operations, and the possibility of great losses due to carelessness, or a lack of appreciation of the importance of the subject, manufacturing experts, factory managers, engineers, and accountants have devoted much time to the investigation and study of the problems growing out of the conditions which practical experience has evolved.

Those problems which at one time seemed to the expert in accounting to offer trifling obstacles to their ready and accurate solution, have been conscientiously studied from various points of view and under a great variety of circumstances and conditions, their real value and importance understood, and deductions have been made for their proper solution. But new condi

tions and new facts continually confront the engineer and the accountant at each succeeding investigation of the manufacturing operations of a new plant, until the field for profitable examination and study seems to be almost limitless.

It is a generally recognized fact that each manufacturing plant is unique in itself and always possesses some features distinctly different from any of those hitherto examined and which must be handled in accordance with these local conditions. Among all the problems in this complex question, that which concerns the proper and equitable distribution of the overhead burden of a manufacturing plant will be found to be beset with more varying conditions and be subject to more diversified opinions than all others which relate to the question of shop and factory accounting.

In this consideration of the question of apportioning the overhead burden to the flat cost we shall eliminate entirely the question of administrative expenses of the general office and also the cost of advertising and selling the product, limiting the detailed consideration to the manufacturing departments of the plant, and an examination of their expenses for productive and non-productive labor, fixed and varying overhead charges, and the cost of material.

With any sort of a common-sense system of bookkeeping it is not a particularly difficult matter to ascertain the total amount paid out for the general expenses of the concern, since these will include all operating expenses except those for productive labor and material. But just here enters one of those questions that frequently give trouble in the solution of these problems, and usually when least expected.

What are operating expenses? Clearly, those expenses demanded by the daily routine of manufacturing operations. True. But in the regular work of operating the plant there must be purchased, or made, tools for hand use, tools to be used in the machines, attachments to be used on the machines, and even new machines, and all of which are necessary for the economical machining of the product. What portion of these shall be charged to general expense? Naturally a part of these expenses will be charged to equipment. Here accountants, particularly those who have been used to the older methods, will disagree. Jigs and fixtures are required, for which drawings and patterns, as well as the fixtures themselves, must be made. Shall these be charged to the expense account, or shall the entire cost of making these accessories go into the equipment account along with the machines which they help to render economically operative?

A prominent author in discussing this matter has said that all drawings, patterns, tools, jigs, and fixtures should be charged to the expense account because “to the purely commercial mind, taking nothing on chances, the

forced value must appear to be the only proper value to be given to the factory plant in the accounts.” Further the same author concludes that, “in the case of a forced sale, drawings, patterns, and special factory tools are found to be absolutely without buyers. To the mechanical mind it seems preposterous to write all costs of these highly prized shop treasures directly into the expense

account.” In this connection it should be said that to the practical business man endowed with mechanical as well as commercial ideas the “going concern” with all its machines and tools, regular and special, in use at their highest efficiency, is his aim and ambition, and he is very likely to reckon on that başis, rather than to have ever before his mental vision the shadow of the auctioneer and the sheriff.

It is certain that men will make mistakes in judgment of business conditions and that losses will ensue. But not more in manufacturing enterprises than in any other line of business. The stock broker, for instance, conducts a business with much more liability to loss through depreciation, as well as from other conditions, but his accountant does not enter securities at their forced sale value.

Therefore it seems fair to consider the manufacturing plant in the light of a live, going concern, with the usual prospects for good business. Its operations are directed by a man who possesses a natural ability for judging commercial opportunities and business conditions, and at least a fair amount of appreciation of the value and excellence of good original designing as well as of the fact that the development and evolution of mechanical operations require the adoption of improvements from time to time in order to keep pace with legitimate competition.

Adopting this view we find that the overhead charges will consist of three factors, which may be summed up as follows:

Fixed Charges, covering interest upon the cost of the land, buildings, fixtures, power, lighting, heating, and transportation plants; insurance, taxes, water rates, etc.; the cost of maintenance and the depreciation of valuation.

The Expense Burden, including the cost of so-called non-productive labor, cost of lighting, heating, ventilating, cleaning, transporting material, the interest upon the cost and installation, and the depreciation charge upon machines.

The Supplemental Burden will be the cost of the temporarily idle machines, which, with the exception of the cost of power, cost as much as when working at full efficiency upon useful product.

The Overhead Burden will be the sum of the above three accounts, although the method of bringing them into the burden account varies with their individual characteristics.

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