Problems in cost accounting by dewitt t carl eggleston

THE COLLEGE OF THE CITY OF NEW YORK
AND TECHNOLOGY

SERIES IN COMMERCE, CIVICS

PROBLEMS

IN

COST ACCOUNTING

BY

DEWITT CARL EGGLESTON,

M.E., C.P.A.

AUTHOR, "MUNICIPAL ACCOUNTING," "Cosr ACCOUNTING," LECTURES

ON COST ACCOUNTING AND ON MUNICIPAL ACCOUNTING
AND MUNICIPAL

STATISTICS, AT

OF THE ClTT OF

THE COLLEGE

NEW YoBK

APPLETON AND COMPANY

NEW YORK
LONDON

D.

1920


CorrRiGHT, 1918, BT

D.

APPLETON AND COMPANY

PRINTED IN THE UNITED STATES OF AMERICA


56

INTRODUCTION
The invention of machinery, followed by the rise of the factory sysSo
tem, has resulted in highly specialized forms of manufacturing.
specialized is modern production that workmen carry on particular
operations without knowing very much about further work necessary
produce the finished commodity. These workmen are organized in
departments which require specialists to direct them. The relationship
to

of every part to the whole is known fully only in the central office.
Experience has shown that as soon as an establishment grows to such

a size that the details of operation in the various departments go
beyond the scope of a single individual's supervision, some organization must be effected which will provide records to guide the manage-

ment

and control in the manufachand and in the selling of it on the

in the exercise of adequate direction

ture of a commodity on the one
other.

Of

course the management is interested in fixing a price for the
product so that its sale upon the market will secure the maximum net

Great skill must be shown in judging the market so as to fix
a price which will be low enough to induce the greatest number of
buyers and at the same time high enough to give the greatest net return.
return.

To one unacquainted with business, acumen in this direction would seem
to be the prime asset of the successful manager. However, the manager
In his relation to the market
is also concerned in keeping down costs.
he

is

is

good prices for his commodity, but in
and services necessary to produce it, he

interested in maintaining

his relation to the materials

also interested in keeping

down

costs.

It is clear that the first item of cost is the

raw material which must

be worked up into an article to be sold. This material must be purchased as cheaply as possible and it should be utilized with such econ-

omy

that

little

or none

is

wasted.

Therefore, the

manager of a large

concern must have some record of the materials used in producing
goods to fill orders and the cost of those materials. Furthermore, he

must pay wages to his workmen who render personal services, and
must be a system of records to keep him informed concerning the
quality and the quantity of services used to produce his commodity.

there


INTRODUCTION

vi

The raw material consumed added

to the labor costs, are said to give
the prime cost of manufacturing.
In addition to the foregoing items of expense there are many factory or overhead charges which must be met. Careful records of these

general factory expenses must be kept and a proper proportionate
share must be attributed to each department. The overhead added to

the prime cost gives the total cost of manufacture.

adding a further
produce the comobtained. The difference between

By

selling cost or commercial burden, the total cost to

modity

(to

manufacture and

sell it) is

the selling price and these total costs is the profit made by the concern.
The cost accountant seeks to systematize the various cost records so
that they
will

may

form the

be kept accurately for a given business and so that they
basis for efficient and economical organization of the

factory, to the end that costs may be kept as low as possible.

The application of the principles of cost accounting to various industries

presents

many

interesting problems.

The

cost expert

must famil-

iarize himself with the details not only of each industry but with the

establishment in which he undertakes to install a cost system. Considshown to meet the diversified situations which

erable ingenuity must be
arise in actual practice.

During the past year the author delivered a

series of lectures

on

cost accounting at the College of the City of New York. The various
principles developed were made clear by the presentation of concrete
examples of situations met by cost accountants in actual practice.

These examples were not academic only; their material was drawn by
the author from many industries with the cost problems of which he
bad had wide experience.
After the principle had been thoroughly explained with the aid of
the example or type case, the students were required to solve original,
practical problems, similar in general character but not identical in
detail with the type.

Thus the method of

original instruction

was

fol-

lowed by practical exercises in the solution of problems.
This book contains, in carefully revised form, those examples and
problems from which the best results were obtained in class. They have
been arranged under fifteen general heads with topics in sequence so
as to develop all the fundamental principles of cost accounting in logical order.

The plan of the book is to give at the beginning of each of the fifteen parts a general statement of the principle to be illustrated by the
examples and applied in the solution of the problems. Then follows
the type example with its solution. The problems should be solved by
a student who has mastered the example. All the problems are ar-


INTRODUCTION

vii

ranged so that the answers are practicable and the students are thereCare has been
fore enabled to check up the results of their work.
taken to define technical or special terms so that there will be little
understanding reference to things found in particular indus-

difficulty in

tries.
Thus, to make clear the meaning of terms peculiar to the shoe
industry and appearing on the production order of a shoe factory,
drawings of a shoe are reproduced with the several parts properly rep-

resented and labeled.

The author

will

be glad to receive communications from anyone
any questions which may be

using the book and will answer promptly
asked.

DE WITT CARL
419 Homestead Avenue,
Mount Vernon, N. Y.

EGGLESTON.



CONTENTS
PART

PRODUCTION

I

PACK

CHAPTER
I.

3

PRODUCTION ORDERS
Job Ticket Used by a Printer Shoe Factory Production Orders
Straw Hat Factory Production Order
Garment Factory Production Orders.

PART
n.

II

MATERIAL

PURCHASE ORDER, INVOICE AND VOUCHER RECORD FORMS
Purchase

Order

Form

Invoice

Analysis

23

Pur-

of

chases.

III.

STOCK RECORD AND INVENTORY FORMS
Stock Record for Ostrich Feathers

Paper Stock
Lots

20

to

Raw Hide

Stores Record for

Stock Record for Individual

Physical Inventory Forms.

STORES REQUISITIONS AND REPORTS
Leather Cutting Slip

V.

Raw

.

.

.

;

.

.48

Material Report.

MATERIAL COST CALCULATIONS

56

Cost of Timber Per Ton of Ground Pulp Material
Average Cost of a Mixture Alliga-

Cost Calculation
tion

32

Stock Record for Ca/idied Citron, 10 Lb. Boxes,
Case Perpetual Inventory Record Upper

Leather Record

IV.

....

By-Products

Loss and Gain in Weight

Take-

up in Yarn Due to Twisting Invisible Loss Cost of
Yarn in Knit Goods Weight of Organzine and Tram

Required far Broad Silks
ix

System of Counts.


CONTENTS
PART
CHAPTER
VI.

III

PAUK

WAGE SYSTEMS

77

Piece-Work Rates

Wage

Piece-Work Rates
Bonus Wage Rates Efficiency

Differential

Premium Wage Rates

VII.

LABOR

System.

TIME KEEPING AND PAY-ROLL FORMS

....

92

Compositor's Daily Time Report Pressroom Daily
Time Ticket Bindery Daily Time Ticket Decimal
System of Time Reporting Pay Roll Forms Pay
Roll Calculations.

PART IV OVERHEAD
VIII.

INDIRECT EXPENSE

123

Overhead or Burden Rates

Distribution of Indirect

Expense in Textile Mills Distribution of Spinning
Mill Overhead Distribution of Weaving Mill Overhead Burden Rates in Foundries Hourly Machine

Rates Cost of Unused Capacity Burden Distribution
Cumulative and Comparative Analysis of Expense.

IX.

156

DEPRECIATION
Depreciation Straight Line Method Fund for Depreciation
Depreciation Fixed Percentage on Di-

minishing Value Method Depreciation Sinking Fund
Method Depreciation on Mines and Mining Properties.

PART V COSTS
X.

COST OP MANUFACTURE
Cost of Manufacture

.

.

.

.

.

.

.

(Overhead Applied as a Per-

Cost of Manufacture
(Overhead
centage on Labor)
Applied on the Basis of a Rate Per Productive Hour)
Cost of Manufacture

(Overhead Applied on the

Basis of a Rate Per Machine Hour)

Cost of

Manu-

175


CONTEXTS

xi
PAGE

CHAPTER
facture

(Overhead Applied on the Basis of the

Num-

ber of Units Produced)
Cost of Manufacture Overhead and Direct Labor Together Applied on the Basis
of a Rate Per Solid Hour.

XL

SPECIAL RECORDS AND CHARTS
Sales

Analysis

190

Workmen's

Individual

Efficiency

"Workman's Time Record Sheet Percentage of
ciency Machine Tabulated Records.
XII.

Effi-

APPLICATION OF THE PRINCIPLES OF COST FINDING IN THE
LEATHER, KNIT GOODS, CORDAGE, TEXTILE FINISHING AND COTTON

YARN INDUSTRIES

.

.

.

203

Cost of Manufacturing Leather Sole Leather Cost
Formula Labor Cost Indirect Expense Cost Total

Upper Leather Cost Formula

Cost

Labor Cost

In-

Expense Total Cost Cost Calculations Cost
of Manufacturing Knit Goods Cost of Manufacturing Cordage Manufacturing Operations Cost of
Simple and Combined Manufacturing Processes Conversion Cost of Yarn According to the Average Numdirect

ber System.

XIII.

SUNDRY COST PROBLEMS

237

Cost Per Square Yard of Asphalt Laid Cost Per
Square Foot for Floor Space and Cost Per Kilowatt

Hour for Electricity Cost of Producing and Selling
Bread Cost of Producing a Dozen Pairs of Goodyear
Welt Shoes.
XIV.

JOURNAL, LEDGER, PROFIT AND Loss STATEMENTS AND

BALANCE SHEET

255

Cost System for a Foundry and Machine Shop Cost
Accounts for a Machine Tool Builder Cost Accounts
for a Furniture Factory Cost System for a Tannery
Journal Ledger and Statements Cost Accounts for
a Large Machine Shop.

XV.
XVI.

ESTIMATING COST SYSTEM

.

.

.

.

.

.

....

COSTS IN THE BRICK MANUFACTURING AND COPPER MINING INDUSTRIES

306

314


CONTENTS

xii
r

IIAPTER

XVII.

PAGE

EXAMINATION QUESTION

.

,

.

.

,

.

321

Cost Accounts in the Portland Cement Industry Closing Manufacturing and Trading Accounts Trial Balance of General Ledger after Closing Manufacturing

and Trading Accounts Trading and Profit and Loss
Account and Statement of Monthly Operation Costs
Balance Sheet.

INDEX

339

EXHIBITS
6

1.

Printer's Estimate Sheet

2.

Printer's

3.

Cross Section of a Goodyear Welt Shoe
Shoe Last

9
10

5.

An

10

6.

AnOutsole

7.

15.

Shoe Lasted and Ready to have Welt Sewed on
Shoe with Heel in Place
Shoe Tag Front Side
Shoe Tag Back Side
Purchase Order
.
Voucher Stamp
.
.
Petty Cash Voucher
Accounts Payable Register
Dressed Goods Stock Record for Use in an Ostrich Plume

16.

Raw Hide Stock

4.

8.
9.

10.
11.
12.
13.
14.

Job Ticket

8

Insole

....

.

Factory

..."

20.

Record for Individual Lots
Perpetual Inventory Stock Record
Upper Leather Record for Use in a Shoe Factory
Requisition on Storekeeper
Outside and Leather Lining Cutting Slip

21.

Raw

22.

Chart Showing Three Methods of Cutting a Hide Used for

Sole Leather
Daily Time Ticket for Composition Department in a Job

17.
18.
19.

23.

24.
25.

26.

27.

28.

....

11
11

12
14

16
24
27

27
29
34
37
41
43

49
51

54

Material Report

Printery
Daily Time Ticket for Pressroom in a Job Printery
Daily Time Ticket for Bindery Department in a Job Printery
Daily Time Ticket for Bindery Department in a Job Printery

...

Payroll for Composition Department in a Job Printery
Payroll Calculation Sheet

.

.

Weaving Mill

29.

Payroll for

30.
31.

Production Table of Ring Warp and Ring Filling Yam
Production Table Showing Yards Produced by Looms

32.

Idle

.

62
94
97
101

106
109
116
117

.

.

130

.

.

130

146

Machinery Report
xiii


xiv

EXHIBITS

33.

Cumulative and Comparative Analysis of Expense
Chart Showing the Depreciated Value at the End of Each
Year of a $1,000 Machine with a Scrap Value of $100,
Having an Estimated Life of 10 Years, According to the

154

Straight Line Method
Stores Issued Punch Card

158
200
239
284
285
287
289
291

PAGE
34.

35.

....

'.....

Cost Sheet
Page 1. Journal Entries for a Tannery
37. Page 2. Journal Entries for a Tannery
38. Trading and Profit and Loss Account for a Tannery
39. Balance Sheet for a Tannery
40. Analysis of Cost Accounts for a Tannery
36.
37.

.

.

.


PART

I

PRODUCTION



CHAPTER

I

PRODUCTION ORDERS
For purposes of instruction we can classify factories as of
two sorts: The first works to turn out great numbers of a
standard

The

such as a motor car or safety razor.

article,

second turns out articles which vary according to the orders
good example of the second is a

of particular customers.

A

printing establishment which prints many books in various
styles, posters of all kinds, cards, letterheads, pamphlets, magazines and folders.

the first sort or second,

each department

is

will be filled

Hardly any order

exactly like that of its predecessor.
it

is

by a product

Whether the factory

is

of

usually departmentalized and

organized so as to turn out

some part of

the product or perform some service in the series of operations

Clearly the directing head or plan-

necessary for production.

ning

office

of the factory

must give

specific orders to

partment, indicating the character and

perform and the quality and quantity of material

For

factories of the second sort, obviously, the

orders to the various departments
those of the

first sort,

and

is

each de-

amount of work

more

it

it

must

must

use.

problem of giving

intricate than for

calls for original calculation

with

nearly every order to be filled. The cards or slips on which
these orders are given are known as production orders. Though
production orders are necessary in most departmentalized factories, it is best to take for study examples those of the factory
of the second sort, for they cover a wider range of variation.

The procedure generally followed is to prepare a production
orde,r form which can be filled out quickly and which will con3


PROBLEMS IN COST ACCOUNTING

4

tain all directions necessary for all departments

cooperate in

filling the

order.

No

essential

which are
item

may

to

be

Once a good form is devised, orders can be issued
and
accurately without likelihood of error through
quickly
omitted.

omission.

Sometimes production orders are made in manifold

so that

one copy can be used for making a cost summary of the whole
job, while other copies go to the various departments which

must receive information concerning work

An
serial

to be done.

important feature of a given production order

number put upon

calls for certain

it

by the planning

office.

is

the

If the order

materials to be drawn from the storeroom, the

department head may make out a stores requisition for these
materials and his stores requisition will bear the same serial

number

as that of the production order for the job using the

The same serial number is used on time tickets in a
The various places in which this serial number
be repeated will be treated in detail later, but we may

material.

similar way.
will

say now, in general, that its consistent use makes possible a
ready compilation of the cost of the whole job when completed.
In some factories production orders fall in general classes,
as for instance production orders for merchandise to

fill

custo-

mers' orders, production orders to authorize the making of patterns for factory use, or an order to authorize repairs or the

For convenience these production orders
tools.
be on paper of different colors or with letters prefixed, as

making of

for merchandise orders,

Clearly

it is

and

R

may
:

M

for repairs.

necessary to devise production order

forms to

meet the individual requirements of a particular factory engaged in its own peculiar work through its special organization.

To do

this one

must have an intimate acquaintance with

A

study of the following forms
will indicate the general principles to be applied in special
the establishment in question.


PRODUCTION
cases.

To begin

5

with, the printing industry affords a good

illustration of a trade where the

work

is

practically all done on

The procedure

individual production orders called job tickets.

followed in estimating on an order and in filling out a job ticket

somewhat

will be explained

in detail.

JOB TICKETS USED BY A PRINTER
When

a job printer wants to bid on an order he makes out

an Estimate Sheet, such as js shown in Exhibit
in the job

is

1.

Each item

separately estimated upon, so that actual costs can

be compared with the estimate after the job has been finished.
If the printer

is

successful in getting the job

it is

necessary to

prepare a production order which will contain the necessary
information to enable the factory to fill the customer's order.
conditions to be fulfilled by the production order form will

The

readily be understood

from the following example

:

Required to design a Production Order form
who has a stock department and six manu-

Example.

for a job printer

facturing departments as follows:
tion, job press,

form

it is

a printer
1.

2.
3.

necessary to

must know

Name

Cutting, ruling, composi-

cylinder press and bindery.

In preparing the
bear in mind the following facts which

in order to execute

an order intelligently

and address of customer.

Quantity and description of work to be done.
Quantity, weight and kind of stock (paper or card) to

be used and color of ink.

5.

To whom proof is to be shown.
Date when job is promised.

6.

Directions for each manufacturing department.

4.

:

(a)

Cutting

(b) Ruling

Size to cut the stock.

Like copy or otherwise,


ESTIMATE SHEET
DATE

No.


PRODUCTION
(c)

Composition

Hand,

7

linotype, etc.

Set body short or long way,

(d) Job press

etc.

Ink, run (number of impressions)

special instructions.

7.

(e)

Cylinder press

(f)

Binding

Special instructions.

Perforate, score, punch, fold, etc.

It is often necessary to have outside

tion to the

work which

vision has to be

work done

in addi-

a printer has facilities for doing.

made on

the

form for recording the

such engravings, electro cuts, ruling or binding,

etc.,

Pro-

cost of

as

may

be done outside.
8.

Lastly, shipping instructions

The

solution

is

must not be omitted.

presented in Exhibit

2,

which shows a simple

form of Job Ticket used by some printers.
The lithographing business is not unlike the printing industry, inasmuch as the work is mostly done on individual jobs.

Problem 1
Design a General

Work Order and

a

Type Printing Order

for an establishment doing a general lithographing business.

The manufacturing production orders are made out either from
customers' orders or from the storekeeper's requisitions for
more

stock.

General

Work

Order.

The General Work Order must

vide for entering the following information:
dress of customer, order

delivery

is

promised.

Name

pro-

and ad-

number, salesman and date when the

Under "Description

of

Work"

provision

must be made for entering the necessary information regarding (1) proof, number of sheets, stone numbers, composites,

number

of colors, copyright, size, imprint, hold stones or plates

round corners,

;

rule, punched, folded, easel, elevated,

(2) tab,
padded, corded, embossed, roughed, beveled, die cut, tinned; (3)


JOB

N

TICKET

FOR

ADDRESS
QUANTITY AND DESCRIPTION

SIZE

SHOW

COLOR

INK

PROOF

JOB PROMISEDSTOCK
CUT STOCK TO
DIRECTIONS

FOR

COMPOSITION.

PRINTING.

ELECTROTYPES
FOR RULING.

DIRECTIONS

NUMBER

COLOR.

IN

COMMENCING

TO

AT

PERFORATING.

.

PUNCHING

SHIPPING

DIRLCTIONS

EXHIBIT

2.

Printer's

8

Job Ticket.


PRODUCTION

9

stock ordered, stock received, stock charged; (4) shipping instruction.

The Type Printing Order must

Type Printing Order.

pro-

vide the necessary instructions for doing the printing from type
Name and address of customer, quantity wanted,
as follows:
color, description

and

Under

size.

made

Stock," provision should be

size of stock, stock ordered,

the foregoing information
size of type,

the general heading,

for showing

number

In addition to

and stock received.

it is

"Paper

of sheets,

necessary to give the style and

drawings, engravings and electros.

SHOE FACTORY PRODUCTION ORDERS
Shoe factories are highly organized and need a production
order system which will effectively control the output. It is essential that the

form of production order decided upon should

CROSS SECTION OF A GOODYEAR WELT SHOE

CORK nujio

EXHIBIT

3.

Cross Section of a Goodyear Welt Shoe.

provide for giving full details pertaining to what is to be done
in the factory. An examination of the parts in a shoe and the
processes through which they go in order to be
able product will

made

show the importance of including

into a salall

neces-


10

PROBLEMS IN COST ACCOUNTING

A LAST

EXHIBIT

4.

Shoe Last.

sary information on the production order form. In order that
the student may be informed regarding some of the technical

AN

EXHIBIT

INSOLE

5.

An

Insole.


PKODUCTION

11

AN OUT50LE

EXHIBIT

G.

An

Outsole.

features involved in preparing production orders, reference will

be

made

to several exhibits illustrating the parts of a shoe as

well as a shoe in various stages of manufacture.
SHOE LASTED AND REAW TO HAVE YYELT

EXHIBIT

7.

Shop Lasted and Readv

to

SEVftD OH

Have Welt Sewed

on.


PROBLEMS IN COST ACCOUNTING

12

A

good idea of the relation which the parts of a shoe bear to
each other can be obtained from Exhibit 3, which shows a cross
section of a shoe.
as a

The style of shoe illustrated is that known
The upper is shown united to the outsole

Goodyear Welt.

by means of the

welt.

the insole, upper

and

The

stitch is also

shown which unites
which joins the

welt, as well as the stitch

SHOE WITH HEEL

EXHIBIT

8.

IN

PLACE

Shoe with Heel

in Place.

and welt. All the important parts used in making a
shoe have the trade names shown by which they are known.
wooden last, the form of which determines the shape of a shoe,
outsole

A

shown in Exhibit 4. The soles required for the manufacture
of shoes are cut out of sole leather to conform to the desired
is

pattern.

The

insole

which

is

lighter leather than the outsole

shown
shown

in Exhibit 5 is
in Exhibit 6.

made
The

of

for-


PBODUCTIOK
mer

is

13

channeled on a machine which cuts a

little slit

along the

edge, extending about one-half inch toward the center of the in-

Finally the lip formed by the channeling process is turned
up so that it extends out at a right angle from the insole, forming a shoulder against which the welt is sewed. The various
sole.

parts of a shoe are assembled in the lasting

room by an operator

who

places the toe box in the proper location, as well as the
counter at the heel, and draws the upper over the wooden last
to

hibit 7, lasted

of a shoe

is

and ready

to

shoe

is

shown in Ex-

have the welt sewed on.

The

heel

fastened by means of a machine which drives the

nails through the heel,

into the leather.
8,

A

which the insole has been tacked.

A

upper and

insole, clinching

shoe with heel in place

is

them back

shown in Exhibit

ready for the blacking and burnishing process.

The problem involved

in the preparation of a suitable pro-

duction order for making a case of shoes

is

presented in the fol-

lowing example.

Design a production order or Shoe Tag for
a shoe factory.
The information required on the front of the

Example.

tag

is

as follows:

name and address

(A) 2s"ame of salesman, date
of customer,

wanted, order number, style
sizes

run from 1

number and

to 9 in l/2 sizes

sold, terms,

shipping instructions,
lot

number.

date

(B) The

and provision must be made

for distributing the quantity ordered

by

sizes.

(C) The speciand top must

fications for the ball, waist, instep, heel, ankle

be given.

(D) Provision must

also be

mation regarding the following items
\7'amp pattern

:

made

for giving infor-