2. Serveasvouchersforthe paymentof wages.
METHODS—COMPOUND PRODUCTS 61 3. Serveas arecord ofthelabor costtobe charged
to orders.
Furthermore, as the tag accompanies the work and as a coupon is detached for each operation finished, the foremaniskept informedofitsprogress, sincethe num-
ber of coupons still attached to the tag represent the operationsthathaveyettobeperformedbefore the order
is completed. The piece-work prices are entered on the coupons attached to the tag.
The back of the ticket, as illustrated in Form 9b,
provides a place for the operatives to enter their clock numbers, dates, and pairs worked on, at the time they tear off coupons. This information is needed for the benefit of the foreman when investigating defective work.
5. Procedure underCoupon Order MethodofProduction Ordinarily each shoe tagorworkroom ticket (Form
9a) callsforonecase of shoesand asmanytags aremade out as there are cases in a customer'sorder. The reason
forthussplittingup productionistomaketheworkflex- ible, so that each department can be supplied with the rightnumberoftagstokeep itbusy. Afterthetags are prepared by the production clerk, they are placed in a box or holder where they await the attention of the su- perintendent of the factory, whose business it is to issue them.
The "uppers" of the shoes are prepared in one de- partment, the soles in another, the two are combined in a third, the heels are attached in a fourth, and so on.
Each morning the superintendent selects sufficient or-
ders for a full day's work for all departments; the pro- duction capacity of each, measured in cases, being approximately the same. This is designedly so, as un- equal capacity would result in unbalanced operation, some departments lacking work while others would be overcrowded.
When the day's orders have been selected, they are entered on a "Day's Work Sheet," representing one day's work for all departments. This is made out in manifold so that each operating department may have acopy.
The work laid out goes to the department perform- ing the first operation and must be completed that day, so thatthe followingday itmaybe passedontothe next department. If at the end of the day a department has
failed*to finish its schedule, either it must be completed by overtimework, or the uncompleted orders are struck offthatdepartment's day's work sheet and added to the sheetof the next day. After all the tags or orders on a department'sworksheet arefinishedand checkedoff,the sheet and tags—with the coupons belonging to that de- partment detached—are returned to the superintend- ent's office.
In thiswaya closewatch can bekeptontheprogress of orders day byday,bydepartmental operationsand as awhole,and workcan befed tothedepartmentsinquan-
tities equal to the maximum capacity of the factory.
Should any department fallbehind inits workingsched- ule,this fact is automaticallybroughttothe attention of the management. This scheme of scheduling produc- tion can be used to advantage in almost any standard product factory.
METHODS—COMPOUND PRODUCTS 6S
6. Estimated Costs
An interesting feature of shoe manufacture is the method of ascertaining the material charge—a method
which is in general use in industries where the material cost of the same product may fluctuate, sometimes widely, on different orders. The accurate calculation in advance of the actual cost of the leather to be used in
any particular lot of shoes is practically impossible, as the skins vary in size and price and any carelessness in cutting, or work spoiled from othercauses, at once adds materially to the cost of material and falsifies the cal- culation. To meet this situation, the shoe patterns are measured and in this way the approximate quantity of leather required for a certain number of pairs of shoes of a given size is obtained. The cost of this leather is
estimated at an averageprice based onexperience and a knowledge of leather prices, and this estimated cost is
charged against the order regardless of the actual cost of the leather used.
This method gives a standard uniformprice forma-
terialuponwhich pricesto customersmaybe based with a fair degree of safety. It also gives a check against waste of material and against any carelessness or ineffi-
ciency in the cutting up of the skins, since the requisi- tions for material will at once show the real cost of the leatherandenable a comparisonto be made between the real andtheestimatedcosts.
The estimated cost of the leather may or may not equal the actual cost of the leather used, but the varia- tion, so far as the particular case of shoes is concerned,
is not important. Its selling price was fixed when the customer's order was accepted and cannot be varied to
meet fluctuations in the price of materials. For this reason, it is not important to charge any variation of material cost against a particular case of shoes.
But differences cannot be ignored. The requisitions for materials will show just what the leather costs. A
costwhichishigherthantheestimatebutwhich isclearly
due to a rise in the price of skins, does not directly con- cern the factory. If the higher price is permanent, the price of the shoes must be advanced or the margin of profit will be lessened, and the problem is one for the management. If, however, thehigherprice of the shoes
isduetowaste ofmaterial orto spoilage, it of course in- dicates carelessness and inefficient work in the factory.
As the material cost is estimated and the labor cost (based onpiecerates) is alsoknownin advance, the cost
departmentcan figurethetotalcost of anyorderas soon asthespecifications aredrawn. Whentheshoe tagsand material requisitions relating to a particular order are received inthe office, the actualfigures can be compared withtheestimatedfigures. Anyriseorfallinactualcost can be noted and, if it is an increase, it is easily traced eitherto the higher price paid for material, to defective material, to accidental losses, or to inefficiency in han- dlingmaterial.
Any difference between the estimated cost of mate-
rial and the actual cost as shown by the requisitions for material is adjusted at the end of the cost period on the general ledger by means of a "Loss and Gain on Esti- mate" account, whichis debited with the actual material cost andcredited withthe estimated cost of the material used. Anyexcessonthecredit sideof theaccount shows the amount charged in excess of actual cost, while any
METHODS— COMPOUND PRODUCTS 65 excess on the debit side shows the amount by which the actual charges have increased above the estimated cost.
7. Estimating Cost Systems
There are many industries in which the routine of production corresponds in its essential features to that of shoe manufacturing. The "needle" industries, for example, pay for at least part of the work at piece rates andfinditpracticable toestimate the materialcosts
from the cutting patterns before production begins.
Similar methods are used in industries where the small intrinsic value of the product makes it impracticable to find the costson orders or lots of goods separately—the
cheapjewelry,notion,andleathergoodsindustriesbeing cases in point. In these trades most of the productive
workispaid for by the piece, and this cost as well as the material cost can be estimated with fair accuracy. In- stead of splittingup production into a number of small units, as inthe shoe industry, costs arefirst estimated on large quantities and records are kept of the actual ma-
terial and labor cost incurred in manufacturing these quantities. This method controls wastage and encour- ages efficiency by setting standards above which costs are not expected to rise. Incidentally, this method greatly reduces the work of the cost department.
The limitation of the system of estimating costs is
found in the fact that as costs are usually obtained by groups or classes and not by items, the unit costs cannot be analyzed and it becomes difficult to trace the cause of fluctuations to individual costs if the actual cost of a group or class proves to be higher than the estimated cost. (See Chapter XXVI.
)
8. Cost-Finding for Multiple Parts Products
The manufactured articles so far considered, though theymayvaryinsubstance, weight,anddesign,have one thing incommon —in their finished state eithertheycon-
sist of one piece or they are made into one permanent
article by the assembling of a few simple parts. This simphcityofdesign permits instructionstobe issued for their manufacture as a whole. When, however, an ar- ticleismade upofseveral distinct parts, thecost of each part orlotof parts isusually obtained separately, asthe utility of the figures so obtained is far greater than if
onlythecost of the articleas awhole were found.
A machine, for instance, may contain hundreds of parts, some of these parts may be forged, others cast, others cut from the bar or sheet, and on each of these parts many kinds of machine and hand operations may
be performed. If aproduction order were issued for a dozen such machines,,it would be comparatively simple to find their cost ifnoeffortwere madeto determine the cost of the different parts. Cost-keeping requirements couldthen be coveredbyrecordingthevalue ofall stores
withdrawn for the order, the amount of direct labor chargeable againstit,andtheproper proportionof over- head expense. This would give the total cost of the dozen machines fromwhich couldbe determined the cost price of each machine, and if the machines were sold at a reasonable advance over this cost a satisfactory profit
on the dozen machines would result.
But suppose it is found that the machine cannot be sold at a profit because its cost is altogether too high.
The "lump sum" cost figures would then be compara-
tivelyworthless indeterminingthe possibilityof cutting
METHODS— COMPOUND PRODUCTS 67
down the manufacturing cost. The labor cost may be
$500, but fifty workmen may have been engaged inthe manufacture of the machine; some of them may have been inefficient, but this cannot be determined from the record. Thematerialmayhavecost$400, butthe record does not show that the many different materials were bought ata fair price, or that there was no unduewaste ormisappropriation.
Moreover, ifthe costofoneofthese machinesiscom- pared with that of another made in a former period, there exists no adequate basis for the comparison. The machine of the first period may j^erhaps have cost $900 and that of the later period $1,000, but it would be im- possible tosayjustwhere and why thehigher costof the secondmachine wasincurred. It mightbe found, onin- vestigation, that the difference was in the labor charge, but the mere fact that*the labor cost was $500 on the
first machine and $600 on the second, though of value in itself, would not give the detailed basis for determin- ing the labor cost differences that the situation requires.
For this the detailed cost of each component part is essential.
9. Component Parts Orders
When parts are made in quantity and placed in stores forlater use in assembling complex mechanisms, theyaremanufactured under anindependent production order and when completed are placed in general stores or "finished parts" stores. When the more complex mechanismis tobe assembled or constructed, its produc- tionorder is issuedand the finishedparts are secured by regular requisition.
When, however, a complex mechanism is to be manufactured in lots—the component parts manufac-
tured and the machine assembled—a main or master
productionorder is issued forthe mechanism as a whole and suborders are issued for the component parts.
These component parts ordersbearthesame ordernum-
ber as the main production order. When the parts are completed, instead of going into stores, they are routed to the assembling room where they take their place in the make-up of the complex mechanism.
During production the shop routine through which one of these component parts orders passes is exactly the same as that involved in the manufacture of any single-part product. The cost of each different part or lotof partsis found separatelyonitsowncost sheet, and thetotal cost of the complex mechanism is arrivedat by addingtogether the cost of its parts. It is obvious that under this plan any desired detailed statement of the cost of any of its parts or any combination of parts can be obtainedwithout difficulty.
10. Complex Production
In a factory manufacturing a complicated mechan-
ism, such asanautomobile, thenumber of partsruns far
up into the hundreds or even thousands, and a score or more of supplementary records may be needed to con- trol the flow ofmaterial andthe parts of processedwork from onedepartment toanotherandto regulateproduc- tion as a whole. All this, together with the keeping of detailed costs, involves a bewildering complexity of rec- ords. Through it all, however, are always to be found
in some form the factory production orders, giving the
METHODS— COMPOUND PRODUCTS 69 necessary working instructions; stores requisitions or materialsheets,giving the required material anditscost
;
shop time tickets or piece-work slips, giving the labor cost;expense sheets, distributing general overhead; and a job cost sheet summarizing the total cost of the par- ticular order.
REVIEW QUESTIONS
1. What kind of production and cost system best meets the needs of a hat factory?
2. Outline a good methodforchecking piece-work.
8
.
How is the production of each day's work controlled in a shoe factory?
4. How are leather costs estimated on shoes?
5. Howarevariations inmaterial costs controlledinshoe factories?
6. What purpose is served by estimating costs?
7. How can cost estimates be controlled?
8. What is the production routine in assembly industries? 9. How are costs figured in assembly factories?
Part III