September 10, 1921 



HARDWOOD RECORD 



17 



Association Cost Accounting Delimited 



Member of Federal Trade Commission Sets Limitations, Which Are Disputed by 

 Head of Millwork Cost Bureau in Defending Methods of His Organization 



"Au adverse decision as to average costs eoiild not be construed 

 as a criticism of the methods" of the Millwork Cost BureaUj accord- 

 ing to a letter written by F. J. Moss of Kansas City, Mo., president 

 of the Bureau, to Nelson B. Gaskill, acting chairman of the Fed- 

 eral Trade Commission. 



Mr. Moss's letter explained in considerable detail the methods 

 employed by his bureau and was written as the result of a state- 

 ment issued by Mr. Gaskill, in which the latter heartily endorsed 

 the education by trade associations of their members in proper 

 methods of cost accounting, but expressed the opinion that an 

 organization which went beyond this and attempted to reduce the 

 individual costs to an average or uniform cost basis and procure 

 the use thereof by the group would be tending to become, or would 

 actually become, an unlawful combination acting in restraint of 

 trade. 



While explaining that the mctliods of his bureau do in effect 

 depart somewhat from strictly individual cost . accounting, they 

 do not, Mr. Moss said, result in "average costs as to materials nor 

 as to labor." He expressed the confident belief that the Govern- 

 ment could do no more than ''look with favor upon the work 

 being carried on by" the bureau. In fact, he pointed out to 

 Mr. Gaskill that "the activities and records of the Cost Bureau 

 have been investigated by the Department of Justice without one 

 word of adverse criticism." Furthermore, "The investigators 

 of the Federal Trade Commission have made similar investigations 

 with only words of commendation." In this connection the exact 

 words of Mr. Hurley, former chairman of the Federal Trade Com- 

 mission were: "It is the most classic thing that has been Ijrought 

 before the Federal Trade Commission." 



Mr. Moss said that he was "astounded" at Mr. Gaskill 's sugges- 

 tion that the cost lists issued by the Millwork Cost Bureau "might 

 be used to form a combination in restraint of trade." The lists 

 could be so used, Mr. Moss admits, but "of the millions of lists 

 that are issued covering everj- conceivable line of product, any 

 one of them might be used as a basis for an agreement in restraint 

 of trade. But to assume that it will be so used is manifestly unjust 

 to the industry. Might as well prohibit the publication of a table 

 6t contents of steel or wood, which is based upon averages, or pre- 

 vent the use of any scientific method which might be used illegally; 

 might as well close our public schools where mathematics are taught, 

 which might be used in restraint of trade. 



"Our lists, as all other lists, are published in the interest of 

 economy, and if any man or group of men use such lists illegally, 

 it is their acts, and not the lists, that should be held accountable," 

 he continued. 



The Commissioner's Opinion 



Commissioner Gaskill 's opinion was that the issuance of these 

 lists "is a trend toward uniformity of selling price and the lessen- 

 ing of competitive sales on the basis of efficiency. The effect might 

 be — in the absence of an ability to forecast consequences, we can- 

 not say it will be — to characterize the Bureau as a combination to 

 lessen competition and to restrain trade, even to create monopoly," 

 the Commissioner said. 



Mr. Gaskill 's views on the legality- of the Bureau's methods were 

 expressed at the request of Mr. Moss, who desired to have them in 

 connection with a proposal to incorporate the Bureau. 



The Bureau's Methods 



In order to clarify Mr. Moss's contentions it is now necessary to 

 quote the greater part of the description of the functions of his 

 Bureau which he gave to Commissioner Gaskill. He said: 



You can understand that to install a cost system, the effect of whidi 



woHlil be only to relied tlic piolit or loss u|)oii a given pl.-ce of work after 

 it has been sold and manufactured, without being In position to avoid con- 

 tracting unprolltable business, would be of no avail, and serve no purpose 

 further than to gratify one's curiosity as to the outcome In each individual 

 case. 



Therefore It was deemed advisable that in addition to being In posi- 

 tion to supply expert cost accountants to our members, a part of our 

 work would consist of assembling information from all members, bascil 

 upon their experience of the cost of manufacturing any particular product 

 or article, and that such Information should be used for the purpose of 

 compiling a list, which list would be subject to such discount as any mem- 

 ber might see flt to make. 



Here let me suggest the main purpose of lists, not only In our Hue. but 

 all lines, which Is to reflect differentials as to different sizes and kinds. 

 That is to say, if experience proves that it costs a certain amount of money 

 to manufacture an article of a certain size and design, a list is prepared 

 with a view of truly reflecting the Increased or reduced cost of manu- 

 facturing a similar article of the various sizes that might be called for. 

 these lists and differentials, as stated, in no case being a cost or selling 

 price, but a list from which a discount Is made according to the discre- 

 tion of those making a price. 



I realize perfectly well that names and organizations may l)e used as a 

 cloak for doing illegal acts in restraint of trade ; but from the Inception 

 of the Millwork Cost Bureau there never has been, so tar as I know, a 

 single word spoken or written bearing upon anything except the purpose 

 as set forth, namely, the installation of cost systems and the gathering and 

 disseminating of information bearing upon costs. 



I note in yours of July 12 you approve of individual members establish- 

 ing their own costs, but you question the legality of what you term 

 "average costs." If you were conversant with the situation you would 

 realize that your suggestion of individual members estalilishing their costs 

 in advance upon the various designs called for, is impossible of accom- 

 plishment for various reasons ; namely, a planing mill Is constantly called 

 upon to produce new designs, and a new design might present but little 

 difference in appearance, but represents a tremendous difference in the 

 cost of production. This identical article might have been produced at 

 some other plant or In some other section of the country, and under our 

 plan the experience as to costs of a plant located at any point is assembled 

 and made available for other members who might be called upon to pro- 

 duce the same article. If this information were conflned to the product 

 of one plant making a price, the estimator or mill man would of necessity 

 be compelled to guess as to the probable cost; and ordinary prudence 

 should suggest that a price be made sufficiently high to cover any cost 

 growing out of uncertainty. 



Not Afraid of Courts 



Unfortunately these costs are frequently very nmch in excess of what 

 even an experienced mill man would have reason to anticipate ; and it 

 seems incredible that any commission seeking to support industry would 

 frown upon any plan that would permit of intelligent pricing, at the .same 

 time leaving each individual person or concern absolutely free to quote such 

 price as they might see fit. Neither can I believe that any court of Justice 

 would even seek to discourage the procedure as outlined. 



I wish to direct your special attention to Exhibit Xo. 110-1 enclosed 

 herewith. This is the form used by the Cost Bureau. Please note at the 

 top of each page the following : 



COST KXIIIBIT SERVICE. These Cost Exhibits are Issued 

 to serve the membership as guides in predetermining the probable 

 cost of similar work. All information from which they are com- 

 piled represents an actual experience of some member — firm — the 

 only change from the contributor's record being that Material is 

 computed at rates representing the Chicago market. Wages and 

 Burdens at rates representing an average of the entire member- 

 ship. The Total Costs thus obtained should be recalculated on a 

 basis of your own rates to reflect your own conditions. See blank 

 form provided for that purpose on the reverse side of this exhibit. 

 MII.LWOUK COST BUKE.VU, 11 SODTU L.\S.\LLE STKKKT. 

 CHICAGO. 



You will observe that the attention of the member is called to the fact 

 that these exhibits are Issued to serve the membership as guides in pre- 

 determining the probable experience of some member-firm, and that the 

 only change from the contributor's record being that material is com- 

 puted at rates representing the Chicago market. This should make plain 

 to you that there is no attempt to use an average cost of material to all 

 members. Necessarily some basis must be used, and the Chicago market 

 was naturally selected because our office Is located at Chicago. .\t the 



