18 



HARDWOOD RECORD 



September 10, 1921 



saiiii- tliiii' liiu Ijlnnk imjvidcs a placf lor llii> linlivliliial iiicmhiM' to iiistTl 

 Ills liiniljci- (■lists, wliifh Is the uulvursal practice. 



In the matter of wages and Imnlens, as stated, tlin average oC the meni- 

 hershlp reported Is used, hecauso It would be ridiculous to use as a Itasls 

 the time lonsumeil or the wages paid b.v any Imllvldual meniher, which 

 might vary greatly; and the law of averages is the best possible; guide. 



Please note the next paragraph — "The Total Costs thus obtuineU should 

 be recalculated on a basis of your own rates to reflect yovir own condi- 

 tions." Could there lie iinylhlng more dellulte or plain that the whole pur- 

 pose of the work of this organization is to acquaint each Individual mem- 

 ber with his own costs, leaving him free to quote such prices as he might 

 see fltV 



Now, as to your suggestion that each individual memlier should con- 

 duct Ills own cost system, the Hureau Is constantly urging the necessity 

 of this procedure, liut In the case of a large number of the very small 

 operators, the employment of a man competent to conduct a cost system 

 luteiiigentiy would represent a cost that in their opinion would be exces- 

 sive ; hut ns stated, no concern, large or small, could compile a schedule 

 of costs except upon such items represented in their own product. Further- 

 niore, as you have well said, prices in markets and costs are constantly 

 changing, and this is the strongest possible argument in favor of the 

 work carried on by the Hureau because as those changes take place the 

 cost schedules are revised at the central olhce. anil the mi'inbers are pro- 

 viili»d with such schedules at a cost of approximately six cents each, while 

 til uiidertake to revise them at the plant of each individual company would 

 be Impossible and represent ii tremendous outlay if undertaken. A revision 

 of these schedules, keeping tlieni up to date, would necessitate the employ- 

 ment of one or two highly technical high-iiriced men in each plant, and 

 would represent a waste and expense that vvoulil necessarily have to be 

 borne by the public. 



The necessity of some organizatinn of this kind will lie aiijireciated 

 when I call your attentliiii to the fact that the product of no two days 

 of a planing mill is the same. That is to say, that practically every day 

 the estimator for the planing mill is called u|ion to quote prices upon some 

 new article so far as his operations are concerned. We have thousands 

 of architects constantly devising something new, and in the absence of 

 some guide as to the cost, the estimator can do nothing more than venture 

 a guess, which might be too high or too low. So that it is the purpose of 

 the Bureau in coinpiling lists upon the various articles made by an.v and 

 all members, to place in the hands of the estimator the information that 

 I'naliles him to establish a price based upon the experience of some mill 

 iir mills wliere the article has lieiui made. 



Experience of All Is Used 



It is the custom of the Hureau to call its entire membership to supply 

 Information showing the number of hours consumed, and the material 

 used, and the overhead applied in determining tlie cost of the various 

 products of their mills: and as stated, the lists are established from the 

 average as reflected from any mill or mills where the article may have 

 been priuUieed. The result is tliat any indiviiiual mill or estimator, by 

 liaving constantly on file the schedules or lists as supplied by tlie Bureau, 

 has at hand the actual results as to costs in the factories where such 

 articles have been made, thereby enabling him to intelligently base an esti- 

 mate on the past experience, at the same time taking into account any 

 condition favorable or otherwise within his own plant that might have a 

 bearing on the prii'c he could make. 



In order to make myself plain, will state that up to this time the 

 Bureau has made no attempt to ascertain as to prices being made by any 

 member ; nor has it in any way, shape, or form, reported to its members as 

 to the prices being quoted in a general way. or upon special bills by its 

 members. 



You suggest thai the issue of a list miglil be subject to question for 

 the reason that some member might use such list and disregard his own 

 costs. Any member that would use the list as published by the Bureau 

 without apiilying a discount would lie all the way from fifty to seventy- 

 five i>er cent above prices made by his competitors. And, as stated, in 

 applying his discount there is no suggestion from the Bureau ; and further- 

 more. If there were, competition would prompt him to apply a discount 

 somewhat lower than that which be had i-easmi to Iliiiik would be quiited 

 by his competitors. 



.\gain I respectfully urge that even if the Court should decide that the 

 publication of average lists is Illegal, it would not apply in the case of 

 the Bureau lists, for the reason as fully set forth, the lists as pulilished by 

 the Bureau are based \i|ion lumlier costs at a given market, witli average 

 cost of labor of members reporting: so that the lists are neither average 

 costs as to materials nor as to labor. 



You suggest tiiat the publication of siicli lists would have the effect of 

 depriving the elTicient of any advantage. Inasmuch as each individual 

 member establishes his own cost and his own selling price. I am unable to 

 ascertain wherein it would dejirive the efficient of any advantagi' he might 

 liave. 



\'ou say tliat standard costs (which does not apply to tlie lists issued by 

 the lUireaul disregard facts, and that costs vary continually, not only 

 with individual mills but with the whole industry. 



This is true, and, as stateil. this information is provided liy the Bureau 

 to its members promptly at a siuall fraction of what would be the cost 

 if uiulertaken iiHtividually. 



There Is much talk in these days about economy and efficiency. The 

 entire work of the Bureau Is to that end. As I understand your criticism 

 Is predicated on the theory that the Court's decision would be against the 

 issuance of a list showing average costs. However, in my subsequent 

 Interview with you, you expressed the opinion that the Court would not 

 rule against sucli list; and, as stated, I cannot conceive of any court pro- 

 hililting the assembling and dissemination of such information. 



But In any event, inasmuch as the lists as Issued by the Bureau do not 

 reflect the average cost of materials, an adverse decision as to average 

 costs could not be construed as a criticism of our methods. 



Further Uniform Cost Facts 



This interest ins corrcs|ioniUiicc .'ittracteil the attention of E. W. 

 McCullough, Manager of the Fabricated Production Department 

 of the Chamber of Commerce of the United States. Mr. McCfil- 

 lougli agreed with the Trade Commissioner "that cost accounting 

 which leads to tlio adoption of 'averages' or 'standards' to be usejl 

 by the members of an industry is not only wrong but defeats the 

 real purpose of cost research, which is to develop facts." But he 

 desired to be further enlightened as to Mr. Gaskill's "attitude to- 

 ward 'uniform cost accounting,' and its use by members of trade 

 associations." He explained that "we refer to a standard plan 

 or nietliod which m.ay be developed and used by the producers of a 

 certain line whereby they figure their costs by the same rules, 

 including in them the same elements, and differing only in results 

 because of the variance in size of plants, equipment and local condi- 

 tions — uniform as to fundamentals. 



"Is there, in your opinion," he asked in a letter to the Commis- 

 sioner, "any reason why such a system may not be developed and 

 used lawfully in an industry? Again, if conversion costs only be 

 dealt with, is there any legal bar to the collective study of costs by 

 the members of an industry using such uniform cost system?" 



These questions resulted in a letter from Mr. Gaskill in which 

 he reiterated and further developed the opinion which he had 

 given Mr. Moss. This letter is of distinctive value to all trade 

 associations as it, together with a further exchange of letters be- 

 tween Commissioner Gaskill and Mr. McCullough, makes quite 

 clear the present attitude of the Trade Commission on cost account - 

 iug standardization. Accordingly the important paragraphs of this 

 letter and other correspondence will be quoted: 



FIRST LETTER. MR. GA,SKILL TO MR. McCULLOCiUI : There has 

 been much misunderstanding and unfortunately not a little misrepre.senta- 

 tion of the attitude of this Commission on the suliject of uniform methods 

 of cost accounting. In fact, it seems to be difficult to secure even for the 

 most i-arefuily worded statement a proper appreciation of the Commis- 

 sion's position, yet it is really very simple, namely, that it is strongly 

 in favor of such work provided it is done scientifically and accurately and 

 is not used for ulterior purposes in violation of the law. 



No governmental agency In this country except possibly the Treasury 

 Department has had so much occasion to observe the existing defects in 

 cost accounting methods, but the Commission is glad to record its opinion 

 that there has been on the whole a considerable improvement in recent 

 years. The work of this Commission would be greatly facilitated by further 

 improvement in cost accounting methods and also in fact by a greater uni- 

 formity in methods provided proper methods are chosen as the models. 



There has been a good deal of indifference and ignorance shown by indi- 

 vidual companies regarding the methods of ascertaining costs. Accurate 

 cost finding in some eases, however, appears to involve an expense that 

 some business men regard as greater than the benefits, while in some 

 industries the technical or theoretical difficulties in getting accurate costs 

 are no doubt very great. 



-\s long as the principles of cost accounting are sound and the methods 

 used are adapted to secure accuracy of individual results, and provided 

 that the results are not used directly or indirectly for ulterior purposes 

 of an illegal character, the Federal Trade Commission is in favor of the 

 study and development of uniform cost accounting by trade associations, or 

 otherwise. 



There is evidently nothing illegal in such a practice, but it is always 

 well to remember that though innocent in itself, it has sometimes been 

 perverted to serve the ends of collusive price control, and. when it is so 

 usiil. no matter whether directly or indirectly, then restraint of trade is 

 involved. 



Witli respect to uniform methods of determining conversion costs the 

 same principles and conclusions would also apply. 



SKCOXn LETTER, MR. McCULLOUGO TO MR. GASKILL: In ac- 

 knowledging your favor of the 25th ultimo I am much gratified to note 

 {Continued on pat/c 20) 



