December 1, 1920 



THE INDIA RUBBER WORLD 



155 



^^ 



Cost Accounting in the Rubber Industry 



By Ferd G. Kirb/ 



COST AccoVNTixr. for the riihlHT industry can very easily be 

 allowed to become su detailed tbat the cost of maintenance 

 of the system becomes greater than its utility warrants. In- 

 asmuch as the material, largely rubber, is a more or less variable 

 quantity, and of necessity introduces the use of certain factors 

 and prorations, in addition to the usual estimations encountered 

 in cost finding, any method of accounting which endeavors to 

 subdivide the various items too closely is of doubtful utility, 

 owing to the fact that since many basic figures are themselves 

 the result of estimate and proration, any method which carries 

 its calculations and deductions to extremes is a fallacy. 



Rubber manufacturers in general recognize the vital impor- 

 tance of a knowledge of the cost of their product, yet but few 

 of them have a cost system on which they are willing to rely 

 under all conditions. 



While it is possible to get quite accurately the amount of 

 material and labor used directly in the production of an article, 

 and several systems have been devised which accomplish this 



other is to distribute a portion of this expense according to direct 

 labor, and a portion to machine hours. Other methods distribute 

 a certain amount of this expense on the materials used, etc. 

 Most of these methods contemplate the distribution of all of 

 the indirect expense of the manufacturing plant, however much 

 it may be, on the output produced, no matter how small it is. 



If the factory is running at its full, or normal capacity, this 

 item of indirect expense per unit of product is usually small. 

 If the factory is running at only a fraction of its capacity, say 

 one-half, and turning out only one-half of its normal product, 

 there is but little change in the total amount of this indirect 

 expense, all of which must now be distributed over half as 

 much product as previously, each unit of product thereby being 

 obliged to bear approximately twice as much expense as pre- 

 viously. 



When times are good, and there is plenty of business, this 

 method of accounting indicates that the costs are \<i\\ : but when 



Continuous In venlory 

 Control Accounts. 

 Raw Materials. 

 Rubber, Compounds. 

 Acids, Chemicals, 

 Miscellaneous. 

 Materials 



Pay Roll 



Productive 

 Labor 



Continuous Inventory 

 Control Accounts, 

 Burden Supplies, 

 Shippinq Supplies, 

 Repair'Supplies 

 Expense Supplies 

 Power a Heat 

 Supplies 



Factory Eifpcnse 

 Superintendence 

 and Foremen 

 Departmental Non- 

 productive Labor 

 Repairs toEquipment 

 Shipping Expense 

 Yard Expense 

 Stable Expense 

 Expense Materials 

 Power, Heat, Light 

 and Protection 

 Insurance.T-xcs 

 Deprecioi tion 



Work in Process 

 Material.Labor 

 Factory Burden 



Reserve foi 

 Factory — 

 Burden 



Deduction from 

 5a le-sTreight Outward, 

 Discount Allowed 



Gross Sales 

 — -> Less Returns 

 a Allowances 



Commercial Expense 

 Admmistrotive Executive 

 Salaries Telephone. 

 Telegraph & Postage 

 Stationery. Printing & 

 Of fice Sup pi ies.Oft ice 

 Expense.Selling.Selling 

 Salories.Selling 

 Commision Traveling 

 Expenses Photos S 

 Catalogues Advertising 

 Credits & Collections 

 Losses, bad Debts 



r" 



Reserve for 



"•HCommercial Burden 



-^ Direct Transfkr Entries 



Balances tohe 

 " Contrasted onfy^ccounfs 

 chseG( arynually 



D 



Curreni Lecfger Accounts 

 ' for Group or Accounts Rigtrt 

 Side-Credif Left Side -De h,i 



O 



Hot Opera feat as Ledger 

 AccounH 



V\c.. 1. Org.vxization and Relation of .'\ccounts in General Plan of Cost Conikol in the Rubber Industry 



result, there does not seem to be in general use any system of 

 distributing that portion of the expense known variously as in- 

 direct expense, burden, or overhead, in such a manner as to 

 make sure that it has been done properly. There are in common 

 use several methods of distributing this expense. One is to dis- 

 tribute to the product the total indirect expense including in- 

 terest, taxes, insurance, etc.. according to the direct labor. An- 



times become bad and business is slack, it indicates high costs 

 due to increased proportion of burden each unit has to bear. 

 During good times, when there is a demand for all the product 

 that can be made, it is usually sold at a high price and the ele- 

 ment of cost is not such an important factor. When business 

 is dull, however, manufacturers cannot get such a high price 



> .^ccountant, R. T. Lyman & Co., Inc. 



