242 



THE INDIA RUBBER WORLD 



Janu.«y 1, 1921 



Usually, however, a purchase journal is used, as this allows 

 the proper distributions to be made to the works ledger accounts 

 more promptly and also provides a daily balance of unpaid 

 bills if necessary. When a purchase journal is used a cash book 

 replaces the voucher and cash received registers. 



DEPRECIATION 



Depreciation is written off monthly by charging the works 



ledger controlling account and crediting reserve for depreciation. 



The credit balance in the reserve for depreciation account will 



be carried from year to year as a deduction from fixed assets. 



When any machiner>^ is sold or scrapped this account should be 



credited with the amount written off to date upon the article 



disposed of. 



MONTHLY STATEMEINTS 



The following statements should be made up each month : 

 financial statement ; factory ledger balance sheet ; loss and gain 

 statement ; analysis of commercial expense ; analysis of factory 

 expense ; graphic records. 



These statements are made in comparative monthly form, 

 showing the results of operations month by month, an extra 

 column being provided for yearly totals and final results after 

 closing the books. The accounts appear on tlie ledger in exactly 

 the same order in which the items appear on the statements, and 

 the mechanical work of taking off the statement is very simple. 



Following are a few brief suggestions on the use of these 

 statements after they are submitted to the executives : 



FINANCIAL STATEMENT 



This statement lists the assets in order of their availability 

 and liabilities in order of their' priority with sub-totals showing 

 the totals of current liabilities and current assets. 



A comparison of the current liabilities with the current assets 

 available to meet them gives a veiT.- valuable insight into the 

 financial condition of the business, and if carefully watched from 

 month to month, will be of great assistance in arranging to take 

 advantage of cash discounts and in avoiding the payment of 

 excessive interest charges. 



An examination of this statement will indicate exactly where 

 the working capital is invested and will serve as a check upon 

 investing too much capital in raw material and inventories. 



FACTOHY LEDGER BALANCE SHEET 



This statement shows the details of the inventories which are 

 summarized on the financial statement. It should be carefully 

 watched with the following ideas in mind ; 



(a) The amounts of the various inventories should be kept 

 as low as practical in order to prevent overbuying and tying 

 up working capital unnecessarily. 



(b) The amounts should be carefully compared with the actual 

 amount of materials in the plant as any variation between the 

 physical and book inventories must result from an error in the 

 cost figures which should be investigated and corrected. 



The work-in-process accounts particularly should be watched 

 and a comparison made between the proportion of material, 

 labor and burden in process, from month to month. Charges 

 to these accounts may be relied upon as correct if material requi- 

 sitions are properly handled. Any variation must, therefore, 

 come from an error in crediting these accounts with the cost of 

 shipments, and must therefore reflect an error in the cost of 

 figures. If the book inventory exceeds the physical inventory, 

 it is evident that the credits have been too small. That is, the 

 cost of shipments have been figured too low and the profit as 

 shown by the books is too high. If the physical inventory is 

 greater than that shown by the books, cost of shipments have 

 been figured too high and the actual profits are in excess of 

 those shown on the books and statements. 



The division of these work-in-process accounts into material, 

 labor and burden facilitates the location of errors. Unabsorbed 

 or overapplicd burden should show only a small balance. The 



continued accumulation of any large amount under any one of 

 these headings indicates a necessity of changing the burden rate. 



PHOFIT AND LOSS STATEMENT 



This statement is self-explanatory and affords a monthly com- 

 parison of sales, cost of sales, operative profit and miscellaneous 

 items of income and expenditure. The proportion of profits to 

 sales gives a check upon the relative sales in profitable lines. 

 The amount of job discount allowed should also be watched and 

 kept as low as practical. 



EXPENSE STATEMENTS 



The monthly expense as shown by these statements should be 

 carefully compared, both in detail and total, with that shown for 

 previous months. Any material variations should be noted and 

 investigated. The amounts shown on these statements represent 

 an outlay for intangible items and any reduction or saving 

 which may be effected is clear profit. 



GRAPHIC REPORTS 



A series of graphic reports should also be put in operation, 

 showing in graphic form the productive and non-productive labor 

 and bonus for each department. These reports should be watched 

 from month to month, noting the relation of productive and 

 non-productive labor, and the relation between the monthly pro- 

 ductive labor and bonus earned. From an inspection of these 

 reports a very good idea of the relative efficiency of the various 

 departments may .be obtained. 



UTILITY OF COSTS 



The preparation of these costs requires but one cost clerk in 

 addition to the personnel of the planning department. This is 

 made possible through the unification of production and cost 

 records. In other words, the function of the control exerted by 

 the planning department not only endeavors to control effectively 

 the operation of the plant, but obtains its necessary production 

 records in such a manner lliat a basis for costs is furnished with- 

 out the expense of accumulating. additional special records. 



Occasionally, where the operation of the plan is somewhat 

 difficult to check, and control, it is necessary to obtain the costs 

 not by orders, but to obtain the labor cost by operations. The 

 job time cards are sorted by parts and operation and for each 

 part of a unit of product a direct labor cost accumulation card 

 is used. The total number of parts handled on each operation is 

 divided into the total cost of performing this operation, as shown 

 on the job time cards and posted against the proper operation 

 as listed on the form. This is very valuable as a basis for com- 

 paring the cost of operations monthly, and reflects the efliciency 

 of operation of the factory as a whole better than when these 

 operational efiiciencies are split up and recorded by others. 

 Finally, at the end of each month, the total unit cost by operations 

 is listed on the front of tlie total cost per unit form, the operations 

 being listed in the proper column and the necessary burden and 

 miscellaneous department items of labor accumulated irato the 

 total. On the reverse of the form the total cost of material is 

 obtained. It should be noted that provision should be made 

 for covering the fluctuation of rubber cost on this form, either 

 because of changes in price or variations in waste percentage. 



In either case, that is, whether costs are collected by orders 

 or by operations, the cost figures should be analyzed to reflect 

 not only true cost for the determination of selling prices as well 

 as monthly financial statements, but to reflect operating effi- 

 ciency. .^ny increase in material cost on an item should be an- 

 alyzed to determine whether it is due to market fluctuation or 

 to inefficient utilization of material. .Ml labor cost increases 

 should also be traced down to the operation and, when possible 

 to the operative responsible, and steps taken to prevent a recur- 

 rence. In general, costs should be a lever to control the effec- 

 tuality of a business rather than a history of past performances 

 and positive constructive action should be taken that will stimu- 

 late production and make it cost less. 



