THE INDIA RUBBER WORLD 



[March 1, 1920. 



ing these years $48,000 would have been added to the re- 

 purchase fund, assuming in this instance that further increases 

 in the price of the equipment would not have made necessary 

 additional provision for depreciation. 



Allowing for accumulated interest from the investment of 

 the annual addition to the repurchase fund, a total amount of 

 $270,000 would then be on hand at the end of 1920. This is 

 still $30,000 short of the actual value of the equipment, but it 

 must be taken into consideration that this equipment has still 

 some value which makes it a marketable property and $30,000 

 may easily be obtained by selling such equipment, unless the 

 factory decides to use it a few years more on work where less 

 effectiveness and precision is required. Another five years of 

 employment in secondary manufacturing processes probably 

 would make the equipment obsolete for use in high-class manu- 

 facturing, and its sale then would become a necessity. In the 

 meantime, however, its value would have been wiped off com- 

 pletely from the balance sheet of the enterprise, as only another 

 year and a quarter would be required to provide for the ad- 

 ditional $30,000. 



INFLUENCE UPON COST OF PRODUCTION. 



Mention already has been made several times of the effect 

 of such a policy upon the cost accounting practice of a rubber 

 factory. It is obvious that the former policy of charging de- 

 preciation upon the original investment on a basis of an equal 

 depreciation rate is giving a wrong impression of the actual 

 cost of the equipment upon manufacturing cost. There is con- 

 siderable difference if a charge sheet is made upon an overhead 

 charge of $16,000 for machinery depreciation or upon one of 

 $24,000 for instance. But the higher charge is not only justi- 

 fied by conditions but also by the urgent necessity of the 

 present price situation. 



All manufacturing, after all, is service rendered in the in- 

 terest of the buyer. That the manufacturer buys to-day the 

 raw materials and also takes care of the distribution of the 

 article that is manufactured in his plant, does not alter any- 

 thing in this very fundamental rule of cost accounting. If 

 this manufacturer employs expensive tools in serving his trade 

 the customer must pay his share of the wear and tear of the 

 tools or he must seek out another manufacturer having a less 

 expensive equipment. Let the wear and tear proceed at a 

 quicker pace than normally accepted while the work is done 

 for the customer, and it is only just that the customer also 

 should stand for the increased rate of use. On the other hand, 

 however, three times the rate of the employment also means, 

 most likely, three times the quantity of goods. The increased 

 rate of wear and tear, therefore, spreads over a larger produc- 

 tion, and the relative share of each unit of production upon the 

 increased wear and tear of the equipment remains practically 

 the same. This, however, does not apply in the same manner 

 to the increased cost of the equipment. If to replace the unit 

 of equipment costs double what it cost to buy in the past, this 

 increase doubles also in its relationship to each unit of pro- 

 duction. Assuming, therefore, a factory employs its equip- 

 ment at three times the rate of normal, producing also three 

 times as much goods while the equipment price remains the 

 same, there would also be no increase in the cost of manu- 

 facture of the individual unit of production. If the cost of 

 the equipment, however, would be double the cost of manu-. 

 facture of the individual unit of production, its cost will in- 

 crease at exactly its share of the increased cost of purchasing 

 the equipment. 



This is a rule that rubber manufacturers will have to keep 

 in mind when making up their cost charges during the future. 

 Its application will be made more easy if they follow the prac- 

 tice of charging depreciation costs as outlined in this article. 

 With the help of the time books it will be possible to allocate 

 depreciation cost quite correctly to each article manufactured 



the factory, whether the process of manufacturing is carried 

 in one or in several departments. 



PRODUCTION, NOT SELLING, IS THE PROBLEM. 



By Colonel Samuel P. Coll. 



THi; OUTLOOK for the year 1920 in the rubber industry is most 

 flattering. To-day the demand for all lines of rubber goods 

 exceeds the supply. It is not a question of selling goods. It is 

 a question of producing them. In other words, if we could turn 

 out 50 per cent more production than we are able to do with 

 our present manufacturing facilities, the entire output would 

 be disposed of without difficulty. The year 1919 has been the 

 banner year in the rubber manufacturing business. At the 

 time of the armistice it was our opinion that with the virtual 

 closing of the great war and the stopping of government orders 

 there would necessarily be a falling off in the volume of sales 

 of rubber goods, but such has not proved to be the case. 



While all lines of rubber goods, such as footwear, mechanical 

 goods, druggists' sundries, etc., show an increase, the most 

 marked development has been in the tire industry. The large 

 tire manufacturers have been unable to supply the demand for 

 tires the past year. In 1914 there were registered in this country 

 1,574,433 automobiles, and 136,907 automobile trucks. It is now 

 estimated that there are in use 6,800,000 automobiles and 800,000 

 automobile trucks — a remarkable increase. 



When the question is asked, "What is the matter with our 

 trolleys?" I would reply that the fundamental difficulty is the 

 encroachment thereon of the automobile and the automobile 

 truck, and with the improvement and development of our high- 

 ways, I can see no room for trolley lines along sparsely pop- 

 ulated sections. My opinion is that the tracks of many suburban 

 trolley lines will eventually be taken up. Therefore, while the de- 

 velopment of the rubber tire has been tremendous during the 

 past five years, there is every reason to believe that it is to-day, 

 comparatively speaking, in its infancy. The effect of the develop- 

 ment of the pneumatic tire upon both passenger and freight traf- 

 fic, or in other words upon our railroads, has, I am convinced, 

 not yet been realized. 



The price of crude rubber has been normal during the year, hay- 

 ing averaged about 45 cents per pound. It is estimated that 70 

 per cent of the crude rubber consumption of the world in 1919 

 was by American manufacturers. With the opening up of 

 Europe, one might look for some increase there, but I would 

 predict that the United States will continue to consume more 

 than half the world's crude rubber product for years to come. 

 We plainly lead the world in rubber manufacturing. Prices of 

 fabrics entering into tires and other rubber goods have ranged 

 higher in 1919 than ever before, the indications being that we 

 have not yet seen the limit of high prices. 



The development of plantation rubber in the Elast has con- 

 tinued unabated. It is most fortunate for the rubber industry that 

 the cultivation of the rubber tree in the vast regions of the East 

 proved practicable, for had we to depend upon the wild rubber 

 of Brazil and other sections, the supply would be so inadequate 

 and the price so exhorbitant that it is difficult to see how the 

 tire industry could have reached its present stage of develop- 

 ment, to say nothing of the future. 



It is plainly evident that the result of the phenomenal depre- 

 ciation in foreign exchange has been to curtail American ex- 

 ports. However, with the opening up of Europe our rubber export 

 trade has increased to such an extent that it is now larger in 

 volume than before the war. Moreover, with a permanent change 

 for the better in the foreign exchange situation, which is ex- 

 pected to follow the ratification of the peace treaty, it is only 

 reasonable to assume that our European trade in rubber goods 

 will assume proportions of greater magnitude than heretofore 

 known. 



