c. May 1. F. A. Curtis is engaged as manager. He subscribed for $5000 of stock and gave his note for that amount payable two years after date. Make the entry.

Exercise 81. The National Enameling Company is incorporated for $100000. $50000 of this is common stock and $50000 is 6% preferred stock. The corporation purchases the business of the Johnson Mfg. Co., at the following valuation: Plant & Sundry Assets, $35000; Good Will, $15000. Preferred stock is issued for the value of the plant and other assets and common stock for the good will of the Johnson Mfg. Co.

The balance of the common stock is subscribed for and paid ag follows: C. Torrent, $15000; D. Jackson, $12000; B. Berger, $8000 The balance of the preferred stock is held for future development.

CHAPTER XXXV

MANUFACTURING COSTS

In order to understand a manufacturing business, it is necessary to understand the various elements that go to make up the total cost of the manufactured article. These elements vary somewhat according to the business and the article manufactured but the principal elements are the same. There are three principal elements of cost in manufacturing: the cost of the raw material, the cost of the labor, and the manufacturing or factory expenses.

Raw Material. Raw material, in an accounting sense, is anything that enters directly into the material used to produce the finished product. It may be material in its natural state, as iron ore, wood, wool, cotton, hides, etc., or it may be the finished or partly finished product of another factory or of a department of the same factory, as, iron castings for stoves, cloth for suits, leather for shoes, gasoline engines for automobiles, etc.

The cost of the raw material includes not only the cost of the material but also the cost of whatever charges are necessary to put the material into the factory, as, freight and drayage charges and duties on imports.

In order that a business may know what raw material has been used, and what is on hand at any particular time, a record should be kept of the raw material received, that used, and the amount on hand at any time. This is usually called a Stock Record but may be called an Inventory Book or a Stores Record.

The Stock Record. This record may be kept in a bound book but is more frequently kept on loose-leaf sheets which may be put into a binder, or it may be kept on stock cards. A separate sheet or card may be kept for each kind of raw material purchased, but if there are not many different kinds of raw material used, they may all be kept on several continuous sheets with many articles on a sheet.

After the invoice has been checked as to quantities, prices, terms, and extensions, it is entered in the book of entry used, then it is entered on the debit side of the proper stock record. The freight should be added to the cost of the material and the cost per unit computed to at

least four decimal places and entered. The stock is given out only on a requisition or order issued and signed by some one authorized to do so, as the superintendent or a foreman.

The entry in the Materials Stock Record for Material Delivered is made from the Materials Requisition blank.

At any time, the difference between the material purchased and that used may be found and the balance put in the balance column. The materials stock record really constitutes a perpetual inventory book for raw material. It is a valuable book also for the buyer, for it

usually contains a notation to order more when the quantity falls to a certain minimum. Whenever the quantity on hand of any kind of material is low, it should be checked with the actual material on hand. In that way it is not necessary to take a physical inventory at the time of making the statements because the book inventory will be checked several times a year by this method.

Labor. The second element of cost in manufacturing is often the most important element. The term labor as a prime element of cost includes all productive or direct labor. It includes the cost of all labor employed directly in any of the manufacturing processes of converting the raw material into the finished product. It does not include labor that is a necessary part of the process of manufacturing but which does not enter directly into the finished product.

Labor that is unproductive or indirect includes the wages of time keepers, watchmen, workmen employed in cleaning or repairing machines, common laborers, engineers, firemen, foremen, etc.

Proper records are kept by means of Time Cards or Sheets. They are then summarized on the Pay Roll Sheet and the proper distribution made. Most factories find it necessary to know how much labor was expended on each job or on each lot that goes through the factory. The Time Card, for that reason, may show a great many details not necessary for the bookkeeping records.

These cost records are then posted and summarized under the various jobs or lots in the cost ledger. The study of the different methods of keeping these cost records is a study of cost accounting and will not be explained here.