PROFIT AND LOSS STATEMENT FOR MONTH ENDING JANUARY 31, 1916. STATEMENT OF FACTORY OPERATIONS, FOR THE MONTH ENDED JANUARY 31, 1916. USES AND ADVANTAGES OF A COST SYSTEM. The prime object of a cost system is to determine costs, to analyze and compare them, and to use them as a basis for making prices. But the uses and advantages go further. A manufacturer from reliable records is able to make clearer and more intelligent statements to his bank and thereby obtain a larger line of credit than he could without them. BETTER DIRECTION OF SALES FORCE. In most every line of manufacture there are some classes of work done on which the manufacturer loses money. This may be due to the high cost in his own plant, or it may be due to the fact that some competitor is better equipped to make that particular article. A cost system will bring out these facts and will show the manufacturer which lines he should push. Salesmen, like everyone else, are prone to follow the line of least resistance. In salesmanship, the line of least resistance is selling the goods which require the least effort, and in nearly every instance the goods which require the least effort to sell are the least profitable lines. If the selling force know that a line of goods produces little or no profit and are told to use every effort to push another line, the result will be apparent in the profit and loss account. Still other manufacturers have customers on their books to whom they have been selling for years and have been giving some reduction in price or some concession in the way of extra work. A number of these accounts are decidedly unprofitable, and a cost system will bring these to light and put the manufacturer either in a position to raise his prices to a profitable basis or let some one else have the unprofitable business. ELIMINATION OF WASTE. In every manufacturing business there are bound to occur leaks, either of material, labor, or expense. If statistics are kept showing the amount of material necessary to do certain classes of work, the amount of labor, and the amount of overhead expense, an increase in any of these items will be revealed by a comparison and the execu tive will be in a position to take the matter up for investigation. It is hardly necessary to say that after a few of these matters have been taken up with the factory the factory people will use a little more care, not only in the use of the material but in the time they spend on the work. A cost system with forms properly designed for giving statistical information is of the greatest aid to factory efficiency. COST SYSTEM AN INVESTMENT, NOT AN EXPENSE. A system will not run itself; neither will it in itself reduce costs nor increase efficiency. This is strictly up to the manufacturer himself. A system will give him the information, and if this information is properly used, he will unquestionably find that his system is not an item of expense, but a very valuable asset. If a manufacturer purchases a new machine before his old one is worn out, he does so because he expects the amount expended to increase his profits either from economy in operation or from an increase in production. He looks on this as an investment and not an expense. Office methods have been improved to quite as large an extent as machinery, and an investment in improved methods will produce a return just as will an investment in improved machinery. One of the strongest arguments in favor of installing a practical cost system is the fact that every manufacturer who has installed one and who has operated it for at least a year is firmly convinced that it is a paying proposition. The Federal Trade Commission is urging manufacturers to give the subject of accurate costs the attention it deserves. It has found that unreliable costs of production and distribution cause a great deal of unfair competition and a heavy business death rate. While the claim is not made that a cost system will save a man from failure, the claim is made that a man who knows where he stands day by day is very much less likely to make a failure of his business than one who is directing his business by guesswork. |