bility of knowing the status of that branch of the business from time to time and thereby of comparing it with other branches or with the status which experience in other businesses had shown to be desirable. But no such analysis can be had in a satisfactory way, nor can the accounting of the manufacturing department be successfully carried out unless in the first place the business has been carefully organized with a view to such a conduct of the concern as will permit of economical and effective operation. One phase of such economical and effective operation is seen in the economical and effective conduct of the accounting system. Such organization must be of a kind to make careful separation (a) of the different classes or kinds of expense involved in the various processes; (b) of the different classes or kinds of material that are purchased; (c) of the different classes and kinds of labor outlay; (d) of the different classes and kinds of product turned out in the department. The latter point requires a word of explanation. It has already been said that the business should be organized and the accounting carried on in such a way as to keep the products separate and permit no confusion to arise. A manufacturing department may, however, necessarily give rise to certain by-products whose creation is inseparable from the manufacture of the principal article which is turned out. This may necessitate a rather complex accounting problem because it will be difficult or impossible to apportion expenses, stores, wages, etc., accurately between the different kinds of product. It should, however, be sought invariably to carry the process of apportionment as far as possible and to avoid grouping together either products or outlays any more than is absolutely unavoidable. How far the analysis of manufacturing processes will go in any particular instance depends in part upon the needs of the business, the question of its volume, the elaborateness of its transactions and other factors. Experience with the given kind of business indi

cates the general ideas which must govern in such analysis. Thus in textile industries certain general lines that are to be followed, certain general processes that are to be distinguished from one another, certain general results that must be kept in mind, are indicated. The same is true in the iron manufacture and in various other general and broad branches of production. But it remains true that, in every business where manufacturing is carried on, the general outline of the accounting will have to be determined by means of a study of the business processes and conditions which obtain in that particular plant. The accounting will have to be modified from time to time because of the general changes in the volume or complexity of the business or because of changes in its administrative organization. For this reason it is not possible to lay down in regard to manufacturing accounting definite or positive rules of the kind that can be laid down with a greater degree of assurance in the case of the ordinary retail or trading business. In the latter, the practice of accounting is much simpler and may remain very much the same no matter what the magnitude of the operations of the business may be and independent of the number of branches of trade that it takes up. This is not true of the business which takes up another distinct branch of commercial operation as where a selling concern goes into manufacturing or vice versa. Still less is it true when the manufacturing passes beyond a comparatively elementary stage. IX. COST ACCOUNTING.

Reason for Cost Accounting.

We have seen that in businesses which deal with more than one kind of transaction it is desirable to separate the operations so far as possible, and if practicable to have the accounting of each department of the business conducted on as nearly independent a basis as is feasible. This we

found was desirable in the case of the trading concern because of the desirability of keeping accounts for the different operations or classes of goods separate from one another. In cases where the business sold goods and also manufactured them, it was necessary to keep track of the manufacturing, distinct from the selling, end of the business, because of the fact that one or the other might not be economically handled and might incur loss while the other was making a profit, as well as for other reasons. The idea of apportioning expenses to income or of keeping track of each operation upon a tolerably independent basis may be carried even further than has already been indicated. Such a further working out of the idea of apportionment of expenses to incomes relating to given business operations is seen in what is called "Cost Accounting." Cost accounting, as the name denotes, is a system of accounting which is intended to give a more distinct idea of the actual cost of performing certain operations than could be obtained from the general books of a concern no matter how carefully the latter might be kept. We have seen that a business may be highly organized and may be divided into a number of departments each of whose operations is practically controlled on a separate basis which shows just what is going on in that department. We noted, however, that even where there is this distinct and clearcut separation there is still no means of knowing the exact cost of units of goods. This is lacking because (1) manufacturing is often a more or less continuous operation which results in turning out uniform lots of goods whose cost, however, varies according to the cost of the materials and labor that go into them, while (2) machinery and fixed capital is not used up in a single operation or set of operations but goes on being used for a longer or shorter period according to the life of the various forms of fixed capital. It is further true that a great many manufacturing concerns are turning out many different kinds of products

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or are producing groups of products on contracts. We saw in our former discussion (see p. 109) that these factors complicate the situation to such an extent that it may be considered practically impossible to hit upon an exact cost value representing the items of labor and material entering into a product and thus affording a means of balancing the books exactly. In order to supply this need we saw that the ordinary concern often resorts to the use of an arbitrary figure called a trade value which may represent the cost at which similar items of product could be obtained on the market from other concerns or which may be said to represent the estimated average cost or value which the concern has found by its own experience to be representative of the particular items turned out. It is clear, however, that this trade value must be determined somewhere, either in the other plants spoken of or else in the particular plant itself which is being studied. It is the object of cost accounting to supply the process or mechanism by which this trade value is ascertained and by which the concern or concerns engaged in a given line of business are enabled to judge whether their work is being done as cheaply as the average in that particular industry or not.

Object of Cost Accounting.

The object of cost accounting can now be stated in more technical form. It is statistical as opposed to the object of general accounting which is fiscal. This means that whereas the general accounting system of a concern undertakes to show outlays, incomes, profits and losses, cost accounting undertakes simply to show the apportionment of expenses and preferably the apportionment of such expenses per unit of product turned out. Cost accounting is not concerned with the question whether the firm can or does make sales at a money price which will equal or exceed the outlays necessitated for the produc