The  Basic  Features  of  a  Simple  Cost  System

In  the  previous  chapter  there  was  illustrated  a  plan  of  standard
or  predetermined  cost  accounting  to  meet  an  exceedingly  simple
and  in  fact  practically  impossible  situation  in  which  the  business
of  a  manufacturer  was  confined  to  the  making  of  a  single  size
of  machine  bolt.  The  plan  there  submitted  illustrated  the  general
principles  underlying  the  author's  methods  of  using  prede-
termined costs  in  connection  with  obtaining  information  as  to
manufacturing  efficiencies,  current  costs  and  costs  of  sales.
Figure  5  is  a  diagram  illustrating  the  basic  features  of  a  simple
cost  system  to  meet  more  complex  conditions,  the  business  taken
as  an  example  being  one  in  which  various  kinds  of  machines
of  a  standard  character  are  manufactured  involving  the  making
and  assembling  of  a  large  number  of  parts  and  the  performance
of  several  times  as  many  operations.  This  plan  has  been  drawn
up  to  demonstrate  that  it  is  possible  to  design  a  system  of
standard  or  predetermined  costs  which  will  meet  the  most  essen-
tial requirements,  giving  results  not  possible  under  the  expensive
and  detailed  retrospective  cost  systems  and  yet  involving  a
minimum  of  clerical  work  both  in  the  shops  and  the  offices.
A  plan  such  as  is  illustrated  in  Figure  5  is  especially  suitable
for  a  concern  where  it  is  desired  to  obtain  the  essential  cost
information  necessary  for  the  proper  operation  of  the  business
with  the  least  possible  disturbance  and  expense,  leaving  the
development  of  the  system  as  regards  the  production  of  refine-
ments of  information  until  some  later  time  when  the  organiza-
tion has  been  gradually  educated  to  the  point  of  demanding
and  being  able  to  use  such  refinements  of  data  as  will  be  illus-
trated later.
