COSTING PROBLEMS

Evening Post, Volume CXXV, Issue 22, 27 January 1938, Page 15

COSTING PROBLEMS

NEED OF DEFIMmbNS

■Costing problems in modern manufacturing are discussed by H. R. Odling in "The Accountant" (London). "It lias" "been said," he writes, "that costing is fhe art of. approximation. This can hardly be called a definition but as a very broad, though'faintly cyni--1 cal, "description, it may serve a useful purpose. . .• , . . , : "With , the growing complexity of manufacturing businesses in recent years, coupled with increasing competition, much greater attention has been devoted to this subject than was formerly' the case. Many devotees of the art, however, in their enthusiasm have endeavoured to claim for it the status of a science producing results [of infallible and absolute accuracy. A special jargog. has grown up for it; not the language of a, science, because 'its expressions, mean different things to different people. Such terms as 'Prime Cost,' 'Overheads,' 'Direct Cost,' ere referred to. When discussing the subject this is liable to lead to confujsion. The danger can of course be | averted, but only by ensuring that everyone in the business concerned interprets whatever expressions are selected for use in the'same way. "Costing problems existed long before the introduction of modern cost systems. But what is comparatively new is the necessity, in the modern large manufacturing, .concern, of divorcing the compilation of cost, figures from: the.general factory management, which/is fully occupied with its own functions, leaving the recording of its results in other hands. The result of this is sometimes that co-ordina-tion between the production aspect and the accounting aspect is incomplete, and statements of cost which, can only [he relatively true are accepted as abisolute. Like any other art it requires ;info'rmed interpretation . before its results can be appreciated properly.

"The f^ct that at best these results can only" be' approximations* is quite clear after a little' consideration. With the exception of direct materials arid, in most cases, direct labour, there are very few expenses which do not have to be allocated to products or processes, on a basis which is largely arbitrary. Iri total, expenses may be facts although even here depreciation is an lexception^ Their subdivision aims at Iproducing useful and indeed valuable which should give us ■pictures of the activities of the factory p'reseiitecT in such a way as; to fulfil Certain definite functions. ~-'Noi^system 'which provides routine [cost .figures is sufficiently elastic to give an immediate answer to all the cost problems which are likely to arise, because the aspect of the figures will depend on the purpose for which, they are required.f For example, sometimes it is necessary to exclude expenses which do not fluctuate pro rata to output." Unless ihe cost accountant is fully aware of the purpose for which the -figures he is asked for .x are . required, he cannot be sure of presenting them in such a way that they give the correct story. But there are very/ few "cost investigations which cannot be satisfactorily dealt with given one very necessary condition-,' - namely, close. anfl cordial co-operation between the technical management arid the accountant'1" ■; .•;;'■, ;. .■ •. ■; ', /, J