COSTING ACCOUNTANCY

Hokitika Guardian, 22 September 1921, Page 4

COSTING ACCOUNTANCY

(l’iiper by Mr AV. J. Butler, read to the Westland Progress U’tigne). Costing aeeounts dn not necessarily form any part of the system of accounts that are generally used in conducting any commercial business. It is not even obligatory on any public company to use "costing accounts, although it is ol such vital importance to the efficientmanagement of most industries that such "accounts should he kept. Commercial accountancy, as taught in out s,-li,mis. is 1 hicily directed towards recoding results and comparatively few accountants are comp-tent to deal wilh the cause.

Costing Accountancy might well Ije described as a method of analysing the cost of operations covering the production or marketing of ally commodity nr service. This subject may not at lirst glance appear to have ally interest fur those who arc not actively engaged in any industrial production, or whose only marketable consideration is some form of personal service, as distinct from a material produet; hut seeing that all such persons are consumers of industrial products, and that their welfare is directly affected by the market, price of such products, they cannot, by assuming a lack of interest, escape the influence of the costs of production and distrihut ion.

It. is probable tTiat ally attempt to analyse the costs of-such services as are rendered liv wliat are known a.s professional men and women would he lined by such individual and immaterial factors that the results would he of no value for comparative purposes.

Apiv expression in respect to a nnantit v. or in respect to a quality, or value, is only intelligible when presented in such a manner than the mind can eom- ! pare it with some fixed impression that has pro vi nil's!.v hee.ll iveeived. It is for this reason that standards of measurement and of values have necessarily been established. The hoy who described the size of some bird eggs ns being “as big -is u piece of elralk” doubtless bull in mind some particular piece which lie hail probably purloined and which had become egg-slmpe by association with marbles etc in Ids pocket: but the comparison was meaningless to those uiuiei|iiaiuted with that piece of chalk. Just as tile bare statement that a certain tiling was ‘heavy ’ or "big" or ‘‘valuable” would convey no definite information to us, so any statement that 11 certain operation cost so milch would lie practically meaningless Unless we have some standard of measurement or i-nn make comparisons with the costs of other similar operations. In any system of costing aeeounts it is therefore net essarv that the re. ,-,.1-ds should lie compiled on such a basi- that will admit el fair comparisons with picvious periods or with other records relating to similar operations. |o order ill'll MU I] romp irisoii- may uod-re. e I lie 1 —oil ■ the v. ld< -i pe • si I »!•- evperieii'-e. ;.ud -■> that t ln-\- may be of the gre 1 test economic value to the 1 .-immunity, it would !m‘ neec-suy that there should la* some ni-i»r limit inn b iu<eii all tln.'c within our , immunity who are ruga .u-d in the satin' class • ( operations. The best use, in tbe interests of the . <tinni 1111 it,v. to which any know ledge of varying costs can be put. is for the purpose of elilllinalillg I lie least eflieieut sources. This can he dona either l.v adapting lo the operation of those so ill-el the me)hods employed by the more ellieient. ol', where that is nut possible, by si-rapping the h ast ellieient as far as the national dein. uni ior lhe products of such smirees will permit.

It must In- admitted that where 1,1-t----ing .M'coiiii lain y has l.vi n applied it has not in every ease been used for sin-li constructive purposes as tie sc alieve-au-nt mne,l. 1 ,1 ; n al li- h- 111 ti.--May issue of "Tin- New Vo I; 'linns Rook lb-view" entitled ‘‘Cane out if t hat ('1 ow'd ." I In- a util ir link' S ea| ital out of the fact that many of the Costing A s so, ia | inns wlile’i hid t tl est ahi ish'-, I in Vnieriea 1..,d tin r! v I sm e-laMishiil lor the c. rp-e , "I’riee Fixing," and to get past the anti-trust laws. (In,, eeonoinisl is quoted as having said that "Tin ,er r inl. of many (mile assoeiat ions' activities cent res on costs and 90 per cent, on pi ice fixing."

Following this assertion the anther compares sm-li associations ■disparaging ly with I.aimin' Organisation', ignoring tic' |aet that prnet ieall v all Labour ( irg.inisul ions are purely price-fixing

issoeialions. If L'-n per cent of the activities of the Labour Union in \ew Zealand ii'-ic centred oil the cost , ):■ I ■■ 111 r. that i~ to say if they would give tlial per rentage of attention to raising the cll'ertive value ~f labour which v 1 aid. after all, form t lie In's! reason fur an increase in its selling prirr devilling till"., only ol union activities to : lice-fixing. It would serin like the dawn of millennium.

There are three primary fin-tors that enter into the production and distribution of all commodities or M-rvirr-. These arc material, energy or power, and intelligence; and. it. is only in respect to the last that it can be said that a liberal use thereof does mil diminish the available supply. In fai l il would seem that the exercise of intelligence not only lends t,, th,- most eeononii,- use of the other two factors hut paradoxical as il may appear, t lie more it is drawn upon the greater is the store. Costing iiei'ounlaiiey indicates the points upon which intelligence can best, la' centred for the purpose of economising in respect t,, the other two factors.

It might he pointed out. in passing, that the attempts whirl) have recently been made to form a Cow-Testing Association in West-land are a move in the direction of systematically cheeking

costs; .-not as such t bo.v are worthy of all encouragement. It would appear, however, from sonic of the discussions that have ensued on the subject-, that, by many, the tests were merely considered of service as a click on the dairy factories’ returns whereas their chief value would lie ill the use 1,, which they may he put in <-onmvtinn with costing.

There is one point at which all mouthers of the community meet on the question of costs. That is in respect to the cost of living (more correctly the price of living), and it is possible that if we view the question of cost- iieeountane.v from that common standpoint we mav better appreciate the benefits that might he secured by its widest application. Although attempts to regulate the cost of living by the fixation of the maximum prices of general commodities bv the Hoard of Trade have es-

peeinlly during 11 period when production fell short of demand, been beneficial to the consumers, it must be recognised that any such regulation of the prices of commodities produced, or of services rendered, within tbe Dominion, was of comparatively little economic value. If, through tbe employment of inefficient methods of production and distribution. more has been expended in the production and marketing of any article than should have been, then 1111 process of regulation of prices can recoup to the nation tile loss that lias hoe 11 sustained during the production of fhat article: and the wealth of the nation cannot be "Ifoelcd by the price »l which Hint article is sold he it high or low. It is true that in respect to the cost of living, use is made by the Arbitration Court of information contained in the Monthly Abstract of Statistics issued by the (loverninent Statistician for the purpose of regulating the price of that most important factor in our industries Inborn■; hut this is not an attempt lo regulate costs, it is merely so used for the purpose 01 adjusting the minimum price of labour proportionate to the price not the cost of labour products, and is quite irrespective of the productive value oF such Labour.

It would seem that any regulation of prices hv Ihe Rest'd ol I rade is all operation coining too late in the economic process of production and distribution to he of the greatest benefit thatit should he possible lo secii'c by ally such regulating body. It is a misguided endeavour to alter the cause by tampering with the effect. The most effective method of dealing with the cost of living would lie by scientifically reducing the costs of production of the commodities used, and this cannot he done without systematic investigation by means of costing accounts.

It has been freely stated that, the functions of the Hoard of Trade in the matter of restrictive control of some of our industries and in the matter ol price-fixing, are now no longer needed. The old law of supply and demand has to a great extent, become operative in respect to adjusting prices. It dees not follow, however, that the Board has outlived its usefulness. I here is tl higher, wider sphere of operations open to that body in relation to our industries. That sphere embraces the economic development of mir industries. Recognising the opportunity- indeed the urgent need of adopting such a constructive policy, the Board is now. amongst other progressive steps, engaged with the representatives ol the Timber Industry in formulating a standard system of aeeounts .- nd of costing such as may he adopted hv all saw millers. The experts connected with the Industries and Commerce Department are highly qualified account"tils, and the experience gained by th in dining their recent investigations "ill h" ol inestimable value in the services o! those industries which are alive to tin possibilities ol more economical produi t ion under systematic costing. The Board has signified its villi 11 gness, indeed its desire, to place the services of an analytical accountant at the disposal of the industries, mu it is the intention ol I lie Kawmilh’i s’ Federation to urge its members to make the fullest use of such experts’ services in the matter of costs; assured that his wider field of observation will unquestionably enable him to advise on matters that are of such import.nice to the ellieient conduit of our incus-

Alt hough the first steps in any const met ive course in relation to mating should lie the collection of data by the Board, it is fully recognised hv that body that such collection is purely for the purpose of disseminating the collated resufts to those lo whom such informal ion w ould lie serviceable. It is suggested that the chances ol benefiting I'rtun swell services are p:ejtidiced by the ill-advised disinclination of individuals to disclose results of operations to a department that is actively engaged in the advancement ol industry and commerce.

The cry for more production should la- qualified by more economical production. It is only nt that mil of the process where economy can he Italy effeetc,]. Il is false economy to wa-tc-lit 11 v produce any commodity or service; this cannot he rectified .by a lessened use on the part of the cnns'imer. It should he recognised I hat one of the greatest factors in our Indus’ rial and indeed, our social advancement, is cheap power and plenty of it. The quantity of power used per lead of population is the simplest and surest indication of the social status of any community.

With a soundly developed easting system established, it is conceivable 11-at it would he the duty of tbe Depart ment of Industries and Commerce to step in where costs indicated that obsolete or underpowered plant was being employed, and to insist on the insinuation of efficient- machinery sneh Department having power to make advances that are now 1 made le set t lers.

If w> are t-o attain a t high tone of industrial health, any eases of industrial disease should he treated as such, and should not he permitted li> sap our national vitality.

It is even eoneeivable tlini in a. wellgoverned community the producers who exercised the most economy, or in other words, who wasted the least material and power in the production of any commodity or service, and who therefore showed the greatest profits, in their transactions at; fixed prices, would he encouraged by the State. They would not he penalized as is tile eas" under our present system of taxing iiieemes 011 an a-seending graduated scale. The graduation in such cases should he in the reverse direction as regards earned incomes, and the least elfieient should he the ones to he penalized. if (inv.

It is only by systematic costing accounts that we call enable the expert lo place his fingers on the pulse of any of our industries or public, services. The name of the “Progress League” may indicate the direction in which its steps are bent its goal should be .National Efficiency; and we should ever bear in mind that, along the palli of progress towards that end .bore are no resting places by the way. AV. J. BUTLER. At the first hint of a cold got "NAZOL.” Nothing like it for Influenza, Catarrh, and Sore Throat. Penetrating and germ-killing. Is 64-