material drawn for all purposes, as shown by the report in Fig. 9, is
credited to material purchase accounts, and these accounts are checked
against the storeroom records. Reports of supplies drawn are handled in
the same manner. The labor report, Fig. 12, covers all labor charges
and must agree with the pay─roll for the period covered.
In the distribution of expense, however, there are many opportunities
for error. While the total expense to be charged against the factory
for a given period is accurately determined, the amount is not known
until the end of the period. This is represented by the amounts charged
to the different expense distribution accounts. In the meantime, to
determine the cost of individual jobs, it is necessary to apportion
expense on a percentage basis, as explained in the discussion of that
subject. Since that ratio for the current period is unknown, it is
necessary to assume that the actual ratio for the preceding period
still is correct; therefore, that ratio is used in figuring the cost
of all jobs. It is only when the expense distribution for the current
period is made on the general books and the true ratio determined,
that discrepancies, if any, are discovered. Unless the distribution is
accurate, the resulting ratio will be incorrect.
[Illustration: GENERAL OFFICES OF THE PLATT IRON WORKS, DAYTON, OHIO]
Formerly, it was the custom to base the expense ratio on the actual
figure for the preceding year, which meant that changes in expense
ratio were not taken into account for an entire year. As a result, the
total manufacturing cost shown by the books at the end of the year,
did not agree with the costs as figured in the cost department; it was
usually much higher.
By operating the controlling accounts, making accurate distributions
of expense, the period can be limited to one month. Discrepancies
are then quickly discovered and the necessary adjustment made in the
expense ratio used. If it is found, at the end of the month that the
true ratio of expense is higher or lower than for the preceding month,
the percentage to be used for the next month is raised or lowered
accordingly. With a careful distribution of the expense items each
month, the variations in the ratio should be very slight.
The objection is sometimes made that a monthly distribution of expense
is inequitable──that certain expenses may be abnormally high in some
months and below the average in others. But with proper controlling
accounts, this objection ceases to be serious. Certain expenses are
paid in one month that should be distributed over an entire year──as
taxes, insurance, and repairs. The amounts charged to the expense
distribution accounts each month, are only the amounts that should be
apportioned to that month. Taking taxes as an example, one─twelfth of
the entire amount should be charged each month.
As an example of adjusting entries for controlling accounts, journal
pages are illustrated, in Fig. 21, containing entries made at the
end of the month──with explanations. It will be noted that the last
entry is a charge to _manufactured goods_ account, and a credit to
_manufacturing_ account of the total cost of finished goods, as shown
in the report, Fig. 20.
This account, _manufactured goods_, occupies the same position as a
purchase account. It represents the cost of finished goods to the
commercial division of the business. To this cost must be added an
amount sufficient to cover selling expense and provide a profit, as is
done when goods are purchased for resale. Selling expense should not
be included in the cost department's figures; nothing should be added
to the actual cost of manufacture, unless it is desired to add a small
amount to provide a factory profit.
[Illustration: Fig. 22. Journal Showing Adjusting Entries]
[Illustration: Fig. 23. Journal Showing Adjusting Entries]
_Manufacturing_ account has been charged for the cost of
manufacture──material, labor, and expense──and credited with the cost
of finished goods. This does not close the account, however, because
all jobs started have not been finished, as there still is work in
process. The _balance_ of the manufacturing account, then, represents
the cost of this work and should agree with an actual inventory of work
in process.
No attempt has been made to describe a cost system for a particular
business──principles only have been considered in this discussion.
Proper application of these principles, however, will result in a
practical system for any manufacturing business. The exact manner of
applying these principles──the detail──depends on the nature of the
business; the results desired are the same in all lines. Physical
conditions, nature of the product, the policy of the management, the
manner in which the business is conducted──all of these factors must
be studied and given due consideration in outlining the system. Then
the most simple system that will produce results is best, but in the
effort to make the system simple, _necessary_ details should not be
overlooked. It must be remembered that in a comparison of details of
cost, increases are more quickly located than if the comparison refers
to finished work.
[Illustration: PART OF THE INTERIOR OF THE GENERAL STORES OF THE SANTA
FE AT TOPEKA Showing Arrangement of Racks and Shelving for Holding
Materials, and Longitudinal Disposition of the Bins Enabling the
Foreman, from His Office at the End, to Command a View of the Whole
Floor. Courtesy of the Engineering Magazine.]
MACHINE SHOP MANAGEMENT
MANUFACTURING
=Manufacturing Conditions and Developments.= Millions of dollars are
annually spent in building new factories. Other millions are spent in
equipping them with the best machinery that trained and experienced men
have been able to devise. Still more millions of money are annually
paid to the officials who manage and the employees who man these
enormous manufacturing plants.
Why? Why could not these expert employees labor in their own homes or
their individual shops, and produce the manufactured goods without all
these enormous expenses? What are the necessities which impel men to
spend these vast sums of money in erecting, equipping, and operating
these immense plants?
Casually considering the question, the _factory_ or _manufacturing
plant_ does not seem to be a real necessity. A large force of employees
working under a single management does not seem to be the most
economical method of producing the desired goods. Certainly every man
is free to choose his own particular line of work; and there are many
persons who, seeing a large force of employees giving their entire life
work to the enrichment of successful manufacturers, while the employees
themselves work long hours at hard and laborious tasks and fare so
poorly that they are seldom enabled to save any considerable portion of
their wages, not infrequently ending an industrious life in poverty and
want, are led to believe that the factory is not a necessity or even
a benefit to mankind, but rather a means for reducing the individual
worker to a condition of grinding servitude, voluntary perhaps, but
often the result of dire necessity.
These people, considering all the hardships in the life of factory
employees, are likely to hold and often to express the opinion that
the highest welfare of the human race really demands a return to the
simpler life of early days, when a much larger proportion of the people
lived upon farms, producing their own provisions, raising the flax and
the wool wherewith they clothed themselves, quite independently of the
wealthy classes, whether bankers, capitalists, or manufacturers, the
factory as we know it to─day having hardly begun its marvelous era of
existence.
Let us consider for a moment how all this has come about. In the
earlier years of the independence of this country, the chief dependence
was upon the results of agricultural work. In due time the development
of the resources of the country has placed manufacturers at the front,
so that in very recent years the value of manufactured products has
become nearly double that of agricultural.
These results, like many others of a less notable character, commenced
from very small beginnings; and it has been by inborn mechanical
ability, remarkable ingenuity, patient development, and tireless
energy, that mechanical undertakings have been developed from meager
initial facilities, until, in the vast manufacturing enterprises of the
present day, the American mechanic in nearly all lines leads the world
in originality and practical achievement.
=Early New England Mechanics.= When the early settlers of New England
labored under the restrictive and harassing laws of the Mother
Country, and under their administration were goaded and exasperated
beyond endurance in many ways, not the least of which was that of
being obliged to purchase many manufactured articles from England at
extortionate prices──or, if purchased from other countries, still
paying taxes to England for the privilege──they rebelled. Determining
to buy no more foreign goods, they set out, at first in most clumsy and
primitive fashion, to make for themselves such articles as were really
necessaries, and, in noble self─denial, to live without those which
they could not make for themselves. They doubtless little realized,
however, that they were thereby laying the foundations of the greatest
manufacturing country in the world. By the principles thus inaugurated,
they instituted the first industrial _boycott_ in the history of
the country──the one that has had more important and far─reaching
influences than anything of the kind before or since.
=Industrial Freedom.= While the departure of the Pilgrims for this
country, and the making of their homes on the "stern and rock─bound
coast" of New England, were for the purpose of seeking religious
freedom, it is also true that freedom soon meant very much more than
this to them; and with a larger conception of their opportunities
and possibilities, some of which were in reality forced upon them
by adverse circumstances, there came to them the inspiration of
_industrial_ as well as _religious freedom_. The world has seen and
has given them due credit for the determined and heroic manner in
which they went about their self─appointed task; and they have amply
demonstrated to posterity their appreciation of and grasp upon the
possibilities and conditions, and the breadth and nobility of character
which they exhibited in working out the many perplexing problems that
confronted them.
=Development of American Industrial Enterprises.= American
manufacturing came into being with these small beginnings and crude
efforts to fashion those common objects of household necessity and
daily use, which, although crude and clumsy, yet answered the purpose
until supplanted later by those of more improved form and workmanship.
These primitive successes led to greater endeavors, and developed into
still broader usefulness, when the time came that necessities had been
provided for and luxuries were now demanded by the higher plane of
living to which the people had in due time advanced.
Thus the crude beginnings and rude surroundings among which the early
American mechanic performed his work, were in his own house. Soon he
outgrew these primitive facilities, and built small shops, frequently
in the garden or back yard of his home. These gradually enlarged.
The development of the business demanded increased facilities, and
buildings were erected quite independent of the home surroundings,
and two or more men were associated as manufacturers. These plants
developed and enlarged, and in due course of time became the machine
shops and the factories, which have since multiplied many hundreds
of times, not only in number and in value, but in influence and
importance, until to─day our country stands the foremost manufacturing
nation of the world. This is true, not only as to the volume and value
of her manufactured productions, but also as to their great range and
diversity of kind and usefulness. One by one the American mechanic
has taken up the various classes of work formerly monopolized by this
country or that, failing perhaps at first, but always progressing
and developing, until, by native ingenuity and unflagging energy,
all obstacles have been overcome, all difficulties put aside, new
industries have come into being, and other "victories" of peace "no
less than those of war" have been added to the laurels of the American
mechanic and of his ever─ready and ever─confident partner, the American
manufacturer and capitalist. It is to this combination, each confident
of and faithful to the abilities and honor of the other, and each
acting his part in his own sphere of usefulness, that the immense
success of American manufacturing is due.
The factories of to─day are the logical results of a natural growth
and development of the various branches of business for which they
were originally built and organized. As the buildings increased in
numbers and dimensions, the methods of construction, the equipment, and
the systems by which they were managed, developed methods of greater
economy and efficiency.
=Tools of the Early Mechanic.= The early mechanic had few tools and
appliances wherewith to perform his work; and these were crude and
primitive, consisting principally of a limited number of hand─tools
brought from the Old Country, and occasionally a hand─lathe of modern
dimensions and operated by foot─power. But with their few tools and
meager facilities, and animated by the condition that "necessity is
the mother of invention," these old─time mechanics proceeded with
practical common sense and ingenuity to design and construct better
tools and machines──which have continually developed, until we have the
splendid array of manufacturing machinery seen on every hand to─day.
As machinery developed, larger and larger amounts of money had to be
expended; and the banker had to be called upon to provide it. Thus the
capitalist became the partner of the manufacturer, the one furnishing
the mechanical ability and inventive genius for the actual designing
and building of machinery and manufactured goods, while the other
contributed the money to carry on the work, and the business ability
necessary to market the product.
=Relations of Capital and Labor.= In brief, this is the condition
to─day. But, says the carping critic, "there are often hundreds
of struggling and hard─working employees where there is one rich
manufacturer." This may be partly true, although it is a fact
beyond dispute that the American mechanic is the best paid workman
in the world. It is true that there are hundreds of workmen to one
capitalist. Why? The Creator has so ordained that there shall be many
of moderate ability, and but few possessing the unusual ability and
talent to lead them. So it has ever been since the days of Moses, and
so it probably will ever continue to be. Doestick's regiment composed
entirely of colonels was a manifest absurdity, and so intended as an
illustration of a well─known and natural condition that should be
realized by every reasonable and thoughtful man who considers these
questions.
Considering carefully the great scheme of manufacturing, and the
immense industrial problem of supplying the wants of the people of
this great country and providing for the vast volume of trade that
goes abroad, by the modern manufacturing plants equipped with all that
is latest and best in machinery for every conceivable purpose, it
should not be forgotten that, as the very basis and foundation of the
whole, stands the modern _machine tool_, and that it is principally
to the great and important development of this that we owe primarily
our industrial growth and prosperity as a manufacturing nation. To the
machine tool may easily be traced the gradual but continued upward
tendency of the mechanic and his methods, from the hard physical toil
and small pay of the early days, to the immeasurably lighter exertion
and increased compensation made possible by the highly developed
condition of the automatic machines of the present day. It has been
an oft─repeated victory of "mind over matter," wherein _brains_ have
won where _hands_ made but little advance; _ideas_ have developed
wonderful mechanisms that have revolutionized the earlier methods of
manufacturing and raised the standard of mechanical excellence beyond
what was thought possible years ago, and at the same time reduced the
cost to a fraction of its former amount.
Here, again, the capitalist furnished the means whereby the practical
realization of the ingenious designs of the mechanic's fertile brain
became possible, and the successful combination of capital and labor
brought success to both.
=Combinations of Capital.= But here comes our critical labor agitator
again with the comment: "It is all very well to talk about the amicable
relations of capital and labor, and how each ought to help the other,
but how about the great combinations of capital that we ordinarily
call "trusts"? To give a correct and intelligent, as well as a fair
and truthful answer to this question, we must know the _conditions_
under which the combination is formed, the _plan_ upon which it is
organized, and the _object_ of its formation. As these are not given,
we must assume the conditions of some well─known combination. Let it be
the United States Steel Corporation. One of the foremost men in this
combination has defined his position on the subject, and in so doing
has outlined the policy of the corporation, by saying:
"Any combination of capital which operates, _first_, to prevent
competition; _second_, to increase the price of the product; and
_third_, to reduce the wages of the workmen, is working under a trio
of wrong principles that sooner or later will bring about disaster."
Let us see how the actual operation of this combination of capital
really works out in practice.
_First_──The Steel Corporation has never sought to prevent
competition. Steel mills, large and small, have operated when, where,
and how they pleased, with no interference from the Steel Corporation.
_Second_──The price of steel has not been increased; on the contrary,
it has been greatly reduced under its management. Thirty years ago a
very indifferent quality of machine steel cost from 8 to 12 cents per
pound. To─day ordinary machine steel of a much better quality than
that mentioned above can be had for 2 cents a pound or less.
_Third_──The wages of workmen have not only not been reduced, but have
actually been doubled since the labor troubles in the steel mills
known as the "Homestead Strike" (1892). The Steel Corporation has
gone much further than to double the wages of the steel workers. They
have made it possible for the workmen to become partners in the great
work of the corporation, by obligating themselves to sell to their
workmen a certain amount each year of stock in the corporation, so
that the men who labor in the mills may also become part owners and
participate in the dividends resulting from their work on exactly the
same percentage as the capitalist himself does.
Our critic comes back to the charge by saying that "the Steel
Corporation has bought up many steel plants in various parts of the
country, and added them to its already enormous properties." Quite
true. And for what purpose? Let us see what they do with these plants.
How do they manage this part of the business? What is their plan of
working? The conditions were these: Before the advent of the United
States Steel Corporation, there were many isolated steel manufacturing
plants, each being equipped for the making of a number of kinds of
steel products──for instance, steel railroad rails, structural steel,
merchant bar steel, steel boiler─plates, steel tank─plates, and so
on. The equipment necessary for producing these different forms of
steel was very expensive; and inasmuch as a considerable portion of
this equipment for some particular kind of product would necessarily
be idle on account of the fluctuations of trade, the expense burden
was abnormally high on account of this idle equipment. How has this
condition been handled by the Steel Corporation? This has been the
plan: Suppose they have purchased five plants, each making the
five classes of product indicated above, and working under the
disadvantages of a variety of products. These plants are examined,
and inventories made of their equipments. It is then decided which
mill is best adapted for making each one of the five classes of
products. Then there is a redistribution of the equipment of the
plants, placing in the plant selected for it all that in the several
plants is adapted to a certain product; removing all the machinery
from this plant that is not adapted to the particular product to be
turned out, to be distributed among the other plants according to the
particular class of products for which each one is designed. Thus
each plant is equipped to turn out the single class of product which
is most appropriate for it, by drawing upon the other plants for such
machinery as they have which may supplement its own in this line.
By this plan, each plant makes but one class of product. Having the
best machinery from all the plants for this purpose, and concentrating
its energies on a single class, it is enabled not only to turn out a
better product, but to turn it out much more economically than before.
As the workmen become more expert on their single line of product,
they work more efficiently and consequently earn higher wages.
All these conditions, producing an economical output, enable the
manufacturers to reduce the selling price.
The conditions of economy brought about in the management of the
manufacturing operations and in marketing the product, are very
marked when a large number of plants operate under one general head.
Again, with the immense amount of capital at the disposal of such a
corporation, it is enabled to secure the services of the best experts,
and the most valuable processes in existence.
There are many other advantages, not only to the corporation and its
employees, but to the users of its products, and so to the general
public, when a combination of capital is _honestly made and honestly
administered_.
=Betterment of Industrial Conditions.= What has been said of the Steel
Corporation as to favoring of employees, has been duplicated in various
ways by different manufacturers all over the country. Factory sites
have been beautified by landscape gardening, and trees and shrubbery
have made the surroundings of working men and women pleasant and
attractive. Land has been purchased, and workingmen's homes built
and rented to them at fair rates. Factory dining rooms are provided;
reading rooms, libraries, gymnasiums, clubs, and social organizations
are inaugurated; emergency hospitals or "first aid" rooms are arranged,
with all or nearly all these services free except that provided in
dining rooms, which is furnished at actual cost. More recently, a firm
in Connecticut announces that it will furnish free medical attendance
to all its employees and their families.
Schools have been established for apprentices, wherein they receive
such technical instruction as may be necessary to their success in
the trade they are learning──and this, not only without expense to
themselves or to their parents, but they are paid by the hour for time
spent in their school work, the same as for their time in the shop.
To foster a practical interest in the work of the shops, many concerns
have what is called the _Suggestion System_, whereby the employees may
make written suggestions of any improvements which they desire as to
shop methods and routine, the design and construction of the product,
and many kindred subjects, the best suggestions made each month
receiving prizes.
All of these matters emphasize the fact that the mutual interests of
the capitalist who manufactures and sells, and of the employee by the
efforts of whose hand and brain the products are being turned out, are
each year being recognized and in a very large majority of cases are
being acted upon in good faith.