ASSEMBLING AND RECORDING COSTS 1. Uses of costs.—It *will be evident that the man ner in which costs are recorded and the detail with which the recording is carried out will vary greatly with the enterprise, and with the point of view of the manager. In some simple continuous processes lump sums only may be required, while in intermittent pro duction involving many kinds and many sizes of parts, the detail in which costs are collected and recorded may be very great. The detail of cost accounting will also vary greatly with the purposes for which it is de sired to use the collected cost data. These purposes may be several, but in general they may be summed up under these heads: (a) To show the actual cost of operations or per formances.
(b) To form the basis of managerial and other re ports.
(c) To serve as a basis of predicting future per formances.
The first purpose constitutes, of course, the funda mental reason for keeping costs. In so far as total profits are concerned, there is no necessity, as will be shown, for a cost-keeping system. But it is essential in most industrial enterprises to know, as closely as possible, the cost of producing each individual article, sometimes even of each part, if for no other reason than to know which lines are paying and which are not. It should be fully realized that factory costs are not always serviceable in fixing selling prices. In many instances the selling price must be fixed by the prevailing market price, and this may have little rela tion to the cost of manufacture. Such circumstances are especially likely to prevail in lines of work where cost-finding methods are, in general, crude and poorly understood. Yet this is all the greater reason why, in such cases, costs should be known as accurately as pos sible. A knowledge of the details of the cost of pro ducing any article is a good start toward reducing the cost. A knowledge of the actual facts concerning the cost of production of each article, as far as it is eco nomical to obtain them, would seem to be a common sense requirement for a continuation of any enter prise. There is no doubt that it is a lack of this funda
mental knowledge which carries many enterprises "to the wall." The detail methods of recording cost data will be discussed in this chapter.
2. Cost data for predicting performance.—As al ready noted in Section 3, Chapter III, a cost-finding system that is used only for recording costs has ful filled only a part of its true purpose. Too many man agers think of costs simply as records of performance, whose usefulness is ended once the goods are billed. Now the most significant movement in modern manu facturing is the tendency to predict all manufacturing performances. The engineering and designing de partments long ago began the prediction of the con structive features of manufactured products. The form and dimensions of all manner of articles and even of the tools for producing them are predicted, as well as the practical and theoretical performance of the completed product. Careful managers have for many years endeavored to foretell the times and costs of productive operations with the same degree of cer tainty that has been attained by the engineer and the designer. One of the cardinal principles of so-called "scientific management" is the securing of advance knowledge of the time and cost of each operation in detail, without leaving anything to chance or judg ment. And just as collected scientific knowledge forms the background of engineering production, so collected cost data, including the two important fac tors of time and wages, form the basis of all predic tions of productive performance. The relation of time study and motion study to cost prediction is the same as the relation of engineering research to en gineering design. Any system of recording costs, to be most effective, must be arranged with this feature of management in view. A more extended discus sion of this important phase of cost finding is given in Chapter XIX.