The entire question of variation of expense burden with change in volume of product is interesting, tho complex. It is unwise to make sweeping generaliza tions regarding a solution; in fact, it is unwise to generalize regarding any problems in cost finding. This phase of cost finding, which has just been dis cussed, will bear close inspection by managers whose volume of production varies markedly.
6. Continuous-process costs.—In continuous proc esses, or, in other words, where, owing to the condi tions of manufacture, the lots of material follow each other in such a manner that the workmen cannot dis tinguish one lot from another, the production-order method does not apply, and the system of arriving at cost must be different from that of the outline given, tho the fundamental principles are the same. A consideration of a simple case, such as that of a cement mill, may make the general method clear. Here the material flows in a continuous stream thru the several processes, and the output is more depend ent on the machines than on the workmen. The ma terial, moreover, passes thru all of the machines, so that the mill, so far as finding total costs is concerned, may be treated as a single machine. The problem is still further simplified in this case by the fact that the material in process at any one time is not of great value as compared with the monthly output, and therefore can be neglected in computing costs. Furthermore, the material passes thru the mill rap idly, and at no time is there a large amount of labor tied up in material in process. It is evident that all that is necessary, so far as total costs are con cerned, is to find the total labor and expense in curred during a given period, and divide this total by the output for the same period; this output may be expressed in terms of weight or bulk; that is, in terms of pounds or barrels. The dividend so ob tained will be the amount which must be added to the material cost of each unit of output to cover the labor and expense of production. Obviously, these com putations can be made more frequently than in the case of the more complex production-order methods.
7. Detail-process costs.—If it be desired to know the cost of each process, or department, of a confirm ous-process industry, labor and expense costs must be kept by processes or departments, but they may be distributed, as before, by simple division on a mate rial basis, and this will indicate the general method to be pursued in more complex cases. It is usual in
such cases to issue a standing-order number to each process, and to charge, to this number all labor and expense, if the latter can be segregated. The total amount of these items, for any period, divided by the total weight or volume of all of the manufactured product passed thru the process for the same period, will give the unit cost which must be charged against each unit of material, that has passed thru the process. If the expense cannot be allocated to each process, the unit labor cost can be ascertained as indicated in the foregoing treatment, and this cost can be used as a basis for distributing the burden of expense to each unit of product.
Thus, in a factory consisting of several simple con tinuous processes, each process involving a separate and distinct series of machines, it would be difficult, in general, to segregate accurately all of the expense; hence compromise methods, like those described in Chapter XIV, may have to be employed in such cases for allocating the expense.
8. More refined process costs.—The discussion in Sections 6 and 7 of this chapter assumes that the ma terial passes rapidly thru the process, or series .of processes, and that, therefore, the labor and expense collected at the end of the week or month, as the case may be, belong, approximately at least, to the material that has passed thru during that period. If, now, the time required to pass the material thru the process, or series of processes, is considerable, this assumption does not hold true, but part of the labor and expense collected at the end of the accounting period will be long to the material that has passed thru, and the remainder will be chargeable to material in process. The longer the period of fabrication, as compared to the accounting period, the more marked will this con dition be. If it is necessary to take this relation into account, as it may be, the cost accounting will in volve keeping a record of material that has been issued to the process in question, and of the amount that has issued from it during the accounting period in order that at the end of the period the quantity remaining in process may be determined. The theory of this method 1 is simple, tho the arithmetic may be some what confusing in complex cases.