THE IMPORTANCE OF COST FINDING 1. Few men understand cost finding.—No part of modern industrial organization is of greater importance than that of cost accounting. At the same time there is perhaps no part regarding which so little is generally known. In the great majority of industrial establish ments the art of cost finding is still in a crude and un developed stage so far at least as individual detail costs are concerned. This is particularly true of the small shop, or the shop which has grown up around a push ing and skilled mechanic, whose knowledge of the practical side of his art is great, but who neither knows nor appreciates the need of scanning his detail costs more closely as his business becomes more and more complex. According to four-fifths of the industrial failures in this country are the result of faults, or incompetence of one kind or another, on the part of those who fail, and ignorance of the true cost of production is, without doubt, one of the most com mon of the shortcomings.
2. Purpose of cost records.—Cost finding is a com plex matter, at best, and as industries grow to great proportions this complexity is increased in like ratio. The methods and approximation which may be ample for a small business which is wholly under the eye of the superintendent, cannot be relied upon when the plant becomes so large that personal observation is insufficient; system of some sort must be resorted to. Furthermore, the demands of modern industry re quire vastly more of a cost system than was deemed necessary a short time ago. In many shops, today, the cost system is considered satisfactory if it simply shows the cost of producing the several items manu factured. But the modern conception of a cost-find ing system is far broader. Such a system must not only show costs as such, but must show them in such a form that deductions may be drawn as to the reasons for them and the possibilities of reducing them. Re sults must be so reliable that the costs may be used as a basis for predicting future shop operations and costs. A cost-keeping system that simply records costs for the purpose of fixing sales prices has accomplished only a small part of its mission, and every day shows an increasing tendency to demand of the cost-keeping department that it furnish each activity of the enter prise such financial statements as will act as safe guards in the conduct of its individual functions.
A good cost system properly conducted should en able the manager to prepare estimates with some as surance that a profit will be made if the work is under taken, and at the same time should enable him to meet competition on an intelligent basis. It should tell him what lines of product pay and what do not. It should enable him to gauge the efficiency of each department and to trace the reasons for inefficiency if such exist. It should be his guide and counselor in directing the activities of his business. On the other hand, care must be exercised that the system installed is not too complex and that the cost of securing the detailed in formation is not greater than the gain that may result from its possession. Complexity is no assurance of accuracy. And an over-complex system may not only secure results that are useless but may be an actual hindrance to rapid production, thru too much "red tape." 3. Trained men required.—As will be seen later, there is almost no end to the detail to which a cost finding system may be carried. In the hands of an overzealous accountant or one whose range of vision is narrowed by the intricacies of his calling, an over elaborate system may be installed that not only will result in financial loss, thru the expense of operating the cost-finding machinery, but also as has been noted, may act as a clog on the actual machinery of produc tion. The introduction of a satisfactory cost system requires, therefore, more than a knowledge of cost finding methods. It requires an intimate knowledge of the industry itself, of the particular institution, and a keen discrimination regarding the detail to which the cost finding is to be carried. Very rough detail costs may be satisfactory in some lines while very re fined cost statements may be essential in others. Even in the same establishment the same degree of detail accuracy is not necessary in all lines, and a skilled chief cost finder can save large sums in the op eration of his system by a careful observance of the relative importance of different lines of product.