For these reasons the installation of a cost-finding system should not, usually, be left wholly to the gen eral accountant. It is true, of course, that the cost books, for best results, should be properly merged into the general accounts and should fit into the broad plan of the general scheme of accounting. But the cost finding methods that will produce best results will, in general, be the result of the joint labors of the skilled accountant and the manufacturing expert. A care ful distinction should be made between principles and the details to which the application of these principles may be carried. The principles of cost accounting are definite and permanent, but the degree of detail to which it is desirable to carry their application can be fixed only by some one well-versed in the details of manufacturing, who knows just what results are desirable and what results are useless.
Even the manufacturing expert and the skilled ac countant can obtain much help by considering the re quirements of other departments. Thus the clerical work and accuracy of cost finding are greatly aided by a proper system of nomenclature and identifica tion. Such matters involve the work of the design ing department, and a system in the drafting room laid out with reference to the cost-finding system is an invaluable aid.
4. Each business requires individual is obvious also that no particular cost-finding system will apply to all forms of industry, since industries vary so widely not only as regards the character of the work they are conducting but also as regards the man ner of their organization. The information that the cost system should gather, and the manner in which this information should be presented, will also vary widely in different enterprises. The cards and forms which are admirable for one kind of work are useless, therefore, in others. The general underlying princi ples of cost finding are, however, universally applica ble and if the principles are clearly understood there is seldom any difficulty in developing cards and forms suitable to the work in hand. Many good suggestions can be obtained by a study of the blanks and forms found in current practice, but the presentation of too great a variety of such documents tends to obscure basic theory. This book, therefore, deals with gen eral principles only, and only such blanks and forms have been inserted as are necessary to illustrate these principles.
5. Importance to whole accur ate costs are of great importance to the individual in stitution, they are of no less importance to the industry as a whole. The manufacturer who obtains contracts • by underbidding his competitors, with a price on which he will lose money, not only ruins his own business but destroys that of his competitors. This form of com petition is the most dangerous and the most greatly to be feared, since it rests, in most cases, on ignorance. It is little consolation to the manager whose costs are accurately obtained to see such competitors go into bankruptcy; for, as fast as they disappear, others equally ignorant take their place. Yet this state of affairs is far too common.
In a competition that came under the writer's ob servation recently, the highest bid was nearly fifty per cent higher than the lowest. After making allow ance that the lowest bid may contemplate scant fulfil ment of the specifications, and that the highest may be simply hopeful advertising, the only reasonable explanation that can be offered for such a great range is ignorance of basic cost-finding principles. Any one
who has had experience in opening competitive bids will testify to the wide divergence in prices that usu ally appears in such competition. It is for reasons such as these that the intelligent manufacturer often finds himself confronted with the fact that his bid must be based on market prices and not on his costs. It is no use to bid higher, unless he has a superior article the merit of which commands the trade irre spective of price. On standard articles the "trade will not stand" the higher price. Even here his only hope of succeeding is to know the true cost and to try, by better manufacturing, to so reduce it as to leave him a margin of profit.
Furthermore, it is only too often held that cost finding methods are secret matters that should be kept from the eyes of competitors. No doubt it may be good business policy to keep actual costs secret, but the widest publicity should be given to cost-finding methods if for no other reason than that of educating one's competitor in such methods as shall tend to fair competition. This is now clearly recognized in many fields of industry. The National Machine Tool Bui'ders' Association recognized this important prin ciple some years ago and took active steps toward uni form methods. It would pay all competing industries to do likewise and to publish freely the correct meth ods by which the costs of their products are obtained. The manager who offered to send his expert account ant, at his own expense, to teach competitors his sys tem of cost finding was a man of keen business ability and not simply a philanthropist.
6. Inadequacy of crude methods.—It is true, of course, that many enterprises make money with the crudest kind of cost-keeping systems, but where such is the case there are always advantageous conditions the continued existence of which cannot elsewhere be assumed. Many plants, also, make money in spite of antiquated machinery and methods, either because of local advantages or because lack of competition allows large profits. Strong leadership may often compen sate for material disadvantages. But such favoring conditions may not be so easy to maintain in the fu ture. As industry grows, competition becomes ever keener in all branches of life, with the consequent re quirement of a more exact knowledge of the details of business. And as any enterprise increases in size the methods based merely on personal observation be come increasingly inadequate.
A grocer who fixed the selling price of sugar with reference to that of his competitor, and not with refer ence to what it had cost him, would be considered as having adopted a decidedly unsafe policy. And yet this is a common method of fixing prices in the manu facturing field. Many manufacturers often persist in paying dividends out of capital simply because they do not know what their selling price ought to be but have fixed it either by that of some competitor or by some rule of thumb. Enterprises of this kind col lapse like houses of cards when dull times arrive, and constitute, no doubt, a large proportion of the four fifths of the failures which are due to personal incom petence. Accurate knowledge of the cost of produc tion is an absolute necessity and the detail in which it is required to know these costs grows daily with the growth of enterprises, the increase in competition and the development of new methods of management.