Accounts: Their Construction and Interpretation for Business Men and Students of Affairs

By William Morse Cole | Go to book overview

to burn them in a waste heap, or to burn them as a part of the fuel of the mill. If they are to be sold, they must be piled and possibly bundled, and then either shipped to the market or sold on the spot. Taking your mill as a whole, the general costs are returned by the general receipts, and it is impossible to say--just as it is impossible to say which half of a pair of scissors does the cutting--what exact share of the general cost should be borne by each part of the general product; but in this matter of bundling edgings, the cost pertains to the sale of edgings alone, and if you are to sell your edgings you must get at least enough to pay for that expense. If you do not know what that expense is, you do not know whether you are actually losing money in the sale of edgings beyond what it would cost you to throw them away or to burn them. Even in burning, there is probably some cost which would not be suffered if they were thrown into the water. The same thing is true of slabs. There are certain costs connected with piling and shipping that do not belong in any way with the cost of producing lumber; and therefore this cost must be kept distinct or you will not know your profit,--indeed, will not know whether you make any profit. So much for the simplest items of cost.

The same applies to keeping record of the receipts. If the price of edgings bundled is fixed at such a point in one year that the supply is not wholly carried off, it is desirable to fix a new price in the next year such that the supply will be taken off your hands. This price, however, must bear relation to the costs, and you must know at the end of the year whether the total receipts have met the total costs for that particular part of the product. Unless, too, the figures will show the effect of different prices upon the total demand, you never have a scientific basis on which to work for the future. Consequently, receipts from the sales of edgings should be kept as distinct from other receipts as should the cost of bundling edgings from other costs.

To summarize this matter, every cost which can be differentiated from other costs, and every receipt which can be differentiated from other receipts, should be so treated. Then it is possible to judge whether the cost is worth while, and whether the price must be regulated on a new basis.

The general principles of cost-keeping can be illustrated better,

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