COST ACCOUNTING

Evening Post, Volume CXXIII, Issue 29, 4 February 1937, Page 10

COST ACCOUNTING

POST-WAR DEVELOPMENT.

"The necessity for accurate cost accounting was never so readily and fully recognised by industrial management as it is today," comments W. H. Stalker in "The Accountant" (London).

"In my opinion, the striking developments which have taken place in this branch of accountancy within the past fifteen years are largely the result of the disturbances of the late war, and its aftermath. Indeed, one prominent writer on the subject gives it as his opinion that 'cost accountancy was discovered, so far as the general public was concerned, as a result of the experiences of the war years. The application of costing methods' to the manufacture of war munitions as a means of speeding up output is one of the epics of the war. For a great many business men, it provided their first glimpse of costing as a means of controlling production, asan aid to works management, and as an eliminator of waste. Above all, it afforded a valuable object-lesson which was not lost upon industry and commerce when operations were resumed after the war was over.'

"Before payment was made for these war-time contracts, they, were mostly, if not all, subject to investigation by accountants, and also in certain instances by trained engineers and other technicians. One department, for example, had a group of highly-skilled engineers who had been specially trained in the Government works. These men were made responsible for checking the material and labour which was debited to the contracts. Every item of material was examined with the view of ascertaining whether it were an- essentialpart of the structure actually worked into the job. Not only were the wages records checked, but control was kept of the actual men employed, on each job. Co-operation existed between, the technical officers and the .investigating accountants, and a complete and satisfactory control was thereby exercised. In certain contractors' works it was found that work of substantially the same kind, but possibly contracted for at different times, was being remunerated at a cost basis, while other work was being done at a fixed price. The opportunities for abuse under these conditions are too obvious to require mention.

"The fixing of the appropriate rate for overhead charges presented some difficulty, except in those establishments where the whole of the work performed was for the Government Departments. Many contractors commenced Government work in the belief that they would get some preconceived rate of overhead expenses which they may have been accustomed to charge in the past in their estimates and costs, and in certain instances these rates (some 'of them fantastic) were apparently tentatively agreed to by the Departments, but as officialdom gamed experience in this type of contract work, they adjusted these rates of overhead charges, and even revoked the preconceived rates which had been tentatively applied to the earlier contract."