ADMINISTRATIVE COSTS
Commercial costs which are not chargeable to sales are classed as administrative, and may be divided into executive, accounting, office expense, credits, and collections.
In a strictly trading business, purchasing is an added division, while in a manufacturing enterprise it is usual to consider this a manufacturing expense.
Executive expense is made up of the salaries of the general manager and comptroller, salaries of clerks and stenographers, and a proper portion of miscellaneous expense. In a manufacturing business, a part of the executive salaries is charged to manufacturing.
Accounting expense includes the salaries of chief accountant and cashier, clerks and stenographers, blank books and supplies, and miscellaneous expense.
Office expense is charged with the salary of the chief stenographer, and the expense of mailing and filing, including salaries of clerks.
Credits and collection expense include the salaries of the credit man and his clerks, the cost of mercantile agency service and reports, and the cost of collections, including postage.
Purchasing expense, which, as stated, sometimes is a commercial expense, includes the salaries of purchasing agent, receiving clerk, stores clerk and their assistants, and the entire expense of the storeroom.
In a strictly trading business, such items as power, heat and light, insurance and taxes—usually a manufacturing expense—become administrative expense. These, and all similar items, are grouped under the head of miscellaneous, to be distributed over all divisions of commercial costs.
In the main, the different divisions of administrative costs are easily assembled. In each division there is the salary of the department head, the total of which is charged to the division, and a correct apportionment of salaries which must be divided among two or more divisions. For illustration, the salaries of stenographers are distributed as has already been explained. By far the larger part of this expense is charged to the advertising and sales departments, but from the weekly reports of this division, the amount to be charged to the executive, accounting, credit and collection, and purchasing divisions may be obtained.
Mailing Costs. In the division of office expense one item which must be distributed, at least between sales and administrative, is mailing expense. Mailing expense is made up of labor and postage, the latter being most important.
All enterprises of magnitude maintain a separate mailing department in charge of one person, frequently the chief stenographer. The very fact that postage is the big item of expense in the mailing room, makes a very complete system of records absolutely essential.
The work of the mailing room consists of folding circulars and letters, enclosing catalogs, circulars, and letters in envelopes, addressing, filling in dates and addresses on printed form letters, and stamping. Sometimes addressing and filling in is done in the stenography division, but the more usual plan is to consider this a part of the mailing expense.
Fig. 12. A Report of Labor in the Mailing Room
Of first importance is a record of work done, which is best secured by means of a daily report of the work of each clerk. All work should be assigned by the head of the department, and the clerk required to keep an accurate record of both time and production. This question of assigning the work is especially important in the mailing room, as one department may flood the room with work which, if done, would make it impossible to handle the work of other departments for several days. The head of the department must decide which is the most important work. Sometimes it is necessary to make out, in advance, a weekly schedule of circularizing to be done, and compel all departments to be governed by the schedule. As an alternative, some of the larger enterprises maintain a separate mailing room, in charge of the advertising department, exclusively for circularizing work.
A suitable form for the employe's daily report is shown in Fig. 12. This report is divided for a record of the different classes of work performed. All work is recorded by number, that is, if the work is folding circular No. 518, that number is placed in the first column opposite folding. The center column is for the name of the department; as a rule, the form number indicates the name of the department, but sometimes the same form is used by several departments. In the columns next following, the clerk enters the number of pieces handled and the time taken. The extension columns, showing rate and amount, are filled in by the head of the department.
From these reports, the pay-roll is made up. All of this work can be handled on a piece-rate basis, and most large concerns find this the most economical basis. The rate must necessarily be varied to suit local conditions, and should be high enough that by doing a full day's work a clerk will earn something more than the standard day wage. For example, a girl will address from 1000 to 1500 envelopes, or fill in addresses on the same number of form letters, in a day of eight hours, the average being—say 1200. In different cities the accepted wage standard for the class of help required in this work varies from $5.00 to $7.00 a week. Where the $5.00 rate prevails, a piece rate of 90 cents a thousand is equitable; a girl who maintains an average of 1200 a day for five and one-half days (the usual time required in an office) will earn $5.94 with a chance to earn still more if she can increase her speed. The extra ninety-four cents is an inducement to at least equal the average; without it, she would probably drop to 1000 or less. While her wage has been increased, the cost has been lowered.
Daily Mail Report. That the information may be in convenient form for statistical purposes and for making final reports, there should be a daily mail report. This report should be a complete record of everything mailed, showing the number of pieces and the rate of postage for each. A form for such a report is shown in Fig. 13. This report is divided for a record of regular mail-letters, circulars, and catalogs—and merchandise. The latter is not required in all cases, but is very important for a concern doing a mail-order business in small articles which can be sent by mail.
Fig. 13. Form for a Daily Mail Report
Fig. 14. Stamp Identification
This report shows the description, number of pieces, and postage rate. In the description column the name of the department should be written first, followed by a description of the mail originating in that department. The daily report should be made up by the stamp clerk, without reference to the individual employes' reports, as it is intended as a check against the latter. A memorandum of the number of pieces reported for the different operations by the employes should be kept, and at the end of the week compared with the quantities shown by the daily mail reports. For some of the operations, the quantities reported by employes may be the larger, certain work being completed on matter which has not been mailed. To reconcile this difference, the work itself should be on hand in the mailing room.
Fig. 15. Voucher for Postage
Postage Record. The most important of all records in the mailing room is the postage record. Postage should be placed in charge of the stamp clerk, who should be made responsible for its accounting. The mail clerk is, in fact, a cashier, having the custody of the equivalent of cash in the form of postage stamps. Unless a very strict record is kept, there are abundant opportunities for thievery of stamps and, because they are almost as easily disposed of as cash, the temptation is strong. So great have the losses been from this source, that the government now permits business houses to identify its own stamps by means of perforations. There is now on the market a machine which perforates the initials or trade mark of a firm. The machine is very rapid in operation and stamps can be perforated in sheets very quickly. An enlarged reproduction of a stamp perforation is shown in Fig. 14.
Fig. 16. A Weekly Report of Postage Used
ROTUNDA IN THE ROOKERY BUILDING, CHICAGO, ILL.
This is One of the Largest Office Buildings in the City
ROTUNDA IN THE RAILWAY EXCHANGE BUILDING, CHICAGO, ILL.
An Exterior View of this Building is Shown Elsewhere in this Volume
The first step in providing for a complete postage record is to make a voucher for postage required. The cashier should require a voucher before supplying stamps or the money with which to buy them. A special voucher form showing the postage on hand, and the number of stamps of each denomination required, is shown in Fig. 15. This should be made in duplicate; the original goes to the cashier and the duplicate is retained by the stamp clerk.
Weekly Report. From the daily mail reports, a weekly postage report should be made. This report should show the total amount of postage used, distributed by departments. A form for such a report is shown in Fig. 16. In the first column the names of the departments are written, and in the daily columns the amounts used are recorded. The amount expended for registry and special delivery is entered at the bottom of the sheet, and below this is a recapitulation showing the balance of postage on hand. This report, which is made by the head of the mailing room, should be in duplicate—one copy for the accounting department, and one to be retained by the stamp clerk.
Weekly Mailing Report. The final report of the mailing room is a weekly report which shows exactly what work has been done for each department. The information required to make up this report is obtained from the employes' daily reports, and the daily mail reports. The postage is taken from the daily mail reports and checked with the weekly postage report to guard against any inaccuracy. A comprehensive form of report is shown in Fig. 17. This report is made to the statistical department.
Stationery and Supplies. Attention has already been called to the necessity for the proper care of stationery and office supplies. The losses due to careless handling of supplies are more serious than is usually appreciated. Probably the best way to reduce this expense is to require signed requisitions for all supplies drawn, and to charge all supplies to the different departments. All departments should be required to present requisitions once a day only, and then only during certain hours. In very few offices is a stock clerk required for office supplies alone; if the supplies are kept in the regular storeroom, or if one of the office clerks has charge of the supply cabinet, this plan will save time, as an hour a day is sufficient to handle the work in almost any office.
Fig. 17. Weekly Report of Mailing Department
After posting the supplies records, the clerk in charge should make a report to the statistical department of supplies drawn. This may be a weekly report, as shown in Fig. 18. A second copy should be made for the accounting department.
Fig. 18. Summary of Supplies Drawn
This report shows the value of supplies drawn each day by each department. The amounts can be entered daily from the requisitions, the totals being entered at the end of the week.
Summary of Administrative Expense. The reports and records described place the statistical department in a position to make complete summaries of administrative expense. The salaries of department and division heads, clerks, and stenographers employed in each department are obtained from the accounting department; mailing expense is obtained from the weekly report of the mailing clerk; cost of supplies drawn is shown by the supplies clerk's report; the amount of expense items not otherwise accounted for is supplied by the accounting department. The last item named—representing overhead expense—can be distributed to the departments on the basis of the ratio of the known expense of each department—that is, if the known expense, including salaries, mailing, and supplies, in one department is 20% of the known expense of all departments, it may be charged with 20% of the overhead.
Fig. 19. Form for a Distribution of Administrative Expense
Fig. 19 shows a form for a summary of all administrative expense, the different classes of expense being divided for each department. Totals of expense of each class, totals for each department, and the grand total are shown. Totals of the different classes and the grand total must agree with the records of the accounting department. At the bottom of the administrative expense summary the per cent of total administrative expense to sales and turnover—or cost of goods sold—should be shown.
Profit and Loss Statements. The profits shown by the comparative trading statement, Fig. 9, are trading profits only—not net profits, as administrative expense and profits from other sources than sales are not included. A statement should be prepared, therefore, which will show net profits. This can be combined with the trading statement, but the better plan is to prepare a separate statement. It is usually advisable to supply copies of the trading statement to the heads of all departments of the sales division that each may see what progress he is making, and compare it with that of other departments. It is not advisable, however, to let the department heads know the exact net profits; this information is for the general manager and directors.
Fig. 20 shows a form of monthly profit and loss statement, divided by departments. The totals for the fiscal year to the first of the current month are brought forward at the head of the sheet; then the figures for the current month are entered. Sales, sales expense, and sales profits are taken from the trading statement; administrative expense is shown by the summary, Fig. 19. Administrative expense is charged to the different departments on the basis of the turnover—that is, if the total administrative expense is 10% of the total turnover, each department will be charged an amount equal to 10% of its turnover.
Fig. 20. Condensed Profit and Loss Statement by Departments
There are certain profits which arise from other sources than the sale of goods in which the concern is trading. Among other sources are interest and premiums and profits on the sale of bonds and stocks. All such items should be listed separately each month that the amount of unusual profits may be known. This statement presents a history of the progress of the business reduced to its final analysis—that of actual net profits.