COST KEEPING

In the foregoing there has been nothing that is a part of the regular bookkeeping, with the exception that part of the time-keeper's records are necessary to the bookkeeper. It should be appreciated at the start, that the bookkeeper's work is of great importance, that it cannot be superseded by a cost-keeping system, and that it should not be divided up with the cost-keeping system. The scoffers at cost analysis are inclined to take the ground that a bookkeeper, a cost-keeper, a cost-analysis engineer, are more or less clumsy substitutes for managerial intelligence; and they point to the proposition that in the last analysis it should be easy to let the office boy run the job with a textbook at one elbow and a calculating machine at the other.

It is insisted upon at the start, that cost keeping is as important as bookkeeping, but that it has an entirely different function; and in applying cost keeping to construction work, it is very important that a distinct line of demarcation be drawn between the two branches.

Another error that is frequently made by antiquarian students, men who are studying old methods of engineering and construction rather than those of to-day, is that a cost-keeping system is assumed to be complete by the man who runs it, when he knows how many feet of hole his drillers are able to average per hour, per day, or per week. The cost analyst will point to the fact that in the literature of the subject many false statements are made as to the costs of certain items of work, and will show that no allowance has been made for depreciation, repairs, etc., not to say profit, interest on the contractor's money, and a host of other things. The student is warned that a proper cost-keeping system must of necessity take into consideration all the items of cost on the job; and, further, it should take them into account with such detail that it will be a real, living help to a man in estimating future costs on similar work.

Now, as a general thing, the essential similarity of items has been lost sight of when these items are parts of work which is not generally dissimilar. For example, the item of earthwork in the construction of a large dam may be very similar in its essential cost to, and may be of the greatest use in assisting a contractor or engineer to figure the cost of, earthwork under similar climatic conditions on a railroad embankment; yet those who are most interested in the subject are inclined to classify dams as an entirely different sort of structure from railroads. The designing of a dam is a different matter from the design of a railroad; but to build one will often involve the same kind of tools, the same kind of machinery, the same kind of men, the same kind of "horse sense," and the same general principles of construction, as to build the other. Therefore, if his costs are properly subdivided and intelligently kept on one kind of construction, the contractor or engineer will be materially aided, not only in estimating the cost of the work upon the other, but in being in close touch with his work after he has started.

Every construction organization ought to have a schedule of standard items which may be called ledger accounts; and its books ought to be kept in such a manner that the records of the total and of the unit-amounts for these items on past work and on current work may be immediately available for the benefit of its officers. No two contractors will have the same arrangement for distributing cost; no two will have the same items for the accounts; but there are certain fundamental items that will come into use on almost every large piece of work, and some of them have a peculiar significance, and should be treated with special care.

Estimates on Ledger Items. In making estimates it is important to have this list in sight, in order that important items may not be omitted. Such a list, which will cover a large portion of the ordinary charges, is here given:

1.GangLabor:
(a)Hourly rate;
(b)Monthly rate.

The men who work by the month are apt to have to spend a good deal of non-productive time, on account of weather conditions, etc.; while the men who are on an hourly basis, as a general thing, do some profitable work whenever they are paid. It is feasible to figure a good deal more closely on the cost of work for those men who have practically no lost time to be taken care of, as emergencies or incidentals. It will be noted, also, that the cost and the time of hourly and daily men can be figured and charted day by day; whereas it is impossible to know exactly what the charges will be for labor that is paid by the month, until the end of the month. In order to make report charts showing cost as completely as possible, it is a frequent practice to add a certain percentage to the cost of the known items, to cover the so-called lost foremen's time; and to make at the end of the month a correction of a greater or less size, in order to make the cost-keeping end tally with the bookkeeping end of the work.

2. General Labor, etc. This item will comprise the labor of the men who have something to do with more than a few parts of the work. A watchman's time is not spent in drilling, or on a steam shovel while it is running. Nevertheless a proportionate part of his salary should be divided among the different branches of the work. Sometimes this will be a very small item, sometimes a large item. For example, if a steam shovel is excavating 30,000 yards of material per month, the watchman's unit-charge to excavation may be very small; but if the shovel is tied up for nearly the whole month, the charge per unit for watchman's time may be alarmingly high. This is one reason why unit-cost and total cost should always go together. A blacksmith's time, part of which is spent in sharpening drills, need not be all chargeable to drilling, because he may spend a good deal of time in repairing the steam shovel or fixing hand tools, etc.

3. Overhead Labor. Clerks, bookkeepers, messengers, office force, and General Manager are ordinarily included among the items of overhead charge, as well as salaries of general officers.

4. Overhead Materials. In this classification, there are included stationery, office furniture, supplies, etc. When the office furniture is disposed of upon the completion of the work, its value should be credited upon this item.

5. Overhead Incidentals. These may include various items, such as telephone, office rent, telegraph messages, express charges on incidentals not directly connected with plant, etc.

6. Preparatory Costs. These include the cost of getting ready to do the work, and, depending upon the nature of the job, may include any or all of the following items:

(a) Temporary roads;
(b) Temporary trestles;
(c) Clearing and grubbing;
(d) Snow removal and drainage;
(e) Traveling expenses to job;
(f) Preliminary estimates, calculations, and surveys;
(g) Freight and handling of materials to and from job;
(h) Freight on preliminary supplies;
(i) Handling of preliminary supplies;
(j) Licenses and premiums on bonds, etc.
(k) Legal expenses;
(l) Loss on initial operations;
(m) Right of way and cost of site;
(n) Sheds, storehouses, and other temporary buildings;
(o) Tools, less final value.

7. Supplies. These are chargeable F. O. B. the job, or at the railroad station nearest to the work. They include all supplies for carrying on the work, as distinct from material, including explosives, coal, oil, waste, etc., and may include a charge for water.

8. Interest and Depreciation on Plant. This item is variously estimated by different people, and may vary greatly. It is impossible to establish an absolute rule; but on the average contractor's plant, it may be stated that 1/10 of 1 per cent per working day is a very fair general average figure. The average steam shovel, for example, will work perhaps 200 days, under favorable weather conditions; and on this basis the interest and depreciation charge will be 20 per cent per year, and is not far from a fair figure. Some contractors allow 33 per cent per year on such material as road machinery, including crushers, steam rollers, etc. This is a little high, provided that a reasonable charge is made for repairs.

9. Repairs to Plant. How much money it takes to keep the equipment in proper condition for performing efficient work, is a question on which the limits of space prevent a detailed discussion. On such a machine as a standard-gauge steam locomotive in constant operation to the limit of its capacity, repairs may run as high as 20 per cent per year; and on a rock drill the repairs may be 50 per cent or more per year.

10. Rent, Stumpage, etc. The item of rent includes the rental of ground and the storage buildings, if any, outside of the office expenses. Stumpage is the cost of standing timber, the purchaser being privileged to leave the stump after cutting down the tree.

11. Materials of Construction. These are chargeable F. O. B. the job, or at the railroad station nearest to the work.

12. Handling of Supplies.

13. Freight, when not included in item No. 11 or No. 7.

14. Unloading, Hauling and Storing Materials and Supplies.

15. Re-handling Materials and Supplies.

16. Interest on Cash Capital Exclusive of Plant.

17. Taxes and Insurance on Property (including boilers).

18. Accidental Insurance, to protect workmen and the public.

19. Advertising, Medical Expense, and Charity.

20. Discounts on Bonds, Warrants, or Notes.

21. Contingency Labor.

22. Contingency Materials.

23. Contingency Supplies.

24. Cost of Finding and Recovering Lost Freight and Supplies.

25. Profit.