Following, then, the formula outlined at the opening of our discussion under the heading of True Cost, the cost of a job done in the Blacksmith Department, on which the direct labor cost was $100.00, would appear on our records as follows:
| Direct labor | $100.00 |
| Material | 50.00 |
| Factory expense at 25% | 25.00 |
| ———— | |
| Factory cost | 175.00 |
| General expense 33⅓% | 33.33 |
| ———— | |
| Manufacturing cost | $208.33 |
This is the percentage method. While it is quite natural in anything of value and merit to look for its imperfections, this method is criticised by some accountants who point to flaws in its logic and method of computation; nevertheless, it stands to-day as the best solution of the vexed question of expense distribution that has yet been devised, for it not only has the approval of our best technical authorities, but that of the practical accountant as well. It commends itself to the intelligent judgment of the manufacturer, who is quick to realize its superiority, and it can be recommended for many reasons:
(a) It is based on actual figures, easily extracted from the regular books of account, and which are a true statement of fact; no guess-work or estimating about it. There is no better way to figure what is to be, than to use results of what can be conclusively demonstrated already has been.
(b) It can be used in any manufacturing plant, or in all the departments of the same plant, thereby insuring uniformity of method, which is always desired. No argument is necessary to convince that two methods in the same factory are undesirable when one can be found that is satisfactory.
(c) It accomplishes its purpose—it distributes. If it is found that factory conditions are changing, the percentages used may also be changed so as to increase the amount of expense distributed, or diminish it, as necessary.
(d) It requires less work for the cost accountant. The man-hour plan requires the hours worked to be recorded and footed in addition to the labor cost. The machine-rate plan requires not only two different calculations, as already shown, but also necessitates the adding of all the hours worked. The percentage plan requires only the labor cost in money value, and renders the recording and adding of long columns of hours entirely unnecessary, which, as can readily be seen, is an immense saving of labor. In a large plant with an elaborate system of job orders to be handled, the value of the percentage method, in doing away with this double calculation, will be appreciated immediately.
BROOKLYN, N. Y., PLANT OF THE H. W. JOHNS-MANVILLE CO.