The Dissection of Expenditures Departmentally.—The final division in the dissection of the mine expenditure is in the main:—
The detailed dissection of expenditures in these various departments with view to determine amount of various sorts of expenditure over the department, or over some special work in that department, is full of unsolvable complications. The allocation of the direct expenditure of labor and supplies applied to the above divisions or special departments in them, is easily accomplished, but beyond this point two sorts of difficulties immediately arise and offer infinite field for opinion and method. The first of these difficulties arises from supplementary departments on the mine, such as "power," "repairs and maintenance," "sampling and assaying." These departments must be "spread" over the divisions outlined above, for such charges are in part or whole a portion of the expense of these divisions. Further, all of these "spread" departments are applied to surface as well as to underground works, and must be divided not only over the above departments but also over the surface departments,—not under discussion here. The common method is to distribute "power" on a basis of an approximation of the amount used in each department; to distribute "repairs and maintenance," either on a basis of shop returns, or a distribution over all departments on the basis of the labor employed in those departments, on the theory that such repairs arise in this proportion; to distribute sampling and assaying over the actual points to which they relate at the average cost per sample or assay.
"General expenses," that is, superintendence, etc., are often not included in the final departments as above, but are sometimes "spread" in an attempt to charge a proportion of superintendence to each particular work. As, however, such "spreading" must take place on the basis of the relative expenditure in each department, the result is of little value, for such a basis does not truly represent the proportion of general superintendence, etc., devoted to each department. If they are distributed over all departments, capital as well as revenue, on the basis of total expenditure, they inflate the "capital expenditure" departments against a day of reckoning when these charges come to be distributed over working costs. Although it may be contended that the capital departments also require supervision, such a practice is a favorite device for showing apparently low working costs in the revenue departments. The most courageous way is not to distribute general expenses at all, but to charge them separately and directly to revenue accounts and thus wholly into working costs.
The second problem is to reduce the "suspense" or capital charges to a final cost per ton, and this is no simple matter. Development expenditures bear a relation to the tonnage developed and not to that extracted in any particular period. If it is desired to preserve any value for comparative purposes in the mining costs, such outlay must be charged out on the basis of the tonnage developed, and such portion of the ore as is extracted must be written off at this rate; otherwise one month may see double the amount of development in progress which another records, and the underground costs would be swelled or diminished thereby in a way to ruin their comparative value from month to month. The ore developed cannot be satisfactorily determined at short intervals, but it can be known at least annually, and a price may be deduced as to its cost per ton. In many mines a figure is arrived at by estimating ore-reserves at the end of the year, and this figure is used during the succeeding year as a "redemption of development" and as such charged to working costs, and thus into revenue account in proportion to the tonnage extracted. This matter is further elaborated in some mines, in that winzes and rises are written off at one rate, levels and crosscuts at another, and shafts at one still lower, on the theory that they lost their usefulness in this progression as the ore is extracted. This course, however, is a refinement hardly warranted.
Plant and equipment constitute another "suspense" account even harder to charge up logically to tonnage costs, for it is in many items dependent upon the life of the mine, which is an unknown factor. Most managers debit repairs and maintenance directly to the revenue account and leave the reduction of the construction outlay to an annual depreciation on the final balance sheet, on the theory that the plant is maintained out of costs to its original value. This subject will be discussed further on.
Inherent Limitations in Accuracy of Working Costs.—There are three types of such limitations which arise in the determination of costs and render too detailed dissection of such costs hopeless of accuracy and of little value for comparative purposes. They are, first, the difficulty of determining all of even direct expenditure on any particular crosscut, stope, haulage, etc.; second, the leveling effect of distributing the "spread" expenditures, such as power, repairs, etc.; and third, the difficulties arising out of the borderland of various departments.
Of the first of these limitations the instance may be cited that foremen and timekeepers can indicate very closely the destination of labor expense, and also that of some of the large items of supply, such as timber and explosives, but the distribution of minor supplies, such as candles, drills, picks, and shovels, is impossible of accurate knowledge without an expense wholly unwarranted by the information gained. To determine at a particular crosscut the exact amount of steel, and of tools consumed, and the cost of sharpening them, would entail their separate and special delivery to the same place of attack and a final weighing-up to learn the consumption.
Of the second sort of limitations, the effect of "spread" expenditure, the instance may be given that the repairs and maintenance are done by many men at work on timbers, tracks, machinery, etc. It is hopeless to try and tell how much of their work should be charged specifically to detailed points. In the distribution of power may be taken the instance of air-drills. Although the work upon which the drill is employed can be known, the power required for compression usually comes from a common power-plant, so that the portion of power debited to the air compressor is an approximation. The assumption of an equal consumption of air by all drills is a further approximation. In practice, therefore, many expenses are distributed on the theory that they arise in proportion to the labor employed, or the machines used in the various departments. The net result is to level down expensive points and level up inexpensive ones.
The third sort of limitation of accounting difficulty referred to, arises in determining into which department are actually to be allocated the charges which lie in the borderland between various primary classes of expenditure. For instance, in ore won from development,—in some months three times as much development may be in ore as in other months. If the total expense of development work which yields ore be charged to stoping account, and if cost be worked out on the total tonnage of ore hoisted, then the stoping cost deduced will be erratic, and the true figures will be obscured. On the other hand, if all development is charged to 'capital account' and the stoping cost worked out on all ore hoisted, it will include a fluctuating amount of ore not actually paid for by the revenue departments or charged into costs. This fluctuation either way vitiates the whole comparative value of the stoping costs. In the following system a compromise is reached by crediting "development" with an amount representing the ore won from development at the average cost of stoping, and by charging this amount into "stoping." A number of such questions arise where the proper division is simply a matter of opinion.