COST ACCOUNTING IN SHIPBUILDING

ATLANTIC COAST SHIPBUILDERS ASSOCIATION
Report of the committee on Uniform Methods of Cost Accounting

Adopted June 4, 1919
    

DOWNLOAD FREE SHIPBUILDING BOOK:
Cost accounting in shipbuilding
    

TABLE OF CONTENTS

Committee's Letter of Transmittal
Letter from Representatives of Emergency Fleet Corporation

SECTIONS OF REPORT
1 - Introduction
2 - Basic Divisions of Shipyard Activities
8 - Principles and Definitions - Elements of Cost
4 - Principles and Specific Definitions - Materials
5 - Principles and Specific Definitions - Labor
6 - Principles and Specific Definitions - Expense
7 - Considerations in Devising Standard Methods
8 - Production Orders - Classification and Methods
9 - Ship Product Units - Classification and Methods
10 - Ship Works Departments - Classification and Methods
11 - Materials and Supplies - Classification and Methods
12 - Labor - Classifications and Methods
18 - Expense - Classification and Methods
14 - Cost Methods for Production Control and Estimating
15 - Summary Cost Reports and Statistical Statements

APPENDICES

A - Table of Rates of Depreciation Recommended by Committee on Depreciation of the Atlantic Coast Shipbuilders' Association
B - Definition of Depreciation and Amortization as Defined in Treasury Decision No. 2884
C - Classification of Asset Tools and Small Perishable Tools Prepared by Tool Manufacturers


INTRODUCTION - Object and Scope of Plan

The object of this study has been to develop those basic principles and Elements which make possible the establishment of uniform methods of cost accounting in shipbuilding. The plan recommended includes the important principles, definitions and Elements of standardized cost methods which are applicable to any of the shipyards.

To establish uniformity in cost accounting, it is essential that definiteness and standard methods be first established in the controlling items and divisions. These are of particular importance from the point of view of executives, who will be enabled currently to visualize production and operating conditions and to compare costs with standards in their own shipyards as well as with other shipyards.

No attempt has been made to cover the numerous details and ramifications of accounting, timekeeping, store-keeping, forms, etc. Questions on such matters and details are either now covered or should be left to be developed in the individual shipyards. The important principles and Elements for adequate cost finding methods will serve as proper guides for the arrangement of the above and other necessary details.


Advantages of Uniformity in Cost-Keeping

In the preliminary statement on uniform cost methods for shipbuilders which was submitted on November 1) 1918, through the courtesy of the Emergency Fleet Corporation, there is included an outline of the needs and advantages of uniform cost methods in the shipbuilding industry. These benefits have been considered in the development of the principles and methods which are set up in this report.

Shipbuilders and business men in general full; recognize the value of accurate cost statistics as a means of establishing standards for estimating and for comparing operating efficiencies, and for providing proper bases of production costs and selling prices.

The need for and advantages of uniform cost methods in the shipbuilding industry are Intensified when the varied activities and output of shipyards and the possibilities for incomplete figuring of costs and losses in production are considered.

While it is possible, it is not essential for purposes of comparison for the uniform cost methods to furnish scientifically accurate figures. The main object and the important advantage of the use of uniform methods is that all costs will be included and figured in the same way.

The primary advantages and reasons for the use of uniform cost-finding methods can be stated as follows:

1. Reliable guide and basis for estimating prospective business.

2. Complete costs of specific articles and indicator of profitable and unprofitable production and service activities.

3. Gauge of the value efficiency and wastes of workers, machines, methods, operations and plants.

4. Uniform terminology enabling comparisons of progress and efficiency of production between units in shipyards and between groups of shipyards.

5. Supplementing of general accounts of shipyard with cost accounts and proving of accuracy of costs and adequacy of methods through general book keeping System.

6. Base with which cost and progress figures may be arranged in a simple tale-telling manner.

7. Control of operation and production standards through current periodic cost figures.

8. Visualization of business conditions by executives  through logical arrangement of figures.

9. Insurance against unintelligent competition and unprofitable undertakings.

10. Current reports for comparing of major cost items with standards which are predetermined, and measuring and increasing operating efficiency.

11. Cooperation and friendly competition resulting from cost comparisons.


BASIC DIVISIONS OF SHIPYARD ACTIVITIES

Major Considerations in Classifications

Examinations of the shipyard organizations, of the physical plants, and of the activities in the shipyards, bring out clearly the diversity and number of classes of activities and product units. At one extreme, there are the shipyards which manufacture and fabricate their own hull steel and engines complete from basic raw materials and also manufacture much of the ship outfit. At the other extreme, there are those shipyards which purchase complete engines, machinery, etc., as well as fabricated steel for hull and buy much of the ship's outfit. Between these two extremes are numerous variations and modifications.

Any standardized methods of determining costs in shipbuilding which do not recognize the basic divisions and major differences in activities and products must of necessity be incomplete or superficial. The basic lines of distinction or classification must be so fundamental that they will be adaptable to the variations in activities and products which exist in any shipyard.

Cost methods consist essentially of the collection and arranging and applying material, labor and expense charges to job accounts, orders or contracts in a way as will furnish adequate costs and continuous control of production and operating efficiency. The first thing, therefore, in the development of standardized cost methods is to define the plant activities and product units and departments through which it is desired to collect charges, so that such charges will at all times be confined to the same items and that there will be no confusion in the distribution and arrangement of the charges.

Classifications of the major activities, product units and departmental divisions in the shipyards for the purpose of uniformity in ascertaining and applying costs have been drawn up in such a way as to be applicable to all shipyards. Any individual plant can use those items which are applicable and omit those items which are not applicable. Also, each yard can, where desired,
develop any detail subdivisions under each of the main items without in any way affecting the general classifications or the purpose of the standardized plan of cost accounting.


Classification of Shipyard Work

The main divisions of shipyard work are indicated under the series of shipyard production orders, the purpose, use and basis of classification of which are described under Section VIII: "Production Orders - Classification and Methods."

The main shipyard activities are classified under the following general series:

1. Construction Orders - Ships.
2. Construction Orders - Ship Product Stock.
3. Construction Orders - Special Contracts.
4. Auxiliary and Stock Manufacture Orders,
5. Defective Work Orders.
6. Vessel Repair Orders.
7. Construction and Betterment Orders - Plant and Equipment.
8. Repairs and Maintenance Orders - Plant and Equipment.
9. Miscellaneous Orders (work for others).

A plan of furnishing production or job orders authorizing and indicating the work which is to be done and having such orders issued to the operating departments in advance of actual beginning of work is essential where adequate and current costs are to be obtained.

The issue of a production or job order is the authority to proceed on work whether the work consists of manufacture of a completed product or parts, special repair work or stock manufacture. Each order authorizing work to proceed is given a production order number by which the job or contract is thereafter known and distinguished from all the other orders.

Through this means, the application and control of ail elements of cost is facilitated and it becomes possible to trace any job account or order through the different stages of production.


DOWNLOAD FREE SHIPBUILDING BOOK:
Cost accounting in shipbuilding