Part 3

With this method an inventory can be taken in a very short time. There are cases on record where an inventory in the largest industrial enterprises has been taken by this method without shutting down the plant in any department for a longer period than two days.

=18. Inventory Records.= When the physical inventory has been taken, the next step is to record quantities and prices, and make the extensions that the record may show total values. The records of the inventory should be classified; that is, all material or equipment of a certain class should be recorded on the same form, so that the total value of each class can be ascertained.

For a manufacturing business, the inventory is subdivided as follows:

Machinery and Equipment. Machine Tools. Small Tools. Drawings and Patterns. Materials and Supplies. Parts and Finished Stores. Work in Process. Manufactured Goods.

One form might be made to answer the purpose for all these inventories, but as certain special information is needed in each case, it is considered the better plan to use special forms. We, accordingly, illustrate forms for each of these classes.

_Machinery and Equipment._ Under this heading is listed all _machinery_, _furniture_, _office appliances_, and _equipment_ of all classes required in the operation of the business. The form for the inventory is shown in Fig. 15, this being a loose─leaf form, about 10 x 12 inches in size.

For this section, a sheet is used for each specific class of equipment, and, where the same class of equipment is required in different buildings or departments, a sheet is used for each department. For instance, all typewriters used in a given department will be inventoried on one sheet, and no other equipment will be inventoried on the same sheet.

The information given at the head of the sheet includes the _location_, _cost_, _estimated life_, _name_, _series number_, _our number_, and _from whom purchased_. The form provides for a record of date (meaning date purchased), and description of the equipment, original cost, cost of additions and repairs, per cent and amount of depreciation, and the net value. Reference to this record shows the exact number of machines of a given class in use and just where they are being used.

_Machine Tools._ Under the head of machine tools, an inventory covers all tools of this character, whether purchased or manufactured in the plant. Since large plants usually manufacture their own machine tools, this form is used to show _date of manufacture or purchase_, _description_, _cost of material and labor_, _per cent_, and amount added to cover the _factory burden_, and the _total cost_. Like the form used for machinery and equipment, all machine tools of a given class should be inventoried on the same sheet, Fig. 16.

[Illustration: Fig. 15. Loose─Leaf Form for an Inventory of Machinery and Equipment]

[Illustration: Fig. 16. Inventory Form for Machine Tools]

[Illustration: Fig. 17. Inventory Record of Small Tools]

[Illustration: Fig. 18. Form of Inventory Sheet for Drawings and Patterns]

[Illustration: Fig. 19. Form of Inventory Sheet for Materials and Supplies]

[Illustration: Fig. 20. An Inventory of Parts and Finished Stores]

[Illustration: Fig. 21. Special Form for Inventory of Work in Process]

[Illustration: Fig. 22. Sheet for an Inventory of Manufactured Goods]

_Small Tools._ Most small tools are purchased, but some of them may be made in the plant. These tools may be purchased singly, or in lots of one dozen, or in other quantities. To meet these conditions the form, Fig. 17, provides for a record of _date of purchase_, _description_, _quantity_, _unit_, _material and labor costs_, _per cent and amount of burden_, and _total cost_. When the tools are purchased ready for use, only the last money column is used.

_Drawings_ and _Patterns_. This inventory includes all drawings and patterns that are in use or of value to the business. In placing a value on this property, conservatism is necessary. A new pattern is supposedly worth what it cost to manufacture it. But a pattern may become obsolete in a very short time. It is necessary, therefore, when taking the inventory, to estimate the probable life of all patterns, basing this estimate not only on wear and tear, but on the probability of their being replaced by later models. The cost of drawings and patterns should be entirely absorbed in the cost of the goods manufactured, and to cover this a very liberal rate of depreciation must be provided. In the inventory form we do not show the depreciation, as we consider it more practicable to take a complete inventory, and make a new appraisal of drawings and patterns at the end of each fiscal period. The form given for this inventory, Fig. 18, shows _date put in stock_, the _number_, _description_, and _details of cost_.

_Material_ and _Supplies_. The inventory of material and supplies includes all material which goes into the construction of the goods and all supplies required in the operation of the plant.

In recording this inventory, supplies and material should be kept separate, and each should be thoroughly classified. One sheet should show but one special class; that is, if one of the items is hardware, nothing but the hardware inventory should be included on the same sheet. This form, shown in Fig. 19, gives the _description_, the _purpose for which the material is used_, _quantity in stock_, _unit of measure_, _unit value_, and _total value_.

_Parts_ and _Finished Stores_. This section is intended to include all finished parts in a plant manufacturing parts to be later assembled into complete machines, also any finished stores or semi─completed parts. Under the latter head would come such items as castings, which are made in advance, to be used as needed. This inventory is recorded on the form shown in Fig. 20, giving the _description_, _for what used_, _the number of the part_, _quantity_, _unit_, _unit value_, and _total value_.

_Work in Process._ Under the head of _work in process_ is included all

## partially completed orders in the plant at the time of inventory. If an

efficient cost system has been maintained, it will not be a difficult matter to arrive at accurate costs of all such material. Without a cost system it is necessary to use extreme care in estimating the cost of material and labor to date.

One of the most important items of information in this inventory is the last operation, which means the last completed operation. It is necessary to have this information before we can figure the actual cost. The form for this inventory, Fig. 21, includes _description_, _name of last operation_, _cost of material_, _cost of labor_, _per cent and amount of burden_, and _total value_.

_Manufactured Goods._ The inventory of manufactured goods includes all goods completed ready for the market. In a trading business this would include the regular stock in trade. Fig. 22 shows a form for the inventory of manufactured goods, which, with slight changes, would answer the purpose for the stock in a trading business. The form shows the _order number_ (meaning the shop order number on which the goods were manufactured), the _description_, the _quantity_, the _material and labor costs_, the _burden_, and _total value_.

When these inventories are completed, and the extensions made, it will be seen that a complete record of values of all physical property is provided. From these records the ledger accounts should be adjusted so that all records will correspond. The records also furnish the necessary information from which to make the stores record, which is necessary when installing the system.

These inventory sheets may be filed either in the drawers of a vertical file or in a loose─leaf binder, though the latter is preferred. The sheets for each class should be kept by themselves and classified as explained above. The index may be alphabetical, or blank indexes, on which the names of the classes are written, may be used. The sheets in each class should be numbered consecutively and kept in numerical sequence.

[Illustration: A CORNER IN THE GENERAL OFFICES OF THE DOBIE FOUNDRY & MACHINE CO., NIAGARA FALLS, N. Y.]

STORES DEPARTMENT A MONEY SAVER

=19.= Although a stores department is the first essential in the operation of a cost accounting system, manufacturers sometimes hesitate to install such a department on the ground of expense. Without considering its valuable features, the claim is made that the operation of this department involves a larger expenditure than is warranted by the results. But such claims are not borne out by the experience of manufacturers who have tested the efficiency of the department. Where results are found which appear to support this claim, investigation will invariably reveal faulty installation or faulty operation, or both.

Opposed to this claim, the experiences of many manufacturers show that the stores department is an actual money saver. If anything like an efficient cost─accounting system is to be maintained, a stores department is an absolute necessity; but even if there is no cost system, a stores department can be made profitable. An adequate system of records in a well─organized stores department will show at all times the exact condition of the stock, and this alone should justify the maintenance of such a department. Slow moving stocks are pointed out, so that a greater effort may be made to move them; if a stock is running low, the records give warning before the danger point is reached. All this applies with the same force to a trading business as to a manufacturing enterprise. By showing the volume of stock on hand, by pointing out its movements, a stores─record system prevents the accumulation of _dead_ stock, yet makes it possible to maintain active stocks at the lowest volume consistent with safety, and thereby saves money by keeping the investment at the lowest possible point.

Surprising results in money saving through stores─record systems have been shown by some manufacturers. In one case which came within the writer's observation, a reduction of more than $10,000.00 in the average investment was made. A certain manufacturer of machinery, who had an inadequate stores system, found that his stock of material averaged $30,000.00, while the business required a stock of not more than $20,000.00. He engaged a competent man to install and operate the system, paid him a liberal salary, and at the end of a year found that his stock averaged less than $20,000.00. Moreover, the stock was clean──there being nothing in it that was not needed──was well arranged, and in every respect in a more satisfactory condition than before. That meant a saving of the earnings of $10,000.00, and by using it in extending his business, the money was worth 20% to him.

INSTALLING A STORES SYSTEM

=20.= When the inventory has been completed, the next important step in the organization of a stores department is to provide the necessary _storage_ places for all materials and supplies and see that these are properly stored.

The question, as to what is a proper storage place is one which must be worked out to fit conditions as found in the individual establishment. Generally speaking, in a manufacturing business, materials should be located as closely as possible to the departments in which they will be used. In a large plant it is usually necessary to have several storerooms to accommodate the various classes of material, and in order that they may be located conveniently. The question of proper storage is a vitally important one in every business, and especially so in a manufacturing plant. Ideal conditions are impossible to obtain in all plants, but the first consideration should be to have a definite storage place for every class of material, and to always keep the material in that especial place. Go into a plant having no well─defined system of storage, and you will find workmen spending more time looking for materials needed than would have been required to take the same material to a stockroom and withdraw it as needed. In trading businesses the necessity for systematic stock keeping has long been recognized. Wholesale houses have their stock arranged in departments and stored on different floors of the warehouse with special men in charge of stock keeping. A retailer, no matter whether he is operating a department store or dealing exclusively in one class of merchandise, has his goods arranged by departments. But in too many manufacturing plants the question of storage for raw material and supplies has received little consideration. A manufacturer will invest dollars in raw material and keep no record of it; yet the same man would regard as preposterous the suggestion that he should keep no record of cash. As a matter of fact, the material should be as well cared for, and as strictly accounted for, as cash. Every dollar's worth of material should be regarded in the same light as a dollar in gold.

Next in importance to the location of the storerooms is the question of the storage of the material itself. The storerooms should be equipped with such bins, racks, shelves, boxes, and drawers as may be required for the proper care of the material. In storing the material the question of its size and weight, and the frequency with which it will be needed, should be considered. Extremely heavy articles should not be stored on the floor, but should be raised to about the height of a truck, thus saving labor both in unloading and loading. Material which is constantly being called for should be kept on shelves that are within easy reach. The top shelves and inaccessible corners can be reserved for articles seldom called for. As far as possible, all articles of the same class should be kept in the same section of the storeroom. Above all, a given article should always be kept in the same place. In some storerooms it is not uncommon to find, hidden away in some dark corner, articles which are not supposed to be in stock, all because no definite storage place has been provided. The record system can be of little value unless the articles are to be found in the sections allotted to them.

All of this but emphasizes the importance of having the storeroom and stores system under the exclusive control of one man. No one should be allowed to interfere with the work of the chief stores clerk. If there is any cause for criticism it should be taken to his superior. Suggestions from foremen and others who are obliged to make use of the storeroom, should, and probably will, be welcomed by the average stores clerk, but no foreman should instruct one of his men to place material in the storeroom except as instructed by its head.

Aside from the storeroom proper, the stores clerk will have charge of material stored outside of the plant. Lumber, fuel, and heavy castings are examples of material coming under this head. Nevertheless, his records should include all of this material, and he should have general supervision over its storage in order that he may more readily determine, or more closely estimate, quantities in stock.

=21. Receiving.= In the organization of the _stores department_, it is necessary to provide for a record of the _receipt_ of all material and supplies. The system must be so constructed that it will not only insure a record of all goods coming into the establishment, but prevent the acceptance of goods which should not be received.

All receiving should, therefore, be in charge of one man. In the larger industrial enterprises, a receiving clerk is employed, whose duty is to receive and receipt for all goods coming into the establishment, and to deliver them to the storeroom or the department in which they are to be used. The stores clerk may, in a small concern, perform all of the functions of the receiving clerk.

When goods come in, the receiving clerk will refer to his file of purchase order copies to find if the goods have been ordered. It will be remembered that an alphabetical file has been recommended for these orders, which are to be filed under the name of the shipper. The reason for this is that the package does not always show the nature of its contents, while the name of the shipper is almost invariably shown somewhere on the package or on the shipping tag.

Goods should not be accepted by the receiving clerk unless he has an order. To do so is liable to cause trouble. As an illustration, we will suppose that the concern has made a contract for material on which deliveries are to be made at stated intervals. The first shipment received shows that the material is not up to specifications and the contract is cancelled. Pending an adjustment, the receiving clerk is instructed to accept no more material on the contract. If he does so, the concern will very likely be obliged to pay for it, and it may even have a bearing on the entire contract.

Another class of shipments which must be carefully watched is the return of goods by customers of the concern. In some businesses, this question is not important; in others, great care must be exercised to insure proper credit. In a manufacturing or a trading business other than retail, the customer will usually notify the house that he is returning goods. When such a notice is received, instructions should be given to the receiving clerk whether to accept or refuse them.

One class of business in which the receipt of returned goods must be handled with extreme care is the installment business. Most installment contracts vest title to the goods in the seller until all payments are made. To avoid payment, a customer may return goods without notice. Acceptance by the seller cancels the contract at once. A safe rule to follow, therefore, is to accept no returned goods until authorized to do so by one in authority.

The receiving slip, Fig. 13, Page 16, is to be filled out by the receiving clerk. One copy will go to the purchasing agent and the other to the stores clerk. From these reports the stores clerk makes his record of material received. In some cases material ordered for the use of a particular department is to be sent direct to the department and not to the storeroom. A third copy of the report should be made which will be sent to the department, from whence it will go to the stores clerk, properly receipted.

=22. Deliveries.= The stores clerk, being in custody of all stock, is responsible not alone for its safe keeping but for deliveries. He must be in a position to show what stock has been delivered, to whom, and for what purpose.

There is but one method that will insure an accurate record of deliveries and that is, to deliver no goods without a written order or requisition, signed by one having authority to authorize withdrawals.

Each department, or shop, should be supplied with storeroom requisitions, numbered consecutively with the department number or letter; that is, a requisition from one shop might be numbered _B_ 100, another _C_ 100. These requisitions should be made in duplicate or triplicate. When the duplicate form is used, the original is sent to the stores clerk and the duplicate retained by the foreman. When the stores clerk has completed his records and the foreman has received the material, both copies are to be sent to the cost department. One copy acts as a check against the other, making it impossible for either the stores clerk or foreman to make false returns. To make identification easy, the two blanks should be printed on paper of contrasting colors. In the cost department one copy should be filed according to the department in which the requisition originated, keeping the numbers consecutive, and the other under the production or job order number. On completion of the order, the latter copy can be destroyed as it will no longer be needed. The departmental copies may also be destroyed, say at the end of a three months' period.

Sometimes it will be found advisable for the stores clerk to retain a copy of the requisition, in which event the triplicate form will be used, two copies being sent to him. He will file his copy by production order numbers, if for material, or by departmental numbers, if for supplies.

All requisitions should provide for a record of prices and values, these to be entered in the cost department. If this is omitted it will be necessary for the cost clerk to enter the items and extend cost on another blank; when included, he can post values direct from the requisition to the permanent cost records. Place should also be provided on the requisition for the signature of the one who receives the material.

[Illustration: Fig. 23. Requisition for Material to be Used on a Production Order]

A form of requisition adapted to the use of the average manufacturing enterprise is shown in Fig. 23. This form shows the _department number_, the _date_, the _production order number_, _quantity_, _description_, _cost_, and _value_. At the bottom the necessary _form of receipt_ is provided. Usually this form will be found adequate for both material and supplies. When used for supplies, the purpose for which they are intended is to be inserted in place of the production order number. Special forms for supplies and repair material are used in some plants. These should differ in color from the _material_ requisitions. A form of this character is illustrated in Fig. 24.

STORES RECORDS

=23.= The installation of a stores─record system calls for the exercise of judgment of the highest order, for the record of material and supplies is of no less importance than the record of cash. As has already been stated, material should be accounted for with the same fidelity as cash; a dollar's worth of material should be regarded as a dollar in gold.

The stores record system should be an integral part of the accounting system of a business; it should be checked as carefully as any account in the ledger. Only by making the stores record a part of the accounting system can it be operated successfully.

[Illustration: Fig. 24. Special Departmental Requisition for Material]

Stores records may be divided into two classes──one recording both quantities and values, and one recording quantities only. Frequently both classes are used in one establishment. In the storeroom a system is maintained which records quantities without prices; in the cost department a record of values and quantities may be kept.

The records kept in the storeroom are primarily intended to show quantities on hand, or rather quantities that should be on hand. Sometimes these records show prices, but there appears to be no good reason why this should be done. It is better to have all accounting of values done in the accounting department.

The records under consideration are those of the storeroom. These records must show _quantities received_ and _quantities issued_, from which a record of the quantity on hand can be obtained. To supply the necessary information, the records must show quantities of each article or kind of material in stock, which necessitates a system of units. Some articles will move much more rapidly than others; therefore, a bound book is not practical. Either cards or loose leaves can be used successfully, a card or sheet being used for the record of each article.

In order that the records may be instantly available, they must be properly classified. The classifications should follow the same lines as the ledger accounts, which will correspond with the classifications adopted in recording the original inventory. Records of material and supplies should be separated, and each divided into classes. The cards or loose leaves should be filed and indexed according to these classifications.