Custos

“ Such is the cost of materials and labour at the present period; it is true that the above scale is drawn from "credit prices;" but let every part of a manufacturing concern be carried on for money only, which is rarely the case, still the deduction from the whole cannot be more than 71⁄2 per cent. ”

“ While, also, the rates for the low-value articles may not cover every item in the so-called cost of service, they do contribute to the revenue an amount which might otherwise have to be made good by the fixing of higher rates on goods in other classes. ”

“ Of course, having not even money, we still less have credit. All estimates deal directly with the real things, the flour, iron, wood, wool, and labor, of which money and credit were for you the very misleading representatives. In our calcula- tion of cost there can be no mistakes. Out of the annual product the amount necessary for the support of the people is taken, and the requisite labor to produce the next year's consumption provided for. The residue of the material and labor represents what can be safely expended in improvements. ”

“ But we must not therefore suppose it to be necessary that the supply should actually be either diminished or increased. Suppose that the cost of production of a thing is cheapened by some mechanical invention, or increased by a tax. The value of the thing would in a little time, if not immediately, fall in the one case, and rise in the other ”

“ With respect to the first of these propositions, it may be observed, that the cost of any article to the purchaser includes, besides the ratio of the supply to the demand, another element, which, though often of little importance, is, in many cases, of great consequence. The cost, to the purchaser, is the price he pays for any article, added to the cost of verifying the fact of its having that degree of goodness for which he contracts. ”

“ Direct costs are sometimes called prime costs. The cost elements which can almost invariably be applied directly to the product are material and labor. The sum of these two items constitute, therefore, the prime or first cost of the product. The other items of cost which are incurred in the factory or with which the factory is chargeable are variously called factory expense, overhead, or burden. These indirect costs cannot be charged directly to any specific product, and so they are shared by the entire factory output. ”

“ For example, when the cost of placing the asset in efficient condition for operation is less than, say, $100, it is charged as repair cost and therefore does not increase the book value of the asset. If the cost exceeds $100, an analysis is made to determine what portion of it, if any, increases the value of the asset. The amount of the betterment is of course a charge to the asset account, while the rest of it is a charge to some expense account. ”

“ You say demand and supply regulates value [sic] ; this I think is saying nothing, and for the reason I have given in the beginning of this letter: it is supply which regulates value [228] , and supply is itself controlled by comparative cost of production. Cost of production, in money, means the value of labour as well as profits. Now, if my commodity be of equal value with yours, its cost of production must be the same. But cost of production is, with some deviations, in proportion to labour employed. ”

“ On the other hand, many students of the problem view the depreciation charge as incurred for the sole purpose of determining the correct costs of doing business. Unquestionably, depreciation is a cost of production. A portion of the service life of equipment goes into each unit of the product, and depreciation constitutes a cost which must be borne by the product with as much reason as the labor power that fashions and forms it and the raw material out of which it is made. ”

“ In fixing a uniform price for identically the same labor or material, whether on a small poverty-stricken road or a main trunk line, no serious injustice is done, provided the price fixed is one which, from a strictly engineering standpoint, is a reasonable figure for cost of reproduction. The differences in class are due, not to special differences in cost of physical property, but rather to differences in earning ability on account of good or poor territory served, efficient or inefficient management, or other reasons not connected with the physical structure ”

“ If only one or a few commodities are affected, their value and price rise, so as to compensate the producer or dealer for the peculiar burthen; but if there were a tax on all commodities, exactly proportioned to their value, no such compensation would be obtained: there would neither be a general rise of values, which is an absurdity, nor of prices, which depend on causes entirely different. ”

“ Suppose that land of the best quality, which produced 100 quarters at 20s., has been made to produce 150 by an expensive process, which it would not answer to undertake without a price of 25s. The cost which requires 25s. is incurred for the sake of 50 quarters alone: the first hundred might have continued for ever to be produced at the original cost, and with the benefit, on that quantity, of the whole rise of price caused by the increased demand: no one, therefore, will incur the additional expense for the sake of the additional fifty, unless they alone will pay for the whole of it. ”

“ Few women when they assume the care of a household know the exact value of the household plant; the amount to be deducted each year for wear and tear; the relative proportions expended annually for rent, fuel, food, clothing, and service; the number of meals served and the approximate cost of each; the amount of profit, waste, or unproductiveness that results from all expenditures made. Every manufacturer, every business man knows the value of his plant, its increasing or diminishing value, the cost of materials used and of service employed. ”

“ To-day, however, these contributions, which occur every year, are booked either to the general expenses account or the wages account—for they are, in fact, a part of wages—and they are naturally calculated as part of the cost of production, and eventually appear in the price of the goods, though perhaps not to the full extent in times of bad trade. ”

“ Among the costs of production have to be reckoned taxes, general and local. If, as in our large towns, the local rates now amount to one third of the rental or more if the employer has to pay this, not on his private dwelling only, but on his business-premises, factories, warehouses, or the like, it results that the interest on his capital must be diminished by that amount, or the amount must be taken from the wages-fund, or partly one and partly the other. ”

“ The cost of production, prompt information as to the cost of transprotation, are legitimate subjects of inquiry and knowledge in any industry. So likewise is the production of the commodity in that industry, the aggregate surplus stock, and the prices at which the commodity has actually been sold in the usual course of business. ”

“ The manufacturing cost formula comprises the three items of: (1) raw material consumed, (2) direct labor applied, and (3) factory expenses incurred, this latter item sometimes called overhead expenses. When a concern operates a detailed cost system, the valuation of the finished product is not difficult, being the goal towards which the system works. Where no cost system is used, great care must be exercised to make sure that every item of cost is calculated as accurately as possible and that a proportionate share of such costs is applied to the finished product still on hand unsold. ”

“ Thus limited, it is desirable, whenever practicable, that the burthen should fall on those to whom the service is rendered; that the expense, for instance, of roads and bridges, should be defrayed by a toll on passengers and goods conveyed by them, thus dividing the cost between those who use them for pleasure or convenience, and the consumers of the goods which they enable to be brought to and from the market at a diminished expense. ”

“ Cost of Production consists of several elements, some of which are constant and universal, others occasional. The universal elements of cost of production are the wages of the labor, and the profits of the capital. The occasional elements are taxes, and any extra cost occasioned by a scarcity value of some of the requisites. Besides the natural and necessary elements in cost of production—labor and profits—there are others which are artificial and casual, as, for instance, a tax. ”

“ The cost of promoting the enterprise, the discount on the hazard, the loss of interest during its infancy, the labor of building up the undertaking—these are all real elements of cost, and may remain in the property as value, but, like all other items of cost, they have their reasonable limits, which, in each individual case, can be determined within narrow bounds. ”

“ From the fruits of his studies in economic science he has sustained, or perhaps first presented, the proposition that the burden of a tax upon any commodity can be truly measured only by its ratio to the margin of profits on a given manufacture rather than by its ratio to the total cost of the product into which the taxed material enters as a component. ”

“ Original cost' or 'cost,' as applied to telephone plant, franchises, patent rights, and right-of-way, means the actual money cost of (or the current money value of any consideration other than money exchanged for) property at the time when it was first dedicated to the public use, whether by the accounting company or by a predecessor public utility.' If actual costs are unknown, estimates are to take their place. ”

“ If we attempt to ascertain the changes in the cost of production of any commodity from the changes in its money price, the conclusion will require to be corrected by the best allowance we can make for the intermediate changes in the cost of the production of money itself. ”

“ Moreover, the settled prices prevailing throughout the country allow of assured calculations and precautions as to business ventures, and permit such a ratio to be established between expenses and income, that at the end of the fiscal year a profit, not a loss, may be counted upon. ”

“ A great majority of those who advocate valuation say that they should be based on the cost of the service. The proper method, then, would be to ascertain the exact cost of hauling each commodity and then base rates on these ascertained costs, making them just high enough to allow the road a fair return. ”

“ It is the cost of production which must ultimately regulate the price of commodities, and not, as has been often said, the proportion between the supply and demand: the proportion between supply and demand may, indeed, for a time affect the market value of a commodity, until it is supplied in greater or less abundance, according as the demand may have increased or diminished ”

“ If the mean term, which we are searching for, between an infinite value and no value at all is expressed in the case of every product, by the amount of time and expense which the product cost, a poem which has cost its author thirty years of labor and an outlay of ten thousand francs in journeys, books, &c., must be paid for by the ordinary wages received by a laborer during thirty years, plus ten thousand francs indemnity for expense incurred. ”

“ In this very dynamic aspect of modern life, one observes a tremendous increase in demand for the costly and enervating indulgencies of conspicuous expenditure and a more than proportionate decrease in the productive powers which contribute to the synchronous supply of the staples of life. Here, indeed, resides a fundamental problem in national cost accounting. ”

“ As stated above, the basic purpose of the creation of the reserve is to burden the product with depreciation charge as a real part of the cost of production. If we are concerned with real and actual costs of production, by no stretch of the imagination can replacement cost—what it might cost to replace the asset at some more or less distant time—enter into the question. ”

“ As the inclinations and circumstances of consumers cannot be reduced to any rule, so neither can the proportions in which the two commodities will be interchanged. We know that the limits within which the variation is confined, are the ratio between their costs of production in the one country, and the ratio between their costs of production in the other. Ten yards of cloth cannot exchange for more than 20 yards of linen, nor for less than 15. ”

“ It is very vital that a clear line of demarcation be maintained between capital and revenue expenditures—that great care be exercised that no cost is charged into the asset group of accounts unless such cost really enhances the worth of an asset. A cost incurred for the purpose of maintaining the value of the asset is an expense charge, and repairs and maintenance charges must be very carefully distinguished from replacements. ”

“ But capital always costs something; and, therefore, the cost of the Capital enters in as a second constituent into the cost of production of Land-Commodities. But these two costs are all. We shall search in vain for any other onerous element in the cost of producing commodities. There are two variables only in the Cost of Production, which itself is the sum of the two subordinate costs. ”

“ By cost to make is meant full cost, which includes materials used, labor applied, and a fair share of the overhead expenses. Whatever the cost to make, whether lower or higher than the identical equipment could be purchased for on the market, that represents the capital outlay and is the true basis for valuation, taking cognizance of depreciation for the elapsed period. ”