Document Type
Article
Publication Date
1920
Abstract
The basic elements of cost are three in number: prime cost, direct expense, and indirect expense. I have found it a great help in any cost system to keep these three great divisions clearly in mind. They of course can be subdivided in various ways, but we should never lose sight of the main divisions. The prime cost is made up of raw materials and direct labor only. Now in a commercial laboratory we have no raw material to deal with; therefore, let us eliminate it from the cost system, which leaves for the prime cost only direct labor; chemicals and apparatus form the direct expense, and overhead or burden the indirect expense. Now certainly with these three elements of prime cost, direct expense and indirect expense, we have something upon which to work, and we can build from this firm foundation a cost system which can be applied directly to any individual laboratory, no matter how large nor how small. In a commercial laboratory where the work is being done for outside clients, what you are really seeking is the cost of your services, that is, the cost of the salaries of the chemists who are working in the laboratory. Thus the prime cost, or the man's time, plus the direct expense of chemicals and apparatus is the direct cost of the work. To this direct cost must be added indirect expense, such as rent, depreciation, taxes, insurance, light, heat, etc., and also the indirect cost of management and supervision, which may be classed as overhead, in order to arrive at the total cost. Once the total cost of the work is ascertained, the next step is the percentage of profit which is reasonable for the work done, and the final figure is the charge to the client, or selling price.
Relational Format
article
Series Title
Journal of Industrial and Engineering Chemistry, 1920, Vol. 12, no. 1
Recommended Citation
Caswell, William W., "Value of cost accounting in commercial laboratories" (1920). Individual and Corporate Publications. 114.
https://egrove.olemiss.edu/acct_corp/114