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N. A. C. A. BULLETINVol. XX, No. 20 June 15, 1939

I N T W O S E C T I O N S n

. C'Section I yI U A D V

IN THIS ISSUE

Cost Accounting in the Baking In-dustry, by W. R. Henry . . . . . . . . . 1299

Cake Bakery Cost Control,by Ea r le R. Herber t . . . . . . . . . . . . . 1309

Controllable Loss Factors in theBaking Industry,by John R. Lindsay ............. 1315

This Bulletin is published semi - monthly by the NationalAssociation of Cost Accountants, 385 Madison Avenue,New Y ork. Subscription price, $10.00 per year. Enteredat the Post Office, New York, N. Y., as second -class mat-ter August 28, 1925, tinder the Act of March 3, 1879.

EDITORIAL DEPARTMENT NOTE

The baking industry furnishes one of the best possibleillustrations of the value to be gained through good cost con-trol. This industry is unique in that its operating cycle is veryshort, with a complete cycle from manufacturing through dis-tribution every twenty -four hours. Since the product is stand-ardized, the opportunity for comparing actual with standardcost on a daily basis makes possible determination of out -of -linecosts very shortly after they have occurred. Operating underthe principle of exceptions, the bakery cost accountant is in aposition to provide real cost control with a minimum of redtape and cost of operation. The three articles in this issue ofthe Bulletin are good examples of what can be achieved in thisfield.

The author of our first article is both a C.P.A. and anattorney -at -law. W. R. Henry, at present Office Manager ofthe Old Homestead Plant of Langendorf United Bakeries, Inc.of San Francisco, spent a number of years in the public ac-counting field before joining his present company. Formerlya partner of L. T. Deibels & Co., C.P.A.'s, Mr. Henry alsoserved on the staff of Price, Waterhouse & Co. He was alsofor a period of years instructor in accounting at the GoldenGate College.

Our second article is by another C.P.A., Earle R. Herbert,who has his own practice in Wilkes- Barre, Pa. A graduateof Franklin & Marshall College, he spent two years as mathe-matics instructor at Nanticoke High School before becomingField Auditor with the Goodyear Tire & Rubber Co. in 1919.Two years later he entered public practice with Grant L. Bellof Scranton, but later that year joined the U. S. TreasuryDepartment as Internal Revenue Agent. Mr. Herbert estab-lished his own practice in 1923.

John R. Lindsay, the author of our third article, is a grad-uate of Pace Institute. His early accounting experience wasobtained as Accountant for Spencer Trask & Co. For fouryears, to 1934, he held the position of Auditor with the VirginiaHot Springs Co. Since 1935, Mr. Lindsay has been OfficeManager of Borck & Stevens, Inc. of Bridgeport.

COPYRIGHTED BY THE

NATIONAL ASSOCIATION OFCOST ACCOUNTANTS

JUNE 15, 1939

COST ACCOUNTING IN THE BAKING INDUSTRY

By W. R. Henry, Office Manager,Old Homestead Plant, Langendorf United Bakeries, Inc.,

San Francisco, Calif.

THE baking industry has certain operating conditions thatmakes timely cost information a necessity to management:

i. Demand and production must be synchronized daily in orderto avoid excessive stale loss.

2. A complete manufacturing cycle occurs each day, from themixing of raw material to the distribution of the completedarticle.

Such operating conditions call for a cost system that will fur-nish daily reports of production and distribution, and of theefficiency with which material and labor are used for manufactur-ing purposes.

Process Cost System

The process cost system is used by the baking industry, theproduct being manufactured as a result of a sequence of continu-ous operations in which it is not handled in separate lots, butis intermingled in such a way that different lots cannot be dis-tinguished. The costs for a period are spread over the productionof that period, on the theory that the units are essentially alike.

Production Orders and Reports

Instead of describing how the three elements, material, laborand overhead, are controlled, let us follow the daily flow of ordersand reports and then show how they are used for cost accounting

purposes.Salesmen make up their orders two days in advance of delivery.

These orders are peg -board forms, which are cross -added andbalanced by comptometer operators, the totals being posted to acombined total order. The combined total order shows thequantities of trade brands ordered and must be transferred toa daily bake -shop order which shows the quantities of varioustypes of doughs required. Using the bake -shop order as a basis,

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N. A. C. A. Bulletin June 15, 1939

the bake -shop superintendent calculates the number and kinds ofdoughs to be mixed and the number of man -hours required. Ashop schedule is then compiled which routes each dough throughthe various processes and machines in the proper sequence. Alabor schedule is also prepared for the man -hours required, thehours actually used being posted to the payroll.

Formula cards are prepared for each dough required, showingthe weights of the ingredients to be mixed, together with schedulesof mixing and fermentation times, and temperatures at variousstages. On the formula cards are also spaces for the weight ofthe dough after mixing and after fermentation. Doughs aremixed in accordance with the foregoing program the mixingprocess taking from 6 to 12 minutes. The flour and water areweighed by automatic scales and the other ingredients are handweighed. The dough is weighed immediately after mixing andthe mixing discrepancy is determined. After it is weighed, thedough is moved to the fermentation room where it ferments from2 % to 4 hours. It is weighed again, after fermentation, and thefermentation loss is determined.

The dough then moves down a chute to the divider, where it isautomatically divided and counted; then on through the rounderto the overhead proofer; where it remains for about 2 0 minutes.After being proofed, it is moulded and panned and a count ofeach rack of pans is made. A blank oven count card is attached toeach rack, showing the rack number and variety. The rack ismoved to the humidifying room for final proofing, where it re-mains from i to i% hours. From this point, the rack is movedto the oven, where the count is noted on the oven card and thecard is dropped into a locked box. Baking in the traveling oventakes from 30 to 6o minutes; after which the bread is cooled forabout one and one -half hours and is then moved by conveyor tothe wrapping room. Depending on the variety, the bake -shopprocesses take from approximately 6 to 8 hours.

At this point it will be necessary to go back and explain thatat the time the combined total order was compiled, a wrappingorder was made up and sent to the wrapping room, the individualsalesmen's orders being sent to the shipping room.

The bread is now sliced and wrapped and the wrapping countmade. It is then forwarded to the shipping room and distributed

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June 15, 1939 N. A. C. A. Bulletin

according to the individual route orders, the count being talliedon each order.

We are now ready to show how these various counts and reportsare used for cost accounting purposes.

Material Control

A perpetual inventory of materials is kept both by units andamounts, the balances being verified weekly by means of a physicalinventory. From this record the actual weights of variousmaterials used is determined. The formula cards are recapitu-lated and the weights of materials put into the mixer, or otherwiseaccounted for, are so determined. The difference between theweights of materials used as per inventory and as per formulacards is termed "invisible loss," and is the first controllable costfactor.

Losses of this nature are due to the following causes:

i. Short - weight packages having been received without detec-tion.

z. Shrinkage of material during storage.3. Material wasted.4. Material misappropriated.

From the recapitulation of formula cards, the mixing dis-crepancy is obtained. This is the difference between the weightof the ingredients, as per the formula card, and the weight of thedough immediately after mixing. The difference is a directmeasure of mixing efficiency.

We also secure from the same record the fermentation loss,which is the difference between the net weight from the mixerand the net weight sent to the divider. This factor measures theamount of evaporation during the fermentation period andestablishes the net weight of dough for which the shop is respon-sible in scaled production.

Loss or gain in scaling is obtained by comparing the net weightof dough sent to the divider with the sealed weight of the dough.The latter is arrived at by multiplying the divider count of thefinished units of production by the scaling weight of the dough.

It should be noted in passing that there is necessarily a differ-ence between the scaling weight of the dough and the baked -out

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N. A. C. A. Bul letin June 15, 1939

weight of the product due to evaporation. Periodically, the bake -out tolerance, which is the difference between the scaling weightof the dough and the marked weight of the production, is cal-culated. This figure is not necessarily the same as the baked -outloss, due to the fact that the baked -out weight is generally greaterthan the marked weight.

Daily reports of dough cripples, shop cripples, cooler and con-veyor cripples and scrap dough are also received from the shop.

Labor Factors

From the payroll we obtain the man -hours and direct shop laborcost. From this information and the bake in pounds is calculatedthe bake shop output per man per hour and the direct shop laborcost per hundredweight.

As mentioned previously, the wrapping room counts all wrappedproduction. From this poundage and the payroll is calculated thewrapping output per man per hour and the wrapping labor costper hundredweight. The same information is calculated aboutthe shipping room operations. Reports of wrapping and packingcripples are also received from these departments.

Distribution

After the goods have been distr ibuted to the individual routesby the shipping department, the salesmen's order sheets are sentto the office. There they are balanced and valued and the amountschargeable to the various routes are entered on the salesmen'ssettlement sheets. A summary of the charges to the individualroutes is made as a control for the cashier.

When the salesmen check in, they must account for the totalcharged them, either in accounts receivable, in stale or in cash.The cashier then completes the control which had been previouslyprepared and enters the totals in the sales register and cashreceived record.

Reconciliation of Production and Distribution

The next step in our procedure is to reconcile production anddistribution. To the bake -shop count of each variety is addedthe stock on hand of the previous day and the goods purchased.The sum of these is the total to be accounted for. Opposite each

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variety is set up the sales, samples by classes, shop stale, cripplesby classes and stock on hand. The sum of these equals the totalaccounted for.

The difference between the two is the unaccounted for, over orshort amounts by varieties. This information is summarizedboth by quantities and amounts.

Report to Manager

We have now completed the various subsidiary reports andare ready to summarize them in a daily report to the manage-ment. As mentioned before, the nature of the baking business issuch that a complete manufacturing cycle occurs each day, fromthe mixing of raw material to the distribution of the completedarticle. In order to properly control costs, it is essential that thefactors affecting these costs be segregated, each department beingheld responsible for its particular operation. The report to man-ager informs the management, in a condensed form, of the rela-tive efficiency of the plant as reflected by the controllable costfactors. In this report, the total to be accounted for consists ofthe total production and goods purchased, both the total value andthe per hundredweight value being shown.

The total accounted for consists of gross sales less stales, salesof stale goods, difference in inventory of saleable goods, salesvalue loss of stale, cripples, samples and donations, both totalvalue and per hundredweight value being shown.

The difference between the two totals is the amount unaccountedfor as detailed by the reconciliation of production and distribu-tion.

In addition to accounting for the total production, this formprovides spaces for various controllable cost factors as follows:

Percentage of absorption: This is calculated by dividingthe weight of the water by the weight of the flour after cer-tain adjustments have been made for other ingredients.

Pounds and percentage of mixing loss or gain: This is thedifference between the weight of materials used as per for-mula cards and weight of dough after mixing; and thepercentage relationship of this weight to the total weight asper formula cards.

Pounds and percentage of loss during fermentation: Thisis the difference between the weight of dough after mixing

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and the weight of dough after fennentation; and the per-centage relationship of this weight to the total weight as performula cards.

Pounds and percentage of scaling loss and gain: This isthe difference between the weight of dough to the dividerand the divider count of finished production multiplied bythe unit scaling weight of the dough; and the percentagerelationship of the difference to the net weight of dough tothe divider.

The bake shop output per man in pounds and hours.The wrapping output per man per hour in pounds and

hours.The shipping output per man per hour in pounds and

hours.The cubic feet of gas fuel used per hundredweight.The total baked weight of finished production and the

total weight of goods purchased in pounds, and the totalbaked weight of wrapped production in pounds.

The weight of flour sweepings — warehouse and shop, wastewax wrapping paper and cellophane, and dough sweepings.

The following information, both total value and cost per hun-dredweight, is compiled for each week and accounting period.

Material CostDirect Shop labor costWrapping labor costShipping labor costStorekeepers', engineers' and janitors' wages.

Due to the fact that physical inventories are taken only oncea week, the following cost factors are only calculated weekly:

The pounds and percentage of invisible loss —flour andother ingredients. As explained previously, this is the differ-ence between the weights used as per inventory and used asper formula cards, and the percentage relation of this differ-ence to the inventory amounts.

The pounds and percentage relation of dusting flour, panand divider oil and trough grease to the net weight of doughto the divider are also computed.

The report to manager is compiled daily, for the week and forthe accounting period, which in our case is multiples of weeks. Itmight be interesting to note that our fiscal year consists of 52weeks, divided into nine periods of 5 weeks and one period of 7

1304


weeks. Reports on a calendar month basis having been discon-tinued, because they were not comparable, due to the varying num-ber of business days in the calendar months.

A daily abstract of the controllable cost factors, applicable totheir respective departments, is furnished the superintendents ofthe shop, wrapping and shipping departments.

SalesWeekly and periodic production figures are broken down by

varieties showing the quantity, scaling and finished weights, andthe dollar value of each item produced.

For the purpose of controlling sales and stales and assistingsalesmen in making up their orders, a daily record of sales andstales of the principal varieties, by quantities, is kept for eachroute and sales division. Daily, the various sales managers receivea report of the sales and stales of their respective divisions, for theday and week to date, showing the breakdown of sales by varioussales classifications.

Weekly, the sales and stales by routes are compiled and com-pared. The percentage of stale returns and average daily sale percustomer is calculated, together with the weekly route average forvarious groups. This information is compiled for each divisionand for the plant as a whole. The weekly sales figures are stillfurther analyzed in the manager's weekly report of sales, whereinsales figures are broken down by group averages and the reasonsfor increases and decreases are noted.

A weekly reconciliation of recovery on stale and crippled goodsis made, showing in pounds and dollar value, the source, disposi-tion and average recovery per pound of this item.

Summary of Reports CompiledThe procedure outlined so far furnishes us with the following

reports:i . A daily, weekly and periodical record of production

and the disposition of the same, together with significant costfactors.

2. Weekly and periodical analysis of production by va-rieties, showing the quantities, weights and values of thevarious varieties produced.

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3. Weekly analysis of sales by routes, divisions and vari-ous other sales classifications.

4. Weekly reconciliation of stale, showing the source anddisposition of the same.

With such a system of reports, management is provided withtimely information on the use of material and labor during themanufacturing process, the detail of goods produced, and an an-alysis of all sales.

Periodic Accounting Statements

The periodic accounting statements consist of the usual balancesheet and profit and loss statement which has, in addition to theusual amount and percentage columns, a per hundredweight col-umn, the relation of weight to the particular amount involvedyielding a better index of its relative value than a percentage an-alysis alone.

The profit and loss statement is supported by the followingschedules or analyses:

i. Analysis of profit or loss by sales classification.a. Material cost analysis and production cost factors, including

average yield of baked out production per barrel of flour and av-erage cost of flour per barrel.

3. Detail of manufacturing, general plant and plant office

expense.4. Detail of selling and delivery expense and analysis of por-

tions applicable to various sales classifications.5. Detail of non - operating income and expense.6. Analysis of controllable labor costs, such as direct shop labor,

wrapping labor and shipping clerk's wages.7. Periodic transportation report showing for each vehicle,

the mileage, gas, oil, etc.8. Analysis of poundage, average price and value of various

kinds of wrappers used.

Comparative Cost Report

Periodically, the profit and loss statements are analyzed as fol-lows: The total and average per hundredweight figures for allplants are calculated and compared with the per hundred weight

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June 15, 1939 N. A. C. A. Bul letin

figures of the best plant and with those of each plant. This reportconsists of the following analyses:

Comparative Statement of Per Hundredwweight Cost ToDoor of Goods Manufactured for Current Period.

Comparative Statement of Cost Factors Other Than PerHundredweight Cost To Door Current Period.

Comparative Statement of Selling and Delivery ExpenseFor Current Period.

The columns of each sheet of these statements are headed asfollows:

Best PlantYour Plant Previous Period

Current PeriodAverage FiguresExcess Over Average

In addition, the actual stale loss and bake -out tolerance are alsocalculated, the actual stale loss being the returns valued at cost,less the sale of stale. The bake -out tolerance has been explainedpreviously.

Comparative Route Vehicle Expense

Delivery expense accounts are classified according to whetherthey are fixed, semi -fixed or variable in their nature. With thisinformation and the number of miles and routes, the total expenseper mile and total expense per route per week is calculated.

Cost Studies

From time to time, cost studies are made of the cost of produc-ing some particular product. In these studies the quantities andvalues of all direct and indirect material and labor are taken intoconsideration in arriving at a cost to the door.

Route Profit and Loss Statements

At intervals, comparative route profit and loss statements arecompiled, supported by schedules of vehicle expense and otherselling and delivery expenses to show the operating result on eachindividual route, in addition to the factors contributing thereto.

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In these reports, for each route, is shown the poundage, sales,less costs and expenses, and the resulting net profit or loss. Otherthan direct expenses are apportioned to the various routes accord-ing to the percentage of total load values on each route to totalload values of all routes, or in proportion to the combined ton-nage, number of routes, etc.

Accounts and Rccords

The terminology and use of a few bakery income and expenseaccounts differs from that of the average manufacturing business.They are:

Sales value of production.Sales value of goods purchased.Returns at sales value.Sale of stale.Raw material cost.Cost of goods purchased for resale.

The accounting starting point is the sales value of production,rather than sales, due to the fact that the entire cost system is con-trolled by the general ledger. For annual statement purposes, thesales value of production must be adjusted by the amount ofcripples, samples, plant floor stale and goods unaccounted for, tobring it to a sales basis. Notice, also, that there is no work -in-process account.

General bookkeeping records consist of:General ledgerAccounts receivable ledgersExpense analysis ledgersPerpetual inventoryPayroll registerVoucher registerCash received recordCheck recordJournal

The system just described furnishes accurate cost data on pro-duction, sales and expense. Reports are available when they areof value and provide the control over material, labor and over-head that management requires.

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CAKE BAKERY COST CONTROL

By Earle R. Herbert,

Certified Public Accountant,

Wilkes- Barre, Pa.

THE baking business is unique in that it completes a full manu-facturing cycle during each twenty -four hours. Each outlet

places its order in the late afternoon. These orders are combinedinto a production order immediately, completed during the nightin a bread or pie department, or during the following day in thecake department, delivered immediately, billed before afternoon,and in many cases paid for before the end of the twenty -fourhours. This characteristic is the predominant factor in the evo-lution of cost and administrative records differing considerablyfrom records to be found in more slowly moving businesses.

It is evident that it is possible and practicable to arr ive at acomplete accounting each day without any interruption of activityif the results obtained by so doing justify the clerical cost entailed.It is usual to make weekly closings in many plants, particularly inbread manufacture. In the plan immediately under the writer'saccounting supervision, we make a complete closing and compu-tation every four weeks, supplementing this with special tests forinformation as we feel any sudden change in conditions warrantsthem.

Use of Daily ReportAt intervals we have maintained for short periods a daily man-

ager's report in which, starting at the stock room, we calculatedthe dollars and cents loss or gain in batch weight produced frommaterial used:

i. The loss or gain in cakes dropped from the batches accord-ing to formula weights.

2. The loss by oven and wrapping cripples.3. Through shipping room records and inventories, the invisible

loss of finished cake.

The reconcilement of the differences in this report and the runningdown of extraordinary items takes a considerable portion of theday of one person, but my experience indicates that the investment

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is a good one. Even without any managerial action, the merechecking of cripples, shortage in yield, etc., by the clerk chargedwith the preparation of the sheet results in a surprising decreasein controllable loss.

I know of no manufacturing business in which control of con-trollable cost factors pays such large dividends as it does in thebaking business.

Material Losses

Logically, the first important controllable cost factor is materialhandling. Material is the largest individual element of bakery cost.It follows, therefore, that in the handling of the materials may oc-cur the greatest loss. One of the most important elements of ma-terial cost is represented by the difference between the quantityof material consumed as shown by purchases and inventories andthe actual weight of material put into the mixer. Losses of thisnature are due to the following causes:

z. Short weight packages received by the receiving room with-out detection. In the controlling of this loss, first class weigh-ing equipment is the first consideration, and conscientious,hard - working and adequate receiving room personnel a closesecond. We make it a practice not to allow our receivers toknow what the billed weight of an incoming shipment is untilthey have sent up their own weight on the receiving slip.However, the bulk of the material received in a bakery comesin containers of a standard weight, or, as in the case of short-ening, with the supposed weight plainly stamped thereon. Wehave from time to time detected serious differences in the ac-tual weight of material shipped in standard weight contain-ers, but it is very evident how greatly tempted a receivingclerk may be to accept the supposed weight without propertests when he is struggling with the receipt of several car-loads of merchandise.

z. Loss in materials by shrinkage while in storage. A normalloss through shrinkage is of course unavoidable. However,improper storage conditions will run this loss to an exces-sive degree, and much saving can be effected through thearrangement of the stock and the control of the temperatureand humidity.

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Loss in materials by wastage and misappropriation. Mostof the items of bakery material are very readily salable out-side of the bakery, and can also be readily used in the home.Misappropriation is therefore an ever present possibility andthe leak from this source can be very large. Sufficient expen-diture is always justifiable to insure records which will im-mediately reveal this type of loss. The safeguards placedaround the stock to prevent misappropriation also auto-matically control wastage.

Systemof Stock ControlOur system of stock control, adapted from the system under

which I worked as a field auditor for the Goodyear Tire and Rub-ber Company, functions very satisfactorily. I shall describe it asit was originally installed because individual temperaments makeslight changes as they take over operation. The stock clerk main-tains a stock card for each commodity. In theory, each card isplaced in the bin or with the commodity which it governs. All ma-terial moves from the stock room on requisition supplied to thedepartment foreman by the factory office. In filling the requisitionthe stock clerk records the withdrawal upon his card as to date,requisition number and amount, at the moment and at the placewhere he withdraws the material. He has a schedule of com-modities to be counted and compared with his card daily so as tocover his entire stock once a week.

A control card is maintained in the factory office on which, frominvoices and requisitions, a parallel record is maintained. Whenthe weekly or periodic inventory is taken, the clerk who takes theinventory goes into the stockroom for the count with his inventoryalready showing the amounts on hand per the office control cards.Where the physical count, stock room card and office card imme-diately agree, the item may be dismissed without further consid-eration. If the physical count agrees with one card and not theother , the cards are compared to locate the difference, and it isunnecessary to make any further physical count. Agreement ofboth cards but disagreement with the physical count indicates eithera miscount, a leak, or very unlikely, a transaction missed by bothoffice and stock room.

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Calculating Cost of Material Used

This plant has practically no stockroom loss unaccounted for.Incidentally, we use our perpetual inventory for another purposethan the above and for the guidance of the purchasing department.In the preparation of our profit and loss statements at the end ofeach cost period, prior to the installation of these records, we ar-rived at the cost of our materials used from our general records,that is, old inventory plus purchases less new inventory. This fig-ure was never known to be absolutely correct. Invoices and creditsgot into the wrong period, errors were made in inventory exten-sions, and the figure was altogether unreliable. For several yearswe have arrived at the cost of material used from two independentsources. The cost of material used is computed from the per-petual inventory by the clerk in charge of this record; and inde-pendently the general office makes its computation from the pur-chase records and the physical inventories. These figures comefrom both sources broken down by commodities. They are com-pared by commodities, and the cause of any differences is foundvery quickly. The result is a thoroughly accurate and dependablecost of materials used each four weeks. On the latest statementtaken off by me these two figures varied from one another.0000056.

Control of Shop Losses

After control of stockroom losses, the next controllable costfactor relates to the shop losses. The origin of the first of these isin the mixing room. The margin of profit in wholesale baking isvery narrow, and formulas, after having been carefully figuredand constantly kept up to date, must be rigidly adhered to. Wecompute from the number of batches recorded as having been putinto production, the theoretical consumption of materials as perthe formulas. This is compared item for item with the perpetualinventory record of materials used. If, upon a four -week basis,the difference seems to justify, we cut the period of calculation toone day, inventorying the material upon the shop floor and benchesuntil the matter is under control.

This difference, of course, is not chargeable entirely to errors inmixing weights. By the methods previously outlined we are able

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to eliminate from the difference losses from misappropriation.However, the other stated sources of loss, shrinkage, wastage,etc., are elements in the difference impractical of separation unlessthe leak is of sufficient size for costly analysis.

Loss in Scaling

The next important feature of controllable shop loss is in thescaling. It is vital that the scale weights of the dough follow closelythe formula determination. In a cake plant the line comprises agreat number of items of varied weights, and the matter calls forclose supervision. We record the weight of the wet dough upona tag which accompanies each mix to the droppers or scalingmachines. After the dough has been dropped the yield in units isrecorded on the tag, so that when the tag reaches the office we areable to compute daily the gain or loss in scaling for each batch.The weighing of the wet mix and the count of the drop calls for acertain amount of extra work in the mixing and scaling rooms, butthe resultant figures are invaluable to our plant superintendent andwe would not be without them.

Our system, as originally conceived, called for the above men-tioned tag going from the scaling room to the ovens, where thenumber of units as recorded was checked into the oven by the ovenman and out of the oven to the wrapping room. The tag, thenhaving recorded the cripples upon it, would indicate the numberof units going to the wrapping room. From that point the tagwent to the shipping room, where the number of wrapped unitswas to be recorded by the clerk checking the wrapped packagesinto the shipping room, thus determining the wrapping room loss.Because of the great number of individual items in the line andthe fact that many of these items go through the ovens and wrap-ping room simultaneously, this portion of the accounting slows upproduction somewhat and is not made a matter of daily routine.We run these tags from the scaling room through this routine tothe shipping room from time to time as we feel necessary.

Shipping and Wrapping Room Losses

A count is made each morning of the units on hand in the ship-ping room after the salesmen's load. To this is added the numberof units received in the shipping room from the shop, which com-

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putation is made as the wrapped packages enter the shippingroom on the conveyor belts. The general office computes duringthe day the number of units shipped or delivered during the dayand when this amount is subtracted from the previous figure, theresult should equal the following morning's count. This phase ofour procedure is rigidly adhered to and all differences are run tothe ground.

We think that after this description of the theoretical shoproutine, you will clearly see how completely satisfactory the dailymanager's report, mentioned in the early paragraphs of this paper,can be. From the tags, batch reports, etc., we can compute the sup-posed yield of ioo per cent efficiency. From the selling price ofthis yield, we can deduct mixing losses, scaling losses, oven lossesand wrapping losses. The difference between this figure and theselling price of the package units received in the shipping roomrepresent losses unaccountable. Good discipline reduces this un-accountable loss to a negligible amount, and the report then pre-sents daily to the manager a complete story of the efficiency of theday's operation.

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CON T ROLL ABLE LO SS FACT ORS I N T H EBAKING INDUST RY

By John R. Lindsay, Office Manager,Borck & Stevens, Inc., Bridgeport, Conn.

IN THE baking industry the profit margin (the difference be-tween cost and selling price) is so narrow that invariably the

difference between a plant operating at a profit and one operatingat a loss lies in the efficiency of its control over miscellaneouslosses. Thus, the management leans very heavily upon the cost ac-countant for records and reports which will show the trend of con-trollable losses.

It should be realized that it is not possible to operate a bakerywithout there being some loss due to these miscellaneous factors.However, these losses are very much higher in bakeries which donot use cost accounting methods of control for the simple reasonthat in these bakeries the losses are unknown and are, therefore,probably greater than the management realizes or suspects.

In dealing with these controllable losses, the bakery accountantis fortunate in having a wonderful yardstick with which to com-pare and measure his facts, namely, ioo pounds of baked prod-ucts. To illustrate: The bakery acountant knows by past experi-ence and comparison what the cost per ioo pounds of damagedproducts should be. If this cost should exceed this set standard,supervision is tightened to see that cost is quickly brought back tonormal. It should be noted that record is kept of the amount ofloss, not only for the purpose of knowing its value, but for themore important purpose of keeping it within the average set forprofitable operation.

Invisible Material Loss

Invisible material loss may very well head the list of control-lable items which the bakery accountant is called upon to check.This is the unaccounted for raw material. The receiving clerkmay permit materials to come into the plant short weight and with-out properly checking shipments. Improper storage facilities mayresult in excessive evaporation of the moisture content in flourwhich is usually the largest inventory item. In our bakery, we en-

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deavor to keep the storage basement at a temperature of around

70 to 75 degrees with proper humidity, in order to keep the evapo-ration down to the very minimum. Although government stand-ards permit flour mills a certain percentage of moisture in eachbag of flour, careful weighing of the flour upon receipt will detectany variance from this permissible moisture content. Raw ingredi-ents carelessly handled throughout the plant contributes heavily toinvisible material loss. There is always the possibility of misap-propriation. Material costs increase sharply if, upon an inventoryOf $50,000, there is a 4 to 5 per cent invisible material loss.

To aid in control of this loss, a weekly inventory is taken, a de-tailed record of each kind of raw material is kept (Exhibit r), andthis is checked further by a Raw Materials Ledger in which allbills covering purchases of materials is entered (Exhibit a) .From a daily dough sheet a weekly recapitulation of the materialswhich the production department reports using, is made and ischecked against the amount actually used as shown by the weeklyphysical inventory. A further check secured from the daily doughsheet is concerned with the quantity of manufactured goods pro-duced from the amount of materials reported. As each producthas a definite scaling weight, the amount produced is a key to theamount of raw materials which should be used. Each week, whenthe amount of invisible material loss is figured, an itemized list isposted in the production department. Materials which show a lossweek after week should become the object of a drive by all depart-ments— receiving, production and office —to bring it under control.Scales which weigh the ingredients should be checked. The im-portance of accurate scaling of raw materials should be broughthome to those in charge of this division in the plant.

Loss from CripplesDamaged products, known in bakery circles as "cripples,"

present another problem for the accountant. This may be a spoileddough, products burned in the oven, damaged on the conveyor, inpacking, or in the wrapping and slicing room. There are others,but these are the more usual cripples. Various factors contributeto the fact that such losses cannot be entirely eliminated. An ovenmay break down, a slicing or wrapping machine may jam, or theelectric power may be shut down suddenly. Again, the human

1316


element is ever present: A dough mixer may forget an ingredientin the dough, an oven or conveyor man may carelessly handleproducts while they are too warm, or a shipping clerk may knockover a full rack of freshly baked cakes.

As a rule this item can be brought under control. The super-intendent of each department reports the list of cripples in his de-partment daily. This can be broken down by shifts, and in in-stances where damaged goods are too high, the daily report shouldinclude the names of the employees responsible for the cripples.Daily posting of the amount of cripples in each department on alarge blackboard is another effective method of control. It shouldbe noted that a very small recovery is possible from these dam-aged goods. They are salable to farmers, institutions and zoosfor animal feed.

Unaccounted for Finished GoodsThe third controllable loss to be discussed is, fortunately, easier

to control than the others mentioned. This is "Unaccounted forFinished Goods," and is simply the difference between the productmanufactured and the product sold. The production departmentmay report sending i,000 items to the shipping room. The ship-ping department, after distributing these items to several hundredsalesmen, may be able to account for only 990 items. The differ-ence of io items is "Unaccounted For Finished Goods." Elementscontr ibuting to this difference may be: error in the productioncount, i.e., the fact that the shipping room did not receive fulli,000 items; dishonesty of shipping clerk or salesman; or a mis-take in charging the items, i.e., giving a salesman 50 items andcharging for only 4o.

Careful checking is necessary to determine where the responsi-bility lies. An accurate count of production will place the respon-sibility upon the shipping room. If this still results in a large un-accounted for loss, shipping clerks should be changed, as dishon-esty or carelessness is the only answer. In our plant, solution ofthis problem in the shipping room was accomplished by splittingup the salesmen's orders into small groups, each in charge of agroup leader. Total of goods required by Group No. i was deliv-ered to the leader of that group. Additional groups were treatedlikewise. This is merely an application of the principle of con -

1317


trolling a large item by breaking it down into smaller groups moreeasily handled. A daily report of the mistakes made by each groupis a further aid in revealing whether the most efficient shippingclerks were the most efficient group leaders. Daily posting of theamount of unaccounted for finished goods on a blackboard in theshipping department is also important.

Returned Goods

Returned goods or "Stale Returns" are also subject to thescrutiny of the bakery cost accountant. However, the control ofthis item is usually in the hands of the sales department. Thesegoods are usually returned to a returned goods store or "stale -room." As a rule, high stale returns mean smaller net sales, so itsimportance can readily be recognized. Reports to the sales de-partment of high stale returns usually requires an analyses ofwhich salesmen are guilty of heavy returns, and a careful checkto discover which items Ile is returning. Control of the particularsalesman's daily orders, and a study of the conditions in the terri-tory which he covers can ordinarily correct this item. A bakeryusually has an outlet for selling these stale returns, perhaps a storeat the bakery, or stores located in neighborhoods which will pat-ronize this type of store where the returns are sold at greatly re-duced prices.

The foregoing paragraphs have outlined in some detail a few ofthe controllable loss factors which daily enter into the life of thebakery cost accountant. Others, which will be mentioned brieflyin this article, are production per man -hour, and loss or gain inscaling, but these do not complete the list.

Baking Accounting Procedure

Briefly, the procedure to get production under way in a bakeryis for salesmen to turn their individual orders in to the order de-partment. A Bakeshop Order (Exhibit 3) is given to the produc-tion department. From this the shop superintendent prepares hisdaily schedule of production and requisition of materials.

Each morning when the bakery cost account reports for work,there is a speedy but orderly and systematic method of gatheringthe information required for the daily report to the managementof the production and sales for the day.

1318


The daily dough sheet is prepared from formula and productioncards turned in by the production department. The difference be-tween the formula weight and the product weight reveals the lossor gain in scaling. This is arrived at by multiplying the numberof items produced by the scaling weight of that item and compar-ing it with the weight of the materials reported used to make thatnumber of items. A loss in scaling may mean that the product wasover - scaled and left the bakery weighing more than it should, orthat the production department used more ingredients than werecalled for in the formula. If there is a gain in scaling, the reverseof this preceding statement may be true.

Production per Man -HourFrom the dough sheet and from subsidiary reports from the

production department, a Controllable Factors Report is prepared.Outstanding on this report is the item, production per man -hour,which is a definite indication of the efficiency of the production de-partment. Past experience and comparisons over a period of yearshave informed the management what this production per man -hourshould average. If it shows a downtrend, efficient managementferrets out the answer which may be a program of education foremployees towards greater efficiency.

A recapitulation of production and distr ibution for the day isprepared from salesmen's orders, production reports and damagedgoods reports. Every item of production must be accounted for onthis report. A daily sales and cash report, prepared by the cashier,furnishes sales and returns figures and others for the accountant.

All of this information is gathered and consolidated on the dailyreport to the manager (Exhibit 4). Armed with this report, thebakery cost accountant can present a picture of the day's oper-ations. Controllable loss factors out of line can immediately bebrought to the attention of the person responsible.

It must be emphasized that all of these reports must be prepareddaily and with the utmost speed. No reports can be placed asideuntil the office finds time to do them. They are of no use unlessthe information they reveal is used at once.

In closing, it may be stated that the foregoing principles andmethods of controlling loss items peculiar to the baking industryare being successfully applied by a successful baking enterprise.

1319

wNO

S T O C KC A R D

Name ofI

Article Location

Date Start Received Total Disbursements BalanceOn Hand

D i s b u ne de nd

On HandShort Over _T ake n by Whom

Bread CakeBread Cake

12-38--F orn 1

E X H I B I T I

an

a

r or*

G

ro

� Ow\O

N

E X H I B I T 2

c

� ow� o

zaC)ato

wNN

Shop Order Date 193

O R D E R r q K 1 N D — Y[ una3 S I a3 3 r D

ISa33 t l

DSOI O R D E R

3 m K I N D tt [au3 a 3 r r 3 n e ! N R B

Home Pride Leader Ger. Rye Plain" P l . Tp Ger . Ry e Lg. No t S l.

" Mothers .. .. .. Sliced

" RoundHome Pride RoundJumbo, Large L o n g

Jumbo, Small Long

Rye Sand.Sandwich, Sm. I - 4 Pul lman

" Lar. 1 - - 8 Pul lmanPu llm an , Small 2—

L a r g e 2 - 8

Ger. Rye SeededW. P. D Gr.R. Lg.SeedNot Sl.

Sliced

German Rye Round

German Rye Round

Rye Sand.French Rolls

Water Rolls

Poppy Rolls (no a'd) Po lis h R y e No t

Special Rolls Pol. Rye Longm. W ater R olls Po l. R y e R ou n d

Poppy Seed Bread Spec. Pol. RyeFrench Bread Pol. Rye R d.Long Vienna

I I I Pol. Rye Pul l .

E X H I B I T 3

z

` 1

r D

c . C

v !t

W\O


DAILY RE P OR T T O MANAGERFOR DAY 193

HRI :AD CAKET. , . I V. I . <

: Vela. A , . . n Uni. V.1— A m.

TOTAL PRODUCTION

P aTOTA L

n NL IBi:dyeporr— Wh.I...1<

R. wd

i . .C . . . , . .—Ww..bury —R. ,. . ,

H.r :f erd— A. leilCemm:wwn

Shivpinv S. I. .

SISIe

D.h c , : Rw0 M. . I nnw

AM: 4lwIT

NET SELLING RETURN

OTAL LOSSES FOR DAY

CRIPPLES W . , 6 ' yH. . , f erd

DouFb

shop

Burned

Con e

Sllc in.

Wr. and P. .hin

TOTAL CRIPPLES_ _ —

PERCENTAGE STALEW h . lawl B. i d e• p . nRwi l— Br id9ev. . tB, i d vp

R. u i l— .yRewil— H.n(e.d

PI.. , Se.laT. W 5 . 1 .

T. , . I 51.1. . . d Cr i ppl. .

L.w: S, . , h Cr i vl . . S . I d

., Lew fr em SW . h Cr i l . . I_

n 5.1..

mvl . . I . r T— d..mvk. ler CuRin mvb r • . L u . c h

C. . . . c.: , lard 0— (Red) er Shen

W . , . , 6 . , y 0. . . (R.d) er 5h.n

. I . C. ka M. .

TOTAL LOSSES ACCT. FOR

UNACCOUNTED FOR

1— —61. L.. . .f F1.u. 1:1, 1153 %

1— 41. L. . . el . , ha. l. v. . di . L.15. t " ' , %

.. Du. i ns Farm.nw, ien L 3 .

In. .(Rad)erG.in :n Suli nv -B., ch LBS. L115. %

• Fini.biv9 1E -. LHS. %

A — W A b w. v t i e .

P. . , Tra u.hh Dwid. ,C. . . . .U. . d 1.115. LRS. %

D- - , F le e , Uwd

P.aduci n par M. .14,.— B.Li .e I A . LHS.

REMARKS.

E X H I B I T 4

1323

OFFICIAr limbERSFor the

N. A. C. A. BULLETIN

CUMULATIVE BINDER $2.00 ( SThe Cumulative Binder illustrated at theright is designed to file your N. A. C. A.Bulletins issue by issue as you receive themthroughout the year. It is a tape binderwith a strong automatic locking devicewhich holds the inserts firmly in place fromthe very first insertion. It is of black fabri-koid with stiff covers, lettered in gold withthe name and seal of the Association, asshown in the illustration. The binder canbe used from year to year for accumulatingthe Bulletins if you transfer the completevolurne to a Permanent Binder at the endof each year.

® PERMANENT BINDER $1.50This Permanent Binder is made to hold afull volume of technical Bulletins. It isblack fabrikoid, lettered in gold as shownin the illustration at the left. The bindingdevice consists of metal strips which arerun through the punching in the Bulletinsand locked into place permanently by asimple manual operation.

This binder will not take the place of theCumulative Binder, as it is not a loose -leafdevice. It is designed only to take theplace of having your volumes bound by abindery. It is less expensive than bindingand, we believe, equally attractive.

Order with remittance should be sent to:National Association of Cost Accountants385 Madison AvenueIll- New York, New York

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