The talking machine world (Jan-June 1920)

4 THE TALKING MACHINE WORLD May 15, 1920 pillllllllllllllllllllillllllllllllllllllllllllllllW I Some Pertinent Reflections on the Sins of | 1 Unscientific Cost Finding bv e. g. Banks | ilMllllllIIIIIIIIIIIIUlllIllIIIIIIIIIIU^ Manufacturers and producers generally are finding it more and more difficult to meet the ruinous competition of their competitors who do not know how to figure the costs of production. These people show as little insight as many retailers in various lines who never figure the cost of rent, clerk-hire and lighting on the turn-over of their goods. The science of costfinding has been revolutionized since the marked increase in the cost of raw materials. Manufacturers, producers and creators to-day are actually figuring their cost of production on raw materials which they bought on a declining market in the past, but which to-day would cost from 50 to 100 per cent, more to replace for future production. Manufacturers who base their cost-finding on the prices of yesterday are inviting disaster. Granted that they would receive for their product a fair margin of profit, when the costs of yesterday are computed, they are actually losing money, for the simple reason that the cost of replacement will often take more money right out of the treasury than the selling price will bring in. In other words, for any manufacturer of any product whatever to base his selling price on the actual cost of the components entering into his product is extreme shortsightedness. The only rational way in which he can safeguard his interests is by calculating the cost of each raw material entering into his compositions, creations or products on the basis of the actual market prices of the very day on which he books an order. It is the replacement of raw materials which must be the chief consideration in finding costs these days. As to the results of the mistaken policy of computing selling prices on the basis of the actual amount paid for raw materials purchased long in advance one need but view the sorry stare in which the industries of Germany are to-day, because of the very error in judgment on which we comment. After the signing of the armistice which brought the world war to a close, and after the re-entry of the Teutons into the commercial arena with the nations, they straightway sold thousands of tons of material at prices which, they calculated, afforded them most substantial profits, their com putations being based on the pre-war cost of the raw materials to them. After they had sold such accumulation of commodities at prices which they thought yielded an exorbitant profit, they were brought to the sad realization that two or three times the amount they received in sales would1 be required to replace the merchandise sold. Those who adhere to the suicidal policy of basing their selling price on the actual cost of raw materials instead of at their market value at the time of the sale of the finished product are certain to be much disappointed when the market pendulum swings the other way. Then jg Everyone Should ( j| Grasp the Importance J H of this Policy, Which j Forms the Keystone ■ of Industrial Success I they will have on their hands high cost materials in a declining market and consumers certainly will not pay them on the basis of the actual cost of the raw material, but rather on the basis of its then market value. If the seller pleads that the materials which go into his finished product cost him considerably more than the prevailing market quotations, the negotiator will simply laugh and inform said seller that he (the almost buyer) is not going to pay for accesses due to the erroneous judgment of the buyer, when he purchased raw materials at the wrong time, or at the wrong prices. It is, therefore, obvious that the only equitable way in which manufacturers of commodities that are made up from raw materials subject to price fluctuations can safeguard themselves is by taking advantage of the law of average. If they ace so fortunate as to have low cost raw materials on hand at the present time, they are, in justice to themselves, compelled to consider whatever profits arise out of this fortuitous circumstance as a reserve fund against the day when they will have high cost raw materials on hand in a market that is tending downward. In the meantime those who have made a sufficient study of the character of their business and know that this principle is fundamental to success, and who will, therefore, not deviate from the steadfast adherence to it, are suffering from the competition of those who are surely well intentioned in their mercantile methods, but who have never been able to grasp the vital importance of this policy which forms the keystone of solidity in "nearly all industries. To all lines of business, the example set in the way of right cost finding by the brass rolling mills may serve as an object lesson. The executive heads of the brass mills adjust their prices speedily following a rise or decline in the copper market. The reserves of copper and zinc which they carry are so large that very often they work through a prolonged period of high-priced copper on metal which they bought in an abnormally low market. In doing this they are enabled to lower their price consistently when the copper market goes down, in spite of the fact that they may have copper on hand that cost them considerably more than they will receive for their finished product. It is to be hoped that those who have thus far been blind to this immutable law of all trades will soon see the light, and it is most desirable that all trades as a whole shall carry on a campaign of education toward that end. DANGERS OF MUTUAL CRITICISM When mutual criticism becomes a favorite indoor sport between the different heads and sub-heads of departments of an industrial institution there will soon be more trouble in evidence than anything else. Mutual criticism and mutual admiration are things of which a little bit will go a long way. What we need for a steady diet is an order of mutual co-operation to make things go smoother and better. It is time to cut out some of the blame-shifting and fault-finding and put a little more of the spirit of helpfulness in their places. RES. U.S. PAT. OFF To handle two lines at one time and do both lines justice is well nigh impossible. We believe that all any Victor dealer needs is Victor product, as specialization brings the best results. ORMES, inc. 26 East 125th Street NEW YORK Victor Wholesale Exclusively