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38 Forging - Stamping - Heat Treating
February, 1925
U s i n g a n A p p r a i s a l for C o s t P u r p o s e s
An Appraisal for Cost Purposes Is Essential in the Forging In­
dustry Because of the Large Investment Required—
Great Variety of Equipment Necessary
T H E majority of appraisals are made with the intention
of using the reports for making financial
statements, for adjusting accounting records or
perhaps for disposing of assets, with little or no consideration
for their possibilities in cost work. In the
forging industry these possibilties stand out strongly,
particularly because of the large investment required
nnd also because of varying types and sizes of equipment
used. With such equipment it is absolutely
necessary to establish some sort of hourly rates for
both overhead and profit. In our plant we use the
hourly machine rate system, which we believe is the
most accurate yet devised, and for this work an appraisal
properly reported is of great additional value.
One of the first items encountered in distributing
overhead is depreciation, carried as an item of cost in
our hourly overhead rate per hammer. It is impossible
to correctly distribute the total depreciation of
a forge plant over the various departments and thence
to different groups of hammers according to some
arbitrary percentage basis and it therefore becomes
necessary to compute depreciation separately on
buildings and appurtenances, machinery, furnaces,
power plant equipment, cranes and all other classes
of equipment per department and per group.
The next problem we have in properly allocating
certain expenses to different department and production
centers is establishing percentage bases per department
and per hammer group for those items
which vary in accordance with asset valuation or in
accordance with some percentage made up with asset
valuation as a factor. Here again the appraisal furnishes
a basis for obtaining the correct relation of
values per department and per production center, as
it is clearly an error to base any figuring of this nature
on book records showing actual purchase prices of
machines. For cost purposes there is no reason why
a hammer purchased in 1916 should carry lower overhead
and interest rates than one of the same type and
size purchased in 1924 at a considerably higher price.
The last use we have in mind, but by no means
the least, is for the purpose of figuring interest on
investment as a basis for profit rates per hammer per
hour. The averaee jobbing forge plant is selling service
or use of certain types of equipment—steam hammers,
board hammers or upsetters—rather than material
plus labor and overhead, and the profit estimated
per job should certainly bear some relation to
the interest on investment required to carry the individual
hammer or upsetter together with its corresponding
share of auxiliary equipment and departments.
This is especially true in a plant using all
three types of equipment. Steam hammers require
a boiler plant, coal storage, coal handling apparatus.
etc.. representing a much higher investment than
board hammers of similar sizes, while upsetters are
*Assistant to General Manager. Dominion Forge & Stamping
Company.
By A. W. HOLLAR*
very expensive in themselves and their values stand
out prominently in an appraisal even without their
share of the repair and other departments. In the
matter of profit it is also well to consider both those
forgings made by two or more operations in different
units and those made from different grades of steel
with varying base prices. In the case of multiple
operations in different production centers the error
in figuring profit on a percentage of cost is multiplied
|by the number of production centers involved. The
question of different profits on different grades of steel
can be discussed at length, but we shall content ourselves
with asking whether you are interested mainly
in obtaining profit in proportion to the direct material
cost or in proportion to the service your equipment
renders.
It was for the purpose of checking cost figures
and assuring ourselves of the correct relation of our
production centers with respect to each other, that we
recently ordered a new appraisal. In addition to the
standard form submitted by the appraisal company
we requested a report designed to take care of our
requirements for cost work. This extra report means
only a little more clerical work in the office of the
appraisal company and not very much extra field
work, providing, of course, the field men receive complete
instructions upon their arrival on the job. A detailed
outline with all necessary notes as to individual
cases was given to the field manager and the following
is a copy of that portion applying to land, sidings
and buildings:
Land—Two plots, one north and one south side Seminole
Street.
Railroad Sidings—Coal sidings Nos. 3, 4, 5 and 6. Oil
siding Xo. 2. Stock sidings Nos. 1, 7 and crossover.
Wide gauge tracks (boiler plant).
Buildings—Construction, by buildings. Outside crane
runway from Building No. 4 to be included with
Building No. 4. Tunnel and pits to be included
with buildings wherever possible.
Plumbing and Sewerage—By buildings as much
as possible, balance lump sum.
Heating Piping—Radiation per building to be
shown separately in value and square feet heating
surface. Main heating lines, returns and
connections to be lump sum.
Electric Lighting and Wiring—Lighting per building.
Trunk lines and connections to be lump
sum.
Sprinkler and Fire Protection Piping—Per building.
Balance (outside lines, etc.) lump sum.
Ventilating System—Per building.
As will be noted, we have two separate sections of
land, one being vacant and the other section being
entirely used by our various buildings and storage
spaces. The two values are given separately, making
it easy to charge the proper land value to each build-