John Whitmore (accountant)

Last updated

John Whitmore (c. 1870 - March 18, 1937 [1] ) was an American accountant, lecturer, and disciple of Alexander Hamilton Church, known for presenting "the first detailed description of a standard cost system." [2]

Contents

Biography

Whitmore had obtained his licence as Certified Public Accountant in the State of New York. He joined the firm of Patterson, Teele & Dennis where he eventually became, and worked as certified public accountant in New York.

As public accountant he worked for railroad companies, such as the Alabama Great Southern Railroad, the Belt Railway of Chicago, the Buffalo and Susquehanna Railroad, the Chicago and Western Indiana Railroad, the Cincinnati, New Orleans and Texas Pacific Railway, the Monon Railroad, the Southern Railway Company, and the Virginia and Southwestern Railway Company; and for government agencies, such as the State of Rhode Island administrations, and the City of Boston.

In 1908 Whitmore was also special lecturer at the New York University, School of Commerce, Accounts and Finance, [3] [4] and in 1915 he lectured at Harvard University. [5] In 1917 he became a member of the American Institute of Accountants. He retired from active accounting practice in 1935. [1]

Work

Whitmore came into prominence in 1906 after writing a series of articles in which he "puts Church's machine-rate method into accounting jargon." [6] He "provided the ledgers, accounts, and entries needed to make Church's system operative in a factory." [2] [7]

Factory accounting as applied to machine shops, 1906

Regular machine shop early 20th century. The Government Printing Office between 1909 and 1932. Machine shop in the Government Printing Office.jpg
Regular machine shop early 20th century. The Government Printing Office between 1909 and 1932.

In his 1906 article "Factory accounting as applied to machine shops," Whitmore "elaborated upon and explained in considerable detail the costing system advanced by A. Hamilton Church, adopted the manufacturing account (work in process) arrangement for controlling the factory cost sheets" [8] in machine shops.

Whitmore stated, that one of the great essentials to the practice of factory accounting is a "clear perception of the similarities and dissimilarities... The fundamental principle is always the same, namely, the practice of making a record sufficiently full to constitute a clear accounting for the factory expenditure, and the object of the accounts is always the same, namely, to eliminate waste from the operations."

The main issue of cost accounting in those days was, that the "continuously increasing use of machinery, and the larger ratio the cost of its use bears to the total cost of production... systematically charging machinery costs over the processes, or articles manufactured. The problem is.. what system most fairly charges each unit of product with the proportionate cost of the machinery and plant expended on its production." [9]

Charging machinery costs over processes, or articles manufactured

Emile Garcke, and John Manger Fells (1912/1922) explained the most regular system of dealing with machine rates in those days.

Factory accounts, Books and Forms used in connection with Prime Cost, by Garcke and Fells (1887/1922). Factory accounts, Books and Forms used in connection with Prime Cost (1922).jpg
Factory accounts, Books and Forms used in connection with Prime Cost, by Garcke and Fells (1887/1922).
Church's system of "Production Factors & Controlling Accounts", 1910 which incorporated Whitmore's insides. Production Factors 8 Controlling Accounts, 1910.jpg
Church's system of "Production Factors & Controlling Accounts", 1910 which incorporated Whitmore's insides.

It has been suggested that the time rate for each machine should be based on the assumption that it is being worked continuously to its full capacity. Thereby the advantage, or the disadvantage, of the use of the particular machine relatively to manual labour or other machines, the effect of insufficiency of orders to keep the plant fully employed, will be more manifest, and the extent to which economies in production could be carried under other circumstances more clearly shown. As machinery is often not continuously employed to its maximum extent the adoption of this procedure would generally entail less than the actual lessened value of the machinery being written off to the various Stock or other orders during any given period. The further suggestion has therefore been made that the balance remaining on each plant account, being the difference between the amounts charged off on the before mentioned assumption, and the actual lessened value should be charged off by means of a supplementary rate to an Idle Capacity account, as representing a loss, or more correctly, a non-realised gain, consequent upon the non-utilisation of the plant to its full capacity. The information thus obtained would be of great value to the manufacturer in considering how he can, having regard to market and other conditions, realise from his plant the maximum economic advantage. The importance of this consideration cannot be too strongly emphasised, for whilst in the case of labour the number of employees directly engaged in production can be regulated from time to time by the volume of trade, such readjustment is not possible in the case of machines whose maintenance, standing charges, and depreciation have to be provided for, whether idle or employed. [10]

Sequentially they explained the system proposed by Whitmore and perfected by Church:

Another mode of dealing with machine rates is to fix a normal rate per hour for the use of any particular machine, and charge the stock or other order accordingly, and to adjust these results from time to time by means of an additional rate which would be based on the fluctuations of trade, and the abnormal use or otherwise of the machine. If the results of the additional rates are charged off to the Stock or other orders, without being specially noted, it would seem that so good a measure of the idle capacity of the plant would not be obtained as by the procedure before described.* It is desirable that separate rates should be fixed for the Productive Hour and the Idle Hour. [10]

Shoe factory cost accounts. 1908

In the 1908 article "Shoe factory cost accounts" in May number of The Journal of Accountancy, Whitmore described the use of standard costing in a shoe factory. [4] He had first presented this work in a lecture at the New York University School of Commerce in February 1908. According to Chatfield (1968):

"His presentation demonstrated how, in accounting for leather, sorted leather was valued at a "proper" price (i.e., standard cost) for each grade of leather with entries to be recorded as follows:"
Sorted leather (priced at "proper" cost, by grades) ... xxx
Variation (debit or credit) ...... xxx
Leather purchase (account payable) at actual costs ... xxx
Sorting labour ....... xxx
General expenses (actual) ... xxx
Whitmore further recognized that these variances may arise from either or both (1) prices differing from "proper" or standard cost, and (2) differences..." [11]

Briggs (1947) recalled, that "in the handling of leather, for example, Whitmore advocated the valuation of the sorted leather at a "proper" price for each grade. Whitmore recognizes that these variances may arise from either or both of (a) prices differing from the "proper" or standard cost, and (b) differences in the quality of the leather." [12]

Application in the railways

An article presented at Annual Convention of the National Association of Railway Commissioners (1910), described the consequences of Whitmore idea's in the railway. First a general remark on the costing problem in railroad

Every consideration which makes it necessary for the successful manufacturer to install a system of cost accounting applies to the business of common carriers, for though in the fixing of a just rate it may be necessary to keep in mind competitive conditions, disturbances caused by the shorter line, the interdependence of rates, and the necessity of maintaining the equality of communities, the great fundamental question must always be, in the first instance, the cost to the carrier of doing the work required. This must always be the foundation, the starting point in the mind of anyone attempting to arrive at an intelligent judgment. We are told that the cost is not always the controlling feature. If by this is meant that a railroad may in some instances carry freight at or below actual cost, the truth of the statement may be conceded, but before arriving at a conclusion that such is the fact it is necessary to know what the cost is.

And furthermore they cited Whitmore about the uncertainties in cost accounting, and how to deal with it:

It should be unnecessary to point out that if cost accounting can be successfully applied to the varying business activities in connection with which it is now an established fact, it can with equal success be applied to railroad accounts. No one pretends that in any case the showing is correct to the utmost degree of mathematical accuracy; that the accounts are not balanced with the accuracy of an engineer's instrument or of the scales which register the weight of a hair will be admitted by all.
Mr. John Whitmore in an article on “Factory accounting as applied to machine shops,” vol. 3, Journal of Accountancy, 106, says:
"At scarcely any point are the figures absolutely final, free from all qualification and all contingencies, but the latter are recognizable, and, generally speaking, arise from the uncertainties that are a condition of the work done. This does not mean that cost figures arrived at are necessarily of limited value from these causes."
The objection to the application of the system to railroad accounts are enumerated with great force by Prof. Logan G. McPherson in his book, "The Working of the Railroads,"... [13]

Harvard lectures, 1915

In 1915 Whitmore gave lectures series of lectures at Harvard University with the following topics: [5]

Newsprint manufacturing conditions

In 1918 Whitmore and Henry Gantt were expert witnesses in a lawsuit about newsprint manufacturing conditions and price-fixing. An article in the Pulp and Paper Magazine of Canada reported, that "gave evidence to the same effect and quoted printed authorities to the effect that raw materials should be taken into cost accounts at their actual instead of their market value." Whitmore also testified that "he opposed giving considerations to reproduction value of plant instead of original costs." [14]

Some Cost Accounting Terms, 1930

In 1930 Whitmore published "Some Cost Accounting Terms." A review in the American Accountant described this work as more of "an essay on definitions." And furthermore:

In it Mr. Whitmore grinds a few pet axes. In the first place he objects to the connotation — or rather the lack of specific connotation — of the term cost accounts; much is said to recommend the older and the English usage of factory accounts. Tying-in of the cost accounts is also given a drubbing. Overhead is said to be an unfortunate term. In discussing the latter the author very properly criticizes the very common conception that overhead is a cost of production; it may also be a cost of idleness. [15]

Reception

In the Contemporary Studies in the Evolution of Accounting Thought. (1968) Michael Chatfield already cited another source, that credited Whitmore as being "the first detailed description of a standard cost system." [11] In the "History of Accounting, An International Encyclopedia" (1996/2014) Chatfield further summarized:

"Whitmore in 1906 wrote a series of articles in which he provided the ledgers, accounts, and entries needed to make Church's system operative in a factory. While accepting Church's scientific machine rate as a basis for overhead allocation, he disapproved of Church's treatment of idle capacity costs. Whitmore viewed such costs as waste, not as "proper costs" of production, and criticized Church's supplementary rate, which charged them to work in process. Whitmore was ambivalent as to whether idle capacity costs should be written off as period expenses, but he urged that they be segregated from normal production costs in a ledger account called Factory Capacity Idle." [2]

Mattessich (2007) added about the spin-off of Whitmore's work:

Whitmore (1908) suggested idle capacity costs ought to be charged and written off in a separate account. Furthermore, he contributed to the standard costing notions of A. Hamilton Church (1901–02, 1908, 1910, 1917) who himself advocated the use of 'production centres'. The American efficiency engineer Emerson's (1908–09) classic on standard costing employed the standard hour as the 'real standard unit cost', as well as using a single overall variance between actual and standard costs. [16]

Selected publications

Articles, a selection:

Related Research Articles

<span class="mw-page-title-main">Cost accounting</span> Procedures to optimize practices in cost efficient ways

Cost accounting is defined as "a systematic set of procedures for recording and reporting measurements of the cost of manufacturing goods and performing services in the aggregate and in detail. It includes methods for recognizing, classifying, allocating, aggregating and reporting such costs and comparing them with standard costs." (IMA) Often considered a subset of managerial accounting, its end goal is to advise the management on how to optimize business practices and processes based on cost efficiency and capability. Cost accounting provides the detailed cost information that management needs to control current operations and plan for the future.

<span class="mw-page-title-main">Management accounting</span> Field of business administration, part of the internal accounting system of a company

In management accounting or managerial accounting, managers use accounting information in decision-making and to assist in the management and performance of their control functions.

<span class="mw-page-title-main">Throughput accounting</span> Principle of management accounting

Throughput accounting (TA) is a principle-based and simplified management accounting approach that provides managers with decision support information for enterprise profitability improvement. TA is relatively new in management accounting. It is an approach that identifies factors that limit an organization from reaching its goal, and then focuses on simple measures that drive behavior in key areas towards reaching organizational goals. TA was proposed by Eliyahu M. Goldratt as an alternative to traditional cost accounting. As such, Throughput Accounting is neither cost accounting nor costing because it is cash focused and does not allocate all costs to products and services sold or provided by an enterprise. Considering the laws of variation, only costs that vary totally with units of output e.g. raw materials, are allocated to products and services which are deducted from sales to determine Throughput. Throughput Accounting is a management accounting technique used as the performance measure in the Theory of Constraints (TOC). It is the business intelligence used for maximizing profits, however, unlike cost accounting that primarily focuses on 'cutting costs' and reducing expenses to make a profit, Throughput Accounting primarily focuses on generating more throughput. Conceptually, Throughput Accounting seeks to increase the speed or rate at which throughput is generated by products and services with respect to an organization's constraint, whether the constraint is internal or external to the organization. Throughput Accounting is the only management accounting methodology that considers constraints as factors limiting the performance of organizations.

<span class="mw-page-title-main">Alexander Hamilton Church</span>

Alexander Hamilton Church was an English efficiency engineer, accountant and writer on accountancy and management, known for his seminal work of management and cost accounting.

<span class="mw-page-title-main">RCA open-source application</span>

RCA Open-Source Application (ROSA) is an open-source management accounting application that aims to provide decision-support information to managers. Resource consumption accounting (RCA) is a principle-based approach to management accounting that combines German management accounting techniques known as Grenzplankostenrechnung (GPK) with a disciplined form of activity-based costing.

<span class="mw-page-title-main">Management accounting principles</span> Management accounting case

Management accounting principles (MAP) were developed to serve the core needs of internal management to improve decision support objectives, internal business processes, resource application, customer value, and capacity utilization needed to achieve corporate goals in an optimal manner. Another term often used for management accounting principles for these purposes is managerial costing principles. The two management accounting principles are:

  1. Principle of Causality and,
  2. Principle of Analogy.
<span class="mw-page-title-main">Hugo Diemer</span>

Hugo Diemer was an American engineer, management consultant, and professor at the Penn State University, who in 1910 published the first industrial engineering textbook: Factory Organization and Administration.

<span class="mw-page-title-main">Emile Garcke</span> English industrialist

Emile Oscar Garcke was a naturalised British electrical engineer, industrial, commercial and political entrepreneur managing director of the British Electric Traction Company (BET), and early author on accounting. who is noted for writing the earliest standard text on cost accounting in 1887.

Horace Lucian Arnold was an American engineer, inventor, engineering journalist and early American writer on management, who wrote about shop management, cost accounting, and other specific management techniques. He also wrote under the names Hugh Dolnar, John Randol, and Henry Roland.

<span class="mw-page-title-main">J. Slater Lewis</span>

Joseph Slater Lewis MICE FRSE was a British engineer, inventor, business manager, and early author on management and accounting, known for his pioneering work on cost accounting.

James Bray Griffith was an American business theorist, and head of Department of Commerce, Accountancy, and Business Administration at the American School of Correspondence in Chicago, known as early systematizer of management.

Francis George Burton was a British engineer, incorporated accountant and general manager of the Milford Haven Shipbuilding and Engineering Co. in Pembroke Dock, Wales, known for his early works in the management accounting.

John Manger Fells was a British incorporated accountant consultant, and author on accounting. He was known as promoter of cost accounting and leading cost accountant in Britain early 20th century.

Standard cost accounting is a traditional cost accounting method introduced in the 1920s, as an alternative for the traditional cost accounting method based on historical costs.

<span class="mw-page-title-main">J. Lee Nicholson</span> American economist

Jerome Lee Nicholson was an American accountant, industrial consultant, author and educator at the New York University and Columbia University, known as pioneer in cost accounting. He is considered in the United States to be the "father of cost accounting."

George Pepler Norton was a British accountant, known for the publication of his 1889 Textile Manufacturers' Bookkeeping, which contributed to the establishment of modern cost accounting.

<span class="mw-page-title-main">Edward P. Moxey</span>

Edward Preston Moxey, Jr. was an American accountant, and the first Professor of Accounting at the Wharton School of Finance and Commerce at the University of Pennsylvania. He is known for his early works on cost keeping in factories, which describe the elementary principles of cost accounting.

<span class="mw-page-title-main">G. Charter Harrison</span>

George Charter Harrison was an Anglo-American management consultant and cost account pioneer, known for designing one of the earliest known complete standard cost systems.

<span class="mw-page-title-main">Frank E. Webner</span>

Frank Erastus Webner (1865–1940s) was an American consulting cost accountant, and early management author, known for his work on cost accounting.

James Alexander Lyons was an American accountancy author, and publisher, known for publishing a series of books on bookkeeping and accountancy in the early 20th century. The first work Lyons published was the 1896 textbook entitled "A treatise on business practice," which was designed as textbook for all business schools and as reference for all classes.

References

  1. 1 2 The Certified Public Accountant, Vol. 17-18, (1937), p. 11
  2. 1 2 3 Michael Chatfield. "Whitmore, John Archived 2015-01-16 at the Wayback Machine ," in: History of Accounting: An International Encyclopedia. Michael Chatfield, Richard Vangermeersch eds. 1996/2014. p. 607-8.
  3. ↑ New York University, [New York University Catalogue], 1907, p. 352/7.
  4. 1 2 The Management Accountant, Vol. 9, 1974, p. 905.
  5. 1 2 Harvard University (1915) The President's Report. p. 114
  6. ↑ The Ima Foundat Far, C. J. McNair, Richard Vangermeersch (1998) Total Capacity Management, 1998, p. 128.
  7. ↑ Carolyn Lee Knight, Gary John Previts, Thomas Arthur Ratcliffe (1976) A reference chronology of events significant to the development of accountancy in the United States. p. 14
  8. ↑ Samuel Paul Garner, Marilynn Hughes (1912) Readings on accounting development. p. 582
  9. ↑ Emile Garcke, and John Manger Fells. Factory Accounts in Principle and Practice D. Van Nostrand, 1922. p. 27, 161
  10. 1 2 Garcke and Fells (1922, 160-1)
  11. 1 2 Michael Chatfield (1968) Contemporary Studies in the Evolution of Accounting Thought. p. 226
  12. ↑ Leland Lawrence Briggs (1947) The Accountants Digest, Vol. 13, p. 9
  13. ↑ National Association of Railway Commissioners (1910) Proceedings of the Annual Convention. p. 303
  14. ↑ Pulp and Paper Magazine of Canada. Vol. 16 (1918) p. 458
  15. ↑ American Accountant. Vol. 15, 1930. p. 470
  16. ↑ Richard Mattessich (2007) Two Hundred Years of Accounting Research, p. 175
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.