Committee Reports > List of Committees > Dáil > 1958 > Committee of Public Accounts > Report - Appropriation Accounts 1955 - 1956

APPENDIX XXII

COST OF MANUFACTURE IN THE CENTRAL ENGINEERING WORKSHOP

Cléireach don Choiste um Chuntais Phoiblí,

In the course of my examination before the Public Accounts Committee on the 24th October, 1957, I was asked to let the Committee have a note, at convenience, of the views of the Commissioners of Public Works on the costing of articles manufactured in the Central Engineering Workshop at Inchicore, Dublin. The request was made following discussion on paragraph 20 of the Comptroller and Auditor General’s Report (Appropration Accounts, 1955-56) when he commented on the extent to which charges for labour and “overheads” were included in the costing of excavator buckets which had been manufactured in the Workshop and when he suggested that the question of manufacture in State workshops generally might be considered by the Committee.

I append a note, as requested:—

Cost of manufacture in the Central Engineering Workshop

The cost of manufacture in the Central Engineering Workshop comprises charges incurred on materials, labour and workshop facilities. There is in addition a proportion of the administration cost of the organisation of which the workshop forms a part, but this is too remote for assessment and is ignored in practice.

Some of these costs may readily be segregated for any particular job but the remainder have to be apportioned according to the recognised principles of cost accountancy. The result, however arrived at, is in no way fictitious, all the elements being real costs actually incurred.

The Commissioners of Public Works consider that where works done on a repayment basis are concerned (and there is a substantial amount of such work in the Workshop) all costs incurred must be recovered, as failure to do that would involve a concealed subsidy from voted moneys. This entails an accurate costing system at the Central Engineering Workshop. It would not be practicable to operate simultaneously at the workshop two different systems of costing, one full and the other partial.

It has never been the view of the Commissioners that the economics of manufacture at the Central Engineering Workshop should be determined solely by comparison between outside prices and the full ascertained cost of making similar articles there. Leaving aside the special cases in which manufacture at a price higher than the market price might be warranted-to overcome delays in delivery for example-the Commissioners consider that, for purposes of comparison, the cost of a work should include all charges which are directly attributable to that work and would not otherwise be incurred. Most of these charges are direct charges like labour and materials but some are indirect; the use of machinery and power for example. Overhead charges such as rent, heating, lighting, general supervision, etc., which of their nature would be incurred whether or not a particular work was undertaken, are in a somewhat different category. These latter charges may reasonably be discounted in an administrative decision whether or not manufacture should be undertaken, provided it is borne in mind that the resulting comparison of cost becomes invalid if there is any question of extending the Workshop or adding to its plant and facilities for the purposes of manufacture.

The Commissioners do not agree with the suggestion that, on the assumption that workmen would otherwise be standing idle or not fully employed, they could be used for manufacturing purposes and their wages charged to general maintenance rather than to the cost of manufacture. The amount of labour available in that way would in any event be negligible, and the adoption of the suggestion would introduce undesirable factors into the general control of the workshop and its operations, and could not be recommended. It is the considered opinion of the Commissioners that it would be most unwise to depart from the settled practice of charging workmen’s time to the job on which it was spent.

Subject to the reservations already indicated the Commissioners are of opinion that, in considering whether or not to manufacture, the price of an outside article might be compared with the additional cost incurred by making it in the workshop, rather than the full cost as given by the costing system. They accordingly propose to have an examination made of the detailed bases of the costing analyses used, with a view to discovering the extent to which the overheads included in the cost of manufacture, as determined in the ordinary way, might be abated to enable ready comparisons to be made with outside prices. The abatement would not, of course, affect the costing system but would merely be applied to some of its results.

(Signed) GEO. P. FAGAN.

for Accounting Officer.

6 Nollaig, 1957