Working Costs


First and foremost, mine accounts are for guidance in the distribution
of expenditure and in the collection of revenue; secondly, they
are to determine the financial progress of the enterprise, its
profit or loss; and thirdly, they are to furnish statistical data to
assist the management in its interminable battle to reduce expenses
and increase revenue, and to enable the owner to determine the
efficiency of his administrators. Bookkeeping _per se_ is no part
of this discussion. The fundamental purpose of that art is to cover
the first two objects, and, as such, does not differ from its
application to other commercial concerns.

In addition to these accounting matters there is a further type
of administrative report of equal importance--that is the periodic
statements as to the physical condition of the property, the results
of exploration in the mine, and the condition of the equipment.


The special features of mine accounting reports which are a development
to meet the needs of this particular business are the determination
of working costs, and the final presentation of these data in a
form available for comparative purposes.

The subject may be discussed under:--

1. Classes of mine expenditure.
2. Working costs.
3. The dissection of expenditures departmentally.
4. Inherent limitations in the accuracy of working costs.
5. Working cost sheets.

In a wide view, mine expenditures fall into three classes, which
maybe termed the "fixed charges," "proportional charges," and "suspense
charges" or "capital expenditure." "Fixed charges" are those which,
like pumping and superintendence, depend upon time rather than
tonnage and material handled. They are expenditures that would not
decrease relatively to output. "Proportional charges" are those
which, like ore-breaking, stoping, supporting stopes, and tramming,
are a direct coefficient of the ore extracted. "Suspense charges" are
those which are an indirect factor of the cost of the ore produced,
such as equipment and development. These expenditures are preliminary
to output, and they thus represent a storage of expense to be charged
off when the ore is won. This outlay is often called "capital
expenditure." Such a term, though in common use, is not strictly
correct, for the capital value vanishes when the ore is extracted,
but in conformity with current usage the term "capital expenditure"
will be adopted.

Except for the purpose of special inquiry, such as outlined under
the chapter on "Ratio of Output," "fixed charges" are not customarily
a special division in accounts. In a general way, such expenditures,
combined with the "proportional charges," are called "revenue
expenditure," as distinguished from the capital, or "suspense,"
expenditures. In other words, "revenue" expenditures are those
involved in the daily turnover of the business and resulting in
immediate returns. The inherent difference in character of revenue
and capital expenditures is responsible for most of the difficulties
in the determination of working costs, and most of the discussion
on the subject.

WORKING COSTS.--"Working costs" are a division of expenditure for
some unit,--the foot of opening, ton of ore, a pound of metal,
cubic yard or fathom of material excavated, or some other measure.
The costs per unit are usually deduced for each month and each
year. They are generally determined for each of the different
departments of the mine or special works separately. Further, the
various sorts of expenditure in these departments are likewise

In metal mining the ton is the universal unit of distribution for
administrative purpose, although the pound of metal is often used
to indicate final financial results. The object of determination of
"working costs" is fundamentally for comparative purposes. Together
with other technical data, they are the nerves of the administration,
for by comparison of detailed and aggregate results with other mines
and internally in the same mine, over various periods and between
different works, a most valuable check on efficiency is possible.
Further, there is one collateral value in all statistical data not
to be overlooked, which is that the knowledge of its existence
induces in the subordinate staff both solicitude and emulation.

The fact must not be lost sight of, however, that the wide variations
in physical and economic environment are so likely to vitiate
conclusions from comparisons of statistics from two mines or from
two detailed works on the same mine, or even from two different
months on the same work, that the greatest care and discrimination
are demanded in their application. Moreover, the inherent difficulties
in segregating and dividing the accounts which underlie such data,
render it most desirable to offer some warning regarding the limits
to which segregation and division may be carried to advantage.

As working costs are primarily for comparisons, in order that they
may have value for this purpose they must include only such items
of expenditure as will regularly recur. If this limitation were more
generally recognized, a good deal of dispute and polemics on the
subject might be saved. For this reason it is quite impossible that
all the expenditure on the mine should be charged into working costs,
particularly some items that arise through "capital expenditure."

in the dissection of the mine expenditure is in the main:--

/(1) General Expenses. / Ore-breaking. \
| | Supporting Stopes. | Various
_Revenue._< (2) Ore Extraction. < Trucking Ore. | expenditures
| \ Hoisting. | for labor,
\(3) Pumping. | supplies, power,
/ Shaft-sinking. | repairs, etc.,
| Station-cutting. > worked out per
| Crosscutting. | ton or foot
/(4) Development. < Driving. | advanced
_Capital | | Rising. | over each
or < | Winzes. | department.
Suspense._ | \ Diamond Drilling. /
| (5) Construction and \ Various Works.
\ Equipment. /

The detailed dissection of expenditures in these various departments
with view to determine amount of various sorts of expenditure over
the department, or over some special work in that department, is
full of unsolvable complications. The allocation of the direct
expenditure of labor and supplies applied to the above divisions or
special departments in them, is easily accomplished, but beyond this
point two sorts of difficulties immediately arise and offer infinite
field for opinion and method. The first of these difficulties arises
from supplementary departments on the mine, such as "power," "repairs
and maintenance," "sampling and assaying." These departments must
be "spread" over the divisions outlined above, for such charges
are in part or whole a portion of the expense of these divisions.
Further, all of these "spread" departments are applied to surface
as well as to underground works, and must be divided not only over
the above departments but also over the surface departments,--not
under discussion here. The common method is to distribute "power" on
a basis of an approximation of the amount used in each department;
to distribute "repairs and maintenance," either on a basis of shop
returns, or a distribution over all departments on the basis of
the labor employed in those departments, on the theory that such
repairs arise in this proportion; to distribute sampling and assaying
over the actual points to which they relate at the average cost
per sample or assay.

"General expenses," that is, superintendence, etc., are often not
included in the final departments as above, but are sometimes "spread"
in an attempt to charge a proportion of superintendence to each
particular work. As, however, such "spreading" must take place
on the basis of the relative expenditure in each department, the
result is of little value, for such a basis does not truly represent
the proportion of general superintendence, etc., devoted to each
department. If they are distributed over all departments, capital
as well as revenue, on the basis of total expenditure, they inflate
the "capital expenditure" departments against a day of reckoning when
these charges come to be distributed over working costs. Although it
may be contended that the capital departments also require supervision,
such a practice is a favorite device for showing apparently low
working costs in the revenue departments. The most courageous way
is not to distribute general expenses at all, but to charge them
separately and directly to revenue accounts and thus wholly into
working costs.

The second problem is to reduce the "suspense" or capital charges
to a final cost per ton, and this is no simple matter. Development
expenditures bear a relation to the tonnage developed and not to
that extracted in any particular period. If it is desired to preserve
any value for comparative purposes in the mining costs, such outlay
must be charged out on the basis of the tonnage developed, and such
portion of the ore as is extracted must be written off at this
rate; otherwise one month may see double the amount of development
in progress which another records, and the underground costs would
be swelled or diminished thereby in a way to ruin their comparative
value from month to month. The ore developed cannot be satisfactorily
determined at short intervals, but it can be known at least annually,
and a price may be deduced as to its cost per ton. In many mines
a figure is arrived at by estimating ore-reserves at the end of
the year, and this figure is used during the succeeding year as a
"redemption of development" and as such charged to working costs,
and thus into revenue account in proportion to the tonnage extracted.
This matter is further elaborated in some mines, in that winzes
and rises are written off at one rate, levels and crosscuts at
another, and shafts at one still lower, on the theory that they
lost their usefulness in this progression as the ore is extracted.
This course, however, is a refinement hardly warranted.

Plant and equipment constitute another "suspense" account even
harder to charge up logically to tonnage costs, for it is in many
items dependent upon the life of the mine, which is an unknown
factor. Most managers debit repairs and maintenance directly to
the revenue account and leave the reduction of the construction
outlay to an annual depreciation on the final balance sheet, on the
theory that the plant is maintained out of costs to its original
value. This subject will be discussed further on.

types of such limitations which arise in the determination of costs
and render too detailed dissection of such costs hopeless of accuracy
and of little value for comparative purposes. They are, first, the
difficulty of determining all of even direct expenditure on any
particular crosscut, stope, haulage, etc.; second, the leveling effect
of distributing the "spread" expenditures, such as power, repairs,
etc.; and third, the difficulties arising out of the borderland
of various departments.

Of the first of these limitations the instance may be cited that
foremen and timekeepers can indicate very closely the destination of
labor expense, and also that of some of the large items of supply,
such as timber and explosives, but the distribution of minor supplies,
such as candles, drills, picks, and shovels, is impossible of accurate
knowledge without an expense wholly unwarranted by the information
gained. To determine at a particular crosscut the exact amount of
steel, and of tools consumed, and the cost of sharpening them,
would entail their separate and special delivery to the same place
of attack and a final weighing-up to learn the consumption.

Of the second sort of limitations, the effect of "spread" expenditure,
the instance may be given that the repairs and maintenance are done by
many men at work on timbers, tracks, machinery, etc. It is hopeless
to try and tell how much of their work should be charged specifically
to detailed points. In the distribution of power may be taken the
instance of air-drills. Although the work upon which the drill is
employed can be known, the power required for compression usually
comes from a common power-plant, so that the portion of power debited
to the air compressor is an approximation. The assumption of an
equal consumption of air by all drills is a further approximation.
In practice, therefore, many expenses are distributed on the theory
that they arise in proportion to the labor employed, or the machines
used in the various departments. The net result is to level down
expensive points and level up inexpensive ones.

The third sort of limitation of accounting difficulty referred
to, arises in determining into which department are actually to be
allocated the charges which lie in the borderland between various
primary classes of expenditure. For instance, in ore won from
development,--in some months three times as much development may
be in ore as in other months. If the total expense of development
work which yields ore be charged to stoping account, and if cost
be worked out on the total tonnage of ore hoisted, then the stoping
cost deduced will be erratic, and the true figures will be obscured.
On the other hand, if all development is charged to 'capital account'
and the stoping cost worked out on all ore hoisted, it will include
a fluctuating amount of ore not actually paid for by the revenue
departments or charged into costs. This fluctuation either way
vitiates the whole comparative value of the stoping costs. In the
following system a compromise is reached by crediting "development"
with an amount representing the ore won from development at the
average cost of stoping, and by charging this amount into "stoping."
A number of such questions arise where the proper division is simply
a matter of opinion.

The result of all these limitations is that a point in detail is
quickly reached where no further dissection of expenditure is justified,
since it becomes merely an approximation. The writer's own impression
is that without an unwarrantable number of accountants, no manager
can tell with any accuracy the cost of any particular stope, or
of any particular development heading. Therefore, aside from some
large items, such detailed statistics, if given, are to be taken
with great reserve.

WORKING COST SHEETS.--There are an infinite number of forms of
working cost sheets, practically every manager having a system of
his own. To be of greatest value, such sheets should show on their
face the method by which the "spread" departments are handled, and
how revenue and suspense departments are segregated. When too much
detail is presented, it is but a waste of accounting and consequent
expense. Where to draw the line in this regard is, however, a matter
of great difficulty. No cost sheet is entirely satisfactory. The
appended sheet is in use at a number of mines. It is no more perfect
than many others. It will be noticed that the effect of this system
is to throw the general expenses into the revenue expenditures,
and as little as possible into the "suspense" account.


For the purposes of efficient management, the information gathered
under this head is of equal, if not superior, importance to that
under "working costs." Such data fall generally under the following

LABOR.--Returns of the shifts worked in the various departments
for each day and for the month; worked out on a monthly basis of
footage progress, tonnage produced or tons handled per man; also
where possible the footage of holes drilled, worked out per man
and per machine.

SUPPLIES.--Daily returns of supplies used; the principal items
worked out monthly in quantity per foot of progress, or per ton
of ore produced.

POWER.--Fuel, lubricant, etc., consumed in steam production, worked
out into units of steam produced, and this production allocated to
the various engines. Where electrical power is used, the consumption
of the various motors is set out.

SURVEYS.--The need of accurate plans requires no discussion. Aside
from these, the survey-office furnishes the returns of development
footage, measurements under contracts, and the like.

SAMPLING AND ASSAYING.--Mine sampling and assaying fall under two
heads,--the determination of the value of standing ore, and of
products from the mine. The sampling and assaying on a going mine
call for the same care and method as in cases of valuation of the
mine for purchase,--the details of which have been presented under
"Mine Valuation,"--for through it, guidance must not only be had to
the value of the mine and for reports to owners, but the detailed
development and ore extraction depend on an absolute knowledge of
where the values lie.

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