and the return coupon in the succeeding month. The cash fares were $4,000. The statement of passenger revenue as made up by the company on the basis of cash fares and ticket sales as compared with the operating expenses and taxes for the two months of August and September showed the following results:

In order to handle the business approximately the same number of cars were run each month, there being a very small variation in the car mileage, but a comparison of the gross revenues per car mile showed a very wide variation. When the account was adjusted to the basis of the actual earnings the results were stated as follows:

Considering the fact that the outstanding tickets at September 30 are taken at the same amount as at August 1, $3,000, the net results for the two months will not be changed but the question arises whether or not it is not better to correctly state the actual results for each month, or such other fiscal period as may be customary, than to show a fictitious loss during the month of September and an abnormal ratio of expenses to earnings, and an enormous discrepancy between the revenue per car mile in the two months which can only be caused by improperly crediting the

* Deficit.

earnings of one month in the month in which the cash was received. The incident as quoted above may seem exaggerated, but it has been the experience of the writer that probably 90 per cent of the traction lines now in operation pay no attention to any liability for outstanding tickets, nor do they make any distinction as between passenger receipts and passenger revenue. The proper basis of passenger revenue should unquestionably be the car, train or trip earnings, and the total of such trip earnings should be reconciled each month with the total passenger receipts by relative statement of outstanding tickets at the first and end of each month. It may be claimed by some traction lines that the amount received for transportation to be furnished is not a liability in that there is no provision for refund of unused portions of such tickets. This may be true, but on the other hand the liability exists-if not through the redemption of tickets-by reason of the expense which must be incurred in operation of the line for the purpose of furnishing transportation to the holders of

such tickets.

The steam railroads have very much the same condition to face, but the relative number of round tickets, as compared to the total volume of business is much smaller, although the same conditions exist and the same liability should be provided for.

Every ticket sold creates a liability on the part of the company, which liability is not discharged until the passenger receives transportation in exchange for such tickets, or the ticket be redeemed for cash.

Apportionment of the Cost of Anthracite Coal

Between Domestic and Steam Sizes.

A SYMPOSIUM EDITED BY E. S. MEADE, PH.D. The following letter was recently sent by the editors of THE JOURNAL OF ACCOUNTANCY to a number of public accountants:

On March 25th the anthracite operators gave out a statement defending their position in refusing to grant the demands of the mine workers for increased wages, on the ground that the concessions asked for would add $1.20 to the price of prepared sizes of anthracite coal. In the course of this statement we find the following:

"By careful calculation from the pay rolls of the operating companies the effect of these three increases is to add an average of 21.64 per cent to the actual labor cost per ton of coal. This is equal, at the present labor cost of $1.55 to an increase of 33.68 cents per ton on all sizes of coal which are mined.

"It must be understood, however, that the so-called 'steam sizes' of anthracite-which are a by-product of the industry— come into direct competition with bituminous coal, and must, therefore, be sold for a price regulated by soft coal. The result is that all the added labor cost of the entire industry must be borne by the domestic sizes,' which comprise 65 per cent of the entire output.

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This is exactly the same principle that holds good in other manufacturing industries, as, for instance, in the grain or milling business. Wheat at present costs about eighty-eight cents per bushel. After this wheat is milled 31 per cent of the product sells for a price of 41 per cent less than the actual cost of the wheat before milling, and the cost of the flour, or main product, has to be increased accordingly to make up for this loss. It is the same way with anthracite coal.

"This placing the burden on the domestic sizes-a fact against which there can be no appeal-brings it about that the labor cost of each ton of coal sold to the domestic consumer' would be raised under the new demands by 51.8 cents a ton."

Will you kindly give your opinion, as an accountant, as to the soundness of this reasoning. If it is proper, where two

commodities are produced in connection with each other-one as a primary product and the other a by-product, to charge the entire cost of producing both upon the primary product, or should the by-product carry a certain amount of this cost?

A number of replies have been received and these present a considerable diversity of opinion. Mr. C. N. Vollum of Philadelphia writes as follows: "A primary product is one for the production of which a business was organized; and by-products are certain remainders or residuals, that are the result of the manufacture of the primary product. It is the universal custom, and in my view a correct one, to credit the manufacturing cost of the primary product with the net proceeds obtained from the sale of a by-product, and in that way we get at the cost of a primary product, the price of a by-product or residual thus being used to reduce the cost of the primary product. The result of the operation, whether profit or loss, is determined through the primary product. In this view of the question, the increase in cost of labor, etc., must be borne solely by the primary product."

Mr. Allen R. Smart, of Illinois, also gives his unqualified approval to the position assumed by the anthracite operators. Mr. Smart remarks: "The anthracite operators are, in my opinion, quite correct in their statement regarding the cost of anthracite as quoted in your letter. In other words, I would, if asked to arrive at the actual cost of domestic sizes of anthracite, take the total cost of mining and deduct therefrom the net proceeds of the steam coal; the balance would represent the cost of producing the coal of domestic sizes, which divided by the number of tons would give the average cost per ton. It would not be right to apportion the cost on a basis of mine tonnage, when such a large proportion of the tonnage has to be sold in competition with other coals, comparatively easy to mine."

Mr. Francis A. Wright, of Missouri, holds to the same opinion. He writes: "Where two commodities are produced, one a primary, and the other a by-product, it is not proper to charge the entire cost of producing both to the primary product. The usual rule, as I understand it, in cases where more than one product is produced, is that if one of these, known as a by-product, cannot be disposed of so as to realize its cost, then the difference between

the cost and the amount realized from the by-product must be considered as a part of the cost of the primary product. The statement made by the anthracite operators does not give all the facts, but I assume that a proportion of the cost of production has been charged to the by-product. If this is the case, and no higher price can be obtained for the by-product, then the proposed increase would simply add to the excess which would have to be charged to the primary product, and therefore the whole of this additional cost would have to be charged to the primary product. My judgment, therefore, as an accountant is that if the premises given by the operators are correct, their reasoning is sound."

Mr. Max Teichman, of Maryland, while approving the operators' thesis, holds that the case is exceptional and as a general rule that the cost of producing two products should be apportioned between them. In the present instance, however, he remarks: "If the by-product is to be considered an offal, or waste, of the primary product, the entire first cost should be carried by the primary product and the extra cost to make that by-product marketable should be borne by the latter. There is still another exception, as in the case cited by you. If the so-called "steam sizes" of anthracite have to be sold in direct competition with bituminous coal, for a price regulated by soft coal, it seems logical that the entire additional cost of labor must be borne by the "domestic' sizes."

Mr. Seymour Walton, of Illinois, takes the position that while the proceeds of the sale of by-products are not a reduction in the cost of production, if the by-products increase in price it may be proper for the company to devote a portion of the increased profit to reducing the price of their primary product and enlarging the scope of their business. Mr. Walton's opinion is as follows: "A manufacturing business is usually undertaken for the purpose of producing certain products. The cost of each product is determined by the amount of the material and labor that enters into it, due allowance being made for the indirect expense necessary to the manufacture but not to the selling of the article. Any increase of direct cost, such as a rise in the price of material or in the wages paid will add to the cost. If a company finds that some result of its processes, hitherto considered a waste or a source of expense, can be made to produce a profit by being sold in its raw state or by being further treated and sold, it is said to have de