There is something in me that loves a good chart. I can’t help it. Some people are stopped short by a pair of soulful eyes or a kitten sleeping, but give me a good table of figures, and I am hooked.
Josiah Wedgwood, manufacturer of pottery to English royalty, must have felt the same way because he was a pioneer in cost accounting. Not only that, but he designed beautiful dishes.
Bad Knee, Big Brain
Wedgwood was born in 1730, the 11th child of a potter who transformed his father’s small, midland English artisan studio into a manufacturing empire. He survived smallpox, though it left him with a knee too weak to run a potter’s wheel. As a result, he concentrated on design and gravitated towards glazes. He stumbled on to the latest science–chemistry–and that allowed him to transform the cheap, black bowls of the family shop into multi-colored, sophisticated figurines and dinnerware for aristocrats. He married someone who had money and found business partners with connections into high society. It paid off.
He also happened to be a Unitarian and a fervent abolitionist. He mass-produced cameos for the Society for Effecting the Abolition of the Slave Trade, which became widely distributed to support the cause, kind of like the pink ribbon of the 1770s. This created another type of market for his work.
Wedgwood’s genius allowed him to open a factory in Manchester, which would not only create the high glazes and unique shapes that drove his pottery’s reputation, but to mass-produce with quality. He was a master of analyzing what combinations of clay, pigment, and design worked best together. He analyzed everything; he couldn’t help it. Thus, he was also born to develop superior cost accounting.
The Cutthroat Trade of the Tudor Wool Merchants
What exactly is cost accounting? The Sumerians counted everything, and the Italian traders added double-entry bookkeeping to make things balance, but managerial accounting–cost accounting–emerged out of late medieval England and kicked into high gear in the Industrial Revolution.
During the Renaissance, the guilds had clustered bands of like artisans together, which created pricing monopolies. About the time of Henry VII (the dude who defeated Richard III and ended the War of the Roses), some of the smaller artisan groups moved into the countryside to find other sales channels not controlled by the guilds. However, without guild-propped pricing, they needed better information about what was making money.
General financial accounting tells you whether you’re making money or not. Cost accounting tells you how. It’s a fascinating little tidbit, though, that:
…persons who worked on the [costing] problems … seem not to have been the type who wrote down, to any large extent, their ideas and techniques. The cost accountants and book- keepers passed their methods on to others only with great reluctance; strict secrecy was often the rule.S. Paul Garner, Historical Development of Cost Accounting
Fortunately for accounting historians, Wedgwood kept a very detailed diary with his notes. Also, luckily enough, there was a huge English financial crisis in 1772, caused by a Bengal famine, mass bankruptcies of speculating banks, and a collapse in tea prices for the East India Company. This led, in part, to forced tax pricing in the colonies on the price of non-East India tea and festivities in Boston harbor… but that’s another story.
The upshot for Josiah Wedgwood was that in 1772 demand for his Grecian sphynxes fell, and he became really interested in which of his candlesticks made money. Just as nature abhors a vacuum, Wedgwood abhorred not knowing why.
Fine Tuning Output Like a Scientist
While most businesses keep track of how much is spent on salaries, building, and equipment, what Wedgwood specialized in was distributing those expenses to his many products. It’s not unlike a scientist doing an experiment. You wouldn’t want to just water and feed a plant and see what happens. You’d pay attention to the amount of water, sunlight, soil, temperature, and plant food.
What Wedgwood got good at doing was figuring out how to allocate costs so that he could put high prices on really expensive items–those that went to Queen Charlotte and her duchess friends–while then mass-manufacturing less-expensive knock-off vases to the “Middling classes.” According to one biographer, he spent so much time trying to puzzle out his costing system with his partner Bentley, that he only mentioned his wife’s near-death illness in a footnote. Fortunately, she survived and continued bearing him three more of his eight children. I suppose fascinating analysis is sometimes all-consuming.
Without cost accounting, Wedgwood would not have known that his Black Dolphin Lamp cost 6.7, while his Sphynx Tripod with Lamps & Sybils cost 30.3. Naturally, inquiring minds want to know exactly where the biggest difference was.
It turns out that the huge difference came from two categories: Modeling & Molds and the allocation for Breakage, Loss, and Accidents. Huh. Wonder why that was the case? It just makes me desperate to put this all in a spreadsheet and start graphing it. It definitely gives me the tingles to know that Wedgwood had understood how to cost his painting of “Crests and Cypher” down to the individual cypher.
But maybe that’s just me.