38. Overhead charges

sideration.

Interest during construction. General con

39. Overhead charges - Interest during construction. Mean weighted

51. Cost of land affected by cost of hypothetical buildings. 52. Cost of buildings

29. Inventory. The replacement cost has been defined as the "amount of money which would have to be expended at the present time to bring into existence a property substantially identical with that of the undertaking being appraised." In order, therefore, to obtain the replacement cost of the physical property of an undertaking, a knowledge of two things must be obtained, first, a knowledge of the several classes of property of which the plant is composed and of the number of units

of the same kind in use in each of these classes; second, a knowledge of the cost of each unit in its final position in the plant.

The first of these requisites must be obtained from an inventory of the entire plant made by an actual inspection and enumeration of each unit of every class found in service or held in reserve as useful for the public in furnishing and maintaining a uniform and uninterrupted service.

The second must be obtained by a determination of all costs which would be incurred in obtaining similar units of each class and placing them where existing units are now found in the plant.

The methods to be employed in making the inventory, the forms to be used and the system to be employed in handling these forms, both in the field and in the office, need not be described in the present study.1

30. Plant elements. — A plant element is a definite class of property: thus, -iron wire, copper wire, road bed, bridges, poles, are each elements of a plant. But in the case of most large public utility plants, the number of different articles or other character of property is so great that an inventory showing them all would be too cumbersome to be capable of use. Thus, in an inventory of the property of a telephone or telegraph company, a cross-arm used upon a pole to support wires has upon it a number of pins upon which the line insulators are screwed, each pin is attached to the cross-arm by a nail, the cross-arm is very generally fastened to the pole by a bolt, and it is prevented from moving in a vertical plane by the use of cross-arm braces held in place by bolts and a drive screw. Each one of the articles above enumerated could be made a plant element and recorded by those making the inventory records in the field, upon the forms

1 See H. E. Riggs, Proc. Am. Soc. of Civil Eng., Vol. XXXVI, No. 9.

prepared for their use. On the other hand, the crossarm complete in place with all associated apparatus could be made the plant element and all cross-arms of standard form and supported in a standard manner recorded, thereby eliminating the vast amount of field and office work which would result if each piece of associated apparatus were made an element and had to be recorded individually.

The limitation which must be made to grouping together many articles into one plant element is dependent upon whether the several articles composing the unit are brought into use simultaneously and all pass out of use simultaneously when they have served their useful life. In the case cited of a cross-arm, when the crossarm is placed upon a pole it is associated with all of the articles above enumerated. When a cross-arm has become unserviceable due to age, it is removed and destroyed and with it the pins and nails used to attach the pins to the cross-arm. If the cross-arm braces and pole bolts and other hardware used with them can be and usually are used again with a new cross-arm, then these articles of hardware must not be included with the cross-arm and pins in order to make a plant element. This distinction is needed in order that the depreciation of the plant can be more readily figured, and this clearly will be the case when the plant element has a definite life.

The plant element is, therefore, an article or group of articles used in such close association in the plant that they are normally placed in service and removed from service together.

31. Costs. It has become the custom of appraisers, in assigning costs of reproduction to the plant elements, to divide the costs of such construction into two classes, unit costs and overhead charges.

The cost of each unit of the plant elements in its final position is known as the unit cost. The unit cost includes all expenses to which an undertaking would be put in purchasing the unit and placing it in its final position in the plant. It includes, however, only such expenses as can be definitely assigned to the units of the plant elements.

There are many other expenses of a more general nature which cannot be assigned readily to an individual unit, but can be spread more accurately over the cost of the plant as a whole or over certain groups of plant elements. Expenses of this character are known as overhead charges and are applied usually in the form of percentages of that portion of the replacement cost of the physical property, obtained by the application of unit costs to the respective number of units of all elements found in the plant.

32. Items included in unit costs. The entire plant is divided, in the manner above described, into plant elements, and the inventory when made shows the number of units of each element found in service. The cost of each unit of the plant elements in its final position is known as the unit cost, and is composed not only of the cost of the material employed but of all other items of expense which are necessarily involved in the purchase of the articles of which it is composed, of getting them together, assembling and placing them in their final position. These are all costs which can be readily assigned to each article or plant unit and combined to form the unit cost.

The several items of cost which may enter to form the unit cost are,

First cost of article.

Purchasing cost.

Transportation from factory to storehouse.

Storehouse cost, rent, light, heat and clerical work at storehouse.

Inspection.

Assembling or fitting.

Transportation from storehouse to town where used.
Distribution from train to work.

Labor of men placing the element in position.
Transportation of men and tools to work.

Lost time of men during travel and wet weather.
Losses on tools and material.

Insurance, liability and fire.

Some or all of the above items of expense are present in the unit cost of each element. They can all be determined or properly apportioned without difficulty for each element.

33. Units Costs Costs of material. The first cost of the unit of an element has been fully discussed and decided to be the mean of the market prices which have prevailed during the assumed period of construction. The same ruling should hold as to the several elements of cost above enumerated. The costs of labor, freight and transportation during a period in the past equal to the assumed period of construction are usually equally obtainable and, by the use of such figures, a consistent and fair present cost of the unit can be obtained.

34. Unit costs Costs of labor. In the determination of unit costs, as above explained, not only is the cost of the material included, but the labor and expense involved in getting the material to its position in the plant, setting it in place, and making it ready for service. The question arises as to what labor charges should be included in these unit costs. In the construction of a plant there is always incurred the expense of purchasing the material, getting it from the factory to the stores, shipping from the stores into the field, the cost of the labor of the superintendent of the plant, and all foremen and sub-foremen, the time and travel of the men engaged