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Cottage Industries

Capacity costs (committed costs) give a firm the capabil- the finished product, and then paid the family a percent-
ity to produce or to sell, while programmed costs (managed age of the price charged to the end consumer. Some of the
costs, discretionary costs), such as for advertising or research, items made by these at-home workers were cloth and
may be nonessential, but once the firm has decided to clothing, shoes, cigars, and hand-decorated items.
incur them, they become fixed costs. The firm will incur Cottage industries developed in cities around 1870,
standby costs even if it does not use existing capacity; exam- resulting in the harsh tenement housing system. Immi-
ples include property taxes and depreciation on a build- grant families lived and worked in these crowded, unsafe
ing. The firm can avoid enabling costs, such as for a apartment buildings. They worked for extremely low
security force, if it does not use capacity. A cost fixed over wages, usually making garments. This system lasted until
a wide range but that can change is a semifixed cost or “step around 1920, when better management of factories made
cost.” An example is the cost of rail lines from the factory home-produced goods less competitive.
to the main rail line, where fixed cost depends on whether Hand-decorating of items, sewing, and other highly
there are one or two parallel lines but are independent of specialized activities still operate as cottage industries
the number of trains run per day. Semivariable costs com-
today. Economists point to the rise of a new type of cot-
bine a strictly fixed component cost plus a variable com-
tage industry whereby people can stay at home to perform
ponent. Telephone charges usually have a fixed monthly
work on their computers that formerly had to be done at
component plus a charge related to usage. the office. Telecommuters is another term used more fre-
SEE ALSO Cost Allocation; Cost-Benefit Analysis; Cost- quently today to refer to home-based employment. Many
Volume-Profit Analysis jobs that used to require workers’ physical presence in the
office can now be performed from home. Running a busi-
ness from home today requires only a couple of phone
BIBLIOGRAPHY
Buchanan, James M., and Thirlby, G. F. (1973). L.S.E. Essays on lines with call forwarding and call waiting, a computer
Cost. London: Weidenfeld and Nicholson. with e-mail and a modem, a fax machine, a copier, and
office supplies. For executives on the go, a cell phone and
Horngren, Charles T., Foster, George, and Datar, Srikant M.
(2005). Cost Accounting: A Managerial Emphasi (12th ed.). laptop computer can keep them up and running from just
Upper Saddle River, NJ: Prentice-Hall. about any location.
Maher, Michael W., Stickney, Clyde P., and Weil, Roman L.
(2006). Managerial Accounting: An Introduction to Concepts,
HOME EMPLOYMENT BENEFITS
Methods, and Uses (9th ed.). Mason, OH: Thomson/South-
Western. There are many reasons that people choose to work from
their homes. They can be experienced or inexperienced,
Stickney, Clyde P., and Weil, Roman L. (2006). Financial
Accounting: An Introduction to Concepts, Methods and Uses young or elderly, healthy or physically challenged, single
(11th ed.). Mason, OH: Thomson/South-Western. or married, with or without children.
Many mothers and/or fathers of young children find
it more productive, more cost-effective, and safer to keep
Roman L. Weil
their children with them while they work at home. They
can have the flexibility of arranging their job around their
family’s needs. Many parents enjoy being able to spend
time with their children during the day. Parents maintain
COTTAGE INDUSTRIES responsibility for the safety of their own children and can
Cottage industries is a term that was prevalent during the keep abreast of how much they are learning, know who
eighteenth and nineteenth centuries to describe the home- they are playing with, and save money on day-care
based system of manufacturing. This term is also used expenses at the same time.
today to refer to goods or services that are produced at Another reason people choose to work from home is
home. Sewing, craft production, sales and marketing, typ- that they do not have to commute to and from their
ing, bookkeeping, and auto repair are just a few examples workplace. By not commuting to work, they can save on
of home-based employment.
wear and tear of their vehicle, get lower insurance rates,
and spend less money on gas.
HISTORY Working from home also saves money that would
Rural families were some of the first to become involved normally be spent on a workplace wardrobe. Much more
in the cottage industry. They added to their agricultural informal clothing can be worn when working at home.
income by making products at home. Merchants provided Not spending money on uniforms, suits, and/or dresses
the raw materials to the families, collected and marketed provides more money for other expenses.

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 173