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Chapter 02 - Basic Cost Management Concepts
2-1
Copyright © 2014 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
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CHAPTER 2
BASIC COST MANAGEMENT CONCEPTS
Learning Objectives
1. Explain what is meant by the word cost.
2. Distinguish among product costs, period costs, and expenses.
3. Describe the role of costs in published financial statements.
4. List five types of manufacturing operations and describe mass customization.
5. Give examples of three types of manufacturing costs.
6. Prepare a schedule of cost of goods manufactured, a schedule of cost of goods
sold, and an income statement for a manufacturer.
7. Understand the importance of identifying an organization's cost drivers.
8. Describe the behavior of variable and fixed costs, in total and on a per-unit basis.
9. Distinguish among direct, indirect, controllable, and uncontrollable costs.
10. Define and give examples of an opportunity cost, an out-of-pocket cost, a sunk
cost, a differential cost, a marginal cost, and an average cost.

2-2
Education.
Chapter Overview
I. What Do We Mean by a Cost?
A. Product costs, period costs, and expenses
II. Costs on Financial Statements
A. Income statement
1. Selling and administrative costs
2. Costs of manufactured inventory
B. Balance sheet
1. Raw-materials inventory
2. Work-in-process inventory
3. Finished-goods inventory
III. Manufacturing Operations and Manufacturing Costs
A. Job shop, batch, assembly line, continuous flow
B. Assembly manufacturing
C. Manufacturing costs
1. Direct material
2. Direct labor
3. Manufacturing overhead
4. Indirect material
5. Indirect labor
6. Other manufacturing costs
7. Conversion cost, prime cost
IV. Manufacturing Cost Flows
A. Cost of goods manufactured
B. Production costs in service industry firms and nonprofit organizations
V. Basic Cost Management Concepts: Different Costs for Different Purposes
A. The cost driver team
1. Variable and fixed costs
B. The cost management and control team
1. Direct and indirect costs
2. Controllable and uncontrollable costs
C. The outsourcing action team
1. Opportunity costs
2. Out-of-pocket costs
3. Sunk costs
4. Differential and incremental costs

2-3
Education.
5. Marginal and average costs
D. Costs and benefits of information
VI. Costs in the Service Industry
A. Product and period costs
B. Variable and fixed costs
C. Controllable and uncontrollable costs
D. Opportunity, out-of-pocket, and sunk costs
E. Differential, marginal, and average costs
Key Lecture Concepts
I. What Do We Mean by a Cost?
A cost is the sacrifice made to achieve a particular purpose.
There are different costs for different purposes, with costs that are
appropriate for one use being totally inappropriate for others (e.g., a cost
that is used to determine inventory valuation may be irrelevant in
deciding whether or not to manufacture that same product).
An expense is defined as the cost incurred when an asset is used up or
sold for the purpose of generating revenue. The terms "product cost" and
"period cost" are used to describe the timing with which expenses are
recognized.
 Product costs are the costs of goods manufactured or the cost of
goods purchased for resale. These costs are inventoried until the
goods are sold.
 Period costs are all other non-product costs in an organization (e.g.,
selling and administrative). Such costs are not inventoried but are
expensed as time passes.

2-4
Education.
II. Costs on Financial Statements
Product costs are shown as cost of goods sold on the income statement
when goods are sold. Income statements of service enterprises lack a cost-
of-goods-sold section and instead reveal a firm's operating expenses.
Product costs, housed on the balance sheet until sale, are found in three
inventory accounts:
 Raw materials—materials that await production
 Work in process—partially completed production
 Finished goods—completed production that awaits sale
III. Manufacturing Operations and Manufacturing Costs
There are various types of production processes; for example:
 Job shop—low production volume, little standardization; one-of-a-
kind products
 Batch—multiple products; low volume
 Assembly line—a few major products; higher volume
 Continuous flow—high volume; highly standardized commodity
products
Direct materials—materials easily traced to a finished product (e.g., the
seat on a bicycle)
Direct labor—the wages of anyone who works directly on the product
(e.g., the assembly-line wages of the bicycle manufacturer)
Manufacturing overhead—all other manufacturing costs such as:
 Indirect materials—materials and supplies other than those
classified as direct materials,

2-5
Education.
 Indirect labor—personnel who do not work directly on the product
(e.g., manufacturing supervisors), and
 Other manufacturing costs not easily traceable to a finished good
(insurance, property taxes, depreciation, utilities, and
service/support department costs). Overtime premiums and the
cost of idle time are also accounted for as overhead.
 Idle time – time that is not spent productively by an employee due
to such events as equipment breakdowns or new setups of
production runs.
Conversion cost (the cost to convert direct materials into finished
product): direct labor + manufacturing overhead
Prime cost: direct material + direct labor
IV. Manufacturing Cost Flows
Manufacturing costs (direct materials, direct labor, and manufacturing
overhead) are "put in process" and attached to work-in-process inventory.
The goods are completed (finished goods), and the costs are then passed
along to cost of goods sold upon sale.
Cost of goods manufactured: Direct materials used + direct labor +
manufacturing overhead + beginning work-in-process inventory - ending
work-in-process inventory
 This amount is transferred from work-in-process inventory to
finished-goods inventory when goods are completed.
Product costs and cost of goods sold for a manufacturer:

2-6
Education.
Beginning Cost of Goods Ending
Inventory, + Manufactured - Inventory, = Cost of
Finished Goods to Completion Finished Goods Goods Sold
Beginning Cost of Ending Cost of
Finished
Goods
Goods
Manu.
Finished
Goods
Goods
Sold
Supported by A schedule of Current Income
the prior year's production costs balance sheet statement
balance sheet
Production-cost concepts are applicable to service businesses and
nonprofit organizations. For example, the direct-materials concept can be
applied to the food consumed in a restaurant or the jet fuel used by an
airline. Similarly, direct labor would be equivalent to the cooks in a
restaurant and the flight crews of an airline.
V. Basic Cost Management Concepts: Different Costs for Different Purposes
A cost driver is any event or activity that causes costs to be incurred. Cost
driver examples include labor hours in manual assembly work and
machine hours in automated production settings.
 The higher the degree of correlation between a cost-pool increase
and the increase in its cost driver, the better the cost management
information.
Variable and fixed costs
 Variable costs move in direct proportion to a change in activity.
For example, in the manufacture of bicycles, the total cost of bicycle
seats goes up in proportion to the number of bicycles produced.
However, the cost per unit (i.e., per seat) remains constant.

2-7
Education.
 Fixed costs remain constant in total as the level of activity changes.
For instance, straight-line depreciation of a bicycle plant remains
the same whether 100 bicycles or 1,000 bicycles are produced.
However, the depreciation cost per unit fluctuates because this
constant total is spread over a smaller or greater volume.
Direct and indirect costs
 An entity (e.g., a specific product, service, or department) to which
a cost is assigned is commonly known as a cost object.
 A direct cost is one that can be easily traced to a cost object.
 If a college department has been defined as the cost object,
professors' salaries and administrative assistants' salaries are
direct costs of the department (just as assembly workers'
wages are direct costs of a manufacturing department).
 An indirect cost is a cost that cannot be easily traced to a cost
object.
 For example, the costs of a university's controller, president,
campus security, and groundskeeper cannot be directly
traceable to a specific department, as these individuals
service the entire university. (Similarly, a factory guard's
salary is not traceable to only one department and is, thus,
considered indirect to all departments.)
 A cost management system strives to trace costs to the objects that
caused them so that managers can isolate responsibility for
spending and objectively evaluate operations.
Teaching Tip: When discussing indirect costs, you may want to cite a
hospital's medical and surgical supplies as an example. Such items do not
appear to be a primary target for trimming; however, these indirect costs
often account for a sizable portion of a hospital's operating costs.
Understanding indirect costs has become more valuable in a managed-
care environment because it helps hospitals negotiate fixed-fee contracts.

2-8
Education.
Controllable and uncontrollable costs
 Controllable costs—costs over which a manager has influence (e.g.,
direct materials)
 Uncontrollable costs—costs over which a manager has no
influence (e.g., the salary of a firm's CEO from the production
manager's viewpoint)
Opportunity cost—the benefit forgone by choosing an alternative course
of action (e.g., the wages forgone when a student decides to attend college
full-time rather than be employed)
Out-of-pocket cost—a cost that requires a cash outlay
Sunk cost—a cost incurred in the past that cannot be changed by future
action (e.g., the cost of existing inventory or equipment)
 Such costs are not relevant for decision making.
Differential cost—the net difference in cost between two alternative
courses of action
 Incremental cost—the increase in cost from one alternative to
another
Marginal cost—the extra cost incurred when one additional unit is
produced
Average cost per unit—total cost divided by the units of activity
Accountants must weigh the benefits of providing information against the
costs of generating, communicating, and using that information. The goal
is to use information effectively and avoid information overload.

2-9
Education.
VI. Costs in the Service Industry
The preceding costs are relevant in service providers as well as for
manufacturing entities.
Teaching Overview
The main purpose of Chapter 2 is to expand the way in which costs are defined and
viewed. After completing a course in financial accounting, students are very much
geared into thinking about functional costs (depreciation, utilities, and commissions) for
an entire organization. While this is useful information to an outside creditor or
investor, it is insufficient with respect to helping internal managers do their jobs
effectively. Managers must also consider cost behavior, controllability, costs incurred
by smaller segments, and so on. An initial reminder of these facts generally opens a
discussion of additional ways of viewing financial information. It is worthwhile to
spend a few extra minutes in the area of cost behavior since it is so fundamental to later
topics.
Before discussing manufacturing costs, I ask for a show of hands from students who
have actually visited a manufacturing plant. The typical, small number of hands serves
as a reminder that many students have little idea of what a factory "looks like" and
does. Pictures and videos are helpful in providing a context for the concepts being
discussed—even a field trip to a local manufacturer is a good idea. This is also an
excellent time to point out that even if a student does not plan to work in production
management, he or she may well work in accounting, finance, or marketing for a
company that makes a product. Therefore, being conversant in the language and
concepts of cost accounting will be useful. Accounting techniques in manufacturing are
frequently transferable to the service sector, and this fact should be emphasized in class.
In summary, Chapter 2 discusses the many ways that costs can be categorized. Chapter
3 then follows with a discussion of a system to track product costs and answers the age-
old question, “How much does this cost?” I recommend using Problem 2-50 (cost
terminology and cost behavior) and Exercise 2-28 (financial schedules and statements)
as lecture demonstration problems.

2-10
Education.
Links to the Text
Homework Grid
Item No.
Learning
Objectives
Completion
Time (min.)
Special
Features*
Exercises:
2-24 2, 5, 8 20
2-25 1, 3, 6 10
2-26 5 10
2-27 5 10
2-28 1, 3, 6 25
2-29 4 30 C
2-30 1, 8 15
2-31 1, 10 5 I
2-32 1, 8, 10 15
2-33 1, 9, 10 5
2-34 1, 10 10
2-35 1, 10 10
2-36 1, 10 15
Problems:
2-37 2, 5, 10 25
2-38 1, 3, 5, 9 15
2-39 3, 4 20 C
2-40 1, 2, 3 10
2-41 1, 9 10
2-42 1, 5, 9 20
2-43 1, 3, 5, 6 35 S
2-44 5, 6 30
2-45 2, 5 40 S
2-46 5, 6, 8 25
2-47 5, 6 25
2-48 7, 8 25
2-49 7, 8 15
2-50 5, 8, 9 20
2-51 1, 3 40 W
2-52 8, 9, 10 25
2-53 7, 8 15
2-54 1, 3, 9, 10 20
2-55 7, 10 10

2-11
Education.
2-56 4, 10 25
2-57 8, 10 15
2-58 7, 8 25
Cases:
2-59 7, 8, 10 30 W, G
2-60 10 50 W, E
* W = Written response E = Ethical issue G = Group work
I = International C = Internet use S = Spreadsheet

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"Dear old Hugh! I knew you'd say yes."
"But I haven't said anything of the sort," I protested, severely. "Don't you
run away with that idea, young lady. I shall have to hear what Mr. Holdern's
got to say for himself first," I added, frowning, and assuming an air of
paternal authority. But she saw through it, and with a final kiss ran away
laughing.
Being a somewhat matter-of-fact young man, and keenly conscious of an
as yet unsatisfied hunger, I finished my dinner before I commenced to think
seriously over this unexpected incident. Then I leaned back in my chair and
considered it, and in a very few minutes I had come to the conclusion that it
was about the most fortunate thing that could have happened. I had never
intended my stay here to be a permanent one, and whilst there were now no
reasons why I should remain, there were several strong ones why I should
go. First, I could attain no nearer now, by stopping, to the great object of my
life; on the other hand, every day I stayed here and remained under the
fascination of Maud Devereux's presence I stood in greater risk of
forgetting my oath. Then whilst here I had no opportunity of meeting
Rupert Devereux, my uncle, the man from, whom, if it came at all, must
come my father's justification. My father!
I thought of him in his weary exile, and my heart ached. Not a line had I
heard from him since our parting, nor had I even the least idea in what
country of the world he was. If Marian left me, what was there to prevent
my finding him out and throwing in my lot with his? Together we might
accomplish what singly each might fail in. The more I thought about it the
more I liked the idea.
Leave Devereux I must, though I had grown to love the place, and to feel
a strange affection for my stern old grandfather. Yet how could I go on
living here to feel every day the subtle fascination of Maud Devereux's
presence gaining a stronger hold upon me—Maud Devereux, the daughter
of the man who had wrecked my father's life and mine, the man whom I had
cursed in my heart? It seemed to me almost like treachery towards him
whom I loved so well, and whose wrongs I so bitterly resented, that a
glance from her blue eyes could madden or elate me, and that the sound of
her voice could set all my senses quivering. I must go, I must turn my back

upon her for ever and take up the work of my life wherever it might lead
me. This thing which had happened to Marian made the way clear before
me.
I crossed over to our little drawing-room, and, entering without the
ceremony of knocking, found Marian and Mr. Holdern seated on chairs a
long way from one another, apparently engaged in a minute examination of
the ceiling. Marian took up her work and left us with a blushing face, and
Mr. Holdern, without any beating about the bush, stood up on the hearthrug
and began his tale.
He was a pleasant-faced, agreeable young fellow, and there was an
honest look about his eyes and a straightforward manner which I liked, and
which convinced me of his sincerity. He had a private income, he told me,
and had recently been offered a very comfortable living about twelve miles
away. "Of course," he added, hesitatingly, "he felt some diffidence in
proposing to take Marian away from me, and thus leaving me to live by
myself—but, but, the long and short of it was, he wanted to get married as
soon as I could possibly spare her. They would not be far away; indeed, if
my prospective loneliness was an objection, I could take up my abode with
them. Anything so that I would give him Marian, and give him her soon."
I did not waste any time in affecting to consider the matter, but, pledging
him first to secrecy, I told him our history, what was our rightful name, and
my reasons for not bearing it. If I had had any doubt before, I knew by his
behaviour when I had finished my story that he was a good fellow. He held
out his hand and grasped mine, with the tears standing in his eyes.
"Mr. Devereux," he said, emphatically, "I don't know how to express my
sympathy for you. I heard of this sad affair when I was a very little boy, and
I have heard my father say many a time that he would never believe Herbert
Devereux to be a coward. I hope to God that you will succeed in your
quest."
"I hope so," I echoed, fervently. "Marian knows nothing of this, Mr.
Holdern."

"Nor need she ever," he answered. "I think you have been quite right to
keep it from her! There would have been no object gained in her knowing,
and women do not understand these things like men."
"Do you know anything of Rupert Devereux?" I asked.
He shook his head. "Very little. I have seen him once—a tall, dark man,
handsome, but very unlike the Devereuxs. I have heard him spoken of as a
Sybarite and a pleasure-seeker. He is seldom in England, I believe."
A Sybarite! A pleasure-seeker! I thought of him wandering at will
through the countries of the world, steeping his senses in every luxury that
money could buy, and living at ease and in comfort, and I thought of my
father, also a wanderer on the face of the earth, seeking neither comfort nor
pleasure nor ease, at war with the world and with himself, with no joy in the
present or hope for the future, seeking only for a chance to throw his life
away in the miserable quarrels of any pettifogging country who would
accept his sword! Mr. Holdern watched me in silence while I walked up and
down the room for a few minutes almost beside myself with compressed
passion. Then he walked up to me and laid a hand on my shoulder.
"Devereux," he said, earnestly, "I can understand your feeling like this, but
you must try and keep it under control, or I'm afraid there will be trouble
soon."
"What do you mean?" I asked, turning round and facing him.
He hesitated, and then answered slowly—
"I have just heard that young Francis Devereux, your cousin, is expected
down here for Christmas."
CHAPTER XX
AMONGST THE BULRUSHES

It wanted but three days to Christmas, and it had been a frost. Upon the
bare fields and the shivering landscape had fallen a hand of iron—no gentle
hoar-frost, making the fields and country look like a glittering panorama,
but a stern, merciless black frost which had come in with the east wind, and
lay upon the land like a cruel blight. Agricultural work of all sort was at a
standstill, and hunting was impossible. The only thing to be done out of
doors was to skate, and that every one who owned a pair of skates was
doing.
There was a large party at Devereux Court, but I had contrived to see
very little of them. Two of Lady Olive's sisters, some former schoolfellows
of Maud Devereux's, Francis Devereux, and some town friends, were all
stopping there, and Maud was playing hostess while Sir Francis kept
himself partially shut up. Once or twice I had come across them in the park,
a laughing, chattering group, but I had passed with a bow, and had chosen
not to see Lady Olive's mute command to stop. I had seen him, my cousin,
and I hated him. What freak of nature had made him the brother of such a
sister?—this pale, effeminate-looking man, with leaden eyes and insolent
stare, and the manners of a fop. "What did Sir Francis think of him," I
wonder, "as the future head of the family of Devereux?" Bah! It was a
profitless thought.
Early in the morning I sallied out with Mr. Holdern and Marian for an
hour or two's skating; there was nothing else for me to do. There were two
lakes, and we chose the smaller that we might have it all to ourselves. No
sooner had we our skates on than the inevitable happened. Hand in hand
Marian and Holdern swept away together to the farther end where the
bulrushes were many and the ice was bad, and I was left alone.
I commenced to make the best of it by selecting a smooth piece of ice
and setting myself an impossible task in figure skating. Far away on the
other lake I could hear the hum of many skates and the sound of merry
voices, and it made me feel lonely and discontented. I would like to have
been with them, skating hand in hand with Maud—Maud whom I had not
spoken a single word to since our last ride home together; Maud whose face
was seldom absent from my thoughts; Maud whom, alas! I loved.

With an aching heart I left off my futile attempt to cut impossible
figures, and, lighting my pipe, commenced to make the circuit of the lake,
with long, swift strides. There was something exhilarating in the rapid
motion, in the desperate hastening over the smooth black ice, and as I came
round for the second time my cheeks began to glow and my heart to grow
lighter. Then suddenly it bounded with an unthinking joy, for close above
me was a chorus of gay, chattering tongues, and one amongst them I could
distinguish in a moment, although it was the lowest of all.
I struck away for the middle of the lake, meaning to make my escape,
but I was just a second or two too late. Lady Olive was calling to me, and I
was obliged to turn round.
The whole group was standing on the bank, some carrying chairs, and
some sledges, and all, except Francis Devereux, skates. Lady Olive was
calling to me, so I was obliged to skate up to them.
"Fancy your being here all by yourself, Mr. Arbuthnot! Do you know, we
were coming down to call on you, the whole lot of us, if we hadn't seen you
soon? Is it good ice? And come in closer, do; I want to introduce you to my
sisters."
There was nothing for me to do but obey, and in a moment I found
myself being chatted to by two girls not very unlike Lady Olive herself; and
my hand had touched Maud's for a moment, and my eyes looked into hers.
Then some one introduced me to Mr. Francis Devereux, and I found myself
bowing slightly (I had kept my hands behind me, all the time anticipating
this, for God forbid that I should place the hand of Rupert Devereux's son
within my own) to my cousin, who looked out at me superciliously from the
depths of a fur coat, which had the appearance of having been made for the
Arctic regions. It was too cold to stand still, and we all trooped on to the
ice. There were many more men than girls in the party, I was pleased to see,
and very soon they were scattered all over the lake in couples, and I, glad
enough of it, was left to myself. Maud alone had delayed putting on her
skates, and was sitting on a stump close to where I was standing filling my
pipe, the centre of a little group of men, amongst whom was Lord Annerley.
As I threw the match down, and turned round to start away again, my eyes
met hers for a moment, and she smiled slightly. Did she expect me, I

wonder, to join the little group of her admirers, and vie with them in making
pretty speeches, and compete with them for the privilege of putting her
skates on? Bah! not I. If she thought that I was her slave, to be made happy
or miserable by a glance from her blue eyes or a kind word from her lips, I
would show her that she was mistaken. If she was proud, so was I; and
drawing on my glove again, I skated over to the other side of the lake, out
of hearing and sight of her little court.
Soon Lady Olive came skating up to me alone, with her hands stuck
coquettishly into the pockets of her short fur-trimmed jacket, and her bright
little face glowing with pleasure and warmth.
"Mr. Arbuthnot, I think you're the most unsociable man I ever knew!"
she exclaimed. "My sisters are dying to skate with you, but you won't ask
them, and—and—so am I," she added, with a bewitching smile up at me.
Of course I could do nothing but take her little hands into mine and skate
away with her at once. We passed Maud again and again skating with Lord
Annerley, and the proud cold light in her eyes as she glanced at us in
passing half maddened me. Whenever we met her, Lady Olive, out of
wanton mischief, forced me to look down into her laughing upturned face
and bright eyes, and to do so without an answering smile was impossible;
and yet Lady Olive's brilliant chatter and mocking speeches were very
pleasant to hear and to respond to, reckless little flirt though she was.
She left me at last to skate with Lord Annerley's brother, who had just
driven up in a dog-cart with some more men, and then I went to look for
Marian and Holdern. Instead, I came face to face round a sharp corner with
Maud leaning back in a sledge and gazing idly into the bulrushes, where
one of her brother's friends was busy with a penknife. She motioned me
languidly to stop, and I obeyed her.
"What have you done with Lady Olive?" she inquired, coldly.
"Resigned her to a more fortunate man," I answered, circling round her
chair.

"More fortunate! You haven't much to grumble at! You've been skating
with her more than an hour, haven't you?"
"Really I don't know," I answered, lightly. "I took little notice of the
time."
"It passed too pleasantly, I suppose?"
"Perhaps so! I so seldom have any one to talk to," I could not help
answering.
"It is your own fault. You have been avoiding us deliberately for the last
three weeks."
I folded my arms and looked steadily away from her.
"And if I have," I said, slowly, "I think you might congratulate me on my
wisdom and strength of mind."
She laughed a little hesitating laugh, and, with her head thrown back on
the cushion of the sledge, fixed her eyes upon me.
"Lady Olive is dangerous, is she?"
I looked at her for a full minute without answering. From underneath her
sealskin turban hat her blue eyes were looking full into mine, and a
mocking smile was playing around her delicate lips. Surely she was
beautiful enough to drive any man mad.
"No, Lady Olive is not dangerous to me," I answered, deliberately; "you
are."
A curious change came over her face as she uttered the word. The
mocking smile became almost a tender one, and a delicate flush tinged her
soft cheeks. But the greatest change was in her eyes. For a moment they
flashed into mine with a light shining out of their blue depths which I had
never dreamt of seeing there, a soft, warm, almost a loving light.

"You are a silly boy," she said, in a low tone, and the colour deepening
all the while in her cheeks. "How dare you talk to me like this?"
Ah, how dared I? She might well have asked that if she had only known.
"I don't know," I said, recklessly. "I shall say more if I stay here any
longer."
"You? Ah, Captain Hasleton, how beautiful! However did you manage to
find so many?"
Captain Hasleton shut up his penknife and commenced tying the bundle
of bulrushes together.
"Ah, you may well ask that, Miss Devereux," he said, laughing; "it
would take too long to narrate all the horrors I have faced in collecting
them. First of all, endless frogs resented my intrusion by jumping up and
croaking all round me. Then I stood in constant peril of a ducking. You
should have heard the ice crack! And last, but by no means least, I've cut
my finger. Nothing but half-a-dozen waltzes to-night will repay me."
Maud laughed gaily.
"Half-a-dozen? How grasping! I'll promise you two. That reminds me,
Mr. Arbuthnot," she added, leaning forward on her muff and looking up at
me, "we're going to dance to-night, and I've persuaded your sister and Mr.
Holdern to come up to dinner. You will come, won't you?"
I said something conventional to the effect that I should be delighted,
and, raising my cap, was about to turn away. But she called me back.
"How dreadfully tall you are, Mr. Arbuthnot! I have a private message
for your sister. Do you think that you could bring yourself within
whispering distance?"
I stooped down till my heart beat to feel her soft breath on my cheek,
and I felt a wild longing to seize hold of the slender, shapely hand that

rested on my coat-sleeve. And these were the words which she whispered
into my ear, half mischievously, half tenderly—
"Faint heart never won—anything, did it? Don't, you silly boy! Captain
Hasleton will see you."
And then she drew herself up and nodded, and with the hot colour
burning my cheeks, and with leaping heart, I watched Captain Hasleton
seize hold of the light hand-sledge and send it flying along the smooth
surface of the lake round the sharp corner and out of sight. Then I turned
and skated away in the opposite direction with those words ringing in my
ears and a wild joy in my heart. The cold east wind seemed to me like the
balmiest summer breeze, and the bare, desolate landscape stretching away
in front seemed bathed in a softening golden light. For Maud loved me—or
she was a flirt. Maud was a flirt—or she loved me.
CHAPTER XXI
RUPERT DEVEREUX
If any one had told me that evening, as Marian and Holdern and I drew
near to the great entrance of Devereux Court, that I was entering it for the
last time for many years, I should probably have thought them mad. And yet
so it was, for that night was a fateful one to me. Into foreign lands and far-
away places I carried with me the memory of the stately greystone front, the
majestic towers, the half-ruined battlements, the ivy-covered, ruined chapel,
with its stained-glass windows, and the vast hall towering up to the vaulted
roof. Of Devereux Court, of all these, I have said but little, for my story is
rather a chronicle of events than a descriptive one. But they had made a
great impression upon me, as was only natural; for would they not some
day, if I chose to claim them, be mine?
We arrived rather early, and leaving Marian and Mr. Holdern in the
drawing-room with a few of the other guests who had already assembled, I

made use of my knowledge of the house to go and look for Maud, and I
found her—alone, in the conservatory, leading out of her little morning-
room.
Surely God's earth had never held a more lovely woman. I stood looking
at her for a full minute without speaking. A rich ivory satin dress hung in
simple but perfectly graceful folds about her slim, exquisite figure, and
bands of wide, creamy old point lace filled in her square bodice right up to
her white throat. She wore no ornaments, no flowers, save a single sprig of
heliotrope nearly buried amongst the lace. Her deep blue, almost violet,
eyes had lost their cold, disdainful gleam, and looked into mine kindly; but
there was still the half-mocking smile playing around her slightly parted
lips.
"And, pray, what right have you to come into my sanctum without
knocking, sir?" she asked, with a soft laugh, which did not seem to me to
speak of much anger; "and now that you are here, why do you stand staring
at me like a great stupid?"
I drew a long breath, and took a step forward.
"I came to beg for a flower, and——"
"Well, there are plenty in the conservatory," she said, pointing to it. "You
may help yourself."
I stood close to her, so close that the faint perfume from the morsel of
lace which she was holding in her hand reached me.
"Only one flower will satisfy me," I said. "That sprig of heliotrope. May
I have it?"
She laughed again, a low musical laugh, and the tinge of pink in her
cheeks grew deeper.
"If nothing else will satisfy you I suppose you must."

She unfastened it from the bosom of her dress, and her little white
fingers busied themselves for a moment with my buttonhole. So close was
her head, with its many coils of dazzlingly fair hair, to mine, that,
irresistibly tempted, I let my fingers rest upon it for a second with a
caressing touch. She looked up at me with a mock frown, which her eyes
contradicted.
She did not speak, neither did I. But a sweet subtle intoxication seemed
to be creeping over my senses, and slowly, scarce knowing what I did, I
drew her into my arms, and her head rested upon my shoulder. Then my lips
touched hers in one long quivering kiss, which she not only suffered, but
faintly returned, and it seemed to me that life could hold nothing sweeter
than this.
Only for a moment she lingered in my arms. Then, as though suddenly
galvanised into life and recollection, she gently disengaged herself, and
stood apart from me.
Maud blushing—my princess blushing! I had pictured her to myself
often with a thousand different expressions dwelling in her cold, fair face,
but never thus! Yet how could she have looked more lovely!
"Now I wonder what my father would have said if he had come in just
then!" she exclaimed, holding her fan in front of her face, and looking at me
with laughingly reproachful eyes over the top of its wavy feathers. "Mind,
you must be on your very best behaviour this evening, and not attempt to
talk to me too much. He hasn't seen me for five years, and I don't want him
to think me frivolous."
"Your father! My God! is he here?" I gasped, leaning back against the
table, and clutching hold of it with nervous fingers. The room seemed
swimming round with me, and Maud's face alone remained distinct.
"He's coming to-night," she said, looking at me in amazement. "What
difference can it make to you? Why, Mr. Ar—— Hugh, you are ill!" she
exclaimed, shutting up her fan and moving to my side.

I held out my hand to keep her away. God forbid that Rupert Devereux's
daughter should rest in my arms again.
"Coming here!" I muttered. "Coming here to-night!" The idea seemed
almost too much for me to realise. How could I sit at the same table with
him? How breathe the same air without letting him know of my hate? And
this was his daughter Maud—my Maud, my princess. The idea seemed
almost to choke me.
The second dinner gong boomed out, and I raised myself at once.
"I'm afraid I frightened you, M—— Miss Devereux. I won't stop to
explain now. They will be wanting you in the drawing-room."
I opened the door for her, and she swept out and across the polished oak
and rug-strewn floor of the hall, lifting her eyes to mine for one moment as
she passed, full of a strange, sweet light. For a brief while I lingered behind;
then, with a great efforts regaining my calmness, I followed her.
CHAPTER XXII
FACE TO FACE
I sat between Lady Olive and her younger sister at dinner, and I have no
doubt that both found me very stupid and inattentive. I could neither eat nor
drink, talk nor laugh. Even Lady Olive gave me up at last, and devoted her
attention to Captain Hasleton, her neighbour on the other side. It was not
until dinner was nearly over that I was able to rouse myself in the slightest
degree, and by that time Lady Olive had quite lost her temper with me.
"Skating doesn't agree with you, Mr. Arbuthnot," she whispered, when at
last Maud had given the signal to rise. "I never knew any one so
provokingly stupid in all my life."

I shrugged my shoulders deprecatingly.
"I'm sorry, Lady Olive," I said, grimly, "but if you felt as I do for five
minutes you'd forgive me," which was perfectly true.
She looked up at me with a pitying glance, and I suppose something in
my expression told her that I was suffering, for her piquant little face
clouded over at once.
"I'm so sorry, Mr. Arbuthnot. You look as though you had a very bad
headache. Come to me in the drawing-room as soon as you can, and I'll give
you some sal volatile."
I thanked her a little absently—perhaps without sufficient gratitude, for
she was a kind-hearted little woman, although she was such a terrible flirt.
But I was eager to watch Maud go by—eager even to be brushed by her
garments as she passed.
She half stopped as she reached me.
"I won't allow you to flirt with Lady Olive," she whispered, with a
bewitching little moue; then added out loud: "Come to us as soon as ever
you can, Mr. Arbuthnot. We want to commence dancing in good time."
I bowed, and letting fall the curtain, turned back to the table. Sir Francis
motioned me to take the vacant place by his side, and filled my glass
himself from the decanter which stood at his elbow.
"Hugh, my boy," he said, slowly—he had got into the habit of calling me
Hugh lately—"I'm upset!"
I looked into his handsome old face, and saw that it was clouded over,
and there was a heavy frown on his brow.
"I'm sorry, sir," I ventured to say.
"Thanks. I knew you would be. I don't suppose a man ought to be sorry
because his son's coming to see him, ought he?"

It depended upon the son, I thought.
"Ay, it depends upon the son, of course," he said, thoughtfully, stroking
his long grey moustache. "There is nothing against Maud's father, nothing at
all. He's nothing like that young cub of his down there," he went on, jerking
his head to where Francis Devereux was talking very loudly and drinking a
good deal of champagne. "And yet I don't want him here. I can't bear to see
him in the place. It's a damned funny thing."
"If you feel like that, sir," I said, keeping my eyes fixed upon the
tablecloth, "depend upon it, it's your son's fault. He's done something to
deserve it."
Sir Francis sat silent for a while, toying with his glasses.
"He has done nothing," he said, half to himself, "and yet I hate the sight
of him, and he of me. It is twelve years since he set foot within Devereux
Court. Twelve years! I wonder what his fancy is for coming now. Would to
God he had stopped away!"
"Sir Francis," exclaimed a voice from the lower end of the table, "a
promise to ladies is sacred. We were told that ten minutes was as long as we
could be allowed this evening, and we have pledged our words. Have we
your permission?"
"Certainly, gentlemen."
Sir Francis rose, and there was a general draining of glasses and a
stretching of masculine forms. Then we followed him across the hall into
the blue drawing-room.
I should have made my way at once to Maud but a look in her eyes
checked me, and I turned aside and sat down in an empty recess. I had
scarcely commenced to turn over the pages of a book of engravings which I
had carelessly taken up, when I heard a voice at my elbow.
"As usual, Mr. Arbuthnot, you make me come to you. It's too bad of
you."

I put down the book with a start, and stood up. Lady Olive was at my
elbow.
"Now, sit down again, and tell me how the headache is," she exclaimed,
sinking herself into the cushioned recess, and drawing her skirts aside to
make room for me. "See, I've brought you my favourite smelling-salts, and
I have some sal volatile in my pocket. I mustn't doctor you before all these
people, though! And now for the question I'm dying to ask. Shall you be
able to waltz?"
"Come and see," I said, rising and offering her my arm, for an exodus
was already taking place from the room. "It's awfully good of you, Lady
Olive, to remember my headache," I added, gratefully.
She tapped my fingers with her fan.
"Don't make speeches, sir. What a grand old place this is, isn't it?"
We were to dance in the armour gallery, and the whole party were
making their way there now. The magnificent staircase, bordered with
massive black oak balustrades, up which we were passing, descended into
the middle of the hall, and was supported by solid black marble pillars; and
the corridor, which ran at right angles to it, was lighted by stained-glass
windows, in front of each of which armoured knights were grimly keeping
watch. One corridor led into another, all of noble dimensions, with high
oriel windows, and lined by a silent ghostly guard of steel-clad warriors and
polished marble statues. A strange contrast they seemed to the gay laughing
procession of girls, in their low-necked dinner dresses and flashing
diamonds, and men in their mess jackets and evening coats. Maud alone,
moving with the slow, stately grace of a princess of former days, seemed in
keeping with our surroundings.
Soon the sound of violins reached us, and, pushing aside the heavy
curtains, we descended two steps and stood in the armour gallery. Maud's
imagination and many nimble fingers had been busy here, and at first I
scarcely knew the place. Fairy lights with various coloured shades hung
from the mailed gloves of many generations of Devereux, and the black oak
floor was shining with a polish beyond its own. But no fairy lights or

bracketed candles could dispel the gloom which hung about the long lofty
gallery, with its vaulted roof black with age, and its panelled walls hung
with the martial trophies of every age and every land. And yet it was a
gloom which seemed in keeping with the place, and no one found it
oppressive.
I danced with Lady Olive, and then, as we stood talking in the shade of
one of my armoured forefathers, Captain Hasleton came up and claimed
her, and I was left alone. Nearly opposite me was Maud, standing like an
exquisite picture in the softened light of one of the stained-glass windows.
But I did not go to her at once. Several men were talking to her, and she was
answering them with the languid air of one who finds it hard to be amused,
and her blue eyes more than once travelled past them and looked into mine
indifferently, but still with a meaning in them. At last I crossed the room
and stood before her.
"You promised me a waltz, I think, Miss Devereux. Will not this one
do?"
She hesitated for a moment, and then she laid her hand on my coat-
sleeve, and we moved away. Without a word I passed my arm around her
waist, and we floated slowly up the room. It was one of Waldteufel's wild,
sad waltzes, now bursting into a loud flood of music, now dying away into
a few faint melodious chords. For many years afterwards I never heard it
played without longing to rush away into solitude and recall those few
minutes of exquisite happiness in that strange, dimly-lit ball-room.
All things come to an end, and so did that waltz. Maud promised me the
next but one, and was led away by Lord Annerley, and, to while away the
time, I took a lamp from a bracket on the wall, and, pushing aside the heavy
curtains, stepped into the picture gallery to look at my father's portrait.
It was not the first time by many that I had done so, for when I had been
shown over the court soon after my arrival my first visit had been here.
Bitterly indignant had I felt when, after I had looked for long in vain for my
father's picture, I had found it—with its face turned against the wall. I had
turned it round again during a moment or two when Groves, the portly
house-steward, had been otherwise engaged, and since then it had not been

disturbed, for Sir Francis no longer made this his favourite lounging-place;
indeed, he seldom came here at all.
The sound of the music and of voices—some fresh ones I fancied—came
to me in a faint, indistinct hum through the drawn curtains, and for a while I
forgot all about them. I seemed in another world, amongst these long rows
of my frowning ancestors, beruffed ladies in quilted gowns and dresses of
strange device, armed knights, and beaux of a later and more peaceful age
with perukes, knee-breeches, and snuff-boxes. But though I walked the
whole length of the gallery, and glanced leisurely at all of them, it was my
father's picture at which I lingered longest, and before which I was standing
absorbed when the drawing of the curtain and the sound of voices and feet
entering the gallery made me start round and very nearly drop the candle
which I held in my hand.
"Why, Arbuthnot, what are you doing moping in here?" exclaimed Sir
Francis, in a tone of astonishment. "Why don't you go and dance?"
I turned round with some excuse on my lips, but it died away when I saw
who were his companions. Walking by his side was a tall dark man, with
iron-grey hair, and pale, delicate face. On his arm was Maud, and, glancing
from one to another, I knew that this was her father, my Uncle Rupert.
Behind was my cousin Francis, with Lady Olive on his arm. It was a
strange meeting.
"This is Mr. Arbuthnot, Rupert, whom I was telling you about just now,"
Sir Francis went on, without appearing to notice my start, "Arbuthnot, this
is my son, Mr. Rupert Devereux."
I bowed slightly, and my Uncle Rupert did the same, withdrawing the
hand which I had affected not to see. God forbid that my hand should touch
his, even in the most casual fashion.
"Well, Arbuthnot, we——"
Sir Francis broke off in his pleasant speech, with his eyes riveted on the
wall behind me. Slowly his face grew rigid with anger, and his thick
eyebrows were contracted in a stern frown.

"Who has touched that picture?" he asked, in a cold, measured tone,
which I had never heard from him before.
Rupert Devereux's eyes followed his father's shaking forefinger, and I
saw a change pass over his face also. His dark eyes filled with a troubled,
fearful light, and he shrank back a pace, as though to escape from the sight
of the handsome boyish face which laughed down on him from the massive
frame. To my eyes, inspired by knowledge, guilt was written in his pale face
as plainly as nature could write, and a passionate anger which had lain
sleeping within me for many weary months leapt out, burning and fierce,
kindled by his presence. I forgot that I was Mr. Arbuthnot, the land agent; I
forgot Maud's presence; I forgot everything save that I stood face to face
with the man who had blighted my father's name and honour. That one
maddening thought alone held me, and it was only by a great effort that I
restrained myself from flying at his throat like a mad bull-dog.
I don't think that Sir Francis noticed my agitation. In fact, I am sure that
he did not; for I was standing just outside the streak of light which the
moon, shining softly in through the diamond-paned window, was casting
upon the polished floor.
"Mr. Arbuthnot," he said, firmly, "might I trouble you—or Francis, you
are nearest! Be so good as to turn that picture with its face to the wall."
Francis Devereux dropped Lady Olive's arm, and advancing, laid his
hands upon the frame. Then the devil broke loose within me, and seizing
him by the collar as though he had been a baby, I threw him on his back
upon the floor.
"Dare to lay a finger upon that picture, you or any one else here," I cried,
passionately, "and I will kill you!"

CHAPTER XXIII
IN THE PICTURE GALLERY
It is strange that, although so many years have passed, that scene
remains as though written with letters of fire into my memory—vivid and
clear. Word for word, I can remember every sentence that was spoken; and
the different expressions on the face of each I could, if I were a painter,
faithfully reproduce. Sir Francis gazed at me speechless in a sort of helpless
apathy, Maud and Lady Olive looked horrified and thunderstruck, and my
Uncle Rupert, with face as pale as death, was shaking from head to foot,
with eyes riveted upon me in a sort of fascinated bewilderment, as though I
were one risen from the dead. Sir Francis seemed to be the first to recover
himself.
"Arbuthnot! Arbuthnot!" he exclaimed; "what does this mean?"
I pointed to my uncle, and he seemed to shrink back from my
outstretched hand.
"Cannot you see?" he faltered, in a hollow tone. "Look at him and at the
picture."
I had moved a step forward unconsciously, and was standing in the
centre of the broad stretch, of moonlight which was streaming in from the
high window. Sir Francis looked at me, and then gave a great start.
"My God! Arbuthnot, boy! Who are you? Speak!"
"Hugh Arbuthnot, son of Herbert Arbuthnot, who once called himself
Devereux," I answered, proudly, looking Sir Francis steadily in the face;
"and who would be a Devereux still," I added, "but for that man's villainous
lie."
Rupert Devereux turned his head away, as though unable to meet the fire
which blazed from my eyes. Maud had sunk, half fainting, upon an
ottoman, and Lady Olive was by her side. Sir Francis stood gazing fixedly
at me, as though in a dream.

"It can't be!" he muttered, hoarsely. "He could never have had such a son
as you. He was a coward!"
"It's a lie!" I thundered—so vehemently that Sir Francis staggered back
aghast. "Rupert Devereux!" I cried, taking a quick stride to his side, "can
you, dare you look me in the face and tell me that my father was a coward?
You, who bribed John Hilton, your servant, into a shameful conspiracy that
you might step into his place! You, you—speak, man, and tell me! Was
Herbert Devereux a coward?"
He was white to the lips with a fear not merely physical. His senses
seemed stupefied; and though I waited amidst a deathlike silence for a full
minute, he made me no answer. I turned my back upon him
contemptuously.
"Sir Francis!" I cried. "He could lie to strangers and to you, but to me he
dare not. Before heaven, I swear that my father is an innocent man,
shamefully sinned against by him"—I pointed to my uncle. "Out of a mean
jealousy, and for the sake of being your heir, he did it—he perjured himself.
He to call himself a Devereux, and my father robbed of his name and
honour by such treacherous villainy! Don't you wonder that I don't kill
you?" I cried, turning round, a very tempest of passion surging up within
me. "God knows why I don't do it! Sir Francis, I appeal to you. John Hilton
has confessed to me that his story was a lie. My father is as brave a soldier
and a gentleman as ever Devereux was. Tell me that you believe it. Let us
make that man confess, aye, even though we have to tear his guilty secret
from his heart!"
Sir Francis had recovered himself entirely, and was again the aristocratic
immovable soldier.
"Hugh, my boy, I believe you," he said, kindly. "Be my grandson, and I
shall thank God for it, and be proud of you. But you are mistaken about
your father. A court-martial never errs."
The hope which had sprung up in my heart died away, and in its place
had leaped up a bitter hatred—hatred of Rupert Devereux, hatred of my
grandfather, hatred of Maud, of every one who refused to believe in my

father's innocence. I drew back from Sir Francis's outstretched hand, and
looked at him proudly.
"Never, Sir Francis. I will not call myself your grandson, or take the
name of Devereux, until my father bears it too. I would sooner live and die
Hugh Arbuthnot."
Then, without another look at one of them, without even a glance into
Maud's white face, I turned, and walked slowly out of the gallery and out of
the house.
CHAPTER XXIV
A MIDNIGHT VISITOR
Like a man in a dream, I walked with unsteady footsteps down the
avenue, through the shrubbery, and across the park to the cottage. I had
forgotten my latch-key, and the servant who answered my ring welcomed
me with a little cry of relief.
"John was just a-coming up to the house for you, sir," she exclaimed,
shutting the door again. "There's a strange woman wants to see you most
particular. She's been here more than an hour, a-fretting ever so because you
wasn't here."
"Where is she?" I asked.
"In your study, sir. I see'd as there was nothink about as she could lay 'er
'ands on before I let her in."
I had no doubt but that it was the wife of one of the tenants on the estate,
though why she should choose such a strange time for her visit I could not
imagine. But when I walked into the study I saw at once that she was a
stranger to me. And yet, no. I had seen her face before somewhere.

She rose nervously when I entered, and pulled her shawl closer around
her.
"You'll excuse the liberty I've taken in coming, sir," she began, hurriedly.
"I 'a come to do yer a service. You doan't seem to recollect me. I'm John
Hilton's wife; him as you comed to see t'other week."
I recognised her at once, and became more interested.
"You see, sir, it's like this," she went on. "My Jack, he's had one o' his
drinking fits on, and he's always mortal mischievous after one of 'em. He
seems to 'a got a powerful sort o' a grudge agin' you, and there's that piece o'
paper as you wrote out, and he put 'is name to. He says as 'ow he might get
lagged for that if you showed it."
"Well, has he sent you to try and get it away again?" I asked.
"Not he! If he know'd as I'd come 'ere at all he'd half kill me."
"Well, what is it, then?" I asked.
"Well, it's just like this," she answered, slowly; "he's a-coming himself to
try and get it back agin."
"Indeed! And when may I expect him?" I inquired, becoming suddenly
interested.
"To-night."
I leaned back in my chair, and laughed dryly. The woman must be mad.
"'Tain't no laughing matter, master," she said, sullenly. "You'd 'a laughed
t'other side o' your mouth, I can tell 'e, if I hadn' 'a chosen ter come and tell
'e. He ain't a-coming to ask you for it. He's a-coming to take it, and to pay
yer back something as yer gave 'im at our cottage—him and a mate."
I began to see what it all meant now, and to understand why the woman
had come.

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