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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: Porte, Roy Trewin Title How to figure costs in printing offices PIclCS' Salt Lake City Date: 1921 COLUMBIA UNIVERSITY LIBRARIES PRESERVATION DIVISION BIBLIOGRAPHIC MICROFORM TARGET MASTER NEGATIVE * ORIGINAL MATERIAL AS FILMED • EXISTING BIBLIOGRAPHIC RECORD Hu6tueaiii Porte, Roy Trewin How to figure costs in printing offices, by R.T. Porte ... Rev. ed. ^alt Lake City, Porte pub. co., 1321. xiii, 143 p» diagrs., forms. 13 cm. RESTRICTIONS ON USE: TECHNICAL MICROFORM DATA FILM SIZE: Tf^vxm^ TRACKING # : REDUCTION RAT;0: \9^ IMAGE PLACEMENT: lA (© IB MB DATE FILMED: Q^^A^-^ INITIALS: ^ tT\^H oaou^ FILMED BY PRESERVATION RESOURCES. BETHLEHEM, PA. "V^ (Jj en 3 3 Q) o >> lOQ Q Is o i:^ C/) ^ N en cor:: cn a>x ^-< OOM ID O '*, '** tn 3 3 > 0) O o m (DO X < N X ISI ^ "^ ^. ^^> > 3 3 3 3 o 3 3 3i 11 50 •4 qi r ft li *< JO si INi s 4^ ^. ^?* Columtita Winibtviitp LIBRARY S^tfml of ^usiimsiii tCfte JHontgometp Hibrarp of ii i^ How to Figure Costs in Printing Offices HOW TO FIGURE COSTS IN PRINTING OFFICES By R. T. PORTE Author of "Practical Cost System for Printing Offices" "The Printers of Chiapolis" Compiler of The Franklin Printing Price List REVISED EDITION 1921 PORTE PUBLISHING COMPANY SALT LAKE CITY, UTAH -l^-u - l^^oo Copyright, 1921, by R.T.PORTE k CONTENTS Preface • • ^ Introduction ix Factors of cost and profit x Overhead diagram xii Figuring the payroll 1 Time summary 4 Payroll 8 Building expenses 13 Floor space diagram 19 Figuring the inventory 25 Plant inventory 30 Replacement values 37 Depreciation table 39 Interest, insurance, taxes expense 45 Distributing power 57 Plant layout 59 Light, toilet, elevator expense 71 Department expenses, spoilage, stock handling ... 79 Salaries of foremen and superintendents 89 Selling expense 97 Administration, commercial investment 105 Office expenses 113 5( iv CONTENTS Answers to questions 123 Wages plus overhead 124 Outside work 130 Newspaper and job plant 132 Cost of advertising 134 Commercial investment 139 Selling hour costs 140 m PREFACE There is no claim on the part of the author that all the ideas put forth in this volume are by any means original, nor are they all his own. The main purpose and intent of writing what is given here is to put forward every point that is necessary for the figuring of a cost system according to the methods adopted by the devisers of modern Cost Systems for printing offices, based on chargeable hour methods. In the years that I have been privileged to do Cost System work, I have felt the neces- sity of such a book as this for the cost clerk and for printers, telling, not only how the work should be done and why, but showing how by practical examples. Printers without cost systems have read a great deal of why they should put one in, but rarely how it was to be done. That there are not more cost systems now in use is because VI HOW TO FIGURE COSTS PREFACE vu printers generally do not fully understand the actual methods used in the figuring out of a system, and so have hesitated to install a correct system. With this book, and an ac- curate time keeping system, there should be little difficulty in putting into operation a cost system. There is always need of expert advice in installing a system, and this book is intended to supply that need. Having put in a cost system, this book will be especially valuable as to the best methods to be used in the figuring of the system, and for the use of the cost clerk. The arrangement makes it possible to use it as a textbook for classes in costs by organ- izations. The questions may be given out at the close of the session of the class, and written answers turned in at the next session. This plan can also be used by the individual, and the answers compared with the explanation as given, thus making sure that every point is fully understood. No doubt many of the ideas here given will not be accepted as correct by some readers. This is to be expected. Some of the things explained are not the opinions of the author. However, this is not a book of just one system, but of the several systems now in use, and while all are based on the one idea, different methods are often used and some basic propo- sitions in some systems are utterly ignored in others. The reader has here put before him the various methods, and he can easily decide as to which is the best or most prac- tical in his case, and ignore the others, for there is no reason why he should not have a knowledge of all the methods. The answers to questions in the last part of the volume take up many matters that could not be rightly treated in the cost system for the printing office alone, and they also treat of some exceptional propositions. Although I have from necessity employed some positive statements, I am very far from laying claim that the last word has been said or that I am the only authority on the subject. The ideas and arguments, as well as the viii HOW TO FIGURE COSTS examples given, include those of many other authorities and I merely put them into con- crete form, and present them in understandable terms to the reader. I put forth the ideas and examples as given, because they have commended them- selves to me, as being tlie most logical and practical for the purpose intended, as well as the best that are known at this time. In other words, I have set forth ideas and results — with examples — which I have found to be correct, after a long practical ex])erience in cost system work, and present them to pro- gressive printers for their consideration and use. R. T. PORTE. Salt Lake City, Utah. November 1, 1921. INTRODUCTION In order that the items of expense involved in the production of a job of printing may be plainly distinguished, a diagram is printed on the following page to fully illustrate all the items that enter into the cost of a job of print- ing, and to show the relationship which each item of cost bears to every other item, and also the relation of the whole to the selling price. It is well worth close study, because of its graphic portrayal of the costs of producing a job of printing in their relative order. It plainly shows each increment of cost added to the job in its progress through the factory and their accumulation into the total cost, profit and selling price. The Stock of Merchandise group is shown on the right. The guide line shows the direct connection of the job of printing through stock to cost. The smaller squares attached to the stock square give force to the fact that the cost of stock is the price paid plus the handling cost. HOW TO FIGURE COSTS INTRODUCTION XI 2 t» flu i td o M« CO l» s o £ o ■"""■ •a ^ z 2 z •o 1 1 1 8 4^ £ On 2 1. 1 O H „^^, -Charge B Time Ed O 1^ ' — 4) O. X oi U P 4) "^~ ^£ € 1 Depr and ® 1 ■ V > «' 1 JB — ent&Direc Expense L ^.iM C6 1 The central group shows the Time Used as the first item of cost, and this is directly connected with labor, showing that labor cost is a burden on the Time Used for the job of printing. Labor cost is made up of the price paid for labor plus the cost of the non- chargeable time as shown in the diagram. The non-chargeable hours in a factory are carried by labor and so add to the cost of the productive labor-hour. The third group at the left is the Investment group. Investment cost is made up of rent and direct expense plus depreciation and interest. The line from Time Used to Invest- ment indicates that this expense is also a burden on the Time Used. The line running from Investment expense makes up the actual cost of the Time Used on the job of printing. The short line connecting these two groups with Office expense indicates that to the cost of Time Used must be added an increment of office expense to complete the manufacturing cost. To this cost square the line from the Stock or Merchandise group also leads to com- plete the cost of the job. To cost is attached the profit, and to profit, the selling price. This diagram fully illustrates the line of Xll HOW TO FIGURE COSTS INTRODUCTION Xlll relationship of all the items which the cost of a job must include, and also the relation- ship of the cost, the profit and the selling price. The following diagram shows the typical elements of Burden or Overhead Expense in a printing plant as used in the Practical Cost System for Printing Offices. A study of these expense relations will make clear the general principles involved in the classification and distribution of the various items of Manufac- turing Burden or Overhead Expense: Equipment Charges Insurance Taxes Interest on Investment Depreciation Rent and Heat— Factory Direct Department Expense Department Payroll Department Supplies Repairs to Equipment General Factory Supplies Non-productive Labor Power Fuel Cost Labor Cost Power Plant Supplies General Superintendence Proprietor's Salary Office Payroll Estimating Department Cost-finding Department General Office Expense Fixed Charges Operating Charges Productive Center Burden or Overhead Administrative Burden^Overhead Total Manufacturing Burden or Overhead The Total Manufacturing burden is made up of the Productive Center (or shop) burden and the Administrative (or office) burden. The Productive Center burden is made up of the Fixed Charges and the Operating Charges. All these items of the fixed charges are in- cluded in the cost of operation of every print- ing office, however small, as are also all the items of the operating charges except that sub-items under pov^rer w^ould not be used in many plants. Under Administrative burden the item of general superintendence would be used only in the largest plants where a super- intendent has general supervision not only of the plant but also of the selling and a part, at least, of the business of the office. The item of proprietor's salary should appear in every plant, large or small, although if he works in the shop his salary would appear on the shop pay roll to the amount of his labor in that department. The estimating and cost- finding items may be combined with other office work and so not appear as separate items in the cost charges in medium and small shops, but this work should be con- sidered as a part of the Administrative burden. I i HOW TO FIGURE COSTS FIGURING THE PAY ROLL The first step away from all the old tradi- tions of cost finding was the principle of charging direct to a productive center all of the pay roll of the labor used in that center. The Cost Systems now used by the printers of America are different from any of the former methods, in that the production center rather than the individual becomes the unit of produc- tion. The Accountants' method of ascertain- ing costs was to obtain only labor costs (actual wages), adding a percentage for "overhead,'' another for selling, and then a profit. The productive center method is to figure labor as just » one element of cost, and to divide the manufacturing plants into produc- tive centers or units of production, and ascer- tain the cost per hour in that unit. The common term for productive center is ■ 2 HOW TO FIGURE COSTS ''department/' but this does not clearly ex- press the writer's idea, and is discarded for that reason. The terms, however, are nearly synonymous. This is the most efficient method, in that the material or machinery used is the means for using the efficiency of the workman. Their efficiency can be fairly well measured through the productive center records. To add more "overhead" to a high-priced workman than to a low-priced one is unfair, but is an inevitable result of the percentage methods of accountants. High wages are paid certain employees because they are more efficient and therefore need less supervision. When a man's wages are raised five cents an hour, you cannot say you should add ten cents more for supervision, or that he should stand for more rent, light, power, or what not, because of that increase. Analyzing the proposition to the fullest, any percentage method based on price paid for labor, gives only unreliable comparisons, and was originally adopted only because no better method was then known. This method, of course, has been defended time and time again by many "high authorities" who have THE PRODUCTIVE CENTERS 3 written able articles, but that was before the day of modern direct methods. Today we think less of labor costs, and more of "efficiency costs," which the pro- ductive center method, boiled down, really is. The first item the cost clerk figures in the monthly Summary of Costs is the Department Pay Roll. Here, regardless of anything else, the entire pay roll of each employee is divided and charged to each productive center in which he has worked in accordance with the hours as shown in his time record. The usual productive centers in a printing office are Machine Composing Room, Hand Composing Room, Cylinder Press, with sub- divisions according to size. Job Press, Ruling Machine, Cutter, Men's Machine, Men's Hand- work, Girls' Machine and Girls' Handwork. Many offices have additional productive cen- ters, according to the nature of the work. The wages of every employee who works in the composing room must be charged as a lump sum against that productive center, including galley boys, distributors, proof- readers, etc., and this applies just the same to all other productive centers. In many cases, however, an employee works I I It I -r><»5Jv,vo>>«»*s5:;5f:; ^ ■- 1 ^ - 2 1 ' ^' 1 j- - =. 2 • ^:-. i i : a_ „_ .^ s fl - ■ r s : J ::::: i Uj t i "o *-> c o o D J' 1 Z ! s : JX -"-' T " " 1 ^ = N I i 1 _l "T^I" "I"" CO s ti „_. r""" ' - >- 2 L:~~~7 a. O *: >^ 1 -—Y — ttj S s tt 1 r o 1 . 1 :::: 4 II u. y H . :2.: o f s;^: 1 1 r/ ! 3"«' =-f- _I L t:::::::::::''~: z 1 ;^:lJ:»i2 Ik ^ ^ 2 Si > 1 .!^k::: ,l 1 - .s ♦T ^i < ,, i;iP-^___:_::"?' i jzL^is *» 5? i' \'M - ;^ CO i "Jaj:_^r::::::2_::: ° '^ *• 5 ^ ID 3? 1 ?i!li-:: '^s 1 --5 -^ P 1 i^tJ|j.*° -« "2 ^1 7; f--^ ^i^"? < Oh M Q z t ^ T s 35 - . C '"%} . * = = =- =. ^ ?^s Is 1 2^^Tio«<3 Q ■« ». » ;^ • n -^ n 1 "'*^**3->V:-Q/%«i,.*s.5^^»:*^ ' WORKS IN SEVERAL CENTERS 5 in one or more productive centers in the same month. In that case, his salary must be di- vided and charged according to the hours he v^orked in the several centers. There are various methods of doing this, v^hich will be described. One much used system provides a weekly (productive center) pay roll sheet. One of these is necessary for every center. If an employee works in more than one center, his name is entered on the different productive center sheets. This method sub-divides the pay roll, and the cost clerk can make up the pay roll ac- cording to each center. Another method, better and more modern, keeps the time of each individual separate, in- stead of using productive center sheets. A sheet with divisions for six names is provided, with 31 lines on the sheet. Under each head are provided three box heads for three centers or departments, so that the day's work of an employee may be divided among three de- partments. This blank— 14 x 8^ inches— is shown on page 4. If, as it sometimes happens, an employee works in more than three productive centers, ! i .:f DsMRTWEWT Time Summary Mo'^th or oLn^^^,^^J^ HOUA RATf McH-Co^rtP. IMoComp. 1 Cvi.|»(0£R j[ JoflOERS II B.WOEKY 1 Stock |i Office <^r. 1 U. Jl H-c. u. Hr oj MT. =^ H*'. u. Hf. uj Hr U> \ y 1 n z, s 5 ^ ,? — ;2 <> /? O ^ Jf .\ 6 7 ^ ff i * ..-' f 1 "^ ^ \o 11 ^ *■ Ji fj ^ 1 fy s i- IS 1 \ Ik ^ V .17 1 s ji- ^ Ji- N K, 10 l" 21 21 M. l*i IS ^4 ^7 1 1ft Af 15 z J ^ »^ r^t u I//-3 y V ^" 1.14 0A T HS'db f^ uv i!,.00 11 . . 1 ^ DEPARTMENT PAY ROLL 7 as many spaces may be used as are necessary. An Individual Time Division blank, cover- ing seven departments, is illustrated on page 6. This blank is 4J x 8J inches and can be punched for ring binder or three of these forms may be run on a 14 x 8J sheet of same size as blank shown on page 4. The total number of hours used in each of the centers can be added up at the end of each month, the rate of w^ages per hour and total multiplied, and actual w^ages for each center can thus be ascertained. A Total Departmental Pay Roll blank — 8J X 11 — as show^n on page 8, is a valuable addition to the series of pay roll blanks. On this blank is collated the monthly pay roll amounts for each individual employee in every department in which he has worked during the month as shown by the departmental time blanks. This blank provides space for the total amount of the pay roll of each depart- ment, the total chargeable hours for each department which are taken from the record of chargeable and non-chargeable hours. The labor cost for the chargeable hour is found by dividing the amount of the depart- mental pay roll by the number of chargeable hours of that department. 8 HOW TO FIGURE COSTS DEPARTMENT PAY ROLL r 1'^ t II- S t 1 i i SI !f ^ , , s - [1 . = jft - = = "^- 4.3 . ^t J;i • ii r ll J.\_ _ 1 , J nu _ J' :* p The percentage of non-chargeable, or non- productive, time in each department may be found by adding two cyphers to the number of non-chargeable hours and dividing that amount by the total number of labor hours of that department. These hours are found in the record blank of chargeable and non- chargeable hours. This percentage is entered on this blank in order to have all the essen- tial time and pay roll data convenient for reference. Example — Chas. Edmunds Works in the bindery, and on cylinder and job presses. He works in all 224.5 hours in one month, of which he puts in 54.2 hours on the cylinder press, 112.8 hours on the job press, and 57.5 hours in the bindery. These amounts consist of both chargeable and non-chargeable time. Both divisions of time are treated alike in figuring the pay roll in every case. Edmunds receives 80 cents per hour, or a total of $179.60 for his month's work. His pay is figured thus: Cylinder 54.2 X 80 = $43.36 Job Press 112.8X80= 90.24 Bindery 57.5X80= 46.00 $179.60 10 HOW TO FIGURE COSTS QUESTIONS ON THE PAY ROLL 11 » y i There will be several employees of such cen- ters and their salaries are added together making up the total pay roll for each of the centers. The total pay roll cost of the various cen- ters in the sample shown are as follows: Comp. Cyi P. Jobbers Bind'y John Richards $201 .60 Chas. Edmunds $43.36 $90.24 $46.00 r\.. Xv. Xxicics ..••••... ^^ X I • %7v/ •..••• •••••• <<•••• Totals $416.10 $43.36 $90.24 $46^00 This method of ascertaining the pay roll of each center can be followed whether with three employees or a thousand. A cut leaf pay roll book may also be used, writing in heads for each of the centers, with the employees sub-divided, and practically the same method used. The method or manner does not count for so much as the result. Obtain this result, as long as it is accurate, in the simplest manner possible. Where an employee works regularly in a productive center, and is occasionally called to another, it is the usual rule to figure all except that portion of the employee's time against his regular department, unless the de- lay or non-productive time is occasioned by the other center, or in other words, non-pro- ductive time should generally be charged to his regular productive center. I. 2. 3- 4- 5- 7- 8. 9- 10. QUESTIONS What is the difference between methods used by accountants and the productive center methods f What is a productive center? Should more supervision be charged against a highly paid man than a low paid man? What is included in the productive center pay roll? What about an employee who works in more than one productive center? How are his wages sub-divided? Give an example of divided pay roll. What is the difference between "department" and "productive center?" How is labor cost for chargeable hours found? How is percentage of departmental non-productive time found? II FIGURING BUILDING EXPENSE Each productive center occupies more or less space, according to its needs. The cost of this floor space must be figured according to the space used by each productive center. If the building occupied is owned by the concern which also owns the plant, a rental charge should be made for occupancy in the same amount as though the building was rented. Many errors are made in figuring floor space, even by those who understand the prob- lem, and these should be discussed before actual examples are shown, in order to prove that there is only one correct method. Let us consider first the proposition of the concern owning its own ground and the build- ings. Because it has money thus invested is no reason why it should not receive a legiti- mate return on that investment. The building was probably erected for the sole purpose of housing the plant and would 13 14 HOW TO FIGURE COSTS RENTS AND INTEREST 15 cost considerable money to alter for another tenant. That also should be considered as a factor. It would be unwise to take only the value of the land, the buildings, etc., figure the interest return, taxes, insurance, repairs and other items as a basis for figuring the rent. Location, increase in land values, pos- sible changes in the building laws, deprecia- tion of property, and many other things should be taken into consideration. The rental charge should be based solely on the value of the building for rental purposes, just as though the building were being rented by a second party. Again, a tenant (or several tenants) may be occupying part of the building and the concern may figure that by this method it receives free rent. This is of course a fallacy; and even if such were the case, there is no good reason why a proportionate amount should not be charged for the space occupied, and reckoned as an ad- ditional source of income. If the building housing the printing plant is owned by the business itself or is listed as a part of its assets, as in the case of a cor- poration, or is owned by the proprietor of the business, a rental for the space occupied must be included in the monthly expense to the same amount as would be paid for the same space to any other landlord. In the absence of any stated figure the present proper rental charge may be determined as follows: Figure the interest on the present sale value of the land and building— not the appraised value for taxation purposes— at not less than 6 per cent per annum and at a higher rate if local conditions warrant. To this amount add the taxes on the property and the insurance on the building, and also all the expense items which naturally are ear- ned against such property, such as street im- provements, street sprinkling, sidewalk and sewer taxes and repairs, using the average annual amount. Depreciation on the building must be figured at a fair and equitable rate On brick, stone and cement buildings the usual rate for depreciation is from 2 to 3i per cent, and on frame buildings from 5 to 7 per cent per annum, based on the building cost and the character of the building origin- ally. This amount is to be added to the amounts above, the total divided by 12 which gives the monthly rental charge on the build- ing at cost, but to this should be added a fair 16 HOW TO FIGURE COSTS I R ■■( I »l rental profit, as the owner is properly entitled to a profit over and above the interest on his investment. If the building is occupied by others besides the printing office the amount of the rental should be adjusted fairly as between the occupants. When a loft or building is rented, of course the rent must be taken into account. No argument can be brought against that, and even if the building is owned by the concern occupying it, a liberal amount should be allowed for a rental charge on the space occupied. Floor space is floor space, whether occupied by desks, cases, presses or ruling machines. Each is placed with a view to the greatest efficiency and practicability. It would show a lack of wisdom to locate the salesman's desk on the sixth floor rear. It would be equally foolish to put the stitchers just inside the entrance. Each has its proper place, but the floor space for each is equally valuable. The fact that the office is located on the first floor right near the entrance does not enhance the value of its floor space per foot over that occupied by the job presses which are located farther av/ay. FIGURING FLOOR SPACE 17 Every inch of floor space is of equal value to a plant, and to say that one is worth more than another is to ignore the fact that if conditions in regard to arrangement of the plant were reversed there could be no re- adjustments with reference to value, of that floor space. In figuring floor space by the productive center method, each center is charged with the floor space it occupies and uses, and that only. The number of employees working in it, whether one or twenty, 'has no bearing upon this point. All the space is measured off and divided according to its use. The best method of accomplishing this, is to prepare a floor plan or plat, showing the location of each machine in correct measure- ments, allowing enough space around each Item of equipment to enable the worker to handle it efficiently. This will enable the cost clerk, by the use of a ruler, to indicate the floor divisions, and figure out the square feet in each productive center. If this is not practicable, the space may be measured with a tape line, and the total amount of space, in square feet, for each productive center de- termined and recorded. I I' I m 18 HOW TO FIGURE COSTS All space occupied by elevators, stairways, aisles, rest rooms, toilets, hallways, heating plant or stoves should be figured out and not included in the space used for the productive centers. The disposition of this space and the method of caring for the rental of it will be taken up in a later chapter. If a floor contains more than one center, it should be figured out proportionately. It is being taken for granted that the shop is already divided into productive centers, and that the time reports are arranged according to these centers. In measuring off the floor space, be careful to include in each productive center exactly the amount used in each center. A diagram, or layout of a small printing office is given on page 19, in order to show the method of measuring off the floor space. While this is but a small shop, the principle involved may be applied to any size printing office. The office occupies ten feet in the front part of the building; or 200 square feet of space. A dotted line shows the division line between the office floor space and that of the produc- tive centers. The composing room and bindery occupy FLOOR SPACE DIAGRAM 19 •a rxjLr arubT X o p» C 20 FfctT Vifcw T>utfw fROM Tna Powt 20 HOW TO FIGURE COSTS ill the middle portion of the space, a distance of 17J feet back. The space between these two centers is shown as being equally divided by a dotted line running between the stones and the table. This is working space, and necessary to each; one-half of the space is charged to the composing room, the other half charged to the bindery. The composing room occupies a space llj x 17J feet, or nearly 200 square feet. The bindery occupies a space 8Jxl7i feet, or nearly 150 square feet. The press room occupies the back part of the floor space, and is divided between the job and cylinder presses, as each of these are sepa- rate productive centers. The division line is drawn a few feet from the drying tal)le of the job presses. A cylinder press takes more room for stock, handling of forms, drying room, etc., and the working space has been charged to the productive centers according to the use as found in this case. Each center must have charged to it all the floor space it actually occupies or uses in order to produce its part of the work. The job press room is 8 x 12^ feet or 100 square feet. FLOOR SPACE BY UNITS 21 The cylinder room is 12 x 12J feet or 150 square feet. In order to use as few numbers as possible, and to get rid of useless small figures, the floor space occupied by the various productive centers, should be reduced to fifty-foot units. The problem is easy, and saves a great deal of time. When a space is 96 square feet, it should be counted as two units, 157 square feet as three units. Taking the floor space as described and given, it would figure in fifty- foot units as follows : ^^^^ce 200sq. ft = 4units Composition 200 sq. f t. == 4 units ^^"^^n^ ISOsq. ft. = 3units J^^b^^s 100 sq. ft = 2 units Cylinders isOsq. ft = 3units "J^^tal 16units Four elements enter into building expense. One is rent, discussed above, the others are heat, janitor and repairs. Where heat and repairs are included in the rent, these items do not need to be taken into account. Heat should be charged against the produc- tive centers on the same basis as rent, and 22 HOW TO FIGURE COSTS i Hi if produced by stoves, is easy to figure. If a large heating plant is used, the item becomes more complicated. It should be figured on the basis of interest on the value of the heating plant, depreciation, repairs, the cost of coal, labor, cost of hauling away ashes and other incidental charges, as well as for the space it occupies. This problem will be shown later. Janitor service, in the larger plants, where this employee does no other work or where he gives at least one-half of his time to this work, the expense of janitor work should be treated as a building expense and distributed against the productive centers in the same manner as rent and heat. In the smaller plants where the regular employees do this work in the various departments the time used should be treated on the employee's time report as non-chargeable and the value of this time should be charged against Office Ex- pense. Treated in this way the expense of janitor work would be distributed against the productive centers as a part of the office or general expense. Repairs necessary. to the proper up-keep of the building, where the building is owned by the printing concern, should also be consid- FINDING COST PER UNIT 23 ered. The four items must be figured sepa- rately, and totalled. Example— Rent $40.00 Janitor 25.00 Heat 10.00 Repairs 5.00 $80.00 The total amount of the four can then be divided by the sixteen fifty-foot units, to ascertain the cost per unit. Example— $80 . 00 -f- 16 = $5 . 00 The units cost $5.00 each for the four items and the different divisions of floor space are charged accordingly. Example— Of f ice 4 units X $5 . 00 = $20. 00 Composition . . 4 units X 5 . 00 = 20 . 00 Bindery 3 units X 5.00= 15.00 Jobbers 2 units X 5.00= 10.00 Cylinder 3 units X 5.00= 15.00 ^^^^^ $80.00 Each division of floor space is thus charged with the correct amount. It occupies the space, therefore it must bear the burden of that cost. ^ 24 HOW TO FIGURE COSTS II i I. 2, 4- 5- 6. 7- 8. 9- JO. II. 12. 13- QUESTIONS What is the correct way in which to charge floor space? What is the correct way in which to figure rental of building occupied by the owner f Suppose the ozvner does not occupy the entire building, but rents a portion out, how should the rental be figured? Should the price of floor space be figured accord- ing to location? If so, why? What is the best method of ascertaining the floor space occupied by a productive center? What about the elevator, stairway, aisles and toilet room? Where should working space be figured? What is meant by square foot and how is it ascertained? Why should one machine be charged with more floor space than another? What is a fifty-foot unit? What elements enter into building expense? How should janitor work be charged in large plant? How in small plant? Why the difference in treatment? Give example of division of building expense by units. 111 FIGURING THE INVENTORY The money which a man has invested in a plant must bring him a suitable interest re- turn, and must also provide for the replace- ment of the plant as it wears out, becomes obsolete or inefficient. There can be no argument against interest on investment being a legitimate charge against cost of doing business as if the amount were invested in a loan of any kind it would produce an interest return without labor. It follows that capital invested in a printing plant must produce an interest return before any profit can be figured. The same is true in regard to replacement of worn or obsolete machinery and material. The business must provide for a replacement fund sufficient to keep the plant fully up to its primary value before any profit can be figured. If a plant becomes run down it be- comes less efficient with a consequent higher production cost and the keeping of the plant 25 ! H ti 26 HOW TO FIGURE COSTS fully efficient is a legitimate charge against the cost of doing business and must be in- cluded in the figuring of cost. The productive center method of figuring costs on this necessary phase of the business is based on the valuation of the equipment necessary to do the v^ork in that center. Aside from the wages and the rent paid, there is no more important item in the figur- ing of costs than the value of the machinery and equipment. It is a sad fact that compara- tively few manufacturers, including printers, know the value of their plants, and yet they attempt to do business, figure costs, and claim they are making money. The basis of the business is the plant that has been bought and installed, and although it must have labor and a place in which to do business, yet without a plant there could be no production. As the pay roll and rent have been figured according to the productive centers, the ma- chinery and material of the plant must also be listed according to these productive centers. The three primary productive centers or departments of a printing office are the com- posing room, the press room and the bindery. PRODUCTIVE CENTERS 27 These with the business office are necessary to every printing plant, whether large or small. The office comes first on the summary sheet, and the value of the office furniture must be considered. While the office is not a productive center, yet it is the means of securing the work, doing the necessary accounting, and taking care of the numerous business details. Therefore, the office furniture should be considered an integ- ral part of the plant and its equipment in the way of desks, filing cabinets, safes, type- writers, account books, etc., must all be listed. The composing room is a single productive center, but may be sub-divided into several parts. It is usually sub-divided into hand and machine composition. The press room can also be divided into several sub-divisions or centers, according to the size, style and cost of the presses. The usual sub-divisions of the press room in a small plant are the job press center and the cylinder press center. In larger plants a further sub-division is necessary as: platens 10 X 15 and smaller, 12 x 18 and larger. Uni- versal or Colt's Armory style, auto feed platens 10 X 15 or smaller, auto feed 12 x 18 and larger, fl ■n I \i 28 HOW TO FIGURE COSTS Kelly or other automatic presses. Cylinders: pony 22 x 32 and smaller, medium 25 x 38 to 32 X 44, large 38 x 50 and larger. If there are automatic feed cylinders they should be in a class by themselves. As many of these classifications should be used as is necessary to properly departmentize the press room. The bindery is capable of a great many sub- divisions, from the simple one of the small shop that has a paper cutter, and does only such work as padding, folding, check binding, etc., to larger and more complicated plants. The best method of taking an inventory is to have a reliable appraisal company list the property. These men are trained in this work, and will do it in a manner which no one else could hardly equal. The important part, however, is to get a correct value on the production centers of the plant. Costs are based on the value of the plant, not what was actually paid for the ma- terial and then "depreciated" by some sort of mathematics, but the actual worth of the plant if it were to be replaced today. There is a great difference between an in- ventory and an appraisement. An inventory is usually based upon the original cost of an BARGAIN PURCHASES 29 article, and a high or low price may have been paid for it — quite different from the market or going price of such an article. On the other hand, an appraisal is based upon what the article is worth to-day, and then depreciated for insurance and taxation pur- poses according to style or type of article, its age and efficiency. There is at all times a junk value to an article, aside from its effi- ciency or productive value, and this, of course, must be taken into consideration. In figuring out a plant for cost-finding pur- poses many err in putting a low valuation upon machinery bought at an unusual advantage. Where an owner strikes a special bargain in type or machinery, the advantage should not enter into the cost-finder's calculations at all. Material thus bought has an appraised value for production purposes wholly disconnected with its bargain price. Modern cost experts are agreed that, for cost finding purposes, the inventory of office and all production centers should be carried at the present cost values. All replacements of worn or obsolete equip- ment and any additions to the equipment purchased from capital stock investment must, necessarily, be made at the present values. The I II Ik 30 HOW TO FIGURE COSTS INVENTORY BLANKS 31 replacement fund being based on a proper per- centage of the inventory at present valuation would obviate any variation from that source in the hour costs. If it is not possible to secure the services of an appraisal company to list and value the plant, it will be necessary to do it in the best possible way. Usually any supply house or type foundry salesman will be glad to help in properly pricing the material in a plant. To do this properly, blanks made for the purpose should be provided. A showing of a Plant Inventory blank suit- able for the needs of a plant of any size is made on page 30. These blanks are 8J x 11, and punched to fit a loose leaf binder. Arrange the sheets according to productive centers or departments and make additions from time to time. List each separate item for the office — the filing cabinet, the desks, books, chairs, tables, rugs, etc. In the composing room, each series of type should be listed on a separate sheet. Cases, racks, cabinets, etc., should all be carefully described and listed. This will allow room for additions. 32 HOW TO FIGURE COSTS MAKING AN INVENTORY 33 I In the press room list each press, with all the extras, individual motors, belting, shafting, including all wire connections and cost of installation, etc. The various sub-divisions of the bindery should each be listed separately to permit of additions. As additions to the equipment are made they must be entered upon the proper depart- mental sheets. When items of equipment become obsolete or worn out and are scrapped they should be checked off on the inventory sheet and the in- ventory value deducted from the total of that productive center. When replaced the new items should be itemized and a new total carried forward. The loose leaf form of a plant inventory has the great advantage that as the plant increases new sheets may be inserted as needed for each productive center. The best way to take an appraisal is to list the entire plant, and sheets of paper 5| x 8J inches padded 50 sheets to the pad should be provided for the purpose. Starting from some well defined point, every item of equip- ment must be put down — all tools, except such as come with the machines, all extras, belting, shafting, etc. Let no small item escape notice. List the small things first — the big ones last. Do not list over eight items on one sheet, and then number and put away. Later they should be given to a second person to check over to see if they are correct and nothing left out. No attempt at fixing prices should be made on these sheets. These sheets are then assorted by productive centers and listed on blank sheets by some- body who writes a plain, legible hand, or it may be done on the typewriter. Compare this listing carefully with the slips, to see that nothing has been omitted. The pricing comes next, and if possible, secure the assistance of a well posted printers' supply salesman. Most of them will be only too glad to help you, and their employers will sanction anything of this kind, as they know the value of an inventory or appraisal for obtaining costs. There are often questions arising as to what equipment is to be included in a productive center, as for instance, where one article is used in several divisions, such as chases and 34 HOW TO FIGURE COSTS QUESTIONS ON INVENTORY 35 ii sectional blocks. In this case they are a neces- sary part of the composing room equipment in order that the type and plates can be sent to press, and should be put in the composing room equipment. The cutter in the bindery is often a prob- lem where forwarders, the regular stockman and rulers all use it. Usually the split pay roll method is used, creating a cutting center or department and each man's salary charged to it. The best and easiest way is to figure the problem carefully and divide either the time or the equipment according to the needs. It is impossible to anticipate each point that might arise in a plant, but the safest plan is to charge each productive center with the equipment made necessary by either the start- ing or the actual production of the work in that center. But, above all, have a correct listing of the plant, one as near right as man can make it, divided as to productive centers, listed in such a manner that changes may be easily made — either additions or deductions. I. 3- 4- 5- 6. 7- 8, p. 10. II. QUESTIONS What is a prime necessity in a manufacturing business f Is it necessary in order to understand costs to know the value of the plant? If so, why? How should the plant he listed? The office is not a productive center; how about that? What are the usual productive centers in a printing plant? Can there be sub-divisions? What kind of a value should be placed on the plant? What method should be pursued to ascertain the value of the plant? How are additions or deductions made? State possible conflictions as to centers and how they should be equalized? i Ill IV FIGURING REPLACEMENT VALUES The man who fails to take into account the possible wearing out or depreciation of his machinery through new inventions, deteriora- tion or disuse, will some day find himself with a plant consisting of junk and the new man just starting in able to beat him in the race for business. These are competitive days in the business world, and the man who does not keep up the youth of his plant must fall behind. This one factor has been overlooked by many manu- facturers, and they have failed to allow a replacement charge as a general expense item in conducting their business. Many have figured "overhead," which is a mythical sum liable to mean much, or again very httle. This was generally supposed to carry a load to cover various expense items • but replacement is not an "overhead" • it is a positive, distinct and important item of cost. 37 38 HOW TO FIGURE COSTS I It is not related to depreciation — a thing never really depreciates entirely. There is always some value left. Replacement is a positive thing, and if it is considered that the productive life of a machine will be ten years, then an amount equal to one-tenth the value of the machine must be charged as a direct cost to its productive center annually. As stated, a machine never depreciates to the point of losing all value. It has always a junk value, and many times will do effective work twenty or thirty years after its purchase. The old hand scythe will still cut grain, but the farmer wants a modern harvester, the very latest model. So with any machinery, the latest only will do, and a plant must always be kept young. Figuring a replacement value of 10 per cent on each productive center means that each year one-tenth of the value is either laid aside in actual money for replacement, or that amount of new material is put in to keep the plant young. That the difference between depreciating 10 per cent per year, and replacement of 10 per cent per year may be appreciated, two tables are given, presenting the differences. TIM Pin OINT. WCPLACCMENT DKDUOTID FROM OmcwAL INVK8TMINT III Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 43 43 44 45 46 47 48 49 Te« InTcstment % Replc'm't ' Bidance 1 1000 00 10 100 00 900 00 2 900 00 «l 100 00 800 00 3 800 00 70000 <4 100 00 700 00 600 00' 4 ALA NCH ivestment % lWiw# .i aw«it »..t. Iv— , » . i ' _ . . - 1000 00 900 00 810 00 729 00 656 10 690 49 53144 478 30 430 47 387 42 348 68 313 81 282 43 254 19 228 77 205 89 185 30 166 77 150 09 136 08 12157 109 41 98 47 88 62 79 76 71 78 64 00 58 14 52 33 47 10 42 39 38 15 34 33 30 90 27 81 25 03 22 63 20 28 18 25 16 42 14 78 13 30 U97 10 77 9 69 8 73 785 706 635 10 « «« u <« « 44 44 44 44 44 «4 44 44 44 44 44 Pepitdatfoa 100 00 90 00 8100 72 90 65 61 59 05 53 14 47 83 43 05 38 74 34 87 3138 28 24 25 42 22 88 20 59 18 53 16 68 15 01 13 51 12 16 10 94 9 85 8 86 7 98 7 18 6 46 5 81 5 23 4 71 424 3 82 3 3 2 2 2 2 1 1 1 1 1 1 Balance 43 09 78 50 25 03 83 64 48 83 20 08 97 87 79 71 64 900 00 810 00 729 00 656 10 590 49 53144 478 30 430 47 387 42 348 68 313 81 282 43 254 19 228 77 205 89 185 30 166 77 150 09 135 08 12167 109 41 98 47 88 62 79 76 7178 64 60 58 14 52 33 47 10 42 39 38 15 34 33 30 90 27 81 25 03 22 53 20 28 18 25 16 42 14 78 13 30 1197 10 77 969 8 72 785 706 635 6 71 Year 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 96 196 97 Inrestment I % a 5 4 4 3 3 3 2 2 2 71 14 63 17 75 38 04 74 47 22 200 80 62 46 31 18 06 95 85 76 68 61 55 50 45 40 36 32 29 26 23 21 19 17 15 13 13 11 10 09 08 07 06 05 04 03 03 01 10 u 4( U 44 'i !')■! I. 2. J- 6. > 8. p. 10. II. 12. What is a foreman f How many kinds are there f Should the higher paid employee bear a larger por- tion of the foreman's salary for directing? Can a foreman direct in more than one productive center? What productive center should he charged with most of the foreman's salary? What is a pay-roll hour? Hozv can this be used to distribute the foreman's salary? How is the "working" foreman's salary distributed? What is the main difficulty in the time of a ''work- ing" foreman? How should a superintendent's salary be distributed? Why? What other method can he used? ^ |t 'I mi KM •1 I ^ I i N I li I 'J i SELLING EXPENSE If one were to ask the average printer what his selling expenses were, he would stare in wonderment and probably say that he did not have any except his solicitor. Yet every printer, however small, has some selling expense, and the list of the items that make up this expense is considerably more than the amount paid to a solicitor. The following items are a few of those that go to make up the selling expense: Salaries of salesmen and solicitors Commissions for orders Traveling expenses Car fares Advertising Telephone and tolls Telegrams Discounts to customers Deductions to customers Bad accounts 97 bM li': 1 1 I li i |] III 98 HOW TO FIGURE COSTS Donations and charity Organization dues Office stationery Postage Being a good fellow Perhaps there are more. All these are closely related to sales, and must be considered a selling expense. Each will, upon careful analysis, be found a true selling expense. Salaries of Salesmen and Solicitors — There is no question but that these are selling ex- penses, especially if they are working on a straight salary and not upon a percentage basis. Commissions for Orders — This item should be figured into selling costs as a lump sum, especially with the idea of one order being a leader to many. If commissions are given occasionally, this is correct. If, however, all the salesmen, solicitors, etc., are absolutely on a commission basis, then these two items must not be figured into costs, but the com- mission added as a direct cost to each job or item from which the salesman derives a mone- tary return. The only correct method of handling this proposition is to obtain a factory cost, and then add the commission. This SALESMEN'S EXPENSES 99 should be handled very carefully, and not attempted except upon expert advice, when all the circumstances have been fully taken into account. The average plant, however, does not do business in that way, and hence all sales- men's costs should enter directly into all the productive costs. Traveling Expenses — These are almost al- ways related to sales, and are a selling expense. Car Fare — This is mostly street car fare, and large orders often mean many trips. Small orders will mean few. This is clearly a selling expense. Advertising — No one will question this as a selling expense, and if the advertising is pro- duced and mailed from your own plant, the full cost of this advertising must be charged. Do not make the mistake of thinking that your own printing costs nothing. Charge into selling expense the full cost just as if it were produced for someone else. No greater loss has there been than this one, especially to printers. The merchant and manufacturer has to pay for his advertising matter, which enters into his cost of doing business and because it is done for your business does not eliminate the value of it; so why not figure it into the cost of doing business ? ! u. '1. '(■■ t ) t t 1 t 1 1 I 1 1 i i' T ' 1 i 100 HOW TO FIGURE COSTS Discounts to Customers — Many give dis- counts, and take discounts, and foolishly try to balance one with the other. A discount may be given, not only for prompt payment, but to v^in trade, to sell the goods. Every discount given is a selling expense, and should be figured into the costs. Deductions — The same argument in relation to discounts holds good with deductions to customers. They are given to hold business, or as a means of securing a future order. Thus they become a selling expense. Bad Accounts — Uncollectible accounts should be held down to a certain percentage of sales. They are an incident of selling. Donations and Charity— oiten called '*hold- ups" — are usually given because of some pull, that may result in either getting business, or loss of business when turned down. They are a selling expense, and are usually held down to a certain percentage of sales. Organisation Dues — These are usually for membership in trade organizations for better- ment of business methods and larger profits, and hence have a distinct relation to sales. Office Stationery and Postage — A necessity, but almost entirely used to produce sales, or HANDLING SELLING EXPENSES 101 the necessary correspondence before, during or after the production of work. Telephone, Tolls, Telegrams, etc, — These modern necessities are used almost exclusively in the promotion of sales, and are clearly a selling expense. How often are they used for anything beside the actual business con- nected with either a possible order, or an order in the house? They facilitate selling, and are, therefore, a selling expense. Being a Good Fellow — Last but not least are the hundred and one small costs of getting on the right side of a customer, treating him right and holding his business. And the cus- tomer must pay — who else should? These are the general selling items, and must be figured into the cost of production. There are two ways in which they can be figured into costs, a great deal depending upon the size of the plant and method of doing business. For a small plant these items may be safely figured into the "office" expense, and then distributed to the various centers, as will be described later. This method is advised for the medium and small plants, as the method to be described later will make but very little 4 J ! H 102 HOW TO FIGURE COSTS if any difference in the hour costs in their plants. The plant doing a business of $20,000 a year or more, however, has a very much larger selling expense, enters into more productive centers, and it would be unfair to charge the selling expense as a direct office cost. Selling expense is based on total sales, and therefore each center should bear as a selling expense its just burden according to the sales of each center. The easiest and most correct method is to figure the basis of the cost of sales without profit or loss (which are always a percentage of cost) and then distribute the selling ex- pense on that result. For example, assume that the selling ex- pense of a plant is $104.82, and is to be dis- tributed to the composing room, cylinder and job presses and bindery. If there were more centers, the principle would still be the sarne. The composing room produced 265 charge- able hours, the cylinder press 51, the job press 106, and the bindery 56. The basis upon which the production of this plant sold its product was $2.40 an hour for composition, $3.00 an hour for cylinder press, $1.60 an hour SALES EXPENSE DISTRIBUTION 103 for jobbers, and $1.60 an hour for binding. Either profit or loss on work was a percentage of the total cost as based on these rates. In other words, they were the extension values that are used in figuring the cost of work and as a basis of selling. Therefore the selling expense may be safely distributed to the various productive centers on a basis of this cost, which is the chargeable hours multi- plied by the extension rates. The result is as follows: Chargeable Extension Department Hrs. Rate Values Composing room 265 X $2 . 40 = $636 . 00 Cylinder press 51 X 3.00 = 153.00 Job press 106 X 1.60 = 169.60 Binding 56 X 1.60 = 89.60 $1048.20 The total selling expense is $104.82, and the sales are $1,048.20, which is ten per cent as follows: $104.82 -^ $1048.20 = 10 per cent The various centers will therefore carry ten per cent of the selling expense, based on the extended values of their chargeable hours as follows : 1 1 104 HOW TO FIGURE COSTS Extended Department Values Composing Room $636.00 Cylinder press 153 . 00 Job press 169.60 Bindery 89.60 Per cent of Sales X 10% == X 10% = X 10% = X 10% = Totals $ 63.60 15.30 16.96 8.96 $104.82 This method simply, accurately and positive- ly charges to each center a due proportion of the selling expense, based on the total sales for the month of each productive center. They are made a direct charge, and only according to the sales. A center that produces very little should be charged with little selling expense, while the center that produces the most should bear the greater burden. QUESTIONS Has a printer any selling expense? What is selling expense? Describe the items and tell why they are a selling expense. How should commissions he handled? What two ways are advisable in which to distribute cost of selling? Upon what is cost of selling usually based? How can this be applied to printing? What is an extension rate? Show hozv selling expense can be distributed on extension values. I. 2. 3- 4- 5- 6. 7- 8. 9- XI ADMINISTRATION EXPENSES AND COMMERCIAL INVESTMENT One, in figuring costs, almost reaches the belief that "Things that are not — is." So many elements enter into the figuring, and can be traced to cost, that never were put into the "general expense'' account, and each is so vital to commercial success that no wonder "labor costs" only were thought of in the early days of cost finding. Usually a lump sum of 25 per cent or SSys per cent was supposed to cover the "expense of doing business," and then let it go at that. But many a concern went broke on that principle, and the cost student dived deeper for the reason. Having figured rent, interest and replace- ment, insurance and taxes, power, light, direct expenses, wages, and selling expenses, one would think that should complete the list, but there are other items of cost that are at times ignored, yet must be worked out if the busi- ness is to be a commercial success. 105 i» II }i i;t, , I I 106 HOW TO FIGURE COSTS One of these items is executive salaries, or to call it by a less high-sounding name, the boss's salary. Few proprietors think oi their own salaries, yet they are a part of the cost of conducting the plant, and the proprietor is entitled to a salary for his efforts, and a profit besides. He must secure a living, and to assure it he must figure it into his costs just the same as wages or salary paid to other employees. The owner usually works for the business, as such, and so stands, in relation to it, as an employee. This is but one of the administrative ex- penses of a business. The others are book- keepers, cost clerks, stenographers, office, messenger and delivery boys, office supplies, books of account, etc. These in a large plant amount to quite a sum, and should be figured as a direct office expense, and distributed to the various centers, as will be explained in the next article. Not all of the money necessary to conduct a plant is invested in machinery and office furni- ture or equipment alone. Of the total capital invested in a plant, perhaps only three-quarters and often only one-half is thus invested. Too often men start in business thinking '***U ff4 ADMINISTRATION EXPENSES 107 they need only a building, machinery, etc., and are then ready to start. This is not a start in the business world on a proper basis, and very soon the individual wakes up to the fact that credit plays a big part, and he will need money for running expenses, or credit to carry him along until he can secure a return in money on work done. The well-managed concern always has a working balance, and does not hesitate to secure a loan, so that the working balance will be at hand in case it is needed. It re- quires money to pay interest, and if a printer does not pay interest on borrowed money, he would have to use his own money, and in that case is just as much entitled to interest as the bank would have been had it loaned him money. Now this, in the business world, is called "commercial investment," or ^'working capi- tal,'' and covers money invested in the busi- ness other than in equipment. It makes no difference if the money has to be borrowed to take care of this or if the proprietor has that much surplus invested — it must bring a re- turn. It is used to make certain a reasonable return on the money invested. In order to guarantee a sure and safe return i' nil i i III 108 HOW TO FIGURE COSTS of this money, it is necessary to figure it into the cost of the business. To neglect to do so, may mean commercial failure. There are some who say this should come out of the profits; but they are taking a chance on a possible profit, whereas there is no chance connected with costs. The general items on commercial invest- ment are: Interest on cash and bank balances Interest on accounts receivable Interest on work in process Interest on paper stock and merchandise State, federal and corporation taxes The first item may startle somewhat, but most banks require a certain balance to secure accommodations, and this is money invested in the business. The accounts outstanding represent money expended in production, the owner is not being benefited by the use of that money, which might be invested elsewhere and secure an in- terest return on same. If customers wish to be carried, they should pay for the privilege, and as it is wise to make sure of receiving it! the interest on the monthly balance of accounts receivable should be figured into the costs. INTEREST ON INVESTMENTS 109 This means at 6 per cent the sum of one-half of one per cent on the balance of accounts re- ceivable at the end of the month. The work begun, but as yet incomplete, has tied up a lot of money. It is in the nature of accounts . receivable, but does not appear on the ledger. With a cost system, it is but the work of a few minutes to go through the job record sheets, add up all the time and material charged to unfinished work, and figure one- half of one per cent of this into the commercial investment expense. Money invested in a stock of paper or other merchandise awaiting a purchaser is entitled to interest on the amount invested as well as investment for any other purpose. In the large cities, the average printer carries very little paper or merchandise that his unfinished work would not cover. In the inland towns, how- ever, the situation is different, and a consider- able stock of paper must be carried to meet the demands of the trade. On this the pro- prietor must get a return on the money in- vested. A perpetual inventory can be easily kept, and the average balance at the end of the month will give the proper amount on which to compute the interest as above. Ill llfl II •I Hi i> u 110 HOW TO FIGURE COSTS If you pay state, federal or corporation taxes, these taxes should be included as a commercial investment expense. Many believe that if the business owes any money on open account, this should be de- ducted from the total, as interest is not being paid on that money, and as it is not the firm's money, therefore, interest should not be fig- ured on something not invested or borrowed from a bank, and on which the business is pay- ing interest. With this method commercial investment interest may be figured as follows: Cash and bank balance $ 250.00 Accounts receivable 560.00 Work in process and merchandise. . . . 275.00 $1085.00 Less accounts and bills payable 595 . 00 $ 490.00 Interest at one-half of one per cent. ... 2.45 Federal and corporation tax, 1/12 of the whole amount .50 $ 2.95 It is recognizable that the fewer the ac- counts payable, the greater the amount to be QUESTIONS OF ADMINISTRATION 111 li figured for interest, as there will be a greater amount invested in the business. The amount should be charged direct to office expense, except in extremely large plants, and then distributed on the basis of total departmental costs as explained later. QUESTIONS /. Haz'e all the items of cost been figured in the gen- eral expense f 2. What are the usual expense items F J. What item of expense is sometimes forgotten f 4. What are administrative expenses? 5. Is money invested only in equipment? 6. Why do many men start in business on a false basis? 7. Why commercial investment? 8. What items should bring interest as a commercial investment? p. Give your own opinion on the subject of outstanding accounts and unfinished work. 10. What about accounts and bills payable? 11. Give an example of figuring commercial invest- ment. Tfl I" % Hi hMIM C/3 HI H :z; u w > H U O >^ H o u O >^ < IS en •4 O n o 0} en H Pi o O QvOtorooO »o i-i csi vo rv ^' covet 0\ 3^ ■^ CO 0»o vo 00 COj^iO VO ^ »— J On" 00 o ioOOOO»-<"^fOO\ wS o cvi co' ^' Tf cvi NO* vd r4 O) C c LO u en "^ u o -S o en !:§ O ii pLiU tn en u a; ^^ C o o en ^_ C en X X a a£ >»^ = C >-^ a :iJX a J; O X.2 en ii u e 6 ^ .ii X •— i> c 4^ ^tt: t^S •- 5 i: _ 1) "i^ ••" o*'*^ o o C3V Ov VO Ov VO Ov o <«- o\ o CM en •— ^ PS 4-1 o en c 3 O en O en cj u C O en en •4-» JO u ti a> C CO > o si < * 112 XII OFFICE EXPENSES We have now come to the finishing touch of the Cost System. Every conceivable item of expense has been provided for, and each distributed and placed in its proper position and where its presence can be properly ex- plained. If you will go back to the previous articles, and place all the problems figured out — with a very few exceptions that did not quite fit into the general plan and were given mainly as illustrations — you will make out a sheet about like the one on page 112. You can easily trace each item, and read back what each means, and after you total it all up, you will come to office expense, which is largely administrative and selling cost, and wonder what in the world you are to do with that $264.29. There are several ways in which it is possible to distribute this sum to the various productive centers, and 113 Ir ' lff| I \ 114 HOW TO FIGURE COSTS without prejudice each method will be shown and carefully analyzed with examples show- ing methods of figuring and results. Sold Hour Method — This method is the distribution of office expense to the various centers according to the number of sold (chargeable) hours to each productive center. Argument — The sold hour represents the effort that has been put forth to produce. The center that has not produced should not be charged with any of the office expense. The sold hour is the unit of cost, and must bear the burden. It provides for elasticity, in that busy departments carry the greater portion of this expense. There is a logical and direct relation between the hours sold and the sell- ing and administrative cost of selling them and collecting and accounting for the selling price. Example — There are in all 478 sold hours (or chargeable hours) and the office expense is $264.29, and this divided by the sold hours gives the result of nearly 55.3 cents per hour for office expense as follows: $264.29 -J- 478 = .553— DISTRIBUTE OFFICE EXPENSE 115 The office expense is then distributed to the productive centers as follows: Center Sold Hrs. Cost Composing room 265 X .553 = $146.54 Cylinder press 51 X -553 == 28.20 Job press 106 X .553 = 58.61 Bindery 56 X .553 = 30.96 $264.31 This is 2 cents in excess of the correct sum, as the cost is less than 55.3 cents. This amount is usuallv deducted from the centers doing the least work, and then added to the cost of the centers as follows: Comp. Cyl. Jobbers Bind'y Center cost $610.99 $105.96 $160.96 $ 97.71 Dist. office expense.. 146.53 28.20 58.61 30.95 Total $757.52 $134.16 $219.57 $128.66 Having thus distributed office expense to the productive centers, and added the direct center cost and office cost, the total depart- ment costs are found, and it is only necessary to divide these costs by the sold hours to ob- tain the cost per sold hour of the various pro- ductive centers. \) i|^ 116 il \^i N Center HOW TO FIGURE COSTS Total Cost Sold Hrs. Composing room $757.52 -: Cylinder press 134.16 Job press 219.57 -r- Bindery 128.66 :- 265 «= 51 -= 106 = 56 - Cost per Hour $2.86— 2.63 2.07+ 2.30— The real hour costs as shown by this method have now been ascertained. For the small of- fice this method is ideal and practical, and many larger shops believe it to be accurate. However that may be — and the writer's personal opinion is not considered — there are other methods that the cost clerk should know, and we present them here. They are fully explained, and the reader may take his clioice. Total Department Cost — By this method the office expense is distributed on the basis of the total cost of each productive center as indicated by totals of summary of cost table exclusive of "office" column (page 112). Argument — The direct cost of each of the centers are the factors of cost, and being such, office expense should be figured on that basis. The production cost of an article for sale is ascertained, and the ''administrative overhead" cost added to give the gross cost before profit can be added. The direct center cost repre- TOTAL COST— OFFICE COST 117 sents factory cost, and office expense should be distributed to each center on that basis — the hour cost can then be found. Example — The total cost of the centers are ascertained, and then the percentage of office cost to the productive center cost ascertained. The total center cost is $975.62, and the office cost is $264.29, which is 27 per cent as follows : $264.29 -^ $975.62 = 27-\-% The office expense is distributed according to this result as follows: Cost of Percent Total Center Center Office Exp. Dcpt. Composing room $610.99 X 27% = $164.97 Cylinder press 105.96 X 27% = 28.61 Job press 160.96 X 27% == 43.46 Bindery 97.71 X 27% = 26.38 $263.42 This is 87 cents less than the office expense, which amount is added to the centers with the highest production. These amounts are added to the direct center costs as follows: 118 HOW TO FIGURE COSTS Comp. Cyl. Jobbers Bind'y Direct center costs. . .$610.99 $105.96 $160.96 $97.71 Dist. office expense.. 165.55* 28.61 43.75* 26.38 Total $776.54 $134.57 $204.71 $124.09 The sold-hour costs are then found by dividing the total center costs by the sold or chargeable hours as follows: Cost per Center Total Cost Sold Hrs. Hour Composing room $776.54 -r- 265 = $2.93 Cylinder press 134.57 -^ 51 = 2.64 — Job press 204.71 -^ 106 = 1.93+ Bindery 124.09 -f- 56 -= 2.22— This is the method adopted by the American Printers Cost Commission and perliaps more universally used than any other. The general result in large offices is to reduce the bindery hand work, such as folding, and increase the cost of composition and cylinder press work. Extension Value — While both the sold- hour and department cost methods have strong advocates the theory of distributing office ex- pense on the basis of the extended values is being used as a compromise. ♦Fifty-eight cents is added to the composition and 29 cents to the job presses to equalize the cost. OFFICE EXPENSE BURDEN 119 Argument — The office expense is largely created in making sales, and the sales are based on the value at which the product is sold, therefore the office expense should be distributed to the various centers, according to the extended values of the sold hours. This is practically the method described in "Figuring Selling Expense," but for compari- son the example of how this works out is given here: Example — Refer to "Figuring Selling Ex- pense," and the total value of the extended rates of the sold hours will be found to be $1048.20. The office expense is $264.29, which is 25.2 per cent as follows: $264.29 ^ $1,048.20 = 25.2+% The office expense figured on this basis gives the result as follows: Percent Center Ext. Values Office Exp. Totals Composing room $636.00 X 25.2 = $160.27 Cylinder press 153.00 X 25.2 = 38.56 Job press 169.60 X 25.2 = 42.74 Bindery 89.60 X 25.2 = 22.58 $264.15 This is 14 cents less than the exact sum, and this amount is added to the most active centers to equalize the office expense. f. ij < 120 HOW TO FIGURE COSTS PAY-ROLL HOURS 121 ■.i I :>! The direct center costs and the office ex- penses are then added to get the total center costs and the result is as follows: Comp. Cyl.P. Jobbers Bind'y Direct center cost . .$636.00 $153.00 $169.()0 $ 89.60 Dist. office expense.. 160.37* 38.60* 42.74 22.58 Total $796.37 $191.60 $212.34 $112.18 The sold-hour costs are then found by divid- ing the total center costs by the sold or chargeable hours as follows: Center Cost Total Cost Sold Hours Per Hr. Composing room $796.37 Cylinder press 191 .60 -^ Job press 212.34 --=- Bindery 112.18 265 51 106 56 $3.01— 3.76— 2.00+ 2.00+ These three methods are the ones most used, and to the cost student they present many interesting points. They are presented without recommendation, as each is adaptable according to the plant and conditions. Two other methods are as follows: Pay Roll — A few use the pay roll as a basis for distribution of office expenses, in- *Ten cents is added to the composition and four cents to cylinder press to equalize the office expense. / V eluding foreman's salary, etc. The general principles of total direct center cost are used, except that the total pay roll of each center is the basis of distribution. Many plants have departments with piece workers, and this method is used in these cases. Pay Roll Hours — The method used is the same as the sold hours, except the total pay roll hours of each center are used instead, otherwise there is no difference. The argument is that the non-chargeable time should bear a burden of the cost, and therefore the total pay roll hours plan is most equitable and logical. It is well to bear in mind, however, that in some centers the non-chargeable time is only 20 to 25 per cent of the pay roll hours while in others it may run as high as 40 to 50 per cent, while in some combination newspaper and job plants the cylinder press, being used for little else than newspaper work the per- centage of non-chargeable time may be as high as 50 per cent of the pay roll hours constantly. The writer has tried to present plainly each step in figuring costs by productive centers as it is done in a printing office. There is no reason why this same method could not be "11 122 HOW TO FIGURE COSTS used in every class of manufacturing plant, with but slight changes. The cost clerk, with the examples given here, should have no trouble in figuring the monthly summary of costs on form shown as summary of costs by productive centers (page 112) or an adaptation. The entire blank should be cross-added and proven to be correct before the result is accepted. Remember, accuracy is the chief point in figuring costs. The future of your business is in your hands; it all depends upon results, and an error may mean loss of business and complete failure. QUESTIONS Can each item of expense be traced and charged against the right productive center? What shall be done with the office expense? What is the sold hour method? Give an example. What is the extension value method? Give an example. What is the Standard method? Give an example. What is the pay roll method? Where is this used? What is the pay roll hour method? Wherein does it differ from the others? What one thing is the most important to all cost keeping? I. 2. 3- 4- 5- 6. 7- 8. p. 10. II. 12. 13- -'■■■ H XIII ANSWERS TO QUESTIONS There are any number of important ques- tions that may arise in the figuring of costs, most of which apply to individual cases, or ex- ceptional cases only. During the past few years many questions, some important, and others not so important, have been asked me, and I have felt that this book would be in- complete without adding to it answers to some of the most important questions asked. Advance proofs of this book have been sent to several critics, mainly to learn if anything important had been omitted. Attention was called to several minor matters, and some took exception to certain methods shown. I also can take exception to some given, but in most cases I have presented what was the lat- est method, :and, when possible, two ways to figure a certain item, wherein either way would not make any great difference in the result. 123 "f "1 124 HOW TO FIGURE COSTS The appended questions and answers must not be considered primarily a part of ''How to Figure Costs," but rather a help in seeking light on certain problems that have arisen. I believe they will be a great help to the student of costs and to the cost clerk. WAGES PLUS OVERHEAD TO SECURIL COSTS Question — / have been very much interested in the Cost Calculator issued by Mr. George Benedict of Chicago, where he uses wages as a basis of figuring hour costs. Some of my friends state that the results he shows are exceedingly accurate. Can I safely use this Calculator for my costs, and thus figure what I make or lose on my job work? j^ q Answer— I want to say that Mr. Benedict deserves a great deal of praise in getting out the Cost Calculator of which you write. I am not an admirer of costs based on wages, but Mr. Benedict has added some new fea- tures, and his results in general coincide with those secured by the productive center sys- tems. But to use the figures given as a basis of cost, or instead of a cost system, without attempting to prove them correct as applied to a plant, is a pretty dangerous proceeding. BENEDICTS CALCULATOR 125 I grant that one may not go far wrong, and possibly as a basis of figuring, the Calculator is a mighty good thing. It is a long way better than using no method at all. You will have to accept, however, the figures given as true. Mr. Benedict has based his figures on the proposition that the average workman pro- duces but 40 hours a week, or rather, out of the total hours worked, but 40 are sold. This amount he has been able to arrive at by fig- ures furnished from those operating produc- tive center cost systems. As a matter of fact several centers produce more than 40 hours a week for each workman, and others much less. The average, however, is nearly the amount given by Mr. Benedict. The total expense of running a plant — less interest on investment and replacement — is found and compared with the total productive wages paid workmen. The surprising fact is that the amounts seem about even in nearly all plants. You can ascertain if this is true in your plant by adding up your general ex- pense and then the wages paid and find the proportion. The following example will give an idea as to how this should be done. 126 HOW TO FIGI^RE COSTS Productive wages $595.70 Rent, etc $ 80.0() Power 13.00 Selling expense 104.82 Light 2.16 Spoiled work 6.42 Department expenses 6.35 Office salaries 124.a) Commercial investment 2.95 Foreman^s salary 232.a) 571.70 Total expenses $1,167.40 Wages are 51 per cent of the expense, as fol- lows: $595.70 ~ $1167.40 = 51+% These figures are taken from the summary sheet on page 113 and show how closely wages and expenses are related. Nearly every print- ing office will be astonished as to how close the figures will come to being of equal amount. On this basis of fact that the expenses are nearly equal, Mr. Benedict doubled the wage of the workman, and divided the weekly wage by 40 hours, and thus got the cost-hour wage. Example — A workman is paid $20.00 a week. This amount plus the percentage of other ex- penses makes the wage $40.00 a week. This INTEREST AND REPLACEMENT 127 amount divided by 40 hours gives the result as $1.00 an hour. Therefore, a workman being paid the wage of $20.00 a week, it actually costs $1.00 an hour for his time, but this is without his using a single piece of equipment of any nature. There is no interest on investment or replace- ment included in the amount whatever. How then is this amount cared for? Here is where Mr. Benedict is entitled to a great deal of credit. He has made up his table with the various wages paid, and by a simple method, the interest and replacement is taken care of by adding $2.00 a week to the wage of each man, per $1,000 worth of material or machine that he uses. And again the figures are as- tonishingly near correct as an average. A machine worth $1,000 would be charged with $60.00 interest a year, $100.00 replacement, and about $48.00 in taxes, repairs and other in- cidentaly amounting to $208.00 a year, or for 52 weeks at the rate of $4.00 per week. As the wages of the workman are doubled, thus by advancing the scale $2.00 a week the $4.00 a week for these items is taken care of. Should, however, the productive time fall below that of 40 hours for each workman, then the product would be sold at a loss. 1 I 128 HOW TO FIGURE COSTS Using any such system will not tell what departments are costing too much, or where the big losses may be. It is good only as an average condition, but is far from being abso- lutely accurate. I am glad to answer this question, as there may be some misunderstanding in regard to what I have said about basing costs according to the wage paid workmen. As a matter of fact, the Cost Calculator may have to be changed in a few years, when results from the productive center cost s>stems show that it is not correct. The Calculator is based on re- sults from productive center systems, and this IS what makes it so nearly correct. Without this proof, however, the Calculator would not be of much value. There is no disguising the fact that high wages are paid to men who operate large ma- chines, using a large floor space, and other- wise generally in proT)ortion to the wages paid. The cheapest help is in the bindery, where very little floor space per emi)lovee is used, and where a foreman supervises the M^ork of a large number of people. This con- dition is what makes possible the seeming ac- curacy of the Calculator. The only place it PRESS COSTS TOO LOW 129 may go wrong, is where there are varying Zr 7i " '""^ ^^'"^ «"^-. -d an hTuf ra e used there according to individual wages paid This may lead to inconsistencies, and should be avoided. The proper way would be to^average the wage paid, and thL find an where there are, say, four feeders and a press- man. Too low a cost may be gotten here a<= the total productive hours'of th^e five m^^ 'no average 40 hours a week. I believe the wag of the pressman should be added to the wages of the feeders and then an hour cost found. n the pressman receives $32.00 a week and the feeders $20.00 each, the pressman s wage should be divided among the feeders Thus making each $28.00. This would give an hour T li'-'^' "'^'^^^t investment, whkh "s about $500.00 per employee, making 5 Tents an hour more, or $1.45 an hour. A great deal more could be written on this question but enough is given here, so tha the problem will be understood, and if desired one can f.gure out a means of using thi method of ascertaining costs. f {ili; 1 ll 130 HOW TO FIGURE COSTS OUTSIDE WORK Question — Every printer has a greater or less amount of work he sends to someone else to do, and I claim that this ought to be handled in a separate department (or productive center). My plan has been to take the total of the bills paid for outside work, and treat them just as I do the known outlay for an interior department. I would be glad to hear from you in regard to this point, c. F. C. Answer — The purchase of outside work, such as binding, engraving, machine composi- tion, etc., can be very easily treated as a sepa- rate productive center. The group method of figuring costs helps a great deal in this prob- lem. If a storeroom is used, a certain portion of the rent may be charged to that productive center. Then the office and selling expenses can be pro-rated against that center and the others according to the amount of business done and goods purchased. For instance: Goods to the amount of $1,000 were used during the month, and the cost of operating the mechan- ical productive centers was $3,000, both will total $4,000. If the total office and selling expenses were $400, then one-fpurth or $100 THE COST OF SUPERVISION 131 would be charged against merchandise, and three-fourths or $300 against the mechanical centers. This amount should be added to the cost of the merchandise by percentage or otherwise. One leading cost system provides that all the cost of handling stock shall be distributed against the hour costs. The other productive center methods do not do this, and usually create stock-handling centers, which is prac- tically what is given above. If a stationery store be run in connection with a printing office, care must be exercised in separating the different items of expense in order that the store shall bear a just burden of the cost, otherwise it will show a big profit and the printing office a loss. SUPERINTENDENCE ONCE MORE Question— Your method of dividing the su- perintendent's salary according to the number of foremen does not seem to be right. Should not his salary be distributed according to the num- ber of people in each center, or according to the number of pay-roll hours'^ To my mind this is the best and most practical way. E. P. Answer— You speak of "your method" I f' i r r 132 HOW TO FIGURE COSTS when as a matter of fact it is not my method at all. The question of superintendence came up in a large plant some time ago, and several methods were discussed as to the right one to use. Finally careful tab was kept on the su- perintendent's time, and it was decided that he gave about equal time to each of the fore- men under him, and then his salary was added to that of the foremen pro-rata. The same proposition has come up several times, and when carefully analyzed this method was used. Should you desire to use the pay roll method, or any other, I can see no objection. You will find that it makes little if any differ- ence in the hour costs, whichever method you use. It does not pay to split hairs. Adopt a practical method, and then stick to it. A NEWSPAPER-JOB SHOP COMBINATION Question — Shall I create a separate center for my daily and weekly newspaper, and find out the cost in that way, or what method is the best to pursue? w. M. Answer — If your newspaper is conducted independently of the job plant, by another force of workmen, I would advise creating several productive centers, such as, machine composi- NEWSPAPER ADVERTISEMENTS 133 tion, ad. composition, make-up, press, stereo- typing, mailing, etc. Have a regular tracer made out each day and get the total cost for the paper each issue. This is the best way. One publisher makes out a tracer for each ad. and gets the cost of setting each ad. sep- arately. He then secures the cost of each is- sue of his paper without the cost of setting the ads. This has given him valuable data, and changed a great many notions he formerly had as to what to charge for his advertising. Where there is a combination job and news- paper office, a regular ticket should be made out, and the cost of each issue of the paper ascertained the same as though it were an outside job. At first, several publishers used a separate center, and paid but very little at- tention to the paper, as they wanted the cost system principally for the job end. After a while they began to keep costs on each issue of the paper, and then discovered quite a few interesting things. This is the only practical method and gives a great deal more valuable information. > ' II I : li 134 HOW TO FIGURE COSTS COST OF AD\ ERTISING Question — How shall / find out zvhat it costs for an inch of advertising in my paper? L.A. Answer — This is a very mooted question at the present time, but I believe the correct way is to figure the mechanical cost of the paper, as shown by the cost system, add to that the cost of ready prints or print paper, plates, special features, editors' and reporters' salar- ies, and other incidental items. These will give the gross cost of the paper. Deduct from this the amount received each week from subscriptions, reading notices, and legals. This leaves a balance that the adver- tising must cover, if you are to get back what you put into the newspaper. Divide this amount by the number of inches of display ad- vertising that you run, and the result will give you a flat cost per inch for your advertising. This method is still the one in general use and was originally used and adopted by the Cost Committee of the Minnesota Editorial Association. A more logical method of finding advertis- ing costs is gradually gaining the endorse- ment of newspaper publishers. In the past PUBLISHING A NEWSPAPER 135 the subscribers have never paid their just share of the expense of producing the news- paper largely because the publisher has gone on the principle that there was no monev in the subscriptions anyway and that if thev paid for the white paper it was all that could be expected. This method of arriving at advertising costs IS on all fours with the method previous- ly mentioned in that the getting out of each issue of the newspaper is handled the same as though it were an outside job. The cost of the stock and other merchandise should be found in the same way as for other work. Find the cost of the paper used for the is- sue and to this amount add 3 to 5 per cent for wastage and 10 per cent for handling and storage. To this should be added the cost of the ink, for an 8-page 6-column sheet, about 25 cents for the first thousand copies and 15 cents for each additional thousand. Add also the cost of plates, engravings, special features etc., the labor cost of editorial and reportorial time, newspaper postage and other direct ex- penses that are properly chargeable to the paper. These items make up the merchandise and direct expense cost of production. \)'S III l» 136 HOW TO FIGURE COSTS From the job summary of the cost system records find the cost of the mechanical pro- duction of the paper including the folding, either hand or machine, addressing, wrapping and taking to the postoffice. The cost of wrapping paper, paste and twine should not be charged against the newspaper as these are included in the hour costs of the bindery as direct department expense. The totaling of these items of cost gives the production cost of each issue of the news- paper. As previously stated, the subscribers have never paid their just share of the produc- tion cost of the newspaper and in that lies the kernel of this method of finding the cost of advertising. Having found the production cost of the issue, carefully measure up the number of col- umn inches of display advertising in the pa- per. Divide this by the total number of column inches in the issue which will give the percent- age of display advertising in that issue. As an example: — There are in an 8-page 6- column paper 960 column inches of printed matter and of this amount there are 576 inches of display advertising, or 60 per cent of the space in that issue. COST PER COLUMN INCH 137 567 -T- 960 = 60% To find the cost of the display advertising per mch, figure 60 per cent of the total cost of the issue and divide it by the 576 inches. This gives the production cost of an inch of display advertising. Readers, legals and classified advertising are usually sold at a special rate, quite differ- ent and more than the rate for display. To fmd the cost of production of this advertising take the remaining 40 per cent of the cost of the issue and divide it by the 40 per cent of the space. In the example given this would be 384 column inches. This result is the cost per column inch of the reading matter includ- mg these special classes of advertising It is then only necessary to multiply the number of inches of each class of this advertising by the cost per inch to obtain the cost of each Having the cost per inch it is an easy matter to ascertain the cost per advertisement, inch, square, folio, or line, as may be desired From the above data it is easy to determine what the subscription rate should be for the newspaper. Total the cost of all classes of advertising; deduct that amount from the pro- duction cost of that issue. This leaves the •« ;!*" 'II* I 138 HOW TO FIGURE COSTS cost of the reading matter. If this issue is a fair average in its proportion of advertising and reading matter it is only necessary to mul- tiply this amount by 52, add any subscription profit deemed expedient and divide tliis total by the average number of paid subscriptions. This procedure will show about what the subscription rate should properly be. The above method of finding the cost of ad- vertising is logical and fair to the advertiser, the subscriber and the publisher. With this method advertisements not changed in each issue automatically care for themselves as the cost of such change will appear in the cost of the issue in which such change is made. Remember that this method gives advertis- ing costs and not selling prices and that, un- der modern conditions, a profit of not less than 25 per cent should be added to these costs. MORE INVESTMENT PROBLEMS 139 COMMERCIAL INVESTMENT Question — / do not believe that accounts payable should be deducted from the items of commercial investment or working capital. Money owned by a business will be represented, in one of four items, viz.:— plant investment, accounts receivable, work in process or merchan- dise. A condition is conceivable where the amount owed would exceed the total of the last three and a considerable portion of the first one, but that would not indicate that the capital was not there, and so not to be charged with interest. It merely indicates that the ownership of the business does not rest with the ostensible propri- etor, but that his creditors' capital is being used to run the business. Most assuredly, he will be paying interest directly or indirectly, and the business must earn it, so that the whole capital involved without regard to liability should bear interest as part of the expense of doing business. S. E. Answer— I heartily agree with you, but some printers with super-sensitive minds and afflicted with a mania to protect everyone but themselves and their families, want to be "honest,'' and hence figure out accounts pay- f 140 HOW TO FIGURE COSTS able. I believe they should not be deducted, and for the reasons that vou state SELLING HOUR COSTS Question — As the extension rates are used for the purpose of distributing or apportioning selling expense, which in turn, is computed on the basis of sales, should not they conform to the selling value of the chargeable hours as nearly as possible, particularly where differing rates of profit are computed on the various operations, or on merchandise, it being, of course, under- stood that the merchandise entering into the completed product bears its proper apportion- ment of the selling expense. A. E. Answer— A great deal depends ui)on the method employed in figuring cost and selling price of finished jobs. If a definite selling price per hour is used, that amount should be used as an extension ratf. If, on the other hand, the hour cost plus a profit by some fixed per cent on the total cost is used, then that hour rate should be the extension rate. It is all a matter of method, and either would be perfectly correct. The merchandise pro- position is answered elsewhere. f INDEX Absorption of power by shaft- ing, 69 Accountants' method, 1 Adjustment of rents, 16 Administration expense, 105 Advertising cost, 134 Advertising and traveling expense, 99 All floor space of equal value. 17 All wages charged to centers, American Printers Cost Com- mission, 118 Answers to questions, 123 Appraised values of plant, 29 Argument and examples, 114, 116, 119 Artificial light sometimes a general expense, 74 Bad accounts, discounts, 100 Basis of distribution of charges, 54 Being a good fellow, 101 Benedict, Geo. and his Calcu- lator. 124, 125, 126, 127. 128 Bindery expenses, 81; inven- tory, 28 Boss's salary, 106 Building expense 13; interest, Building owned by plant owners, 13; rental consider- ation, location, etc, 13, 14 Burden distribution, 53 Capital equipment, 47 Carrying customers, 108 Cause of inefficiency, 25 Charities, donations, dues, 100 Commercial investment, 105, Composing room inventory, Composition expenses, 80 Copyrights — no interest on, 48 Cost of advertising, 134; of supervision, 131 ; per column inch in newspaper, 136 Departmental payroll, 7, 8, 9 Department productive cen- ter, 2; time summary blank, 4, 6 Denham, Robert F., 80 Depreciation on buildings, 15 Depreciation table, 39 Details of selling expense, 97 Direct department expense, 79 Directing foreman, 89 Discounts, deductions, bad accounts, 100 Distributing power, 57 Distribution office expense, 115; selling expense, 102 Donations, charities, dues, 100 Efficiency costs, 3 Efficiency of the workmen, 2 Efficient men need less supervision, 2 Elevator expense dis- tribution, 77 Example of cost of eight- page, six-column news- paper, 136 Examples, interest on invest- ment, 51; replacements, 41, Expense of doing business, 105 Expenses surrounding bind- ery, 81; composing room, 80; press room, 80 Expense to be charged direct, 80 142 INDEX I I Few printers know plant values, 26 Figuring building expense, 13; interest, 45; inventory, 25; "ght, toilet and elevator ex- pense, 71; replacement values, 37 Finding floor space cost per unit, 23; horse power hour cost, 61 Floor space, 13; diagram, 19; m terms of units, 21 Foremen's salaries, 89 Gasoline or steam engine cost, 62 General plant, newspaper, 132 Good fellow, being a, 101 Goodwill, no interest 'on, 48 Handling stock costs, 85 Heat, janitors, repairs, 22 Horse power divisions, 67 How to treat spoiled work, 81, 82 Importance of machinery values, 26 Inch or column cost, 137 Individual motors, 60; time summary blank, 6 Insurance, taxes, 52 Interest and depreciation on buildmgs, 15 ^"ferest on borrowed money. 107; on mvestment, 45; on own money. 107; rates of, 49 Inventory blank, 30; valua- tion, 28 Invested money must earn mterest, 25 Investment, insurance, taxes —interest on, 45 Items in selling expense, 97 Janitor service, heat, etc, 22 INDEX Keep plant young, 38 Labor cost— how arrived at, 7 Layout of plant, 19, 59 Light, toilet, elevator expense, Lo iding, artificial light, 74 Location of front office, 16 Low margin of profit, 50 Machine on light circuit, 64 ^vlachinery and material list- ed in productive centers, 26 Man working in several centers, 5; blank to fit such cases, 4 Marketable values of plant, 28 ^iinnesota Editorial Associa- tion, 134 Money invested in stock, 109; tied up in work on hand, 109 Neglect may mean failure, 108 Newspaper— advertising, cost, subscriptions, 133, 136, 138 Newspaper and job plant, 132 Newspaper treated as an out- side job, 135 Non-producers, 90 Obsolete machinery, 25 Office expenses, 113; expense burden, 119 Office inventory, 27 ^^^^^'"zation dues, charities. Outside work, 130 ^^i^^^io?"^ payroll hours, 1^, 121 Percentage non-chargeable time, 9 Perpetual inventory, 109 Plant investment expense, 49; layout, 59; never depre- ciates to zero, 38 143 Present cost values of plant, Press costs too low, 129 Pressroom expenses, 80; in- ventory, 27 Printer as a landlord, 14, 15 Private power plant, 68 ' Production center method, 1; centers and floor space. 20 ' Questions, on administrative expense, 111; on direct ex- pense, 87; on floor space, 24; on foremen and super- intendents, 95; on interest, insurance, etc., 55; on in- ventory, 35; on light, toilet and elevator expenses, 78; on office expense and 'sold hours, 122; on payroll, li- on power, 70; on replace- ments, 44; on selling ex- pense, 104 Rent, heat, janitor, repairs, 23 Keplacement and depreciation differentiated, 38 Replacement values, 37, 43 Risk in printing plants' 50 Run-down machinery and material, 25 Sad commentary on business printers, 93 Salaries and commissions to salesmen, 98; of foremen and superintendents, 89 Salary of "the boss," 106 Scrapped machinery checked off, 32 Selling expense, 97; distribu- tion of, 102 Selling hour costs, 140 Shafting and belting, 69 Spoilage and stock handling expense, 79 Spoiled work expense, 81; a fixed sum, 83 Standard method, the, 118 Stock handling by weight, 86; storage and handling, 84 Strict account of dollars, lax account of time, 93 Subscription rates for news- paper, 138 Summary of costs, 112 Superintendence problem, 131 Superintendents' salaries. 89 Taxes, insurance, improve- ments, etc., on buildings, 15 Telephone, telegram, toll, 101 Ten percent for stock hand- ling, 85 Three primary productive centers, 26 Time summary blank, 4, 6 Toilet expense distribution, 76 Total cost and office cost, 117 Traveling expense and adver- tising, 99 Two depreciation plans, 39 Type salesman as appraiser, Units of floor space, 21 Usual productive centers, 3 Wages plus overhead, 124 Waste, spoilage, loss, 84 Working balance, 107; capital and investment, 45; greater than equipment investment. Working foreman, 89 Work in process, 46, 47 f I i,^ I! I 11 I hsi^'^^ - Oot!i'S3 I 9 I ; ! ll < Date Due Porte - How to figure costs in printing off iees -I -^ . APR 19 1932 ^33, ^^^nN'^-.^.%^t934 V "'■■*"*""''W(||IH|i.'- f tB 24 19 /»5H Oiok^ NEH COLUMBIA UNIVERSITY y^^^^^ 0041417674 END OF TITLE