Identifying Cost in Printing.

Business enterprise is organized for the sole purpose of making a profit. Properly identifying cost is one of the first steps in attaining this goal.

Simply stated, profit in the commercial printing industry is the difference between income from products sold and the costs of making and selling those products. Some may call the income sales or revenue, and some may like to differentiate between variable expenses and fixed costs. In this discussion, no such distinction is made in terms, only in content, and we shall supply criteria for both expenses and costs. A printing company's cost/estimating system that is worth anything must reflect accurately and currently all changes in the company so that management may price effectively in its markets, channel its sales effort for maximum profits, enhance profitable facilities, discard obsolete facilities, and plan for expansion. Management must be capable of identifying cost while the events in manufacturing are current, not "after the fact" when the events have become ancient history. A proper printing industry cost/estimating system must be able to predict in advance, within close limits, the ultimate costs of running an order.

What Are Costs?

For a printing company to operate profitably, expenses must be properly identified, classified, reported and allocated to the various products. The customer pays for all these costs in a printing company's selling prices, leaving a fair return to the owners after all the manufacturing costs are deducted. The traditional cost systems leave much to be desired in marginal situations. Since there is a lack of advance measurement of the cost floor often companies find themselves selling below their actual out-of-pocket costs let alone providing for adequate profit.

How are costs identified?

A cost or an expense is generated in every molecule of a company's geography, on every square inch, from every act and activity during each second of the company's life. Manufacturing costs never stop while the company is breathing although some costs grow at different rates than others. Indeed, costs, which are created in myriad ways, never remain static. In one second, a plant incurs labor, depreciation, and occupancy costs, and each of these costs acts in varying degree on every aspect of the company's economy.

Some costs are quiet and proceed unobserved: rental is paid, interest expense is paid, depreciation expense purrs along 24 hours per day, 365 day per year. Other costs are generated outside of the factory: a salesman knocks on a prospect's door, the manager counsels the foreman, an invoice is typed, a pack of estimating blanks is ordered.

All these costs, to some measurable degree, have to be paid for by the customer via the product's estimating sheet. First, however, all cost must be reduced to the same dimension; that is, all cost elements have to be considered by product. Here is where we encounter the first difficulty, because incurred costs are not paid for by product.

Identifying cost then is the composite result of many different elements, some of which are actual and others estimated, some fixed and some variable, some easily noticeable and others obscure. For this reason, there is no single exact cost, but, on the contrary, total cost will vary continuously and its amount will depend upon the system used to determine it. This dependency makes it of the utmost importance that a company employ the most correct costing system possible.