:AL COST SYSTEM PRINTING R.T. PORT]: o c/ The Practical Cost System for Printing Offices BY R. T. PORTE h Author of "How to Figure Costs in the Printing Business"- Compiler of "Franklin Printing Price List" REVISED EDITION Copyright 1920 PORTE PUBLISHING COMPANY SALT LAKE CITY UTAH TO the grand fellowship of the Printing Craft, without whose wis- dom, knowledge, craftsmanship, and business acumen, the great world of letters, literature and art, and the vast energies of commercial life would still be groping their way through the shadows of the dark ages, this book is most respectfully dedicated. FOREWORD IN PRESENTING this revised edition of the Practi- cal Cost System for the consideration of the printing craft, we are but responding to a continued and in- creasing demand for an accurate, inexpensive and simple system of finding cost of production in the medium and small printing offices. The universal satisfaction expressed by the users of the first edition of this book has convinced the pub- lishers that a revised edition, brought fully up to date, replete with modern ideas, and equipped with the latest and simplest forms, would meet with an even more enthusiastic reception. There are no ideas or forms in this revised edition but what have been thoroughly tried out and tested in actual use and found to be entirely satisfactory before being incorporated in this edition of the Practical Cost System. The original edition of this Practical Cost System was the very first attempt ever made to put cost-find- ing for printing offices into book form. The first edition was prepared some twelve years ago by Mr. Roy T. Porte, then the head of the Porte Printing Company, of Fargo, North Dakota, assisted by some other cost enthusiasts, who even then saw in iv THE PRACTICAL COST SYSTEM cost-finding the salvation of the printing business the book was published soon after the work of preparation was completed. When this first edition was published there was no other book on the subject of cost-finding in printing offices in existence. There was, at that time, no other cost-finding system for printing offices known, except the system previously worked out and installed in a few printing offices in the city of Minneapolis, Minnesota, by Mr. Robert F. Denham, to whom must be given the full credit of being the father of all real cost-finding systems as applied to the printing business. Mr. Den- ham's system was, however, too cumbersome and too full of details to be used successfully in the medium and smaller printing offices, and this early book of Mr. Forte's was a successful attempt to simplify the Den- ham system and also to so arrange its methods and forms as to make it applicable to the smaller printing offices where the publishing of a daily or weekly news- paper was combined with the production of commercial printing. This book met with instant success, but being the first book on cost-finding for printing offices ever pub- lished, a pioneer in the field, it contained a few errors of method and application. These errors, however, were quickly discovered and reported, and those por- tions of the book were at once changed and a corrected edition sent out, which was still the first book on cost- finding in printing offices in the field and the only one on the subject for several years. The advent of a convenient, complete and mathe- matically accurate Selling Price List for the products FOREWORD v of the printing office, has, for a short time, drawn the attention of the craft away from the necessity of in- stalling a cost system to determine the production costs in their own plants. They are now, however, awakening to a realization that a cost system will not only give them a knowledge of their own production costs, but will also give a much needed check on the efficiency of their plants in all departments, of their employees and of the entire administration, in both shop and office, of their business as a whole. Further than this they also realize that a cost system will show them the discrepancies, extravagances, and leaks in the business and its administration all of which make serious inroads into the profits. This realization has created a continuous and increasing demand for a new and revised edition of the Practical Cost System, which we are now presenting to the craft. The author wishes to express his sincere thanks to the many friends and supporters who have so freely contributed of their ideas and experiences in aiding in the perfecting of the revision of this book; especially to Mr. George E. Wray for his careful and painstaking editing of the text ; to Mr. Frederick W. Smith for his thorough and scientific work in rewriting, checking and editing the technical portions of the book; and to all those others who have by their confidence and support made this edition possible. We cannot claim that this Practical Cost System is absolutely perfect and complete, for the science of cost- finding, like all sciences, is subject to the law of evolu- tion, and new ideas and new methods are constantly presenting themselves. We can and do claim, however, vi THE PRACTICAL COST SYSTEM that this revised edition of the Practical Cost System is far in advance of any book on the subject of cost- finding in printing offices now on the market. As new ideas and methods appear they will be, when thor- oughly tried and tested, incorporated in future editions of this book. We are now submitting this Practical Cost System to our fellow members of the printing craft with the sincere hope that they may find it of the greatest material benefit in their business and a very helpful aid in the solving of the problems of their production costs. Yours very sincerely, THE AUTHOR. November, 1920 THE PRACTICAL COST SYSTEM FOR PRINTING OFFICES INTRODUCTION A cost system is like a building each part com- plete in itself the parts to be erected one upon the other, until they constitute a finished structure. The building may be elaborate, many little touches given to it here and there, niceties of finish, and extras of all kinds ; all very fine for those who wish something elab- orate. The elaboration may be carried to an extreme, but the fundamentals of sound business structures are all the same. There has been a need of a cost system structure, with the fewest frills ; one that is simple, complete and accurate. A plan that can be understood and carried out along the simplest lines to give accurate results. This has been the aim of the compiler and he describes a system that will meet the needs of the great majority of printers, those employing ten or less employees. But, not to be misunderstood, this system is capable of being extended, with but a few changes, larger forms, etc., and will then fit any printing plant in existence. The blanks here shown, are especially intended for the use of the smaller shops, and particularly those 2 fftE PRACTICAL COST SYSTEM publishing weekly or daily newspapers in connection with job offices, where there are no hard and fast lines as to employees working in only one department, and where the work of the employees is liable to be of a mixed nature. A careful reading of the descriptions and study of the forms, with an earnest determination on the part of the user, will give results; you can install as good a cost system in your own plant as can possibly be in- stalled and without engaging an expensive cost expert. Over a hundred different forms were examined, and a practical tryout of the system made before it was offered to the printers. It is now in use in all kinds and sizes of printing offices, from a one-man shop to a shop having typesetting machines, cylinder presses, job presses, and a complete bindery, and in others where a daily and weekly newspaper is pub- lished. In all this range, there has not been a failure in its findings where the system has been carried out according to instructions ; everyone has been satisfied and more than pleased. This is written to impress you with the idea that you need not be afraid to try it; it will work, and do everything any cost system will do in any plant and without individual expert cost instruction. In order that you may distinguish plainly the items of expense involved in the production of a job of print- ing, we insert here this diagram. (Cut number 12.) This diagram fully illustrates all the items that enter into the cost of a job of printing, and the relation- ship which each item of cost bears to every other item, and also the relation of the whole to the selling price. u 1 si * r 4 THE PRACTICAL COST SYSTEM 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 or 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 cost of stock is the price paid plus the handling cost. 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 Investment indicates that this expense is also a burden on the time used. The line running from Investment to Labor demonstrates that labor cost plus 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 com- plete the manufacturing cost. To this cost square the MANUFACTURING OVERHEAD line from the Stock or Merchandise group also leads to complete the cost of the job. To cost is attached the profit and to profit the selling price. This diagram fully illustrates the line of relation - ship of all the items which the cost of a job must include, and also the relationship 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 Manufacturing 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 The Total Manufacturing burden is made up of the Productive Center, or shop, burden and the Adminis- (Fixed Charges Productive Center Burden or Overhead Total Operating " Charges Manufacturing- Burden or Overhead Administrative Burden Overhead 6 THE PRACTICAL COST SYSTEM trative, or office, burden. The Productive Center bur- den 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 printing office, however small, as are also all the items of the operating charges except that sub-items under power would not be used in many plants. Under Administrative burden, the item of general superintendence, would be used only in the largest plants where a superintendent 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 propietor'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 estimat- ing 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 considered as a part of the administrative burden CHAPTER I THE WORKING OF THE SYSTEM As every building must be erected on suitable ground, so as to be able to stand, a cost system must have ground to build upon ; the groundwork here is a Job Register. The Job Register: The simplest form possible is used for the Job Register. The first space is the place for the number of the job. Each job going through the office must bear a number, and the Job Register is used to make sure there is no repetition of numbers and no unrecorded jobs. The first job in the illustration of the Register is for a weekly newspaper. The other jobs are a miscellaneous collection of work such as come into any office. Where a price is given in ad- vance, it is so recorded, and that there may be no question about the price at the time of settlement. Cut number 1, on page eight, illustrates a simple, yet complete, form of a Job Register which contains all the necessary record details. The Job Register is your ground, and from the jobs placed on it, the structure is to be built. The first thing is the foundation, and that foundation is the Job Ticket. JOB REGISTER Date Description Price Numbp FOR Date Quantity 1 Description t too o Price Numb FOR ^ate 5-3 Quantity riptiori Price J3 3 ''jmber FOR Date Quantity QOO Desertion Price Number/ FOR />. .Date Quantity Description Price NumbeC /or FOR ^*Js&CA Date Quantity Description Price "Number J FOR Date Quantity Description y Heavy Light Fancy Plain Nice Job Cheap Job Stone Proof to ^ x. R u' ^ ^s " s 1 ? - *r > 1 ^ v>- a 5 i < N (M S = : = : -1 3 o 10 0( 2 - CO 1 ll c 1 c b ILJ cC 3 i" ^ = ; -i 81 T ~ M S " Olii - - i - vJ fel 3 a I ^ OD ^ " i l ^ 2 t life JJX 1 j 1 ij: 1 ! j O t f> Z ^ 1 % ; Q o r ! Number 5. 22 THE PRACTICAL COST SYSTEM argument. Because he has never done it before is no reason why it should not be done now, and an employee is honest with himself, his employer, and the customer if he keeps his time report correctly. A Daily Time Ticket is used each day by each employee, his name, the date, the time he commenced work and time he stopped is recorded on the top line. If, in case of a small office, fires have to be built or sweeping and cleaning done, this is recorded and charged to Office Time, using No. 456 for kind of work done. When actual productive or chargeable work is begun, the number of the job worked on is recorded, and also the name or initials of the customer, so that in case an error in recording the number of the job is made, it can still be identified. The time work began and time ended must be indicated for each job. Idle time, which is sure to occur, must be accounted for in all cases, showing why idle. The "Press Work" or "No. Impressions" column is hot used in typesetting, except in the case of a type- setting machine when ems or galleys of type set may be recorded in this column. In all cases the column "Kind of Work" is filled in, and the beginning and ending time. On the improved form of the Time Ticket, which we recommend for the Cost System, cuts numbers 4, 5 and 6, each hour from 8:00 a. m. to 6:00 p. m. is in a column separated from the others by a double line ; and each square in this hour column represents the .1 of an hour, or six minutes, time-unit. After the workman has filled in the spaces for the job number, name of the customer and the kind of 1 i "I" i j >* j .. V ji 3 si is -hi V; Si ^o E I -s ^. E I JI o J |! N* !* - 5 i r i J 1 i 1 rrh i e 1- o J 10 y i y i] s r> T s~ j 1 in 3 W ' ii^ i ! Q(^ *>% - Ni I^o $ r> D ?*" j 1 .1 V E^ | > z - : For Whom (Initials) 1 '' } * " r t e 4 1 Number 6. 24 THE PRACTICAL COST SYSTEM work he has only to draw a pencil line across the squares from the time of starting the job to the time of finishing. For example, if he starts in at 8 :00 on a general clean-up of rule, leads, type, etc., the work will be classed as distribution, with the work No. 55. If he works at this until 8 :45 he will draw a pencil line from the beginning of the hour to, and including, the time- unit space numbered 48, as if the work lasts beyond the 42-minute space it must be considered as filling the full space following. In other words, do not split a unit of time, for the three minutes which might be added to some jobs will not have any appreciable effect on the cost of the job and will equalize itself in the course of the day. When he completes the next job he will draw a pencil line, in the space following the record of the job number and the work number, starting with the 54- minute space and stopping, as before, with the unit space of the finishing time. See illustration of Time Ticket, cuts numbers 4, 5 and 6. The right hand por- tion of the Time Ticket, beyond the triple line, is for office use only except that the column headed "Press Work," "No. Impressions" may be filled in by the em- ployee, if desired, as mentioned above. A further advantage of the use of the improved time report used in the Practical Cost System is that if the workman has to stop on a job before completing it to do some other work he will draw the pencil line through the time squares to the point where he is in- terrupted, do the other work, and when he returns to the job in hand he will not need to re-enter the job number and kind of work a second time but will record the time of resuming work to the time of finishing. See WORK NUMBERS EXPLAINED 25 illustration of Time Ticket, cut number 4, second line in the afternoon section. On the back of the Daily Time Ticket, is printed a list of the operations most common in a printing office, and these will now be taken up one at a time and explained. COMPOSITION 1. Hand Composition. 2. Hand Alterations. 21. Advertising, Hand Work. 3. Make-up. 4. Lock-up. 5. Machine Composition. 6. Machine Alterations. 31. Machine Composition, Advertising. (Non-chargeable) 51. Pulling Proofs. 52. Reading Proof. 53. Hand Set Corrections. 54. Machine Corrections. 55. Distribution. 56. Cleaning Machine. PRESS WORK 101. Make Ready. 102. Holding Press for Proof. 103. Running. (Non-chargeable) 151. Changes (Press Corrections). 152. Washup. STOCK ROOM 201. Cutting Stock. 202. Handling Stock. (Non-chargeable) 251. Unpacking and Shelving Stock. 252. Changing or Edging Knife. 26 THE PRACTICAL COST SYSTEM BINDERY WORK 301. Tabbing. 302. Trimming. 303. Folding and Inserting. 304. Gathering. 305. Perforating and Punching. 306. Stitching or Stapling. 307. Binding. 308. Numbering. 309. Counting. 310. Mailing. (Non-chargeable) 351. Clean-up. OFFICE WORK (Non-chargeable) 451. Bookkeeping. 452. Soliciting. 453. Collecting. 454. Delivering. 455. General Office Work. 456. Janitor Work. Note All work numbers containing any 50's are non- chargeable. OFFICE WORK Office Work is an original idea with the Practical Cost System and came about because in the first at- tempts at a simple system, the office part was neg- lected, but in a few weeks came a host of inquiries as to charging different kinds of time used in the office, where the proprietor does work in the printing depart- ments, and where to charge general cleaning up, and other things. Then the "Office Work" column was added and the troubles on that score ended. Under Office Work we have No. 451, bookkeeping; No. 452, soliciting; No. 453, collecting; No. 454, deliver- OFFICE WORK EXPLAINED 27 ing; No. 455, general office work, and No. 456, janitor work. Nos. 451, 452, 453, are not used or especially needed as separate time unless the proprietor so de- sires. No. 455 covers nearly all the needs, but the others are added to designate such things as generally come under the heading of Office Work. No. 456 is for janitor work, and is chargeable to the office as it would be practically impossible to divide this time against each separate department, and in any case a general cleaning up is a general expense of the busi- ness. Someone in the plant does this work, and the time should be accounted for. Where the proprietor or manager of a plant works in the printing department, he will make out a time ticket each day, so that his time can be accurately divided against the departments where the work has been done. It is plainly as important that all his work should be charged for as that of the workpeople. If the proprietor makes up the paper, sets a job, does the mailing of the paper, that time should be accounted for, and he will, therefore, as well as his employees, make out a Daily Time Ticket. Unless he does this his shop labor will not appear on the records and the number of labor-hours recorded will be less with a consequent increase in the hour costs. Delivering, No. 454 : The work number for this is in the series covering office work for the reason that in the small plants the proprietor often likes to deliver the work so as to show the customer the excellencies of the job, or his promptness, or as an opportunity to solicit more work. In the larger plants, where they have work for an errand boy, the delivery is sometimes con- 28 THE PRACTICAL COST SYSTEM sidered a part of the stock work and is further treated under that heading. We believe, however, that the delivery should always be considered as a part of the office work for the reason that the operation is a delivery of the product of all the departments which have done work on the job, and not of the stock room alone. Treating it as an office charge the cost of deliveries will be distributed against all departments in proportion. STOCK WORK On this Stock Work there may be some difference of opinion, but from practical experience not theory a stock handling charge or a cutting charge essen- tially the same must be made on each and every job; both a stock handling and cutting charge should not be made. Cutting Stock, No. 201 : No one will deny that it takes time to cut stock, and that the time should be recorded and charged for. It costs money for the labor, rent is paid for stock and cutter space, there is depreci- ation and interest on the cutting machine and cost of shelving. There is no argument against a charge for cutting stock, any more than against a charge of time for setting the type ; yet very few, before the advent of cost systems, ever thought of doing such a thing as charging for cutting stock. Since this advent a few, possibly not wishing to admit they have been so mis- taken in the past, argue against such a charge and put the whole stock room work into Office Expense. That is ridiculous! There is no more reason for doing it, STOCK HANDLING CHARGE 29 than for putting press work or tabbing into office ex- pense. Remember this : everything that goes into a job of any kind must be charged for. Any other theory of running a cost system is false, and fails in its purpose, which is, the finding of the correct cost basis, through correct hour costs, on which to build a fair and equit- able selling price of the individual job of printing. Handling Stock, No. 202: All that has been said about cutting stock is true for handling stock, but per- haps it needs a little more explaining. The idea of charg- ing one or more units of time for taking down 500 envelopes and putting them on the press may seem absurd. Is it? That stock occupies room, you have to pay interest on the investment in the merchandise and equipment, insurance, taxes, rent, and the price of shelving to hold it. In the city shops the errand boy very often has to go to the wholesale house for the stock. All this expense must come out of the profits if there are any and so it should be charged and paid for. These matters have been neglected for years, and have caused big leaks in the printing business. A record must be made by the person who takes out the stock, so that it will appear in the final record of the job, showing who took out the stock, the units of time required, and that the proper stock and the correct amount was used. This is as important as to know who set the type on the job. Two other charges are made for stock work Delivering and Unpacking. Note. In our opinion, one of the principal causes for failure to make money in the printing business is because so few have realized that it costs money to handle stock, and to attend to a hundred other trifles. Good old Ben truly said: 30 THE PRACTICAL COST SYSTEM "Many mickles make a muckle, or one hundred cents make a dollar." In talking with a prominent wholesale paper dealer, recently, he stated that it cost him nearly fifty per cent to handle broken ream lots, and that he is charging only twenty- five per cent, and the rest comes out of the profits. He said it was unfair to the paper house to only charge twenty-five per cent on twenty-five sheets, as it took nearly the same time and cost nearly as much as to count out a larger quantity, and he contended that it would be much better to make a time charge, but that it was practically impossible to do this, so he must continue to charge on a percentage basis, though he believed it wrong. Some who use a Cost System charge a percentage on the cost of stock for handling, and by so doing they charge more for handling expensive paper than the cheaper. Is this right? Would it not be as correct to charge for typesetting on a percentage of the cost of stock? It has, however, become a custom of the trade to charge ten per cent on the cost of the stock for handling in the plant, and when the plant is located some distance from the paper house, another ten per cent for freight and drayage into the plant. The principle is wholly wrong as it penalizes the user of the better grades of stock. The charge should properly be for the units of time used in handling the stock while the freight and drayage cost should be added to the cost of stock in the shipment on the basis of weight. The percentage basis in a cost system at any point is absolutely wrong. The printer is selling labor, or its products, on the basis of the time used, therefore it is that all labor, going into the product should be sold at a rate that will be profitable. Any percentage based on the cost of the paper, any percentage used for ascertaining costs for a correct price for the products of labor, is radically wrong. Customs and habits are hard to change and the user of a cost system must decide for himself whether he will handle this matter in the correct way or follow the custom of the trade. This may seem like a long argument, but at this point it is really necessary, as the very first thing done on a job, or which should be done, is the stock work, as that is where the labor commences. DELIVERY NON-CHARGEABLE 31 Delivery, No. 454: This is a non-chargeable item, as a direct charge cannot be made against the customer for the reason that several jobs may be delivered at the same time. This being non-chargeable is an additional argument for making a stock handling charge. The charge for cutting stock when cut, and for handling stock from off the shelves, when in packages or boxes, in the larger plants includes the cost of delivering, and the cost of the time of the boy or man used in this work is directly charged to that department. See, also, under "Office Work." All labor-time must be reported on the Daily Time Ticket; hence the employee should keep as accurate a record of delivery time as of other work. The proper time to charge for stock handling is when the stock is first taken from the shelves and the delivery cost is covered in that charge unless it is handled as an office charge as mentioned under "Office Work." Unpacking and Shelving Paper, No. 251: It takes time to unpack a shipment of paper, check the invoices and put the stock on the shelves ; and as it may be used for several jobs, it is non-chargeable. It is customary, in many plants, to make no dis- tinction between the stock handling and the cutting, but to treat them as belonging in the same department and using the same work number for both. For many reasons, especially in the smaller plants, this method is advantageous as the time units are small for the hand- ling. The only objection to this method is that it has a tendency to make the handling charge a little greater, because of the increment of interest and depreciation 32 THE PRACTICAL COST SYSTEM on the cutting machinery, but it will also tend to make the cutting charges a little less. Neither the increase in handling nor the decrease in cutting cost will make any material difference in the cost of the completed job. To Summarize: Every job must have either a stock cutting or stock handling charge, but not both. Time used in delivering and unpacking paper or shipments of paper is stock work but the time is non-chargeable against the department. We advise, however, that all delivering be treated as office work. We now come to that much-abused department, Composition. COMPOSING ROOM This department of the printing business has long been called the "sink hole" of the printing office, and many and long have been the articles published as to how to make it pay. The much-abused "sorts questions" "plenty of material," "new inventions," "quick meth- ods," have all been written and talked about till every- one knows them by heart but the one thing forgotten has been : "Have you charged the right price for the composition?" "Do you know how long it actually took to set the job?" The question is not what time you thought it would take or what time you guessed it did take. Poor, dear, old composing room ! A swift(?) would look over a piece of manuscript for thirty minutes, figure it all out, then rush up the job in fifteen minutes, and tell the boss he set the job in fifteen minutes, and he was believed. Everybody forgot about that thirty minutes of sizing up which should have been included in the composition time, as COMPOSITION TIME DEFINED 33 such sizing is a necessary part of the work. No wonder the composing room was a sink hole. With a cost system The Cost System the correct time must be given and the compositor must account for his entire time, what he is doing all day. It will be found that many of the jobs which were formerly reported as set in fifteen minutes, now take forty-five minutes. Remember that every unit of time, from the unit when the compositor receives the copy until the job is on the galley ready for pulling proof, must be recorded as Composition or No. 1. What is the good of "sorts," "lots of leads and slugs and quads/' and all the rest, if the time required to do a job is simply guessed at one-third the time it actually takes? That is about the percentage of guesswork. With the correct reporting of time used on the Daily Time Ticket, you know the time used, and have a solid basis on which you can charge for it. The numbers used in the composing department run from 1 to 6 and from 51 to 56, so that the composing room numbers, all being less than 100, can be readily recognized. Notice that there are two numbers, 21 and 31, which are for composition work on advertisements. All these work numbers will be explained in detail. All work numbers containing a 50 are non-chargeable time. Composition, No. 1: This includes all hand type- setting and is counted from the time unit when the compositor takes the copy until the job is ready for pulling the proof. Where the composition has been done on a machine the work is counted as hand com- position from the time the compositor takes the slugs 34 THE PRACTICAL COST SYSTEM until the job is ready for proofing, even though it might be the machine operator who does the work, it is hand composition and should be so recorded. If the com- position on a job is not finished during the day only so much time is recorded as is put on it that day and the continuance of the time on the job will appear on the time ticket for the day when it is again taken in hand. This time is chargeable. Hand Alterations, No. 2 : All authors' changes from the original copy, resetting of the job, through no fault of the office, corrections and changes in a standing form ordered by the customer, and all such alterations and changes, are chargeable against the job and must be figured into its cost. The neglect in charging such items into cost has been in the past a source of heavy loss in the printing business ; care should be taken that all these items are recorded and charged for. Advertising, No. 21 : This is a special work num- ber and covers all hand work in setting advertisements. This work includes also the trimming or cutting of linotype slugs which are to go into advertisements in the newspaper and the necessary whiting out of such machine set lines, and any work done on advertising cuts or plates to make them square, type-high or to fit into the space. This work number would be used only when the proprietor desires to keep the time on advertisement composition separate from other com- position for the purpose of ascertaining the cost of advertising composition. In a job shop and ordinarily in the country shop it will not be used. When it is, the time should be added to the other composing room time in Record of Chargeable and Non-chargeable Hours. COMPOSITION CONTINUED 35 Make-up, No. 3 : This is a regular part of the com- posing room time, but we advise the keeping of this process separate from composition, as such, because of the additional statistical information that it gives the proprietor on the division of the working time. It is especially valuable in connection with the issuing of a newspaper and of the work on large jobs. On the small jobs, where there is nothing to be done except to lift from the galley and lock in the chase, this item of work may be omitted and the entire work, from the finishing of the composition to the completed lock-up, may be included in the lock-up which is also composing room time. Lock-up, No. 4: This work is also composing room time and covers just what its name indicates: all the work of locking up to get the form ready to put on the press. It makes no difference if it is the pressman who locks up this form, the time must be recorded under this work number and recorded as composing room time. When the pressman does this work a proportion- ate amount of his wage will be charged against the composing room, as will be taken up and explained later when we reach that portion of the Cost System. This time is chargeable. Machine Composition, No. 5: This work number covers all the productive composition on a typesetting machine of any class and the same rules apply as in hand composition. Machine Alterations, No. 6: This work number covers the same classifications and is governed by the same rules as are Hand Alterations. The time used is chargeable. 36 THE PRACTICAL COST SYSTEM Machine Composition, Advertising, No. 31 : This work is, for the machine, the same as No. 21 is for hand composition and is governed by the same rules. Pulling Proofs, No. 51 : This item of work is classed as non-chargeable time and should be so treated and recorded. The reason for this is that as a general thing several jobs are proofed at the same time and it would be a difficult matter to so separate the time that each job could be properly charged. In addition to this the pulling of proofs is work done much more for the protection of the office against errors than for the benefit of the customer. For these and other reasons the time of pulling proofs is considered and treated as non-chargeable. Exceptions: On large jobs, like books, pamphlets, catalogs, briefs, herd books, fair books, telephone directories, the newspaper, etc., which requires con- siderable time for pulling proofs, and where the cus- tomer asks for proofs and revises, the time may be considered and treated as chargeable. This is a matter that the proprietor must decide on each individual job and should issue his instructions as to the proofing. When this work is to be considered as chargeable time the workman should record it on the time record, using the same work number but prefixing or following the number with a letter C, as C51 or SIC. This will enable the cost clerk to recognize the time as charge- able and make the proper charge for this work against the job. This time, whether chargeable or non- chargeable, must be recorded as part of the Hand Composition work, as all used hours are to be entered in the hour record later. ERRORS NON-CHARGEABLE 37 Reading Proof, No. 52: This work, in all essen- tials, is similar to No. 51, preceding, and should follow the same rules as to recording and as to whether it is to be considered as chargeable or non-chargeable time. This time should also be recorded in hand composition department. When treated as chargeable the work number should be used with the letter C as above. Hand Set Corrections, No. 53 : As this work is the correction of errors made by the compositor the time required for them is non-chargeable and must be so recorded as part of the time of this department. In every line the business itself is held responsible for the correction of errors and mistakes made by its em- ployees and there is no reason why the errors in composition should be made an exception to this rule. Regardless of any who may argue to the contrary, a printing office has no right, moral or legal, to penalize a customer for its own errors and mistakes or lack of efficiency. Under no circumstances, therefore, should the correction of office errors be charged to the cus- tomer. Machine Corrections, No. 54: This work is the same for the typesetting machines as the preceding number is for the hand composition and should be handled in the same way. Distribution, No. 55: This work number includes the time spent in the distribution of dead forms, the cleaning and putting away of rules, leads, furniture, quoins and all the material of the composing room equipment, and in addition, all such work as cleaning or wiping up the stones, blowing out cases and all the miscellaneous clean-up work of the department, except 38 THE PRACTICAL COST SYSTEM such as may be classed as janitor work. This time is wholly non-chargeable and must be so recorded. Cleaning Machine, No. 56: This work covers the cleaning, adjusting, oiling, etc., of the typesetting machine, and in addition all work that may be done in cleaning, straightening and repairing of the matrices, space-bands and all the other appurtenances of the machine, including the re-melting and pigging of metal. This completes the work numbers used for the com- posing room and they will cover all the work usually done in that department. In all plants where a type- setting machine is used this department is a double- header, as the time work of the hand composition must be kept separate from that of the machine workers. Numbers 1, 2, 3, 4, 21, 51, 52, 53 and 55 belong to the hand composition, and 5, 6, 31, 54 and 56 to the machine composition. Impress it thoroughly on who- ever does the figuring on the time reports that in extending the time into the "For Office Use Only" section of the time report that each item of machine composition time, either chargeable or non-chargeable, must be ringed. The reason will be taken up later. PRESS ROOM This production center of the plant follows natur- ally after the work of the composing room. All the numbers of this department are in the 100's so that the work will be easily distinguished from that of the composing room. Make-ready, No. 101: This work number covers all the time used in putting the form on the press, PRESS EFFICIENCY RECORD 39 underlaying and overlaying and regulating the impres- sion, regulating the ink, determining the margins, setting the gauge pins or feed guides and pulling a press proof, special wash-up to change ink for a job, and also any other work necessary to be done before starting the press on the "run." It is often necessary to stop the press, for additional make-ready or for making customer's changes, after the run has been started, which should also be recorded under this work number. This time is chargeable against the job and a careful record should be made of it. Note. In connection with this work we would suggest that a record be kept of the output of each press to determine the efficiency in use of each. In order to do this, number each jobber from 1 up and assign letters to the cylinders beginning with A. When the pressman enters the work number, have him affix the number of the press to the work number. Thus, make-ready on jobber No. 1 would appear on the time record, in the kind of work column, 101-1, or if on a cylinder, 101-A. The same plan should be followed with the other work num- bers in the press room. This will enable the cost clerk to determine the press that the job was run on and especially as to whether it was run on jobber or cylinder press. The cost clerk, when extending the time into the "Office Use" columns, should ring the time when cylinder press is indicated by the work number. Holding Press for Proof, No. 102: This work is chargeable time where the customer demands a press proof of his job. If on cylinder press, ring the time. Running, No. 103: The column for "Number of Impressions" should be filled as well as time record kept on this work. This will make a showing on the press efficiency, which is important information. Only the 40 THE PRACTICAL COST SYSTEM number of impressions actually run during the running time marked on daily time ticket should be entered, regardless of the number required for the entire job. The additional impressions for the job will naturally appear and be entered on the daily time ticket when running is again resumed. If this "number of impres- sions" record is to be accurately kept a counter on the press will be a necessity. Running time means the time the press is actually printing on the job in hand. Cost clerk should ring this time if run on cylinder press. Changes (press corrections), No. 151: This work covers the errors in composition which were not caught when they should have been. They are purely plant errors and as such are non-chargeable time. The press changes on account of customer are treated in No. 101. Wash-up, No. 152: This work covers all the reg- ular wash-ups and is non-chargeable time. This number should also be used for all time spent in a clean-up of the presses and press room except such as would be classed as janitor work. Wash-ups for a change of ink for a job are treated in No. 101. General Information : When two people, as press- man and feeder, work on a cylinder press at the same time the time record is made for one man only. The other should enter under "Kind of Work" the word "Assistant" or "As't" and should also enter the number of the press and number of job. His time, in this case, is non-chargeable against the job but as his wages for the time put in are charged against the department the labor-cost of his time automatically becomes a part of the departmental hour cost. PRESS CLASSIFICATIONS 41 Where a cylinder press with attached folder is used and an extra man is put on to feed an insert his time can be recorded in the same manner as that of the assistant, mentioned above, or it can be recorded as bindery time under number 303. Folding is essentially bindery work and we would consider this method the better way in which to handle this work. Where a plant has several different sizes of cylinder presses they should be classed in sub-departments and separate time kept for each class as the hour costs will be different. Cylinders 22x32 and smaller are classed as "pony ;" from that size to and including 32x44, and in the case of a newspaper press, 33x48, would be classed as "medium," and the larger cylinders should be in a class by themselves. Not more than two of these classes will usually be found in the smaller shops. It is also advisable to do the same with the jobbers. The 10x15, or 11x17, and smaller should be in one class and the 12x18 and larger in another. If you have an automatic feeder attached to one of the jobbers this should be in a class by itself as the greater investment makes it necessary. In making the time record on a jobber with attached feeder where the pressman is also at the same time running another press or doing other work will require a little additional explanation. A second time ticket should be made out for the auto- matic fed press with the workman's name and time started and stopped, etc. On this time report the job numbers and kind of work for this press should be entered and also the output in the proper column. The labor, except for the time of the make-ready will be very little but the press must receive the credit for its running 42 THE PRACTICAL COST SYSTEM hours. On his regular time ticket the workman should carry the job and work numbers for the jobs being run on both presses on separate lines of the time ticket. On the line following the job number of the job being run on the hand-fed press he should carry his time as usual. On the line recording the number of the job on the automatic-fed press he should enter just the units of his time which are used in attending to that press, in removing the printed sheets and adding stock for the run, in starting it again after an automatic stop, etc. In case any of these attentions require less than a unit of time he can combine two or more of them and record them by drawing the line as usual. The reason for this is that the automatic-fed press should be charged up with the proper proportion of his labor which makes a part of the hour-cost of that press. The time used in attending to the automatic should, of course, be de- ducted from the time of the hand-fed press, and the best way to handle this is to leave breaks or blank units in the line recording the time on the hand-fed press to correspond with the time-lines shown for the auto- matic. The hand-fed press is, naturally, not producing when the workman is attending to the automatic. The same method should be used if the workman is doing other work than feeding press while attending the automatic. In extending the time on the daily time reports the cost clerk should make a ring around all the time of the cylinder press work. This is necessary in order to distinguish between the cylinder and the jobber time in the records to be made later. Some distinguishing mark should also be used for an automatic feed press. BINDERY WORK NUMBERS 43 BINDERY WORK The Bindery is probably the least used department in the average shop, and in the smaller shops the greater portion of this time has been given away and no charge made for the most of its work. While the equipment of this department is usually small, yet from somewhere its interest on investment, insurance, etc., as well as its labor must be paid. It is not possible to run any business with success unless every expense is provided for by an equivalent charge against the product. For easy recognition, all time in this depart- ment is carried under work numbers in the 300's. Tabbing, No. 301 : This work, sometimes called padding, or blocking, covers all the time of straighten- ing the sheets, cutting the straw-board, preparing and spreading on the "goo," and the final cutting apart and wrapping for delivery. This time is chargeable and as accurate a record should be kept of it as of any other time in the plant. Trimming, No. 302: In most shops this work has always been one of the lost "Babes in the Woods" and has disappeared when the charge was made for the job. This work covers any trimming or cutting after a job is completed and is as certainly chargeable as any other time in the plant. Folding and Inserting, No. 303 : This work covers all folding, whether hand or machine, and all inserting work in a job of books, pamphlets, etc. Where a news- paper is issued it also covers the folding on that, either hand or machine. 44 THE PRACTICAL COST SYSTEM This department is really a double-headed depart- ment. Where the plant does much of its folding by machine the machine folding should be kept as a separate department and the time ringed in the exten- sion columns of the daily time ticket and the other time records. Use the same work number but follow that number by a letter "M" to designate machine folding. In the case of a cylinder press with an attached folder, however, this letter distinction is not necessary as the simpler way is to carry the folder investment as a part of the cylinder press. In that case the only time record to be made would be the time of the feeder, as an assistant to the pressman, when an insert is being folded into the main sheet, and this can be done under No. 303. See, also, second paragraph under General Information following "Press Room." Gathering, No. 304: This work covers just what the name indicates and is chargeable time. In the smaller shops there is so little of this work that it can as well be carried as part of the folding and inserting time under that number. Perforating and Punching, No. 305: This work covers the items mentioned when done on perforating or punching machines. It does not cover hand punch- ing nor perforating on the press. Where a small hand punch is used the work is hand work and may be car- ried under some of the other hand work numbers, as 307. Perforating on a press where the perforating is done in the same run as the printing there would be no extra time charge as the extra time used in putting in the perforator would be covered in the make-ready and the slower run on press where a perforator is used BINDERY WORK CONTINUED 45 would be covered by the additional time charge on the job. When perforating is done on a press in an extra run it should be treated as press work and recorded as Running time, No. 203. Stitching or Stapling, No. 306: This work covers the use of stitching or stapling machines only. Hand stitching or sewing should be included in numbers 303 or 304. Binding, No. 307: This work is all hand work in the smaller shops and covers all classes of binding that is likely to be done in the small plant, such as order books with tag-board or check-board covers as well as stiff covers, pamphlet binding where the cover is glued on, check book binding, receipts, etc. For the larger plants the cost system includes more detailed forms to cover the various departments of this work. In the smaller shops this detail is not necessary nor advisable. Numbering, No. 308: This work covers hand ma- chine numbering on checks, receipts, order books, tickets, etc., but does not cover numbering on press. That work is press room time and should be charged as an extra run, if run that way, and be cared for the same as press perforating mentioned above. Counting, No. 309 : This work covers the counting on those jobs where the sheets must be counted into accurate quantities before binding, as with orders, receipts, checks, etc., where they are to be numbered either before or after binding, or wherever the work has to be counted. This time is chargeable, and record should be made of it. Mailing, No. 310 : In the average printing plant the greater part of this work will be on the newspaper. 46 THE PRACTICAL COST SYSTEM The time is chargeable and should be accurately re- corded and charged against the newspaper. It will also include time used in mailing out any jobs that may be delivered in that manner. It will cover the time used in writing or running off the addresses on the mailing machine, wrapping, etc. Clean-up, No. 351: This time is non-chargeable and covers all time used in cleaning up the bindery department, washing glue brushes, paste dishes, and all the clean-up work except what would be better carried as janitor work. General Information: In the larger shops the bind- ery work is cared for in four different departments: "A" The heavier machines, cutters, ruling machines, etc., usually run by men. "B" Men's hand work, such as finishing, forwarding, etc. "C" Girls' small ma- chine work, perforating, punching, stitching, etc. "D" Girls' hand work which would include all the cheaper processes, counting, gathering, numbering, sewing, etc. In the smaller plants we would advise the two department plan unless there is a fairly complete bind- ery in connection. In the average small shop the "A" and "B" classes are not used. "C" should be made up of the work of trimming, folding where a separate folding machine is used perforating and punching, and stitching or stapling. The investment would be greater in machinery in this department and the hourly costs higher than for hand work. Where there is but one paper-cutter in the plant assign about one-third of the value of the cutter with its interest, depreciation, etc., to Bindery "C" in the departmental inventory. CHARGEABLE TIME DEFINED 47 All the other classes of work would be carried in Bindery "D," regardless as to whether the work is done by men or girls. In the smaller shops it is simpler to combine all the bindery work in one department charg- ing against it the value of all the bindery machinery and the proportion of the cutter as mentioned above. This would make the hour-cost of the hand work a little more and the machine work a little less, but not enough in either case to make any material change in the job cost. CHARGEABLE AND NON-CHARGEABLE TIME We have accounted for all the different processes liable to be used in the making of a job of printing, and explained each. Perhaps the words Chargeable and Non-chargeable require some explanation. The work- man fills in no blanks beyond the triple line on the time ticket, except in the "No. Impressions" column pre- viously mentioned. The first time ticket reproduced, cut number 4, is one as handed in by the employee at the end of the day. All the items under the heading "These columns for office use only" are then filled out, and totaled by the cost clerk. Every department except "Office Time" is subdivided into two items, chargeable and non-charge- able time and are defined as follows : Chargeable Time: All those productive units of time used on a job that can be charged direct to and become a part of the cost of the completed work. 48 THE PRACTICAL COST SYSTEM Salable units of time as compared with the time that has no salable value such as distribution, office work or janitor work. Non-chargeable Time: All other portions or units of time used by the workman in his daily work, non- productive time, that cannot be charged against a par- ticular job, or where he assists at a machine whose time is already charged through another workman. The only items that are generally non-chargeable are, in the composing room Nos. 51 to 56; in press room, 151 and 152; in stock room, 251 and 252; in bindery, 351; and all the office work, 451 to 456, as none of these items can be properly charged to any job. The office work items form a part of what is commonly spoken of as "administrative overhead" or "business burden" while the other items are a part of the "plant overhead" or "shop burden." All the cost of this non- chargeable time as well as the overhead or business burden expense must be carried by the chargeable hour and becomes a part of the hour-cost of those hours. Extending Chargeable and Non-chargeable Time: After the workman hands in his time ticket for the day, and before the work can be charged to any par- ticular job, all items must be extended to the charge- able and non-chargeable columns. All time in office work is extended to that column. If one of the shop workmen waits on customers, answers telephone calls, or does any of the office work the time so used is to be entered on his time report, using the proper office work number, which is generally No. 455, and the extension is to be entered in the office column. A portion of his wage will be charged to office as shown later. RINGING STOCK ROOM TIME 49 All work in the numbers under 99 is extended in the composing room time columns, but in the case of machine composition a ring should be placed around the time to keep it separate from the hand work, as the two kinds of work are in different sub-departments. All work in the 100's is extended as press room time in the proper columns, but in case of cylinder press- work, a ring is placed around the time for the same reason as above ; in case of different sized cylinders or jobber with feeder attached the cost clerk must use care that the items are kept separate for use in other records. This will be easy if the various machines are numbered or lettered. Where there is no typesetting machine or cylinder press in the plant the ringing of the time in these two columns is not necessary. All work in the 200's is extended to the proper stock or bindery columns but a ring is placed around the stock room time for the same reason as above. All work in the 300's is extended in the proper stock or bindery columns, without a ring. All work numbers containing a "50" are non-chargeable time. Now the time is posted up in each column, but ma- chine composition time, cylinder press time of the different sizes, the job press with attached feeder, and stock room time is kept separate in the totals as shown in the time ticket reproduced, cut number 5. The total time, both chargeable and non-chargeable on each workman's time record, must equal his entire day's work. CHAPTER II THE JOB RECORD The Job Record : We have accomplished the build- ing of the structure, but we must now go back and take up the Job Record, the reverse side of the fly sheet attached to the Job Envelope, which is the foundation of our Cost System, and to which the structure is firmly attached. The Job Record is a summary of the time used on any particular job and is taken from the Daily Time Tickets. Even though the work on the job may take several days in any one or several departments yet, as the work progresses each day, the time is taken from the Daily Time Tickets and is entered on the Job Record. The Job Record has four sections that con- form to the extension columns on the Daily Time Ticket, and in these sections the daily items of time put in on a job are collated until the job is completed. See illustration in cut number 7. 1. Stock Work: Here the employee's initials or name, with date, and the kind of work, entered by the work numbers, and the total time of that kind of work on the job, in hours and units or tenths is entered. 0$. JOB RECORD STOCK WORK PRESS WORK EMPLOYE DATE KIND OF WORK TMC Press No. EMPLOYE DATE K'ND OF WORK TIMC M M H M fifi v/4/ ZoZ 3 1 /?/? "// 101 << Cost per Hour, all Hours J- ^ 2/* ^ RECAPITULATION j^ o total Hours, lioth Chargeable mid n-Chargoable for all Department* 7 / 5~ 2/ f Departments No. Hra. H()ur Cr Totii Labor Cost ? ^y _2j 5 Office 1*0 / <)2 it A Z 6 Machine Compomtion .r ,9(0 * Hand Composition 354 / 5$ K7 3 .?rf V Cylinder Press /^T ? ,fV / ^7 Job Press />/ ?v 73 // 22. f Bindery t>X if *!( 2-7 Bindery -e JL7 -dfcc^ 9Ja^,^Ai^j / / ^ ^ y 3/ 7 3.S .r . ?$ M scellaneous Expense /> ,T(^ . Total Office Expense z 2 3 /^ D rect Department Expenses as per Summary* ^ ,fi? ,^ te ?fn Knife Grinding fro Amount of Job Work for Month / W; > 00 ^ /if t Wrapping Taper, Twine, otc. / to Amount of Advertising for Month / ? x f oo ^ Repairs Less Total Expense (t) ( lit r r^> ? ^^ Other Expenses Ne* Profit 3m $'20 2 f M Total Net Loss / ^ if HAND COMPOSITION Statement of Profit and Loss from Job Tickets f ^<> Benzine and Lye / 90 Amt of Profit Shown on Job Tickets frt ?fa 2 3 ^^J Total ,f f-0 Let Losses Shown on Job Tickets tf ^ S CYLINDER PRESSES Statement of Profit and Loss on Newspaper 1 /- w|!! T y m P an Pa p fir fO Amt of Advertising for Month i '2^ 1 oo f ,fO Rollers & Repairs i 00 Amt Rec'd on Sub. for Month it 7 oo Oil, Rags, etc. Zfi Total Receipts iii ' Ob Cost of Paper for ivlonth iz, ' rf Other Expenses Net Profit on Newspaper f Total ?f Net Loss on Newspaper ?&>s BINDERY EXPENSE SUMMARY JOB PRESSES A B c Tympan Paper / 00 Knife Grinding fo Z /o ^XQ 3 <7 (?>f Rollers & Repairs 7 yo Glue, Paste * op fl I 19 3( i/J 4 9 3 ^^ Oil, Rags, etc. w Repairs V 7 /I f r3/ The abo total in can- Profit amfL in the spa marked with (t) ve Gas or Gasoline ho f f 6i H fW AST I2t 'a Other Expenses Other Expenses I /. Number ii. 62 THE PRACTICAL COST SYSTEM up hours are of no value to the customer and are, therefore, non-salable hours. The first important question in figuring your costs is: What is the value of the plant? If you have an accurate inventory, this work is fairly easy. If not, there is only one of two things to do ; take an inventory of your plant, or make a fair and full estimate of its value by departments. Using either plan the value of the plant should be fixed on the present purchase prices of the various items of the equipment, and not on what was paid for them when purchased nor on an appraised value of present worth which would be used for insur- ance purposes. The reason for this will appear later. The top line of the blank for obtaining your costs is headed "Department Investments." By this is meant, what each department is actually worth at present purchase value. Do not figure what the "business" is worth, but what the material of the equipment in each department is worth at the purchase cost of today, not what it may have cost you when bought. (For addi- tional data on valuation, see page 73.) That you may have a fair idea of what should be included in each department, we will enumerate items under separate headings. To the value of the material in each department should be added a fair amount to cover the freight and installation charges on the equip- ment, especially so on all machinery in the plant. In- stallation charges include the cost of all wiring for motors, all belting and other power connections, also where a cement or other foundation or pit has been put in for the cylinders or other machinery, the cost of these should all be added to the departmental value. DEPARTMENTAL INVENTORY 63 Office: The amount for this department should include all office furniture, such as desks, chairs, tables, typewriters, safes, books, and other items for office use in conducting the business. Machine Composition: Present cost value of the machine, including all extras, extra magazines, all matrices and liners, metal melting pot, motor or engine, linotype metal, small tools, cabinets, etc. If a mono- type, include both caster and keyboard, compressors, motors and all extras. Hand Composition : The present purchase value of all type, rules, leads, and slugs, wood and metal furni- ture, cabinets, galleys, stands, stones, proof presses, cuts, chases for cylinder presses, quoins, and every item used in setting type and getting forms ready for the press room. Cylinder Press: The value of the press, extra rol- lers, belting, power wiring, motors or engine and all extras of every nature. If attached folder is used, in- clude this in the value. If a detached folder, include that in the bindery. Job Presses: Value of the presses, including motor or engine wiring, power switches, belting, etc., all extra rollers, extra chases, drying racks, stock table, and everything pertaining to the presses. If you have one engine or motor that runs both the cylinder and job presses, the cost should be divided proportion- ately between the two production centers, on the basis of power required by each. Bindery: In a small office, this would only be run as one department and the value of stapling or stitch- ing machines, unattached folder, one-third the cost of 64 THE PRACTICAL COST SYSTEM the paper cutter, tabbing implements, perforator, and all other machinery and tools used in the bindery. In larger shops classify the equipment according to the explanation given in chapter covering the bindery work hours, between the two or three bindery departments. Stock Room : Two-thirds of the value of the paper cutter, the value of the shelving, tables and everything used to store and handle stock, but not the cost of the paper or other merchandise on the shelves. With these items figured out, and put at the head of each column on line "Department Investment," you have made the first step in getting your own costs of production. Department Pay Roll : The next item to figure out is the pay roll. This is one of the hardest parts to figure, but we have tried to make the proposition as simple and easy as possible. On the page where you have filled out the chargeable and non-chargeable hours used in your plant, you will find at the right a space headed, "Summary of Pay Roll." Illustration, cut number 9. On the spaces place the names of the em- ployees who have used daily time tickets for the month, and opposite the names the amounts paid them in wages for the month. Care must be taken to use the full number of work- ing days for the calendar month not a period of four weeks. The amount of the wages should cover all the time for the month, regardless of whether the amount has been paid the employee or is still to be paid. In other words, this amount is the labor-cost for the month not the amount paid out. Salaries of people who are not using the daily time tickets, yet draw pay, will be DEPARTMENTAL LABOR COST 65 taken care of later. If the proprietor or manager or one of the office force uses a daily time ticket his salary covering the hours on his time report must be included in the pay roll. Add up the total pay roll ; then add up the total num- ber of labor-hours, both chargeable and non-chargeable, used during the month from your Record of Charge- able and Non-chargeable hours. The total amount of the pay roll is then divided by the number of labor- hours, and the result is the labor-cost unit per hour in your own plant. The next step is to ascertain the labor-cost of each department. For this, take the labor-cost per hour as the unit and then multiply the total number of labor- hours, both chargeable and non-chargeable, of each department by the labor-cost unit, which gives the cost of the labor for each department. Add these, and if they do not exactly agree with the total pay roll, make such slight changes in the several departments as will make the two totals agree. But, you may say, I pay one employee only $20 a week and another $35, why combine them? The ques- tion of the differences between the individual labor or wage costs has comparatively little effect upon the ultimate cost per hour. The $20 a week man no doubt needs and gets supervision by the $35 a week man, and to get a correct cost, the wages of the two must be combined in the totals, and you cannot get labor-hour cost except in this manner. Remember we advocate this simple way of ascer- taining the labor cost in offices where the employees work in all the departments. If the case should be 66 THE PRACTICAL COST SYSTEM that an employee is employed on a typesetting machine or the job presses, exclusively, then that labor cost may be charged directly to that department, and the hours not taken into consideration in dividing the labor cost in the other departments. We do not, however, advise this method because as a general principle, for the smaller shops, the first method gives a better and more uniform cost, as general supervision is practically always given by the higher priced help, even though the actual work supervised may not be done in their department, and all departments should bear a just proportion of the supervision cost. Note. Many so-called cost experts have fallen down on this by trying to make the distribution of cheaper labor wage meet the preconceived, and usually erroneous, ideas of the "front office." If you want the actual costs, and not such as will conform to a preconceived idea, you must take into consider- ation some allowance for supervision. The labor-hour cost is but one factor in your hour cost of production, just as rent, heat, etc., are but single factors. You can never base a real cost of production on the price paid for labor, as will be readily seen when you consider all the other elements which enter into the production costs. All the hours are used in ascertaining the labor-hour cost, and that is one of the reasons why both charge- able and non-chargeable hours have been so carefully kept track of. The non-chargeable time is a large factor in the labor cost, as all the expense of this time must be borne by the chargeable, or productive hours, for these latter are the only salable hours. Rent and Heat: The next factor or unit of cost is rent and heat. The rent is an easy problem as it is RENT OF OWNED BUILDING 67 usually paid by the month. For the item of heat use 1/12 of the total cost for the year, adding the amount to the rent each month. This amount is to be charged against the departments in proportion to the floor space occupied by each department. In determining the space for each department measure up the square feet of floor space used by each department for its operations. Do not take into account the floor space used for aisles or passageways, toilet rooms, coat rooms, stairways, elevators, etc. This space is for general use and should not be charged against any of the departments. Omitting this space will simply raise the rental rate per square foot of used space a trifling amount and each department will automatically assume its cost in the slightly increased charge for the space they use. Note. 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 corporation, 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 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 carried against such property, such as street improvements, 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 68 THE PRACTICAL COST SYSTEM 3 l / 2 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 originally. This amount is to be added to the amounts above, the total divided by 12 which gives the monthly rental charge on the building at cost, but to this should be added a fair 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. Light: Enter the total amount of the cost of lights in the column headed "Office," when it will be later distributed against the departments. Note. The old method of distributing light expense in proportion to the candle-power of the lamps installed for use in the departments is palpably wrong, and results in penal- izing the less important production centers which are usually located in the darker portions of the work rooms. Every production center is entitled to sufficient light for its oper- ations and if it is so located that it does not receive enough daylight for that purpose it should not be loaded with the expense of artificial light because of its unfortunate location. Light, like water supply, is a general expense and should be carried into the general or office expense where it will be distributed against the various production centers in a proper proportion. Power: This item should be charged only against the departments using power. If a gasoline engine is used, take the total amount of gasoline used for the month and include all oils, waste, and other costs for running the engine, and divide according to the horse- power-hours. Where the machines are motor driven divide the amount of the power bill each month against POWER FROM LIGHT WIRES 69 the departments using power according to the horse- power-hours. Note. To find the horse-power hours when the machines are equipped with individual motors: Multiply the running hours of each machine for the month by the indicated horse- power of the motor attached, as shown by the number plate on motor. This result will be the horse-power hours for that machine. Repeat the process for each machine using power. To distribute the power bill : Total the horse-power- hours for all machines. Divide the amount of the power bill by this total and the result will be the unit of cost of the horse-power-hour. Multiply the horse- power-hours of each machine by this unit. The result will be the charge for power against that machine. Total the accounts for all machines and see that the total agrees with the amount of the power bill ; if it does not, then add or subtract a few cents to or from the amounts for each machine until the two totals agree. If there are two or more machines in the same departmental groups, as two jobbers, total the amounts of the power cost for the machines in that group. Enter the power cost for each machine or group of machines on the Power line in the Statement of Cost under the proper department heading. Note. In a plant where the machines, or groups of machines, are driven from one or more large motors the pro- cedure is similar to the above. The running hours of each machine are to be multiplied by the power required to drive that machine. A 10x15, or smaller, jobber requires y 2 horse- power, larger jobbers % horse-power, a Universal type jobber 1 horse-power, a pony cylinder \y 2 horse-power, a drum cylin- der newspaper press 2 l / 2 horse-power, two-revolution cylin 70 THE PRACTICAL COST SYSTEM ders 3 to 5 horse-power according to size. If some of the machines have individual motors find the horse-power hours of these and add them to the amounts found for the other machines, then distribute the power bill as shown above. Where the machines are driven by a gasoline engine, find the amount of the power cost as indicated above and distribute as for one large motor. Even where a gasoline engine is used, the typesetting machine is usually driven by electric power, and probably from the light circuit, in which case there would be no separate electric power bill. This machine should be charged with the power it uses and this can be found as follows: Electric light bills are usually rendered at a specific price per kilowatt-hour of current used. The motor on a typesetting machine is usually Y$ horse-power. Fifld the horse-power hours of this motor as above and multiply these hours by .746 and the result will be the number of kilowatt-hours con- sumed as power for the typesetting machine. It is only necessary to multiply these kilowatt-hours by the price shown on the electric bill to obtain the amount to be charged against this machine for power. This amount should be deducted from the electric bill and the remainder entered as light on the "Statement of Cost sheet." Other Cost Items: You now come to the items which depend entirely upon the amount invested in the respective departments, viz : Insurance and Taxes, Interest on Department Investment, and Depreciation. To make easy figuring, it is suggested that you divide the investments into $10, $25 or $50 units, according to whether you have a small or large plant. If a small plant, $1,000 or $2,000, use the $10 unit. If large, use either of the others. After you have the total units, you can easily work out the amounts. The $1,000 plant will have one hundred $10 units. A $5,000 plant will have one hundred $50 units, and so on. INTEREST ON INVESTMENT 71 Insurance and Taxes : Use one-twelfth of the total amount of insurance and taxes paid for the year. Divide this amount by the total number of investment units of the whole plant and then multiply this result by the number of units in each department. Total these amounts and if the total does not agree with the first amount make such slight changes in the various de- partmental amounts until the two amounts are the same. Then enter these amounts in the respective department columns. Interest on Department Investment: You are en- titled to a certain and fixed amount of interest on the capital you have invested in your plant, because if it were invested in any securities it would bring you an interest return and the investment here must do as much. As explained about department investment, this is not what the business is worth, it is not profit, but it is the interest that your invested capital must earn before you can make any profit. Interest on your in- vestment must be figured into cost of production, even if there is no profit shown in the business. What that interest rate should be is for you to decide. Practically all cost system users figure the rate at seven per cent except in those states where the common rate is more. It should never be less than six per cent. Capital in- vested in a manufacturing business is not as secure as if invested in farm mortgages and should, therefore, carry a higher interest rate. Ten per cent would not be too high, under most conditions, for a printing plant. The units mentioned under insurance and taxes are to be used again. One-twelfth of the amount of Interest on Investment lor the year is divided by the total 72 THE PRACTICAL COST SYSTEM departmental units, and this result is multiplied by the number of units of each department to get the proper amount to be charged to each. If the total of these departmental amounts does not agree with the total Interest on Investment, slight changes should be made in each department, to make the totals agree. Depreciation: The principal reason for figuring depreciation in cost-finding is that the wear and tear on your printing equipment must be cared for through your costs, as it is a legitimate expense of the business. The true purpose of depreciation is to establish a re- placement fund, which will care for the natural wear and tear of the equipment, and also provide for the destruction of any portion of its usefulness through accident or breakage. The amount figured for depreci- ation should be carried on your general ledger as a Replacement Fund account. Type, machinery and other equipment will wear out, and must needs be replaced. There is no exact basis on which to figure the time it takes for the material to wear out, as some presses, for instance, have been in use for twenty years or more and are still doing good or fair work. New inventions, new styles in type and improved materials and machinery are coming out at frequent intervals, causing obsoles- cense of the old type and machinery, and the new will be used to replace the old and obsolete. The natural wear and tear must also be taken care of, and so de- preciation becomes a large factor in the cost of pro- duction. In all modern cost systems for printing plants depreciation is figured at the rate of 10 per cent per annum on all machinery and equipment except type, REPLACEMENT FUND NEEDED 73 and this is figured on a basis of 25 per cent per annum. Because the life of much of the machinery and equip- ment of the printing plant will in actual service wear longer than the ten years indicated by this percentage, it may look large, but in that amount must be contained an amount for replacement to provide for the junking or scrapping of machinery or other material which will be replaced before it is worn out by new and more efficient machinery or equipment. It must also pro- vide for accidental breakages. It has now become the custom of the trade to figure all depreciation on the bases given above. As stated in the paragraph devoted to inventory, all machinery, type and equipment should be carried on the books on the basis of the present purchase values not what it cost you ten years ago, and not an appraisal value because any replacements made in your equip- ment, and any additions to the equipment purchased out of your capital stock investment, must necessarily be made at the present purchase price, not at the price of ten years ago. If the older basis of prices were used when your replacements are purchased the replacement fund would be very quickly exhausted, as the present prices are approximately double what they were ten years ago, and the investing of the entire replacement fund would not restore the equipment of your plant to its original efficiency and value. For this reason we strongly advise the figuring of depreciation into your costs on the basis of the present purchase price of all your machinery and other equipment. Note. We would suggest that the monthly increment of the depreciation be set aside and, if possible, deposited in the 74 THE PRACTICAL COST SYSTEM bank under a separate fund for replacement purposes, so that when any of your equipment wears out or needs to be replaced you will have the cash on hand to so replace it. In distributing the amount of the depreciation to the various departments of the plant use one-twelfth of the annual depreciation as outlined above. The same process of figuring is used as in the distribution of the interest on department investment, viz: divide the total annual depreciation by twelve, divide that result by the total of the departmental units, then multiply this unit of distribution by the number of departmental units in each department. Total these results and if it does not agree with the total amount of the depreciation make a few minor adjustments in the various departments until these totals do agree. Then enter the proper amounts under the department headings on the "Depreciation" line. You are now done with the Department Invest- ment ; the rest of the factors in your costs are items of general expense that become a direct charge to the respective departments, and must be different in every office and are changed as experience and costs show. These factors will be taken up and discussed. OFFICE EXPENSE Bad Accounts: The average business loses one per cent of its accounts each year. If you do $1,000 worth of work a month, at least $10 should be set apart to take care of uncollectible accounts which will come up, if not in this month then in some other, and must be provided for. Bad accounts are part of the expense SPOILED WORK WILL OCCUR 75 of doing business and must be taken into account in finding the costs. You cannot run a business of any size or kind without losing some money ; you are pre- pared for this loss if you have the amount figured into your costs. Another method, frequently used, of ascertaining the monthly increment of bad accounts to be included in production costs is to take from your book accounts the actual losses for a period of two to five years past, average these losses to find the average loss per year and then use one-twelfth of this amount each month. This item should be entered in the office column only. Spoiled Work: Of course you spoil a job once in a while and as long as dependence must be placed on human heads and hands mistakes will be made. This expense is a legitimate part of production cost and must be provided for. Thus it becomes a part of the expense of your business, and must enter into your costs. Sometimes jobs have been spoiled that you knew nothing of. With the introduction of a Cost System, jobs are accounted for, and when a job is spoiled it has to be done over, and a new Job Ticket made out. The amount is usually two per cent of the total business, but records carefully kept may change this. If you have no spoiled work this month, you may have some later, so it is necessary to be prepared for it. The amount should be placed in office column only. Spoiled work may be charged each month as made, if so desired, and this is possibly the better way. All these special items should be charged month by month 76 THE PRACTICAL COST SYSTEM and your experience will show which is the best way to handle them under the conditions in your plant. Office Stationery and Postage. This is an item of expense, hence all stationery, office and cost system forms, etc., printed should be figured at cost prices and the amount entered into the expenses. Postage under this heading does not include postage paid for mailing the newspaper; the latter is a cost against the paper and not against the entire business. The amount is entered in the office column only. Advertising. Every well-conducted printing office does some advertising. May be it is only a few im- prints, or blotters, or it may be a well-defined campaign of publicity. However much or little, it is a legitimate business expense, and should be figured into the cost of doing business. If you advertise your job printing in your newspaper, the paper should be given credit for that, and the amount charged to expense. If you make an exhibit of your productions at the county fair the cost of making the exhibit, including the prepara- tions of the specimens should be entered as Advertis- ing. The same holds true of a window display. These items should all be charged and then be sure that you do the right kind of advertising advertising that will bring results for the amount charged. This amount is placed in the office column only. Telephone, Telegraph, Etc. This includes the reg- ular monthly telephone charge, all long distance tolls, and all telegrams. This amount is placed in the office column only. Selling Expense and Commissions. This is probably but very little used in the average small shop. It covers SALARIES OF OFFICE FORCE 77 the cost of salesmen who solicit work either on salary or commission. It does not include salaries or com- missions paid for selling advertising in or subscriptions to, the newspaper. That is a distinct charge to the paper. In city shops, this item may be used to cover commissions to printing brokers. Any allowances or deductions made to secure a settlement of an account receivable should also be included in this amount. This amount should be placed in the office column only, as it is wholly a general expense. General Office Salaries. This is for salaries of all persons in the office who do not make out daily time tickets, but are carried on the pay roll, and draw a salary, this includes the proprietor who must also draw a salary just the same as any other employee of the business. If you are a proprietor of a shop and have no fixed salary, the first thing you should do is to decide on the salary, and then get it just the same as your employees. It is a mighty poor business that will not pay a salary to at least one "Boss." If you are just drawing enough out of your business to live on you cannot count that as a salary and it certainly is not a profit. A mere-existence style of living is a poor advertisement of the prosperity of your business. You are entitled to wages the same as your employees but at a considerably higher rate because of the greater responsibility, and in addition to that a legitimate profit over and above all salaries and expenses, as compensation for all your worry and trouble, to say nothing of what you have invested in the business and from this you are fully entitled to receive a reasonable interest return. Put yourself on the pay roll for a 78 THE PRACTICAL COST SYSTEM salary and draw it. Then if there are any profits left you are making money, but not otherwise. This amount should be placed in the office column only. Organization Dues, Donations, Etc. You say, per- haps, that you cannot afford to belong to a printers' organization. You can if you use a cost system, as this item is figured into the costs. Organizations are necessary for mutual protection and benefit of the members of the craft and their interests and the ex- pense is a part of the cost of properly carrying on your business. Donations may be only a little yet printers often give more liberally than they should. All dona- tions made for business reasons are an expense and should enter into your costs. If you do a job for nothing for church or lodge (which you should not do) the amount of the job at full price, should appear in this item. In this item should also be included sub- scriptions to the trade papers and all technical expenses of like nature. The amount is entered in the office column only. Water, Soap, Towels, Etc. The dear old office towel would be renewed oftener, and might occasion- ally visit the laundry, if you could afford it. These three items are a necessity, though often considered a luxury, and are an item of expense that enter into your costs. The amount should be entered in the office column only. Interest on Borrowed Money or Purchase Contracts. In discussing this item some time ago, a printer said this should come out of the profits. We don't see why. It is part of the expense of the plant. It is necessary in a great many instances to borrow money TREATMENT OTHER EXPENSE 79 to start in business and interest is demanded on de- ferred payments when machinery is bought on the installment plan. That is a part of the expense of doing business and should be figured in the costs. If your business has expanded beyond what your own capital will carry and it is necessary to borrow money to keep the business running smoothly, interest on such bor- rowed money becomes a proper charge against cost and should be included. Such money becomes, in fact, a part of the invested capital and as such is entitled to an interest return. There are so many chances of not making a profit, that every legitimate item of expense should be considered and included. If, by good luck, the printing business shall ever get to the point where the printer can make a certain and sure profit on every job, and get out of debt, this item need not worry him; but until that blessed day, it should be an item of cost. The amount is placed in the office column only. Miscellaneous Expense. Under this head may come any additional expense that has not been enumerated above. You may have some unusual expense that comes up and should be taken care of. The amount should be charged to the department which receives the benefit, or if it is for the benefit of the business as a whole it should be entered in the office column. You now have all your office expense, which is totaled at the bottom of the office column, on the line entitled "Total Office Expense." 80 THE PRACTICAL COST SYSTEM DIRECT DEPARTMENT EXPENSE A special summary has been placed on the blank that the many small direct expenses in each of the departments may be taken care of and then brought forward to the line of direct department expenses. Illustration, cut number 11. These can be gathered from your cash-book expense and the monthly bills. These items should be entered for the month in which they were incurred, even though they may not have been paid in that month. They are a part of the cost of doing business for the month. In the Stock Room you have knife grinding, wrap- ping paper, twine, etc., repairs, and other small ex- penses. In Machine Composition you have oil, gasoline or gas, metal waste, repairs, etc. The metal waste on a typesetting machine is a big item. It is asserted that metal deteriorates at the rate of 20 per cent per annum. Of course this depends largely upon the amount of metal in use, and how often it is remelted. The value of the amount of the metal on hand, at current prices, should be ascertained, and a proper charge made for the waste. In the smaller plants, probably, 12 to 15 per cent per annum of the metal value would cover this waste. One-twelfth the annual amount should be charged the department each month. All repairs should be charged to this department as made. On Hand Composition, there is benzine and lye for washing type, proof paper and twine, and other small expenses. TOTAL OF SHOP EXPENSES 81 The Cylinder Press requires oil, rollers, tympan paper, rags and other items, which are an expense to this department. There is always a loss of time with poor rollers, and enough should be charged to cover the buying of proper rollers so that good work can be done. On the Job Presses there will be the same items of expense as on the cylinders and the same disposition is made. The Bindery uses glue, paste, brushes, gas or gaso- line to heat the glue, and the knife of the paper cutter needs sharpening. These items all enter into your costs. After ascertaining the direct department expenses the amount should be brought forward and entered under the right department heading and on line en- titled "Direct Department Expense." The departmental columns should then be added up and the total entered on the line "Total Department Cost Without Office Expense." This will give the amount of the cost of the different departments. You have still the cost of the office overhead or adminis- trative burden left to be distributed against the depart- ments. Distribution of Office Expense: Right here is where a large amount of beading, brackets, wainscoting and other fancy trimmings can be added to the build- ing now nearly completed. In the large plants there are several classes of expense which should, techni- cally, be distributed on different bases to obtain accurate results. In the small and medium plants there are practically none of the classes of expense 82 THE PRACTICAL COST SYSTEM which would, in the large plants, technically require a different base for distribution. Nearly all the expenses in the smaller plants have a direct relation to the product which is salable, or chargeable, hours so the base of distribution here used is, to all intents and purposes, technically correct. As the Practical Cost System is intended more particularly for the medium and small plants, and as we desire to make it as simple and easily handled as possible, we very strongly advise that this item of office expense be distributed against the departments on the basis of the chargeable hours of each department. This method is much the simpler and fully as accurate. We have figured the summaries in a number of the medium and small plants in all the various ways and we find this simple method is as fully accurate as the others and that the variations in the hour costs found as between this method and the others is too small to be of any real moment, as it amounts to less than a quarter of a cent on the average hour. We have now reached the chargeable hour again. On the line reading "Chargeable Hours of Each De- partment," place the number of chargeable hours as given in the pay roll summary. The costs are ascer- tained according to the chargeable hours, and the chargeable hour is, therefore, the unit or factor that determines the cost of your product. Enter the number of chargeable hours on the line "Chargeable Hours of Each Department," and in the proper department column. Total these hours and divide the amount of "Total Office Expense" by the total number of the chargeable hours. This will give AVERAGING MONTHLY COSTS 83 the hour cost of the office overhead, or the hour unit of office cost. Multiply the number of chargeable hours of each department by this unit which gives the amount of office expense to be charged against each department. Total these amounts and if this total is not the same as the total of the office expense, make such slight changes in the departmental amounts as may be necessary to make them agree. Now find the total department cost by adding the two amounts, in each departmental column, of "Total Department Cost Without Office Expense" and "Dis- tribution of Office Expense." This amount represents the total overhead, both shop and administrative. The hour cost of each department may then be found by dividing the "Total Cost of Departments" by the chargeable hours shown for each department. In finding the hour cost, if there is a fourth of a cent or more fractional remainder, add the full cent to the hour cost. If this work has been done correctly and no details of expense omitted, you will now have the accurate de- partmental hour costs in your own plant. These will enable you to fill out the Job Record summary of job costs with authoritative figures from which there can be no appeal. It will then only be necessary to add to the cost of a job whatever amount you consider to be necessary as a profit and thus get the selling price of the job. Average Hour Costs : When you have obtained the hour costs for the first month, in each of your depart- ments, they will be entirely reliable for use as a basis of obtaining your job costs and, consequently, the 84 THE PRACTICAL COST SYSTEM selling price of your product for the second month. When the hour cost has been obtained for the second month, we advise the averaging of the hour costs for the two months for use in figuring job costs during the third month. In getting the average hour costs for the two months do not add these hour costs together for each department and divide by two, as that will not give you the true average. This method is merely aver- aging averages and is not mathematically correct. The true way of obtaining the average hour cost is as fol- lows : Taking for example the department of hand composition, add together the total "cost of depart- ment" for the first and second months. Divide this amount by the total productive hours for the two months. The result will be the actual average hour cost for these two months. Do the same with each of the departments. At the end of the third month find, by the same method, the average hour cost for the three months. Repeat this process each month during the first year of the use of the system. You will then have your average hour costs for the preceding twelve months. At the end of the thirteenth month drop the figures representing the department cost and productive hours of the first month and in their place use the department cost and productive hours of the thirteenth month. At the end of the fourteenth month drop the same items of the second month and use those of the fourteenth month. Continuing this month by month, you will always have an average hour cost for the preceding twelve months. AVERAGE COVERS VARIATION 85 The reason for using these average hour costs is: That during some of the months of the year your pro- ductive hours may very materially fall off, thus largely increasing your hour costs for that month. During other months of the year you may be rushed with work and your productive hours will greatly increase which will make your hour cost for that month lower. You can readily see that if an active month is followed by a month of low production, that you will be losing money in using your low hour cost for making selling prices during the month of smaller production. The reverse of this is also true. By averaging these hour costs for a series of months, the Exceptionally high and the ex- ceptionally low monthly hour costs are both absorbed in the average hour costs. This gives an hour cost which is wholly safe to use in establishing selling prices for the product of your plant, as it covers all changes in production costs. This method of averaging the hour costs also provides for a gradual increase in cost caused by increase in labor cost, or an increase in material cost or in rent. It would also equally well provide against any reductions in the cost of doing business ; so that there will be neither a sudden increase in your hour costs nor a sudden decrease. While finding the average cost entails a little more work, it still amounts to but a few minutes each month, and it provides a measure of safety and protection, both for yourself and your customer, which renders it well worth while. CHAPTER IV PROFITS OR LOSSES The cost structure is now finished ; you have ascer- tained what the hour cost is in your own plant and by carefully studying the result, many leaks that appear can be traced and stopped. If the hour cost of a depart- ment seems too large, or is greater than the average in other plants, about the only known and practical remedy for that condition is to get more work for that department with a consequent increase of its pro- ductive hours. The hour costs found by the working of this Practical Cost System are absolutely accurate and correct under the existing conditions in your plant. The Right Price: A printer needs only deter- mination and backbone to get the right price for his work and be sure of a profit on all work done. What is a just profit? The general opinion is that 25 per cent of the cost is about right on the general run of work in the smaller plants. That means a one-fifth or 20 per cent net profit on the selling price. Profit and Loss: For a further statement of the details of the business, and to put on an extra finishing touch, we have added a "Statement of Profit and Loss/' FINDING PROFIT OR LOSS 87 This is a simple little form that is certainly an eye- opener. Illustration, cut number 11. All the job records that have been completed the previous month are taken and their amounts added and the total amount shown entered on the line provided. The total amount of advertising for the month is entered, then the total amount received on subscrip- tions. These, with miscellaneous receipts, which are not usual but may sometimes appear, are then totalled, which gives the total receipts or the gross amount of business done for the month. The total amount of the stock used for the month, including ink as shown by the job records, which will, of course, include the stock and ink used for the newspaper, is then deducted from the gross amount of business. This gives the gross profit, and from this must be deducted all the expenses as shown by total of column headed "Total Disburse- ments" in the statement of cost. The result will show whether you have made any real money or not. If you do not publish a newspaper, the part pertaining to it need not be taken into consideration. Another statement form is that of profit and loss as shown by job tickets. Every job record has a place for profit or loss. Add these items up as shown by the job records for the month, deduct the losses shown on the job records and you can easily see what the result is and whether the job end of the business has made a profit or a loss. To find whether you are making or losing money on your newspaper, take the job records showing the cost of your paper for the month, then figure the amount of your advertising, add the amount received on subscrip- 88 THE PRACTICAL COST SYSTEM tions to this and deduct the cost of producing the paper and you will then know whether the paper is a paying or losing game, and what you will have to do to make it pay if it shows a loss. The Newspaper: The printing of your newspaper should be like the printing of any other job in your office. A job ticket should be made for every issue, daily or weekly, and all the time used on the paper, and all the extras such as plate, ready-prints, editors' and reporters' salaries or the portion of the proprietor's salary for the time he may spend in editorial work should be charged directly to the job record. This will give the cost of the paper, issue by issue. It is not possible to run a system satisfactorily any other way, and you cannot get your correct hour costs without treating the newspaper just as though it were an out- side job. Paying Investment: If you will take the time to build your cost system and to keep its records accu- rately you will find it the best paying investment you ever made, for no work you can possibly do will bring you better returns for the time required and money invested. A Larger System: This system here described is especially suitable for the small and medium sized offices of ten or less shop employees, where the owner desires to operate a cost system without the need of calling in an expensive cost expert. In fact, the ser- vices of a cost expert are wholly unnecessary, for with this Practical Cost System, if the user will but give these instructions close study and proceed with the EXPERTS SOMETIMES WRONG 89 work step by step, as here indicated, he cannot fail to get the accurate hour costs for his shop. Large offices will probably find it a paying invest- ment to hire an expert, although this Practical Cost System, with the use of more and larger forms, can readily be installed and operated by anyone who has a fair knowledge of the principles underlying the science of cost-finding. A great many experts who do not thoroughly under- stand cost-finding work nor cost systems have entered the field and printers should be warned that incapable cost men do more harm than good. Should you desire to extend your knowledge of figuring and finding costs or to learn of short cuts, or to extend your knowledge of the principles involved, send for Mr. Forte's book "How to Figure Costs in the Printing Business." INDEX Page Advertising Hand Composition on 34 Machine Composition on 36 Of Business 76 Work number of 34 Alterations Authors' 34 Hand Composition, what are 34 Machine Composition, what are 35 Attached Folder Classification of 43 Feeder, as press assistant 41 Feeder, time of 41 Feeder, wage of 41 Automatic Feeder Classification of 41 Time on, how kept 41 Bindery Little used 12, 43 Binding 45 Classification of work 43-46 Expense, distribution of 81 Folder, attached, time on 41, 44 Folder, hand fed, time on 43, 44 Folding, hand 43, 44 Folding, machine 43,44 Inventory of 62 Work numbers of 43 Work of 43 Burden Diagram of 5 Elements of 6,48 Business Bad accounts in 74 Borrowed money for 78 Expansion, capital for .... 78 Profit or loss, found 86, 87 Changes Authors 34 On press 40 Chargeable Time Definition of 17, 48, 59 Distribution of 82, S3 Record of 55, 58 Classification Automatic fed jobber 41 Bindery 46, 47 Folder, attached 41 Folder, hand feed 41, 44 Paper cutter 4o, 63 Presses, cylinder 39, 41 Presses, platen 39, 41 Presses, proof 63 Clock Unit face for 1 Page Commissions Agents .76, 77 Disposition of 77 Newspaper, on 77 Composing Room Expenses, list of 80 Inventory of 63 Sink hole, was 32 Work numbers of 33 Work of 33 Composition Alterations 34, 35 Clean up, hand 87 Clean up, machine 38 Corrections : Non-chargeable 37 What are 37 Distribution: Non-chargeable 37 What is .27 Time of sa Time, guessing at 32. 33 Work of 33, 31 Cost of Departments, how found 81, 82 General relations 5 Handling stock 29 Labor hour 65 Job, relation to 4 Production 5, 18, 50 Statement of 59-82 Summary of 59 Cost Clerk Extending time 48, 49 Ring time, auto feeder 42 Ring time, bindery work 49, 52 Ring time, cylinders 49 Ring time, stock room 49 Ring time, linotype 38, 52 Cost Experts Mistakes of 66 Needless, this system 2, 88 Warning 89 Cost System Larger form 1, 88 Need of 1 Now in use 2 Paying investment 88 Custom of Trade Handling stock 29 Cutting Stock Combination, handling 31,32 Losses on 28, 29 Why chargeable 28 92 INDEX Page Cylinder Presses Classification of 41 Feeder, time on 40 Inventory of 63 Ringing time on 42, 49 Daily Time Ticket Accuracy of '. 14 A sales record 18, 20 Explanation of 20-26 Extension, time on 42, 47-8-9 Extension to hour record 55, 58 Improved form 24 Reason for 15, 17 Working of 20 Work numbers on 23, 26, 48 Delivering; Chargeable to office 27, 28 Chargeable to stock 31 Time ticket for 31 Departments Classification of . . 14, 25, 32-47, 55 Cost of, how found 81,82 Direct expense of . 80, 81 Labor cost of 6 5 Pay roll, summary of . . . G 4 Depreciation As replacement 72 Bases of 72, 73 Distribution of 74 Rate of 7^ Why used 72 Diagrams Expense relations 5 Job of printing, costs 3 Distribution Chargeable time 47, 48 Composing room 37 Department investment 62,63 Ditto, interest on 71, 72 Depreciation 74 Direct expense 80, 81 General expense 74-79, 81-85 Heat 66, 67 Insurance 71 Interest: On borrowed money 78, 79 On investment 71, 72 On purchase contracts 78, 79 Light 68 Miscellaneous expense 79 Office expense 74-79, 81-85 Pay roU 5, 6, 64 Power 5, 69 Rent 67 Selling expense 77 Spoiled work 75 Taxes 71 Page Efficiency Of employees 18 Of equipment 18, 19, 20, 33 Of management 18 Envelope Job. explanation of 9-13 Job, copy in 14 Expenses Direct department 80, 81 General 74-79 Miscellaneous 79 Office 74-79 Power, relation to 5 Experts Cost, mistakes of 66 Cost, needless 2,88 Cost, warning 89 Extending: Time On job record 50-54 On job tickets 47, 48 To hour record 55-58 Feeder Auto, press, time on 41, 42 Cylinder, time on 40 Folder, time on 41 Press assistant 40 Fly Sheet As job record 12, 50 Job ticket, part of 12 Kept in office 12 Folder Attached, time on 41 Inventory of 63 Separate, time on 43, 44 General Expense List of 74-79 Handling; Stock Cost of 29 Inventory 64 Losses of 29 Hour Cost Average 83-85 How found 83 Relation to newspaper 88 Inventory Installation cost, part of 62 Items of 63, 64 Present cost used 63, 64 Valuation bases 63, 64 Investment Amount, how found 62 Department 62, 63 Interest on 71 Valuation bases 62 Interest Distribution of 71, 72 Time burden 4,5 Use in cost system 4, 5, 71, 78 INDEX 93 Page Insurance Distribution of 71 Impression* Record of 39 Job Costs Diagram of 3 How found 50-54 Record of 50-54 Total of 52, 53 Job Envelope Description of 9 Fly sheet, part of 12 Simple form of 9-13 Use of 9-13 Job of Printing Diagram of 3 Progress in plant 3,4 Cost on 50-54 Job Presses Automatic fed 41 Classification of 39, 41 Inventory of 63 Job Record Advantage of 54 Form of 51 Profit and loss from 50-54 Time to 50-56 Use of 50 Job Register Description of 7,8 Job Ticket Explanation of 9-13 Labor Burden on 3,4 Cost of 4, 20 Cost of, to find 65 Hours, cost of 83 Supervision of 65, 66 Leaks and Losses Alterations 34 Bindery 43 Cutting stock 28 Guessing time 33 Handling stock 29, 30 Inefficiency of plant 29, 30 Proprietor, work of 6, 27 Spoiled work 75 Trimming 43 Wasted time 20 Light General expense only 68 Power from, wires 70 Newspaper Advertising job work 76 As a job 88 Commissions on 77 Direct expense on 77, 88 Profit or loss on, how found. . . .87, 88 Relation to hour cost 88 Page Non-chargeable Hours Burden on labor 4, 48T66 Not salable 59 Record of 48, 55-58, 68 Unavoidable 18 Office Expense Distribution of 74-79, 81-85 Office Work Delivery as 27, 28 Description of 26-28 Non-chargeable 42, 61, 62 Organizations Dues to 78 Necessity of 78 Overhead Administrative 5, 6, 74-79 Diagram of 5 Elements of 5,6 Office expense as 6, 74-79 Part of cost 6 Pay Roll Hour cost of 65,66 Office, disposition of 5, 6, 77 Proprietor on 5, 6, 65 Shop, distribution of 5, 64 Percentage Handling stock on 30 Wrong principle . . . 30 Plant Inventory Basis of value 62 Items of 63, 64 Power Distribution of 5, 69 Division of 68 From light current 70 From one motor 69,70 From gasoline engine 68, 70 Press Room Auto, feeder 41 Classification in 39-41 Inventory in 63 Number impressions 22 Production Cost Labor, relation of 66 Office expense part of 4, 5 Shop expense part of 4, 5 Profit and Loss Job work, how found 50-54 Newspaper, how found 87, 88 Summary of 86,87 Proofs Exception, chargeable 36 Pulling, non-chargeable 36 Reading, non- chargeable 37 Proprietor Salary of 6, 65 Shop work of 6, 27, 65 94 INDEX Page Record Chargeable hours 55-58, 66 Hours, extension to 55-58 Job record 50-56 Rent Distribution of 67 How to find 67, 68 Replacement Fund for 73 Why needed 72, 73 What it is 72, 73 Ringing Time Cylinder press 42, 49 Stock work 49 Type setting machine 49 Salaries General office 4, 5, 77 Proprietors 4, 5, 77 Stock Room Cutting, cost of 28, 31, 32 Delivery, work of 31 Handling stock 29, 31, 32 Unpacking and shelving 31 Page Summary of Cost Job record 54 Plant, total of 59 Time Burden on 4 Chargeable 55 Element of cost 18 Non-productive 18 Unit of 15, 16 Time Ticket Explanation of 14 Illustration of 19, 21, 23 Reason for 15,17 Working of 20 Type Setting Machine Cleaning 33 Inventory 63 Power, to find 70 Work, Classes of Bindery 26, 43-47 Composing room 25, 33-37 Office 26, 27 Stock room 25, 26-32 Work numbers 25, 26 RSTTY OF CALIFORNIA LIBRARY, BERKELEY THIS BOOK IS DUE ON THE LAST DATE STAMPED BELOW Books not returned on time are subject to a fine of 50c per volume after the third day overdue, increasing to $1.00 per volume after the sixth day. 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