Job costing - setting up

What follows is our recommendation for how to allocate your costs in Printpak.  It is broadly based on the BPIF recommendations for absorption costing. It can be a time consuming process. You may prefer to ignore it until you become more familiar with the rest of the system.  Job Costing is not essential to Printpak's running, though we strongly advise it.  In its simplest form you could even get away with costing just a 10 percent sample of your jobs, and still have a good idea of your quote accuracy. (Try recording actual times taken and stock used for jobs whose job number ends in 0.)

If you want to proceed, there are a few preliminary tasks required

The first is to take a piece of paper or a spreadsheet, head it 'All Costs', and record estimated totals for EVERY item of expenditure which your company makes in the average year. It will include a wide variety of things  such as paper, ink, rent, rates, heating, pension scheme, wages, loan repayments, depreciation, etc etc.  .       

Then take 3 more sheets, and head them Direct Internal Costs, Direct External Costs, and Indirect Costs.  Now divide the items on the ALL COSTS sheet between the three new sheets.  Some items can be copied in their entirety, while others have to be subdivided.

For example, a secretary's wages are all indirect (he/she does not work directly on a job), and a press operator's wages are all direct (his/her time is directly chargeable to the customer).

On the other hand, rent, for example, is more complicated.  As a proportion of your building is taken up for the 'Direct' staff (Operators, Typesetters, etc) and 'Direct' machinery (presses, guillotine, platemaking equipment, etc.), so the same proportion of the total rent should be allocated to Direct Internal Costs, spreading it over the costs of plant and employees, in proportion to the space taken.

The same goes for rates, heating, lighting, etc. The balance, in each case, should be put in the Indirect Costs sheet..      

So, to re-cap, direct external costs will be paper, board, ink, comb binders, etc., and also all outwork, direct internal costs will be all the costs you have been able to assign to your machines, presses and directly chargeable personnel, and indirect costs are.all those things which you can't assign to an individual 'direct' person, machine and the residual portion of those things which you can only partly assign.

When you have finished the task, you have yearly totals, which need dividing by 12 to arrive at average monthly totals.  Under Direct Internal Costs you should have, for each direct employee and item of plant, a total which includes his/her/its total cost.  This figure should include a realistic share of the other miscellaneous costs which you have included on this sheet.

Now, in Resource management, select each press in turn and select the costing tab and enter the total budgeted cost of that press per month and an estimate of how many hours you estimate you can charge it out to your customers in the average month.  For now, set the 'absorbed cost' field to zero - we'll come to that in a minute. Save your changes. Now do the same for each of your  'Other machines' which are directly chargeable - feel free to delete any of the examples we provide and add your own.  Lastly, repeat the whole process for for each of your directly chargeable employees in Personnel costs.        

OK - we are nearly there now.  In the System Configuration menu, run the Cost Absorption program, which will require you to enter your indirect total and totals for your direct externals (Paper, Services, Deliveries, and Other) and which will 'absorb' the indirect costs by spreading them pro-rata over your direct costs. These 'absorbed' parts of your plant and personnel costs may be further adjusted by hand (with care!).

The results of this operation can be surprising, and even a little alarming. You may have been subsidizing that new expensive press heavily by charging a relatively higher markup on the work of an older, cheaper press.

Whatever the result, DO NOT MAKE ANY IMMEDIATE CHANGES TO YOUR PRICING. Think things over. Consult your accountant perhaps. Don't forget that your business has run and is still running OK without this information! It's not that we don't trust the use of computers in costing exercises; it's just that fine tuning can take a little time and needs to be tempered with experience.

DON'T begin to use the Job Costing program until you have entered actual hourly cost rates for Employees, Presses and other machines.       

Entering the actual costs and times

If you record the actual times taken and consumables used on the jobsheet, you can use it, or alternatively your own internal time sheets and stock requisition forms, to feed back your shopfloor data into PrintSum's powerful Job Costing module.

Alternatively, a screen on the shop floor will allow employees to record times and usages directly through Shop floor data capture.