“Develop success from failures. Discouragement and failure are two of the surest stepping stones to success.”
Costing and Estimate
Unit - 1
INTRODUCTION
Indian federation costing system: the federation costing system often referred to as ‘FCS’ was enforced by the British federation of master printers in 19113 and was made applicable to all members of the federation. The federation constituted a committee to formulate a standard system of costing for its members in order to eliminate unhealthy competition among the member printers and to give a high status to the printing industry. The costing system proposed by the federation was initiated by Mr. Arthur C. Robbert, the auditor of the federation.
The Indian printers followed the British federation costing system without much modifications. They followed the some forms and proformas which were used by the printer in British with the inception of all India federation of master printers for the same purpose in India, these proformas have been revised from time to time but the basic principles have remained unchanged.
To-day we have large number of local printers associations almost in all the big towns e.g. Bombay master print association west Bengal printers association, Karnataka printers association etc. the all India federation of master printers looks after the interest of the printers at all India level, whereas the local associations deal with the local problem of the member printers.
Importance of costing and estimating in the printing industry/Principles of federation costing system:
1. Management is an item of expenses.
2. Interest on capital made use of during the year must be included in the cost of the business.
3. The cost of buying, selling, handling and transporting direct job material and outwork must be ascertained.
4. Before attempting to distribute element comprising the cost of the business to jobs, they must first be equitable allocated to each of the productive department.
5. Department management of all kinds must be allocated to each as the productive department in proportion to the sum of its productive wages plus direct department expenses, that is element no 1,2,5, and 8.
6. Indirect department expenses must be allocated to each of the productive department in proportion to the sum of its productive wages plus direct department expenses.
Definition cost, price and Profit
Definition of cost: it is the sum total of all liabilities, that is, expenses actually incurred in the production of a job or in rendering a service.
a. Cost is actual and factual by nature.
b. Cost is authentic.
c. Cost is relative to a person or a business.
d. Cost can only by worked out when the job has already been produced.
Profit: it is a reward for the rise some by an entrepreneur in organizing and running a business. A businessman will organize and run a business only when there is a reasonable return in the business against the risk borne by him. This is also called “profit”.
a. Profit is a reward for the risk borne in the business.
b. Profit is an opinion depending upon the “judgement of a businessman”.
c. Nature of business.
d. Nature of competition.
e. Extent of physical risk involved in the business.
Price: price is a remuneration against which a businessman is prepared to sell an article or a service to a customers. It is usually in terms of monthly.
a. Price is a contract - verbal or written.
b. Price is a plan of the job to be undertaken.
c. Price is quoted before a job is undertaken or before a service has been rendered.
d. Price is a policy.
P = C + PT
P = price, C = cost, PT = profit.
Cost is fact because it is total expenditure incurred.
Profit is opinion because it depends upon the individual judgement.
Price is policy because it is being used as a tool in the competition.
Difference between costing and estimating and their relationship
Relation between costing and estimating:-
1. Unit is common i.e. hourly rate (H.R) which is equal to the rate for 1 chargeable hour of work.
Costing indicates actual hour of work whereas estimating indicated anticipated hours of work done.
2. Costing provides basis for estimating done on the basis of hourly rate, output records and other datas furnished by the costing.
3. Correctness in estimating depends upon costing, because the data is given by costing.
4. Costing and estimation co-ordinate with each other.
ESTIMATE
Definition of estimate: it is the technique of assessing the sale price of a job or a service scientifically. In other words, it is forecast. It is only a probability or hypotheses and not anything, actual or factual. Estimating is also primarily concerned with the manufacturing processes involving a large number of item of expenditure.
Estimating is also termed as advance costing or standard costing. Advance costing means, costing done before the job has been undertaken.
Some steps of estimating:
a. Ascertain the directly chargeable operations.
b. To assess the time which is likely to be spent in the carrying out of each and every operations.
c. The hours likely to be spent in each and every operations.
d. To add the cost of directly chargeable materials like paper, binding and covering material and labour cost of job.
e. The last step is to add profit as per the policy laid down by management.
Purpose and function of estimating: it is the estimating is essential from both printer as well as customer’s point of view. The following step in the estimating.
a. To get the job.
b. To plan the job.
c. To exist in competition.
d. To determine the fair-price.
e. To check the cost records.
Customer’ point of view:-
a. To place the order.
b. To plan the production of job.
c. To get educated during the process of printing.
Relationship between Costing and Estimating
🔹 Relationship:
Purpose and Function of Costing
Purpose:
Functions:
Purpose and Function of Estimating
UNIT-2
Fixes cost, variable cost and total cost and unit cost and their inter-relationship:-
The all expenditure divided into two categories.
a. Fixed cost: it is a cost which has no direct relationship with the number of copies of the publication produced. It remains constant irrespective of the quantum of output.
Fixed cost would be incurred even if no copies were printed finally. For ex- expenditure has to be incurred on activities (1) and (5) even for providing rough proofs of the job.
The is 14,000 for used @30,000 but the unit fixed cot decrease with every increased in output because in that case, it is divided among the number of copies printed. The unit fixed cost increase with every decrease in output is shown graphically.
b. Variable cost- the variable cost vary in direct proportion to output. They generally increase or decrease in the same proportion in which the output increase or decrease. For ex-the expenditure on items. (6) and (8) given on first page of the chapter will change only if there is any change in the print run.
Variable cost are also referred to as product costs and these remains constant per unit of output.
c. Unit cost: the unit variable cost curve is in the form of a straight line parallel to x-axis and indicates that same. Some people do not agree with this because they claim that when large quantity of any product is produced.
Unit cost = total fixed cost + total variable cost / no. of copies produced.
How to estimation:-
a. Printing processes.
b. Production sequence.
c. Printing machine & equipment.
d. Production data.
e. Production cost ex - cost of paper.
f. Outwork information – work from outside.
g. Availability of material
COST ANALYSIS:
Classification of cost: The different bases of cost classification are:
1. By time (Historical, Pre-determined).
2. By nature or elements (Material, Labour and Overhead).
3. By degree of traceability to the product (Direct, Indirect).
4. Association with the product (Product, Period).
5. By Changes in activity or volume (Fixed, Variable, Semi-variable).
6. By function (Manufacturing, Administrative, Selling, Research and development, Preproduction).
7. Relationship with accounting period (Capital, Revenue).
8. Controllability (Controllable, Non-controllable).
9. Cost for analytical and decision-making purposes (Opportunity, Sunk, Differential,
Joint, Common, Imputed, Out-of-pocket, Marginal, Uniform, Replacement).
10. Others (Conversion, Traceable, Normal, Avoidable, Unavoidable, Total).
Classification based on Time
i. Historical Costs: These expenses are determined after the fact. Such expenses are only available once the production of a given item has been completed. They are objective and verifiable through reference to actual operations.
ii. Pre-determined Costs: These costs are calculated in advance based on a specification of all cost-influencing factors. Such fees may include:
a. Estimated costs: Costs are estimated prior to the production of items; naturally, these are less precise than standards.
b. Standard costs: This is a specific notion and method. This strategy entails: • establishing established criteria for each element of cost and each product; • comparing actual to standard to identify deviations; • pinpointing the causes of such deviations and taking corrective action; and • implementing corrective measures. Obviously, standard costs, though pre-determined, are arrived with much greater care than estimated costs.
Classification by Nature or Elements
There are three broad elements of costs:
(1) Material: The substance from which the product is made is known as material. It can be direct as well as indirect.
Direct material: It refers to those materials which become a major part of the finished product and can be easily traceable to the units. Direct materials include:
(i) All materials specifically purchased for a particular job/process
(ii) All material acquired, and latter requisitioned from stores
(iii) Components purchased or produced.
(iv) Primary packing materials like cartoons and boxes
(v) Material passing from one process to another
Indirect material: All material that is used for purposes ancillary to production and which can be conveniently assigned to specific physical units is termed as indirect materials. Examples, oil, grease, consumable stores, printing, and stationary material etc.
(2) Labour: Labour cost can be classified into direct labour and indirect labour.
Direct labour: It is defined as the wages paid to workers who are engaged in the production process whose time can be conveniently and economically traceable to units of products. For example, wages paid to compositors in a printing press, to workers in the foundry in cast iron works etc.
Indirect labour: Labour employed for the purpose of carrying tasks incidental to goods or services provided, is indirect labour. It cannot be practically traced to specific units of output. Examples, wages of store-keepers, foreman, time-keepers, supervisors, inspectors etc.
(3) Expenses: Expenses may be direct or indirect.
Direct expenses: These expenses are incurred on a specific cost unit and identifiable with the cost unit. Examples are cost of special layout, design or drawings, hiring of a particular tool or equipment for a job; fees paid to consultants in connection with a job etc.
Indirect expenses: These are expenses which cannot be directly, conveniently and wholly allocated to cost centre or cost units. Examples are rent, rates and taxes, insurance, power, lighting and heating, depreciation etc.
It is to be noted that the term overheads has a wider meaning than the term indirect expenses. Overheads include the cost of indirect material, indirect labour and indirect expenses. Overheads may be classified as
(a) Production or manufacturing overheads, (b) administration overheads, (c) selling overheads, and (d) distribution overheads.
The various elements of cost can be illustrated by the following chart
Total expenditure may therefore be analysed as follows:
Materials cost = Direct materials cost + Indirect materials cost
+ + +
Labour cost = Direct labour cost + Indirect labour cost
Expenses = Direct expenses + Indirect expenses
________________ ___________________ ___________________
Total cost = Direct cost/prime cost + Overhead cost
Classification by Degree of Traceability to the Products
Cost can be distinguished as direct and indirect.
Direct Costs: The direct costs are those which can be easily traceable to a product or costing unit or cost center or some specific activity, e.g. cost of wood for making furniture. It is also called traceable cost.
Indirect Costs: The indirect costs are difficult to trace to a single product or it is uneconomic to do so. They are common to several products, e.g. salary of a factory manager. It is also called common costs.
Costs may be direct or indirect with respect to a particular division or department. For example, all the costs incurred in the Power House are indirect as far as the main product is concerned but as regards the Power House itself, the fuel cost or supervisory salaries are direct. It is necessary to know the purpose for which cost is being ascertained and whether it is being associated with a product, department or some activity.
Direct cost can be allocated directly to costing unit or cost center. Whereas In-direct costs have to be apportioned to different products, if appropriate measurement techniques are not available. These may involve some formula or base which may not be totally correct or exact.
Classification by association with the Product
Cost can be classified as product costs and period costs.
Product Costs: Product costs are those which are traceable to the product and included in inventory values.
In a manufacturing concern it comprises the cost of direct materials, direct labour and manufacturing overheads. Product cost is a full factory cost. Product costs are used for valuing inventories which are shown in the balance sheet as asset till they are sold. The product cost of goods sold is transferred to the cost of goods sold account.
Period Costs: Period costs are incurred on the basis of time such as rent, salaries, etc., include many selling and administrative costs essential to keep the business running. Though they are necessary to generate revenue, they are not associated with production, therefore, they cannot be assigned to a product.
They are charged to the period in which they are incurred and are treated as expenses.
Selling and administrative costs are treated as period costs for the following reasons:
(i) Most of these expenses are fixed in nature.
(ii) It is difficult to apportion these costs to products equitably.
(iii) It is difficult to determine the relationship between such cost and the product.
(iv) The benefits accruing from these expenses cannot be easily established.
The net income of a concern is influenced by both product and period costs. Product costs are included in the cost of the product and do not affect income till the product is sold. Period costs are charged to the period in which they are incurred.
Consider a retailer who acquires goods for resale without changing their basic form. The only product cost is therefore the purchase cost of the goods. Any unsold goods are held as inventory, valued at the lower of purchase cost and net realisable value and included as an asset in the statement of financial position. As the goods are sold, their cost becomes an expense in the form of 'cost of goods sold'. A retailer will also incur a variety of selling and administration expenses. Such costs are period costs because they are deducted from revenue without ever being regarded as part of the value of inventory.
Now consider a manufacturing firm in which direct materials are transformed into saleable goods with the help of direct labour and factory overheads. All these costs are product costs because they are allocated to the value of inventory until the goods are sold. As with the retailer, selling and administration expenses are regarded as period costs.
Classification by Changes in Activity or Volume
Costs can be classified as fixed, variable and semi-variable cost.
Fixed Costs: The Chartered Institute of Management Accountants, London, defines fixed cost as
“The cost which is incurred for a period, and which, within certain output and turnover limits, tends to be unaffected by fluctuations in the levels of activity (output or turnover)”.
These costs are incurred so that physical and human facilities necessary for business operations, can be provided. These costs arise due to contractual obligations and management decisions.
They arise with the passage of time and not with production and are expressed in terms of time.
Examples are rent, property taxes, insurance, supervisors’ salaries etc.
It is wrong to say that fixed costs never change. These costs may vary depending on the circumstances. The term fixed refers to non-variability related to the relevant range. Fixed cost can be classified into the following categories for the purpose of analysis:
(a) Committed Costs: These costs are incurred to maintain certain facilities and cannot be quickly eliminated. The management has little or no discretion in this cost, e.g., rent, insurance etc.
(b) Policy and Managed Costs: Policy costs are incurred for implementing particular management policies such as executive development, housing, etc. Such costs are often discretionary. Managed costs are incurred to ensure the operating existence of the company e.g., staff services.
(c) Discretionary Costs: These are not related to the operations and can be controlled by the management. These costs result from special policy decisions, new research etc., and can be eliminated or reduced to a desirable level at the discretion of the management.
(d) Step Costs: Such costs are constant for a given level of output and then increase by a fixed amount at a higher level of output.
Variable Cost: Variable costs are those costs that vary directly and proportionately with the output e.g. direct materials, and direct labour. It should be kept in mind that the variable cost per unit is constant but the total cost changes corresponding to the levels of output. It is always expressed in terms of units, not in terms of time.
Management decisions can influence cost behaviour patterns. The concept of variability is relative. If the conditions upon which variability was determined change, the variability will have to be determined again.
Semi-fixed (Semi-Variable) costs: Such costs contain fixed and variable elements. Because of the variable element, they fluctuate with volume and because of the fixed element; they do not change in direct proportion to output. Semi-variable costs change in the same direction as that of the output but not in the same proportion. Depreciation is an example; for two shifts working the total depreciation may be only 50% more than that for single shift working. They may change with comparatively small changes in output but not in the same proportion.
Functional Classification of Costs
A company performs a number of functions. Functional costs may be classified as follows:
(a) Manufacturing/production Costs: It is the cost of operating the manufacturing division of an undertaking. It includes the cost of direct materials, direct labour, direct expenses, packing (primary) cost and all overhead expenses relating to production.
(b) Administration Costs: They are indirect and covers all expenditure incurred in formulating the policy, directing the organization and controlling the operation of a concern, which is not related to research, development, production, distribution or selling functions.
(c) Selling and Distribution Cost: Selling cost is the cost of seeking to create and stimulate demand e.g. advertisements, market research etc. Distribution cost is the expenditure incurred which begins with making the package produced available for dispatch and ends with making the reconditioned packages available for re-use e.g. warehousing, cartage etc. It includes expenditure incurred in transporting articles to central or local storage. Expenditure incurred in moving articles to and from prospective customers as in the case of goods on sale or return basis is also distribution cost.
(d) Research and Development Costs: They include the cost of discovering new ideas, process, Products by experiment and implementing such results on a commercial basis.
(e) Pre-production Cost: When a new factory is started or when a new product is introduced, certain expenses are incurred. There are trial runs. Such costs are termed as pre-production costs and treated as deferred revenue expenditure. They are charged to the cost of future production.
Element of cost: cost has been defined as the sum total of all expenses incurred in the production of a job. The element of cost mean the contituents of cost. That is, of what the cot is made of. In other word, the element of cost are the broad classification or the heads under which various item of expenditure incurred in the production are classified.
Note: material & outwork and expenses/overheads have also been designed accordingly.
1. Labour: labour is a remuneration paid to the workers directly engaged in the production process and the services of whom can be measured in term of money.
Labour is a remuneration.
This labour is paid to the workers only.
The workers must be directly engaged in the production processes.
These are only those services of worker which can be measured in term of money.
According to the above analysis: wages paid to the plate maker or a camera operator is a labour. On the other hand, the salary paid to a manager or a supervisor is not a labour.
The wages paid to a plate maker and salary paid to a manager both are remunerations.
Plate maker is a worker, while the manager is not a worker.
Plate maker is actually engaged in the production, while a manager simply supervises or controls the production.
The work of plate make can be measured in term of money that is, a time rate or work rate can be found out for evaluating the work done by the plate maker.
a. Direct chargeable labour: it is that labour which can be directly charge in the bill of the customer for reasons of convenience and tradition. Like – typesetting, make ready.
b. Indirect chargeable labour: it is that labour which cannot be charge in bill of the customer directly for reasons of convenience and tradition. Like letterpress composed matter, graining of offset plates, proof-reading. It is two types.
1. Direct department labour: it is that labour which cannot be charge in the bill of the customer directly but can be charged to the account of a productive department of the press completely. Like proof reader, distributor.
2. Indirect department labour: it is that labour which can neither be charged in the bill of customer nor can it be charged to the account of department cost of a productive department of the press ex: mason, carpenter, mechanic, electrician etc.
2. Material and outwork: material are such raw goods which are neither converted into finished products or are consumed completely or partly during the manufacturing process. Ex: in a printing press, paper is converted into books, pamphlets, brochures and nitric acid for etching during letterpress block.
Outwork:- it is work or a part of the work contracted by the printer but got executed by him from the outside agencies for and on behalf of his customer mainly because the ‘facilities’ or the same are not available in his own premises. Ex: designing, block making, scanning.
a. Directly chargeable material & outwork: these are the materials and works which can be charge in bill of customer directly charged in the bill of customer directly or individually for reasons of convenience and tradition. Ex: paper.
b. Indirect chargeable material & outwork: these are those material and outwork which cannot be charged. Ex: proof paper, generally make ready sheets, kerosene oil, chemicals, mobile-oil. These are two types.
1. Direct departmental material & outwork: these are the material and outwork which cannot charged. Ex: chemicals.
2. Indirect departmental material & outwork: these are such material which can neither be charged to the customer directly nor the account of any one productive department. Ex: waste rags, old dhotis, mobile oil, kerosine oil.
3. Expenses or overheads: expenses means spending which have been incurred during the manufacturing process and have not been covered the first two primary element of cost. They may be included managerial expenditure, establishment expenditure, rent, rates, taxes, depreciaton.
a. Directly chargeable expenses & overheads: this is directly chargeable. Ex: packing & forwarding, custom duty, sales tax, insurance postage, freight etc.
b. Indirectly chargeable expenses & overheads: this is cannot chargeable. Ex; interest, depreciaton, telephone, electricity, salary to manager.
1. Direct departmental expenses & overhead: these are cannot charged. Ex: depreciaton is a direct departmental expenditure.
2. Indirect departmental expenses & overheads: these are those expenses which can neither be charged in the bill of customer directly nor can be these be charge to departmental account of any productive department individually. Ex:-electricity, telephone charge, salary to manager etc.
Stages of federation costing system: the terms “stages of federation costing system” means the different steps at which the federation costing system can be enforced. The scale of business varies from trade to trade. In the printing industry, this scale varies from a one man show to a very large organization employing thousand of people. Each step of the federation costing system is, suitable for application in a particular size of the press.
According the federation costing system, three section divided.
a. Small scale presses:- number of employee is upto ten only
b. Medium scale presses: number of employs upto 100 and above 100 respectively.
c. Large scale presses: number of employs upto 100 and above 100 respectively.
In small scale presses, the number of employee is upto ten only while in the medium and large scale presses, the number of employs upto 100 and above 100 respectively. These have been further sub-divided into two group each for ease in the proper implementation of the recommendations of the federation costing system.
The federation costing system has recommended certain forms and proformas for use in presses depending upto their size and scale of business. These proformas help the management of the press to perform its various activities efficiently, scientifically and correctly. A small scale press can neither efforts to use all the forms and proformas recommended by the federation costing system nor it is desirable.
Stages of federation costing system
1. Small scale presses
2. medium scale presses
3. large scale presses
Industries:
There are three types of industries:
A. Small scale industries:
a. One man show
b. (1-10 employees).
c. Calculation standard rates according to local printers associations.
B. Medium scale industries:
a. More than 10-50 or 100 employees.
b. Standard rates according to market.
C. Large scale industries:
a. More than (100-500 employees).
b. Standard rates according to quality.
Foundations of costing system: on what basis costing depends found of actual cost scientific calculation.
Aim of object of costing:
a. It must provide actual cost of production.
b. Good recovery.
c. Indicates standard unit cost.
d. Elimination of waste, in efficiency.
e. It must provide the forms and proformaes with which cost can be calculated.
f. It must help in laying down a standard press routine.
Types of costing system: two types
1. Time rate system: the system is based on time i.e. hourly rate system.
Planning pre-press press post-press dispatch.
Advantage:
a. It is very accurate, scientific, actual & factual.
b. Quality control.
c. Greater security to man power & equipment.
d. No dispute regarding payment.
2. Work rate system: it is a contract system.
a. It offers inventive to efficient workers.
b. Fair for employer & employees.
c. No payment for waste time.
d. Doesn’t require close supervisor of the job.
e. It is simpler than time rate.
f. It can be managed easily.
Foundation of costing system:
1. Departmentalization: to categorize the productive & non-productive department.
Production department is direct charged. Ex: production department.
2. Allocations of expenses: the cost of productive department is covered by customer.
The non-productive department expenses will be beared by productive department.
3. Recovery of expenses: the method of extracting the expenses of each and every department is called recovery.
4. Indirect department cost: the staff which is involved directly.
5. Direct cost: the staff which is involved indirectly.
6. Chargeable hours: it contains direct chargeable hour & indirect chargeable hour.
Direct chargeable hour: direct operations, printing, pre-press.
Indirect chargeable hour: indirect chargeable hours, non-productive hours, travelling.
7. Unit of cost: direct chargeable hour + indirect chargeable hour / hour rate.
Fixed cost: press, press, platemaking.
Variable cost: varies in proportion to output.
Total cost: fixed cost + variable cost.
Fixed cost & variable cost: the cost of any publication is the total of all expenses incurred in its production including the expenditure on activities performed by the specialists. In some of the printing jobs, some activities may not be got executed through the specialists in order to reduce the overall cost of production.
a. Editing manuscript and preparation of the press copy.
b. Designing of text and cover including and artwork.
c. Typesetting
d. Processing and color separation.
e. Surface preparation.
f. Printing by a particular process (machine).
g. Binding and finishing.
h. Cost of paper.
Definition of costing: costing is the technique of finding out the actual cost of production of a job a service scientifically, in other words, it is a method of finding out the actual cost of production in accordance with some scientific principles of costing. In order to organize and run a business, a reasonable profit over and above the actual cost must be recovered. It is therefore, essential to know the actual cost of production of a job. The role of costing it is used principle to all calculation are easy.
Purpose and function of costing: the purpose and function of costing means the role of costing, planning, organizing, and executive manufacturing processes.
a. Cost finding: it is one of the important functions of costing cost finding means, finding out the actual cost of production of a job or a service scientifically in accordance with the principles of costing. Actual cost of production of each job is desired to be worked out for the following main reasons.
1. To compare the actual cost with the estimated cost in order to across the overall profit or loss.
2. To find out waste and in-efficiency in the plant and to formulate remedial measure.
3. To compile output or production records on the basis of jobs executed in the past.
4. To enforce budgetary control.
5. To provide data for the determination of hourly rates.
6. To find out the correctness of hourly rates charged in the estimates, and
7. To ascertain, how economical a particular process of production is.
b. Cost reduction: costing helps is reduce the cost of production of future jobs by suggesting the most economical modes of production. Costing reveals the item of excessive cost, waste of material inadequate output, un-economic operation etc. in case is reveated that excessive time and labour is being spent on the transportation of printed paper from printing department to binding department in a press, alternate and most economic method of transporting the some will be considered and implemented.
c. Cost control: costing helps in controlling the cost of production of current jobs in progress during the course of production as well as that of the future jobs. Diagram
It is noticed that the actual cost of typesetting has crossed the estimated cost of typesetting, the cost in the other department for ex: processing, plate making, printing etc.
The cost of production of all future jobs can be controlled by analysis the cost records of previous jobs.
The cost of production has to be increased in a controlled manner in order to produce better quality product. This phenomenon is also known as “cost control”.
d. Budgetary control: costing helps in maintaining budgetary control its comprehensive form. Control of budget is essential in financial control, cost control, sales control, production control and quality control.
A mathmatical and scientific routing of costing helps in maintaining all these controls.
e. Determination of fair price: costing helps to maintain and determine fair price through estimate. In order to organize and run any business successfully for a long time, the price charged from the customer must be fixed and reasonable.
A reasonable price has to be based on a correct anticipated cost and on a reasonable margin of profit.
f. Determination of hourly rate: the determination of hourly rate is a primary function of costing. These rates are applied in costing as well as in the estimating of future jobs. The calculations for the finding out the hourly rates are based on the following formula.
Hourly rate = Direct department expenses + indirect department expenses
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Directly chargeable hours
Breakeven analysis: Though many believes that there is no difference in CVP analysis and Break even analysis and they refer to same concept others believe that CVP is a broader term and include Break even analysis But if we carefully observe concepts used in them we can say that Break-even analysis is a actually a method to apply the CVP analysis in decision making process by including many more related concepts into it.
Breakeven point:
Break-even point is production and sales level where there will be no profit and loss i.e. total cost (TC) is equal to total sales revenue (S) Or Sales = Total Fixed Cost + Total Variable cost & Profit = 0
Break-even Point can be calculated both in units and Rs. When calculated in Terms of Rs. It is also referred as Break even sales.
Let us calculate Break-even point for the given set of data we used in CVP analysis above
Breakeven point (in units) = BEP = Fixed costs
Contribution per unit
So For given set of values Break Even Point = (4000/2) = 2000 units
We can Cross check this by simple calculations
Suppose we produce 2000 units and selling price is 5 per unit so total sales 10000
Variable cost @ 3 per unit will be (2000 *3) = 6000 so contribution will be 4000 and fixed cost given is 4000 so profit will be 0
3. Break even Point (in Rs.) = BES = Fixed cost X Sales per unit
Or BEP in units * Selling Price per unit or Fixed Cost
P/v ratio
In our example BES = 2000 * 5 = 10000 Rs. Or 4000/40% = 10000 Rs.
Lets see few other related concepts which further help in decision making
Break Even Point With Desired Profits: BEP with DP (in units)
Since no business entity would like to settle at Break-even point, their main objective of existence is to earn profit for shareholders or owners so it makes sense to calculate particular level of units to be produced and sold to earn desired profits.
4. BEP with DP (in units) = Fixed cost + Desired profit
And following the same concept which we discussed for BEP in Rs., BEP with desired profit in Rs can also be calculated in similar manner
5. BEP with DP (In Rs) = BES with DP = Fixed cost + Desired profit x Sales per unit
Or BEP with DP in units * Selling Price per unit
Or Fixed Cost + Desired Profit
P/V ratio
Let us assume in our example shareholders have given a target of Rs. 24000 Profit to be earned
So BEP with DP in Units = (4000 + 24000)/2 = 14000 units
BEP with DP in Rs. = 14000 *5 = Rs.70000 or (4000 + 24000)/40% = Rs. 70000
This can be verified with following calculations
Production
14000 units
Sales @5 per Unit
70000
Variable cost Per unit @3 per unit
42000
Contribution @2 Per unit
28000
Fixed Cost
4000
Profit
24000
So it can be clearly observed that by producing and selling 14000 units. The revenue will be
Rs. 70000 and a profit of Rs 24,000 is expected be achieved.
Margin of Safety (MOS):
Margin of safety is the difference between actual sales and Break even sales. It can be expressed in absolute terms or as a % of Actual sales
6. MOS (Absolute) = Actual Sales – Break Even Sales
MOS Can also be calculated with following Formula
MOS = Profit/P/V ratio
7. MOS (%) = MOS/ Actual sales
So in our example, if we calculate Margin of Safety for 2nd year it will be
MOS (Absolute) Actual Sales- BES = 40000-10000 = Rs 30000
MOS = 12000/40% = Rs.30000
MOS (%) = MOS/Actual Sales = 30000/40000 = 0.75 or 75%
Let us see with few more examples that with the minimal information given how we can calculate all these components which will help in decision making process to a great extent
Example 3 Homemakers Pvt Ltd. gives you following data
Particulars
Amount in Rs.
Sales 500000 units
15,00,000
4,50,000
3,00,000
You need to find BEP, MOS
Solution:
Since all marginal costing concepts revolve around contribution and P/V ratio lets first calculate that
Contribution = Fixed Cost + Profit
= 4,50,000 + 3,00,000 = 7,50,000
P/V Ratio = (Contribution/Sales)*100
= (7,50,000/15,00,000)*100 = 50%
BEP in Rs (In Sales) = Fixed Cost / P/V ratio
= 4,50,000/50% = 9,00,000
BEP in Units = BEP in sales/ Selling Price per unit
= 9,00,000/3 = 3,00,000 units
(Note: Selling price per unit = sales/ no of units = 15,00,000/5,00,000 = 3 per unit)
Margin of Safety (in Rs.) = Actual sales – Break even sales
= 15,00,000 - 9,00,000 = Rs. 600000
Margin of safety (in %) = MOS/ Actual Sales
= 6,00,000/15,00,000 = .0.4 or 40%
Angle of Incidence
The angle which the Total Sales Line makes with the Total Cost Line is known as the Angle of Incidence.
The angle indicates the profit-earning capacity of the company over the break-even point. A large angle of incidence indicates a high margin of profit and a mall angle of incidence indicates earning of low margin of profit.
Let us see with a few more examples that with the minimal information given how we can calculate all these components which will help in the decision-making process to a great extent.
Example 4 Mrs Anju is running a business named “AHAAR” for supplying packed foods to nearby offices. She supplied you the following information and ask for answers to few questions.
Answer the following:
1. P/V ratio
2. Variable cost for year 1
3. Fixed Cost
4. BEP
5. Sales to earn a Profit of Rs 6,00,000
6. Profit When sales are 50,00,000
7. MOS for a Profit of 6,00,000
1. P/V ratio = (Change in Profit/ Change in Sales)*100
= (2,00,000/10,00,000)*100 = 20%
2. Variable cost in 1st year = Sales - Contribution
Contribution in year 1 = Sales *P/V ratio
= 20,00,000* 20% = 4,00,000
Therefore Variable cost = 20,00,000 - 4,00,000 = 16,00,000
3. Fixed Cost = Contribution – Profit
= 4,00,000 – 2,00,000 = Rs 2,00,000
4. BEP = FC/ P/V ratio
= 2,00,000/20 % = 10,00,000
5. Sales to earn a profit of 6,00,000
BEP with DP = (FC +DP)/ P/V ratio
= (2,00,000 + 6,00,000)/20%
= Rs. 40,00,000
6. Profit when sales are 50,00,000
Contribution = Sales * P/V ratio
= 50,00,000*20%
= 10,00,000
Profit = Contribution – fixed cost
= 10,00,000 – 2,00,000 = Rs. 8,00,000
7. MOS for a profit of 6,00,000MOS = Profit/ P/V ratio
= 6,00,000/20%
= 30,00,000
Cost-Volume-Profit Analysis: Cost-Volume-Profit (CVP) analysis is the systematic study of relationship between cost of the product, volume of activity and the resultant profit. Since all these three factors are interrelated so, it’s very important to study their relationship and how a change in one can effect the other as well. For e.g. Cost of the product will provide the base on which selling price will be determined and accordingly profit will be calculated. If we change selling price it might impact volume of sales and volume of production and thereby will impact the cost.
So CVP analysis is very important technique used in managerial decision making and achieving the desired results.
Assumptions in CVP Analysis:
1. Any Changes in the levels of revenues (Sales) and costs arise only because of changes in the number units produced and sold – for example, the number of Cars produced and sold by Maruti Suzuki or the number of Passengers travelling in a bus.
2. Total costs can always be separated into two elements or parts i.e a fixed element which does not change with the level of output and a variable element which changes with level of output.
3. Selling price per unit, variable cost per unit, and total fixed costs are known and constant.
(Mind it, Total sales and total variable cost will keep changing with level of output).
4. It is assumed that company is either selling a single product or that the proportion of different products will remain constant as the level of total units sold changes i.e. sales mix remains constant.
Before we proceed further, let us briefly discuss various concepts & symbols used in marginal costing and CVP analysis.
Total Fixed cost (TFC):
It remains constant or same at all levels of output.
Total Variable Cost (TVC):
It will be 0 at zero level of activity and increases proportionately with the volume of activity.
Total Cost (TC):
It is a combination of Fixed cost and variable cost so it will start from the level of fixed cost and keep increasing following the variable cost.
Total Sales (S): It represents the total amount received as revenue by selling the goods produced.
Profit (P): It represents the difference between Total sales and Total Cost.
Basic equation:
Total sales = Total Fixed Cost + Total variable Cost + Total Profit
TS = FC +VC + P
Contribution (C): When only Variable cost is subtracted from Sales the resultant figure is called Contribution. Since in Marginal costing it is assumed that fixed cost will remain same at least in short run for all levels of production activity. So, contribution is an important concept to help in decision making in marginal costing.
Contribution =Total Sales – Total Variable Cost
OR Contribution=Fixed Cost + Profit
Standard Marginal Cost Statement (Simplified)
Amount (Rs.)
Sales (S)
XXX
Less Variable cost (VC)
Contribution (C)
Less Fixed Cost (FC)
Profit (P)
Concepts Used in Marginal costing for Decision Making
1. Profit Volume (P/V) Ratio:
This ratio helps in knowing the profitability of the operations of a business. It establishes the relationship between Contribution and sales. Since Fixed cost do not change with the level of output so any increase in contribution will leads to increase in profit.
So Profitability of the different Goods produced by a company can be ascertained by comparing their P/V ratio. Higher the P/V ratio higher the profit of that particular product and vice-versa. P/V ratio is also known as Contribution Margin Ratio or Contribution to Sales Ratio.
P/V Ratio = Contribution X 100
Sales
Or Contribution per unit X 100
Sales per unit
Or Change in contribution X 100
Change in sales
Or Change in profit X 100
Let us see how all of these formulas will give same result for a given set of information.
Example 2 Khushi Enterprises shares with you their cost data for 2 years
Lets check P/V ratio with all Formulas mentioned above
P/V Ratio = Contribution X 100 For Year 1 (10000/25000)*100 = 40%
Or Contribution per unit X 100 For year 1 (2/5)*100 = 40%
Or Change in contribution X 100 (6000/15000)*100 = 40 %
Or Change in profit X 100 (6000/15000)*100 = 40%
So, that’s the benefit of this formula that as per given information we can use any of its version still getting same answer.
Forms and spicemens: the perofrmas recommended by the federation costing system has been two groups. Forms and spicemens.
Forms:
1. Statement of expenses.
a. Summary of expenses.
2. Daily docket.
3. Statement of records cost of production.
4. Statement of budgeted is recorded cost of production.
5. Work instruction ticket.
a. Office work ticket.
b. Progress slip.
6. Cost sheet.
7. Paper issue daily return (indent).
a. Ink requisition.
b. Binding material daily return.
8. Stock record.
Specimens:
1. Invoice (bill).
2. Departmental plant record.
3. Calculation of hourly rate machine room.
4. Calculation of hourly rate binding.
5. Estimate form.
6. Daily delivery sheet (dispatch).
7. Sales day book analysis (daily sales record).
SPANKS is a widely used practical rule-of-thumb for estimating ink quantity for a run. The acronym stands for the key multiplying factors (different sources show the same method):
Stock × Process × Area × Number × Kind × Specific-gravity Then divide the product by 353.
Formula (kg of ink)
INK (KG) = Stock X Process X Area X Number X Kind X SG / 353
Where:
The divisor 353 is an empirical constant used in this form of the formula (it comes from ink mileage assumptions used by the originators of the method). Sources that explain/illustrate SPANKS and sample factor tables
1. Decide sheet size and area per sheet (m²)
2. Decide coverage (fraction) — percent area actually printed on the sheet (0.30 for 30% coverage).
3. Compute effective Area per sheet = sheet area × coverage.
4. Collect factor values (Stock, Process, Kind, SG) from your shop’s table or use standard approximate values (examples given below).
5. Plug into SPANKS and divide by 353 → gives estimated kg of ink required.
6. Add allowance for spoilage/wash-ups/leftovers.
There’s no single fixed percentage — it depends on run length, press type, number of colours, and job complexity. Industry guidance and studies show typical practical ranges:
Rule of thumb to apply:
(You should adapt these to your press historical data — measure actual spoilage and refine the allowance.)
All arithmetic below is shown so you can follow the method.
Job: 5,000 A3 sheets, single-sided, average coverage 30% (text-heavy). Use SPANKS.
Assumed factors (typical example values; replace with your shop values):
SPANKS calculation:
Ink (KG) = 1.2 X 0.5 X 0.0375 X 5000 X 0.2 X 1.3 / 353
Let’s compute:
Add spoilage allowance: suppose medium run → add 4%
Comment: for a small/low-coverage job this number is small; for large pages or higher solid coverage numbers scale up quickly. (The SPANKS factor choices strongly affect final kg — always match factors to your shop data.)
Job: 10,000 A4 sheets, single-sided, average total coverage per colour (per plate) 40% (i.e., each of the CMYK plates has roughly that average coverage — adjust based on artwork).
Assumed data & approximations:
Compute ink per process colour (approx):
Ink per colour (kg) = 1.2 X 0.5 X 0.025 X 10000 X 1.1 X 1.3 / 353
Compute value (per colour):
So for 4 colours (C+M+Y+K) total ≈ 6.08 × 4 = 24.3 kg.
Add spoilage (say 3% for a longer run):
Important note: in practice you rarely get equal coverage distribution among C/M/Y/K; also trapping, screens and dot-gain affect amount per colour. For accurate job planning you should compute per-colour coverage from the RIP or pre-flight (separate area for each plate) and apply SPANKS per colour. The calculation above is an illustrative approximation.
Problem 1 (mono): 2000 sheets A4, single-sided, 50% coverage solid black, Stock = 1.2, Process = 0.5, Kind = 1.0 (solid), SG = 1.3. Calculate ink and add 5% spoilage.
Problem 2 (4-colour detailed): Given a job where RIP reports per-plate printed areas total (summed over run): C = 120 m², M = 110 m², Y = 100 m², K = 80 m². Stock factor = 1.0, Process = 0.5, Kind = 1.1, SG = 1.3. Use SPANKS on each plate area (here Area is the total area, so Number factor = 1) to find kg per plate. (This demonstrates using total area instead of per-sheet.)
Solution: For Cyan: Ink_C = (1.0×0.5×120×1×1.1×1.3)/353 = compute ⇒ ≈ (85.8)/353 ≈ 0.243 kg — then repeat for others and sum. (This format works when you have total area per plate from RIP.)
UNIT-3
ISO 216 defines A, B, and C series (metric-based, used worldwide).
When estimating for a print job, selection depends on:
Formula:
W = L X B X GSM X N / 106
Example: 500 sheets of A4 (210 × 297 mm), 80 GSM
W = 210 X 297 X 80 X 500 / 106
= 2, 497, 200, 000 / 106
2497.2g ≈2.5kg
W = C X W X GSM / 1000
Alternative formula (using reel length L in metres):
W = W X L X GSM / 106
Derivation idea:
Example: Reel width = 800 mm, length = 5000 m, GSM = 60
W = 800 X 5000 X 60 / 106
= 240, 000, 000 / 106
= 240 KG
Estimate Flexible Susbtrates
There are two common ways to get the weight (mass) of a flexible reel:
A. If you know the reel length (L, in metres), the reel width (W, in mm) and the material GSM (g/m²):
Area (m²) = width (m) × length (m) = (W_mm / 1000) × L_m Mass (grams) = Area × GSM Mass (kg) = Wmm X Lm X GSM / 106
So the convenient formula is:
Mkg = Wmm X Lm X GSM / 106
B. If you know outer/core diameters and material density (useful when length is not given):
Model the wound material as the cylindrical shell between outer radius RRR and core radius rrr (both in metres). Cross-sectional area of the wound material = π(R2−r2)\pi(R^2 - r^2)π(R2−r2). Multiply by width to get volume (m³). Multiply volume by density ρ\rhoρ (kg/m³) to get mass (kg).
Mkg = π(R2−r2) X Wm X pkg/m3
(Here WmW_mWm = width in metres.)
Note: both forms are consistent. If you substitute thickness ttt or the relation between GSM and density you can convert from one form to the other (see derivation below).
Start from volume approach:
Now express mass from area × GSM:
But thickness ttt (m) relates to GSM and density ρ\rhoρ (kg/m³) by:
T = mass per unit area (kg/m²) / ρ
=GSM/1000 / ρ
=GSM / 1000 ρ.
Sub into previous expression and you get:
Mkg= π(R2−r2)Wm×ρ,
which matches the density form above. So the two approaches are equivalent; use whichever inputs you have.
UNIT - 4
pages
leaves
pages / 2
Goal: compute the size of the cloth / board blank needed to make one cover.
Variables
Pw
Ph
s
leaves × t
t
ti
bleed/top
Board / cloth blank size (single book)
2 × Pw + s + 2 × ti
Ph + 2 × ti
Area per book (m²) = (blank width / 1000) × (blank height / 1000)
(blank width / 1000) × (blank height / 1000)
Notes
Pw + 2×ti
Ph + 2×ti
books_per_m = 1000 / (blank_width_mm)
Procedure
Formula (total area):
Total area (m2)=books × (2Pw+s+2ti) / 1000 × (Ph+2ti) / 1000 × (1+waste%)
leaves = pages/2
sig_pages
S
pages / sig_pages
stations
H
allow
tex
Length per signature (m) ≈ stations × 2 × (H + allow) / 1000 (×2 because thread goes in and out on each station — loop length)
stations × 2 × (H + allow) / 1000
Length per book (m) = S × (length per signature)
S × (length per signature)
Total length (m) = books × length per book
books × length per book
Weight of thread (g) = total_length_m × (tex / 1000) Weight (kg) = divide grams by 1000.
total_length_m × (tex / 1000)
Simple approach (saddle-stitch staples):
staples_per_book
(2 × leg_length_mm + crown_mm) / 1000
total_wire_length_m = books × staples_per_book × wire_length_per_staple_m
Wire mass estimate: if you know wire diameter d (mm), approximate mass per metre:
d
Area = π(d/2)2 (m2), mass/m = area × ρsteel (ρ ≈ 7850 kg/m3)
Then total_wire_mass_kg = total_wire_length_m × mass_per_m.
total_wire_mass_kg = total_wire_length_m × mass_per_m
(If you buy pre-formed staples by count, it’s simpler: total_staples = books × staples_per_book, then use box counts.)
total_staples = books × staples_per_book
Perfect binding: glue on spine area
(spine_mm / 1000) × (Ph / 1000)
spine_area_m2 × coat_g_per_m2
glue_per_book_g × books / 1000
Case making / hinging / endpapers
I show steps so you can substitute your own numbers.
Job specs (assumptions):
pages = 300
t = 0.10 mm
Pw = 210 mm
Ph = 297 mm
ti = 15 mm
books = 500
80 g/m²
Step A — Spine thickness
leaves = pages/2 = 150
spine s = leaves × t = 150 × 0.10 = 15.0 mm
Step B — Blank (cloth) size per book
2 × Pw + s + 2×ti = 2×210 + 15 + 2×15 = 465 mm
Ph + 2×ti = 297 + 30 = 327 mm
(465/1000) × (327/1000) = 0.1521 m²
Step C — Total cloth for 500 books (before waste)
0.1521 × 500 = 76.05 m²
76.05 × 1.04 ≈ 79.1 m²
Step D — Spine glue (perfect binding style) per book
spine_area = (s/1000) × (Ph/1000) = (15/1000) × (297/1000) = 0.004455 m²
spine_area × 80 g/m² = 0.004455 × 80 = 0.3564 g ≈ 0.36 g
0.3564 g × 500 = 178.2 g ≈ 0.178 kg
Summary Example 1 results
Notes: glue amount for spine looks small because coat weight × small spine area = small mass. In practice machines require minimum glue usage and losses; always order a sensible safety stock (e.g., 0.5–1 kg minimum).
books = 1000
pages = 256
signatures
sig_pages = 16
S = 256/16 = 16 signatures/book
H = 210 mm
stations = 5
allow = 20 mm
tex = 20
staples_per_book = 3
12 mm
6 mm
0.8 mm
Thread length & mass calculation
(H + allow) = 210 + 20 = 230 mm
2 × 230 = 460 mm
5 × 460 mm = 2300 mm = 2.3 m
2.3 m × 16 = 36.8 m
1000 books
36.8 × 1000 = 36,800 m
36,800 m × 0.02 g/m = 736 g = 0.736 kg
So: for 1,000 books you need ≈ 36.8 km of thread (≈ 0.736 kg of 20-tex thread).
Saddle-stitch wire (if doing stapled books instead)
2×leg + crown = 2×12 + 6 = 30 mm = 0.03 m
3 × 1000 = 3000 staples
3000 × 0.03 m = 90 m
d = 0.8 mm
5.03×10
⁻⁷
m²
0.00395 kg/m
90 × 0.00395 ≈ 0.355 kg
So: staples for 1000 books require ~90 m wire weighing ~0.36 kg.
Costing and estimation software in printing and packaging refers to specialized computer programs designed to calculate the cost of jobs, estimate production expenses, and prepare quotations for clients. These tools help printers and publishers determine accurate costs for raw materials, labor, machine usage, finishing, and overheads before production begins.
The software integrates costing with job scheduling, material management, and workflow, reducing manual effort and errors.
Examples:
1. Job Costing & Estimation
2. Production Planning & Scheduling
3. Inventory Control
4. Job Tracking & Reporting
5. Integration