This can all be undertaken within the MIS costing module. See Figure 7.1.
Figure 7.1 Job costing is the penultimate module within the MIS system
Job costing within a MIS system therefore enables the accumulation of the costs of substrates, inks, dies, foils, labor, and overheads for a specific job.
Quite simply, job costing follows a job through the necessary manufacturing to shipping stages, picking-up the cost of labor, materials, overheads, etc., throughout the entire production workflow. This approach provides an excellent tool for tracing specific costs to individual jobs and examining them to see if the costs can be reduced in later jobs. An alternative use is to see if any excess costs incurred can be billed to the specific customer.
In essence, job costing involves keeping an account of all the direct and indirect costs involved in producing a job and ensuring that:
All the cost involved in producing the specific job are fully tracked and allocated
Making sure that all costs are allocated to the customer
Producing reports that show details of costs and revenue by job.
Management teams will need this information in order to make informed decisions about production levels, pricing, competitive strategy, future investment, and a host of other concerns. Such information is primarily necessary for internal use, or managerial accounting.
By tracking and categorizing this information according to a rigorous accounting system, corporate management can determine with a high degree of accuracy the cost per unit of production and other key performance indicators.
Indeed, job costing software within the label or package printing plant today offers easy access to all aspects of company profitability and margins.
This can be done on individual jobs, by specific customer, by day, week or month, by machine (conventional, digital, hybrid), by employee if required and by product type. Custom report libraries and custom report writers in MIS now offer almost any variation required.
Quite simply, Job Costing MIS will significantly change the way that a label or package printing business is run and with the entire data collection, costing cycle and analysis now available to the management the business will undoubtedly become more profitable.
Labor and machine hours (with employee clock-in and out of each job, by function), together with the cost of direct materials, will obviously constitute the majority of direct costs in a label or package printing plant, with companies typically tracking the cost of finished raw materials as direct costs. To these costs must be added fixed costs, indirect costs, or overhead costs, together with any variable costs.
These elements are shown in Figure 7.2. So let’s examine all these cost elements in a little more detail:
Figure 7.2 Shows some of the key elements in a label or package printing industry job costing module within a MIS
Fixed costs are an operating expense of a business that cannot be avoided regardless of the level of production.
Fixed costs are usually used in breakeven analysis to determine pricing and the level of production and sales under which a company generates neither profit nor loss.
Fixed costs and variable costs form the total cost structure of a company, which plays a crucial role in ensuring its profitability.
A variable cost is a cost that varies proportionately to changes in the volume of activity or level of output. For example, a sales rep might be compensated with a fixed salary along with a commission or bonus that fluctuates with sales performance.
In this scenario, the commission would fall into a variable cost category, whereas the salary is fixed.
Direct costs are the costs that are readily traceable back to the specific label or printed package job . as can be seen in Figure 7.2. . and which include substrates, inks, cutting dies, embossing or foiling dies, labor hours, machine hours, shipping costs, etc., which are all required to produce the printed and finished job. Direct costs may also often be subdivided into direct material costs and direct labor costs.
Direct costs are also referred to as prime costs.
Costs of materials are determined from the prices of all necessary materials that go into producing the printed and finished job, plus any sales tax, shipping, and other related costs. Any unanticipated price changes can of course complicate this otherwise straightforward process.
Indirect costs include plant-wide costs such as those resulting from the use of electrical or gas energy, water, telephones, waste disposal, but indirect costs may also include the costs of minor components such as oil and cleaning materials. While all such costs are conceivably traceable to a costed job, the determination of whether to do so depends on the cost-effectiveness with which this can be done. Indirect costs of all kinds are sometimes referred to as overheads, and in this sense prime costs can be distinguished from overhead costs.
As can be seen, there are a number of elements to job costing, and converters may use all, some or none of them. However, if companies want to use a job costing system or module effectively, then they need to:
Be able to track all the costs involved in the job
Make sure all of the costs are invoiced to the customer
Produce reports showing details of costs and revenues by job
Care should be taken if ‘extras’ are added to the final costs submitted to the customer. Extras are always regarded with suspicion and customers tend to have a feeling of being ‘caught’ by what they regard, quite unjustly, as being tricked into paying more than they expected. Ideally the original accepted quotation should quite clearly indicate what is included in the job costs, so that the reason for any extras will be readily understood.
If extras are anticipated before a job is started or even completed, it is advisable to discuss these with the customer to explain why they are arising and maybe give the client the opportunity to review, minimize or cut out the additional item(s). In any event it will help the customer to regard the additional charges as more justified and not something that just appears out of the blue on the job invoice.
ALLOCATION OF MATERIALS IN JOB COSTING
In a label and package printing job costing environment, the materials to be used on a job . substrates, inks, varnishes, dies, foils, etc. will first enter the plant and are usually stored in a designated warehouse or storage area, after which they are picked from stock and issued to the specific job.
If reel or sheet handling, ink or other waste is created, then any normal amounts are charged to an overhead cost pool for later allocation, while abnormal amounts are probably charged directly to the cost of goods sold. Once work is completed on a job, the cost of the entire job is shifted from work-in-process inventory to finished goods inventory. Then, once the goods have been shipped and are ready for invoicing, the cost of the item is removed from the inventory account and shifted into the cost of goods sold, while the company also records a sale transaction.
Label or board stock, inks and other consumable information can today almost always be automatically captured using bar coding and scanners - so providing a comprehensive trail of bottom line materials used information. See Figure 7.3. This information can all then be compared against the original estimate.
Figure 7.3 Scanning of label stock using bar codes and scanners
Having said this, there are still difficulties encountered in the measuring of ink consumed. This is because ink is sometimes mixed out of other inks without real booking, and secondly, when different jobs are printed one after another with the same ink, it is not easy to divide the total consumption per job. This is why converters may not always book ink. Interfacing with ink dispensing systems, such as GSE, so as to ensure proper booking and traceability of ink, continues to be developed.
Converters that require even more automated shop floor data now have the availability of solutions that provide real-time press room statistics, including the number of labels or sheets produced, material used and running speeds. Data can include full capture of both gross and net labels or cartons as well as length or quantity converted, so providing accurate cost monitoring control throughout production.
ALLOCATION OF LABOR COSTS
In label and package printing costing or MIS modules, the labor costs may be charged directly to individual jobs, providing the labor is directly traceable to those jobs. All other manufacturing-related labor is recorded in an overhead cost pool and is then allocated to the various open jobs.
The first type of labor is called direct labor, and the second type is known as indirect labor. When a job is completed, it is then shifted into a finished goods inventory account.
Once the goods are shipped and ready for invoicing, the cost of the asset is removed from the inventory account and shifted into the cost of goods sold, while the company also records a sale transaction.
Label costing systems can now be linked to the clocking in and out of each employee, with time being automatically recorded to the job docket, or linked directly to shop floor data collection for press running time, number of labels produced, run meterage, etc. (Figure 7.4).
Figure 7.4 Automatic collection of shop floor data. Source- Label Traxx
ALLOCATION OF OVERHEADS
With the allocation of overhead costs, non-direct costs will be accumulated into one or more overhead cost pools, from which costs are allocated to current open jobs based upon some measure of cost usage. The key issues when applying overhead costs are to consistently charge the same types of costs to overheads in all reporting periods, and to consistently apply these costs to jobs. Otherwise, it can be extremely difficult for the cost accountant to explain why overhead cost allocations vary from one month to the next.
The accumulation of actual costs into an overhead pool is inherently inaccurate, since the underlying costs cannot be directly associated with a specific job. This means that their allocation to jobs can be a time-consuming process that can interfere with closing the books on a reporting period.
To speed up the process, an alternative is to allocate standard costs that are based on historical costs. These standard costs will never be exactly the same as actual costs, but can be easily calculated and allocated.
The overhead allocation process for standard costs is to use historical cost information to arrive at a standard rate per unit of activity, and then allocate this standard amount to jobs based on their units of activity. The total amount allocated can then be subtracted from the overhead cost pool (which contains actual overhead costs), with any remaining amount disposed of in the overhead cost pool.
The allocation of an overhead cost pool is by definition inherently inaccurate. Consequently, it is best to use the simplest of the above methods to dispose of any residual amounts in the overhead cost pool.
POINTS TO CONSIDER WHEN LOOKING AT COSTS AND COSTING
While the determination and allocation of cost elements mentioned earlier may look comparatively simple, there are nevertheless quite a range of things that may need to be considered when setting up an MIS costing system according to Geert Van Damme, Managing Director of Cerm.
Some of the more important of these considerations are set out below.
The usage of 'fixed' and 'variable' costs can be somewhat misleading. The same words are used to calculate the fixed costs of a job/estimate as the sum of the costs to get the first copy (= set-up) and the variable costs of a job as the production costs per 1000. This is often used to calculate the cost of a range of quantities to be produced, since you only need to do fixed cost + (variable cost * quantity / 1.000).
In Job costing it is very important to analyze the production. But at the same time, it is equally important to analyze the 'non-productive' time. That is the time in between jobs. The percentage of productive and non-productive time in the total time is essential to estimate how far you can fill up your total capacity with jobs and how well the company did in the current month. After all, the business will only ‘win’ money with the productive time. What needs to be considered is that calibration, maintenance, start-up, shutdown, errors, breakdown, repair, etc., is just as important to analyze in detail. The shop floor data collection of most MIS-systems will ask operators to 'badge' these non-productive operations and even to comment on the reasons for standstill in order to be analyzed.
The industry is used to talking about 'direct cost', which is any cost related to the production of the actual job, and about the 'full cost', which is adding the indirect costs (overhead) to the direct costs to end up with the total job cost. The challenge is to find the correct 'parameters' to divide the overhead costs. These costs are to be found not just in the administration, but also in production and warehouse.
These costs can easily be found, but they cannot be easily divided to the items that will be booked.
Should the cost of the warehouse operation be equally divided in $ per 1000 labels (no - since labels can have a different size), or will this be equally divided per 'hour' (again, no - since some operations, like platemaking, do not consume paper).
The answer is to find a proper parameter, like $ per m. or a 'handling cost' per paper roll.
Or, will the cost of the building be divided equally in $ per hour produced, or should the charge on bigger machines be more than smaller machines?
All of this should result in a model where per 'item' consumed/booked it becomes possible to define 'direct cost' and 'overhead'.
This will avoid the company unwillingly making some jobs too expensive because the overheads have been wrongly divided.
And off course, the more that (power - EMS) can be measured effectively, the easier it becomes. But some costs (like the car of the print production manager) will still be divided 'arbitrarily'.
Another way to look at costing is by judging Added Value. This is the total sales of a job, minus the external costs (paper, ink, plate, outside services). This represents the 'internal value' that is added to the externally purchased things. Using this method it is possible to have a percentage of margin that is equal for two jobs, but as paper is more expensive per square meter for one job than for another, printers sometimes only look at the Added Value that is 'returned' by a job.
So sometimes the Added Value will be divided by the internal direct costs to have a ratio that will show how many $ will be created for every $ spent in production.
A healthy figure would be $1.5. Some printers will even divide Added Value by the number of print hours, since printing is their main business and they have calculated that they should have $250 of 'added value ' per hour printed to have a profitable business.
There is also something to add about job profitability. Consider when a printer produces for stock and products have to be kept in stock for a long time (e.g. 6 months). This means that the real sales will only be known after 6 months. That's why the production margin of jobs may be judged by comparing the real cost with the inventory value. Then later, a production margin can be shown that will compare the sales with the inventory value. This enables a judgement about jobs to be created immediately after production, even when nothing is invoiced yet (because the job is waiting in stock).
An interesting element to consider for the future will be the costing of ‘ganged’ labels that have been produced using a laser cutter. Labels can have a different size and perhaps even a separate finishing path. So how will the job costs be divided 'per label' if the printer wants to make an analysis of the profitability of a group of labels that were produced in various combinations?
Because it is very difficult to book e.g. ink on jobs, another way must be found to check the estimating model. This can be done by booking the estimated ink cost into the costing system (automatically). This then allow for a more realistic margin per job, but additionally it can be totalled for a longer period (e.g. a year) and be compared with the total volume of purchased ink in the same period.
This will not provide a perfect solution, but will at least give an evaluation method. The same applies for transport costs. If these are calculated within the per 1000 price, it becomes necessary to book every transport cost onto the correct job, even when the job can be 6 months ago. So here as well, the best solution would be to book the theoretical cost as a real cost and to do a separate analysis for whether the total transport purchase invoices match the total of the booked transport costs over a given period.
In a further point, it is not easy to divide costs of plates, dies and tools on production jobs. In fact, you sell them the first time and when you need to re-make them, you will not charge them to your customer. So the sale can be long over when costs are still there. So, printers should be careful not to book costs on jobs (e.g. platemaking) when sales will not be on these jobs. The best is probably to do a separate analysis of tooling costs and sales.
ACTIVITY BASED COSTING
Another comprehensive means of determining costs is to use Activity Based Costing in which support activities typically include anything done outside of the normal job production itself and not captured by traditional job costing systems. In other words, what are the real costs incurred in running a label or package printing business?
According to Label Traxx President Ken Meinhardt, ‘Many companies use a variety of sophisticated costing programs to determine labor and material costs, but unfortunately, decision makers are forced to ‘guesstimate’ administrative and support activities associated with a particular job.
These methods tend to hide costs of unused capacity, thus giving company managers distorted views of how much excess capacity exists and the associated costs.
By using Activity Based Costing methodology, such as the Litho Traxx’s ABM (Activity Based Management) tool, based on Activity Based Costing methods, the focus is placed on the ‘support expense’ caused by support activities such as estimating a job, entering a job, capturing costs associated with sales activities and customer service, generation of purchase orders, and relevant accounting functions. The tool also monitors utilization of capacity to gain knowledge of ‘lost capacity costs’ and how these costs affect the overall company health.
A key advantage of the ABM tool is the ability to monitor most activities and collect the information automatically; therefore, relieving the employee of constant recording of their time. This makes solutions like the (Litho Traxx) Costing module an even greater asset. The goal with such a solution goal is to ‘help companies to better identify money makers and money losers, find the root cause of problems and correct them, discover opportunities for cost improvement, and develop methods to improve strategic decision making, therefore improving the bottom line.
MANAGING AND CONTROLLING
It is not so many years since power and energy – whether gas, electric or water . were regarded as relatively abundant and not too expensive in the running of a label or package printing plant. Today, these resources are relatively expensive and seem to increase on a regular basis, and can make up a key element of a company’s indirect costs, as well as energy usage being a concern in relation to the environment and the use of resources.
Energy consumption is seen as essential in terms of lighting and heating of a plant, in pre-press systems, in the operation of presses . especially in UV ink curing . and during the operation of finishing and inspection.
Financial reports in MIS can help to highlight these costs. Not unsurprisingly therefore, printers and converters have become ever more aware of the need for energy consumption and cost monitoring, as well as looking at conservation measures. But how can they do this, what measures are necessary, how do they implement these measures and how can they be documented to show their effectiveness. Certainly, energy usage indicators should be quantifiable and measurable, and should relate to all areas of work, as well as being a tool to improve energy efficiency.
Well at least one MIS supplier has addressed this issue. Sistrade has developed an Energy Management System (EMS) that incorporates a tool that enables the control of energy consumption, as well as identifying which cost center causes higher than expected consumption, so making it possible for management to take appropriate actions. Recording of data within the EMS is undertaken in a simple and automatic way, enabling quick and easy analysis of the data and any necessary actions to be taken accordingly.
JOB COST REPORTS
Virtually all MIS costing modules today will be able to provide label and package printing management teams with a detailed job profitability report and job profitability summary analysis in comprehensive reports that show revenues, standard costs, billed costs, the gross profit margin by value and percentage, grouped by customer.
Within each customer report it will show each invoice and each item with the profitability detail by item. These reports may be filtered by customer to see the details for a specific customer, or filtered by margin (see Figure 7.5) to see the most or least profitable items for any time period. Keep in mind that the standard costs you see on these reports are theoretical costs, and are not used in the financial statements.
Figure 7.5 Determination of selling price, based upon cost per quantity and margin. Source Cerm
It is also possible to produce tables or graphs to show materials consumption in square meters and where all types of wastage has occurred (Figure 7.6) as well as comparison tables for calculated and consumed paper, and between calculated and produced products in both meters and square meters (see Figure 7.7).
Figure 7.6 The graphs show square meter consumption in good (green) and all types of wastage (colors). Source- Cerm
Figure 7.7 Comparison between calculated and consumed paper and between calculated and produced products in meters and square meters. Source- Cerm
The job estimates vs. actuals summary and job estimates vs. actuals detailed reports are able to compare quotes to bills and invoices, showing the variance between estimated costs and actual costs and the variance between estimated revenue and actual revenue. These reports are useful for controlling costs during the progress of a job, and as a guideline for preparing quotes for new jobs.
MONITORING OF ADDITIONAL COSTS
An important element of job costing is to look for any unexpected costs . such as artwork amendments or additional proofing or packing charges .
which can make a big difference when it comes to job profitability. Some MIS suppliers (such as Tharstern) provide for this by offering an Extra Costs tool which enables the label or package printing converter to view all costs incurred on each job, thereby enabling them to make informed decisions about whether any extra costs can be passed on to the customer. It can also enable the company to learn lessons for the future.
THE ROLE OF AUTOMATED DATA CAPTURE TECHNOLOGY
Modern MIS technology, real time shop floor data capture and integrated real time production monitoring and production statistics today are able to provide managers with ever more quick and accurate job cost information, making it far easier and simpler to manage jobs with minimal keyboarding and greater accuracy. It be summarized as follows:
With MIS automated workflow, source documents may only exist in the form of computer records
Barcode scanning of incoming materials (and outgoing if required) can be commonly used to enter details of ‘goods in’ and ‘goods out’ directly into the computer
Other Online information recording and tracking of time, quantity, waste, etc., directly from press or finishing line is becoming increasingly popular
Electronic Data Interchange (EDI) technology for ordering materials from suppliers will eliminate or minimize data entry
Employee log in can be captured by computer entry, barcode or job docket scanning,Certainly, Shop Floor Data Capture today can provide more individual and immediate advantages to the label and package printer, in one hit, than probably any other option.
Indeed, automated data capture should no longer be regarded as an option but as an essential part of a fast moving, accurate and effective, modern Management Information System that offers numerous benefits, including:
Press and ancillary equipment operators no longer having to use their time struggling to complete a manual time sheet every day.
Accuracy of the data captured, which exceeds anything collated from manual time sheets.
Elimination of the office time wasted each day in keying in the hand written time sheets.
The ability to view live on screen the current position of every job, of every data collection point and of every operative (all updated every few seconds). This can be particularly useful for production controller personal and line managers.
The latest MIS and automated systems use environmentally protected, diskless, PC’s as terminals, with full-screen color monitoring and a choice of input devices . keyboards, barcode readers, pressure pads, or touch screens.
All data is captured live to a central file server so that each individual terminal can be turned off, or temporarily used for other purposes without any loss.
Shop floor production intelligence is also obtainable through solutions such as EFI’s award-winning patented shop floor production intelligence platform (Auto Count, see Figure 7.8) that allows printers to automatically collect accurate, up-to-the minute production data including counts, press status, speed and other critical information directly from equipment in real-time.
Figure 7.8 EFI’s Label Count for up-to-the-minute production and costing data
Through full plant visibility and data-driven reporting, now in a browser-based environment, label and packaging printers can have all of the information they need to make decisions in seconds.
The use of full screen monitors will also allow for far better error checking of the input; permit viewing of the Job Instructions and allows alterations to be flagged direct to operators. Production managers can use any terminal to gain access to the Planning Board or any other part of the system (with a password) and do not have to return to the office to find the next job due on press and whether the materials are ready.
Using sophisticated MIS and data capture technology within the label and package printing plant now ensures that job costing and invoicing can be carried out with minimal human entry or processing almost as soon as a job has been completed and shipped, with reports available showing all aspects of production and job profitability. For busy plants, such technology is invaluable.