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Business + Management: Marty Mcghie

Accounting for the Future

Making sure you factor into job pricing all costs of materials and your operation.




Cost accounting allows a manager to predict the future. It’s a tool that can help a company survive the downturn and prosper again. You need this crystal ball if you’re responsible for preparing or approving your company’s quotes. You need to know you can produce x future product, on y future date, for z price, and make m profit. If you don’t know how to calculate these variables, you can certainly find yourself in a hole—particularly in this economy.

When it’s not a square-foot world
We live in a square-foot world, right? For sales, the answer is yes, but not necessarily when you’re predicting the cost of your various raw materials. While liquid consumption should be estimated by the square foot, rolled goods should be estimated by the linear foot, and rigids by the sheet. The ink cost for an individual piece will depend on coverage, but for future costing an average cost-per-square-foot needs to be established.

Begin by weighing a full container of ink then subtract the weight of the empty container. Then, establish the liquid volume of your ink by weight. Track either a very long run or a myriad of smaller runs over time and keep a log of every square foot printed. Weigh the ink at the end of the test period to document consumption.

Once you have the amount of ink consumed, divide the ink used by the square feet produced and you have a very accurate cost by square foot. Include flush or cleaning solution, and conduct separate tests for double-strike and white-ink applications. For example: A company has printed 3000 square feet and determined that its ink consumption was 10.5 liters at $100 per liter. It’s simple to figure it costs $1050 for ink (10.5 x $100) to print 3000 square feet. Then divide the 3000 into the dollars, and you find it costs $0.35 per square foot to put ink on substrate (1050 ÷ 3000 = 0.35).

When estimating roll goods or rigid sheets, however, never use square footage. A recent job may be instructive: We had a large run of premium decal vinyl with a floor-graphic overlaminate; the overlam only came in 54-inch-wide rolls. The combined cost of the two components was $1215 for 54 inches (4.5 feet) x 150 feet. At 675 square feet (4.5 x 150), this works out to $1.80 per square foot (1215 ÷ 675) or at 150 feet, $8.10 per linear foot (not taking the width into account). The graphics measured 30 x 60 inches (2.5 x 5 feet), so they couldn’t be nested for improved yield.

A manager using the 12.5-square-foot number (2.5 x 5 = 12.5) to estimate the cost would predict it would be $22.50 per piece for media (12.5 x 1.80 = 22.50). Someone using a linear-foot calculation, however, calculates the cost of the five linear feet—this yields $40.50 each (5 x 8.10 = 40.50). An estimating difference of that magnitude would lead to an $1800 mistake on 100 prints: (40.50 x 100) – (22.50 x 100) = 1800. Then, with our $0.35-per-square-foot ink figure, we can add $4.38 (12.5 x 0.35) and arrive at a raw-materials cost of $44.88 each.

Labor, facilities, and equipment

To estimate production labor, aggregate 100 percent of the company’s payroll into a single sum. This includes all salaries and unemployment, insurance, and taxes. Let’s say a company had an all-inclusive employee expense of $100,000 a month or $1.2 million per year. The company has 30 employees, 20 on its production staff. It runs one shift, five days a week, with each employee’s straight time being 2080 hours a year (40 hours/week x 52 weeks/year). To find the labor-cost estimating number, divide the $1.2 million by the 20 production employees and by their 2080 hours. This gives you your labor load factor. So, each production employee represents a future cost of $28.85 per hour (or $60,000 per year): (1,200,000 ÷ 20) ÷ 2080 = 28.85.


You can then apply this labor load factor to the example job we discussed earlier. In this case, a single printer operator would be assigned to complete this job. A manager only needs to know the printing equipment’s true production speed and that will provide the operator’s labor. >37 <17 The important speed is linear feet per hour. To calculate the speed, all that’s needed is a stopwatch and a piece of tape or magic marker. In our example, the printer’s speed is 4 inches per minute or 20 feet per hour. Our 5-foot-long prints would each take 15 minutes to print four per hour. At a load factor of $28.85 per hour for the operator, his or her wage contributes $7.21 to the cost of each print (28.85 ÷ 4). The manager estimates it will take two hours of prepress to get the files ready for print. Two hours at $28.85 yields an additional $57.70 of loaded labor (28.85 x 2), divided by the 100 prints—so prepress adds another $0.58 to the piece cost. The same holds true with finishing and any other labor that will go into the project (let’s assume no finishing here). Total labor: $7.79 per piece (7.21 + 0.58). Facility and equipment make up the bulk of indirect expenses/overhead. The facilities expense includes rent or mortgage, insurance, utilities, repair, and maintenance. As with labor, aggregate all facilities expenses and divide by the average number of hours the company operates a year. The challenge is allocating a percentage of that hourly facilities expense to a future job. Divide production into broad product categories: Assume the company has production made up of 40 percent dye sub, 40 percent UV, and 20 percent solvent printing. If the facilities hourly expense is $100 and our example will be UV printed, we can use $40 per hour (40% x 100) to estimate facility overhead. Since we already know the printer will produce four prints an hour, add $10 to each print (40 ÷ 4) to pay for the facility. In calculating equipment cost, have your accountant provide the total for payment, maintenance contract, repair, parts, etc. for an individual printer. Then, divide by the hours it’s estimated this machine will operate each year. Our example company has a printer with an all-inclusive annual cost of $79,040 a year. Divide that with the 2080 hours they estimate they will operate it per year for the hourly expense: $38. At the 20 foot/hour speed, the shop can produce four prints per hour, so the equipment will generate $9.50 toward unit cost (38 ÷ 4).

Rigorous debriefing
With the simple methods described here, a manager will know that the materials are $44.88, labor $7.79, and overhead $19.50 ($10 facilities + $9.50 equipment cost). He’ll know that this product will cost at least $72.17 (44.88 + 7.79 + 19.50) each to produce; at 12.5 square foot each, that works out to $5.77 per square foot (72.17 ÷ 12.5). I’m not suggesting that these methods are the best—but they have stood up well to rigorous post-project debriefing.

Craig Miller is president of Pictographics in Las Vegas, a large-format-graphics service bureau that excels in digitally dyed textiles, wall coverings, and custom applications.



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