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# Cost Estimating and Production Planning

Ch. 4 of the Offset Lithographic Technology Book
by

## Laura Roberts

on 12 June 2013

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#### Transcript of Cost Estimating and Production Planning

Costs Job Costing
and Analysis
The Estimating Procedure Production
Planning Specifications (Specs) The estimating procedure begins with the estimator's careful review of the specs for the potential job. Introduction: Customers typically request an estimate before they award a job to a particular printing company because price is often a consideration when selecting a printer. 1 Once the estimate is calculated and the client accepts the quotation, production can begin. A work order, or job ticket, is drawn up from the estimate. Job Costing Printing companies should record the actual cost to produce each job, a procedure called job costing. Once the job cost is known the cost can be compared to the estimate.

The estimator's job is to analyze these customer-supplied specs for indication of which cost centers will be involved in producing the job,how much time the job will be at each cost center, and how much material will be required.

Next step is to plan a sequence of operations for the job as the job moves through production. The Estimating Procedure Learning Objectives Cost Estimating and
Production Planning Production Planning Cost Centers After completing this presentation and assigned activities related to this chapter, you will be able to do the following:
Outline the steps an estimator takes to print a printing job.
Explain the budgeted hourly cost-rate method of estimating offset printing
Summarize the function of production standards in an offset-printing firm.
Identify typical cost centers and rates in an offset printing plant.
Describe the importance of job costing.
Discuss the role of management information systems (MISs) in production planning. The following steps are generally used to price a printing job:
Secure accurate specs for the proposed job. Prepare a layout or dummy.
Plan the sequence of operations involved in the job.
Determine the time required to complete each cost center.
Determine the production cost for each cost center and total them.
Determine the amount of each required material and its cost.
Add the markup of material cost.
Total the costs and add a profit.
Prepare a quotation for the customer. Estimators are people who prepare the estimate. The estimator must use a systematic approach to arrive at the most likely cost for producing a job. The estimator prepares an estimate - a prediction of the cost of producing a job, plus a profit - based on job specs the customer supplies.

Estimating is a complex process of predicting the costs of producing a job based on client-submitted specs, including the desired quantity, dimensions, type of paper, and number of ink colors, along with many other factors pertaining to the job. The specs are supplied by the customer and listed on a form often called a Request for Quote (RFQ). Sequence of Operations A cost center is a production workstation that costs money to maintain. The budgeted hourly rate (BHR) or hourly charge, will include both fixed and variable costs associated with each cost center. Fixed costs are those expenses incurred even when the cost center is not in operations. Examples of fixed costs include rent, heating and cooling, lighting, equipment depreciation, insurance, and taxes. Fixed Costs Variable Costs Variable costs vary in proportion to the volume of production. Examples include labor, material, and electrical power. Production Standard A companion to the BHR is a cost center's production standard. A production standard is a measurement of the cost center's productivity that can be measured by the amount of time required to perform a particular operation or the amount of output that can be expected. Printing companies incur several costs associated with acquiring, storing, and moving the paper, ink, plates, and other materials needed to product the job. These costs include the personal time involved in ordering, receiving, and assigning the materials; warehousing costs; and the expense of replacing damaged materials. To recover these costs, printing companies apply a markup percentage to these materials which become part of the estimate. Material Markup The cost of subcontracting oustide materials, supplies, and services - called outside purchases, or buyouts - is also part of the overall costs. Examples of outside services include graphic design, photography, color separations and specialty bindery work, such as embossing or hot-foil stamping. Outside Purchases The word profit is short for profit on sales. Therefore, profit is a percentage of the selling price, to the cost. The following is the formula for calculating the selling price that will result in a profit of a certain percentage of the selling price. Calculating Profit total cost 1.0 - profit percentage
(expressed as a decimal) = selling price All job specs and special requirements must be noted for inclusion in the final price quotation.

The quotation describes the terms of the job and serves as a contract between the printing firm and the client. Quotations Four steps are involved in the follow-up procedure:
Prepare the initial estimate.
Produce the job and collect data.
Review estimates and compare actual costs.
Make changes and adjustments in practices. A job ticket includes the specs, details of the production plan, needed materials, notes to production employees, and a section where production times are recorded. Today, computer-based management information system (MISs) are used to link all aspect of production to a single database and nearly eliminate the paper trail described earlier.
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