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# Case Study: Calculation of production cost (cost price1) for edition sector

## The edition sector

Companies providing services involved in the business press, edition, printing, etc conceive
unique products whose production cost is mainly due to the number of articles, photos and
pages, and then they benefit from two types of economies of scale:
- Unit cost of printing decreases with increasing no. of copies in circulation/printing
- Revenues from advertising increase with increasing no. of copies in circulation/printing.

A newspaper can be fully realized in the various departments of the publishing company.
However, it is increasingly common to outsource certain tasks, which do not represent the
competitive advantage of the company within the meaning of Mr. Porter.

## The Daily Journal

The Daily Journal is a newspaper of opinion, defending a humanistic and social styling; it is
published by a non-profit organization. Working to achieve greater social justice, the
newspaper it is /intended to be independent of any political or economic pressure.

The turnover of The Daily Journal consists of about 15% - advertising revenues and 85% -
subscriptions revenues. When we know that for most of newspapers the turnover is composed
just the opposite of about 75% - advertising revenues and 25% - subscription revenues, unlike
The Daily Journal, we can already get an idea of the difficulties that The Daily Journal will
have to balance its accounts without deficits.

Work to do

Relying on the following information, proceed to calculate the unit cost (production cost) of
the newspaper The Daily Journal using the ABC method. This approach by activity will allow
determining the unit cost of the newspaper by channel of distribution for 2012.

First, you have to distribute indirect costs over the activities by using resources key drivers.
Secondly, distribute the cost of each activity over the two types of products by using the
activities key drivers.

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Prix de revient = coût total

1
Currently, The Daily Journal has accumulated losses. Observing the evolution of the situation
over the last three years and on the basis of your calculation, suggest some steps to bringing
the financial stability to the company.

Revenues

## from subscriptions (as of 25 February 2012)

- 5'650 classic subscriptions: 295 CHF
- 867 support subscriptions: 380 CHFF
- 285 public subscriptions: 240 CHF
- 1'745 preferential rate subscriptions (retired and unemployed people, students)

## from individual sales

between 1 CHF and 1.5 CHF/sold newspaper

- Companies /corporate tariff
- Associations / organizations tariff.

## Summary of operating revenues

2010 2011 2012
Readers Subscriptions 1 946 042,25 2 240 271,70 2 383 132,75
Newsstands 16 500,57 22 145,33 20 332,93
Mailboxes 50 240,00 71 061,50 69 007,30
Miscellaneous 3 400,60 656,75 559,90
Advertisers Companies 377 355,04 390 456,90 401 251,20
Associations 42 195,30 67 804,70 23 272,45
Total 2 435 733,76 2 792 396,88 2 897 556,53

Other revenues
2010 2011 2012
Partners donations 44 000,00 37 000,00 40 000,00
Extraordinaire donations 175 000,00 14 000,00 0,00
Subscriptions 338 570,00 397 187,44 418 443,29
Group Architrage donations 69 950,00 69 327,40 66 155,00
Total 627 520,00 517 514,84 524 598,29

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Expenses of 2012

## Allocation of salary expenses

We do not know many details regarding the wages received by each employee, but only the

## Situation of 2012 Administration Editorial Publishing Polygraphs

Number of employees 6 15 3 3
Average employment rate 77% 75% 60% 80%
►►This gives 20.07 full times

## Impression made by Atar Roto Press in Vernier

Advertising, managed by the company Publi-ads who invoice to The Daily Journal a lump
sum per advertising placed (this amount changes depending on whether it is a corporate

Distribution
- Delivery of newspapers to subscribers by post: x CHF /delivered number
- Distribution of newspapers in mailboxes by Dynapresse: 5'000 CHF /month, as well as
an external deliverer paid 170 CHF / day, working 6 days/week and 52 weeks/year
distributing The Daily Journal to newsstands.

## Summary of expenses of 2012

Printing Expenses 922 814,90
Distribution Expenses 478 815,85
Selling Expenses 63 053,55
Salaries and social charges 1 726 649,59
Editorial costs 20 503,21
Amortisements 25 702,40
Other operating expenses 26 625,74
Documentation costs 150 949,92
Advertising costs 181 749,00
Total 3 755 242,51

## Summary of printed newspapers/sold newspapers

Numbers of printed Numbers of sold
newspapers newspapers
Old subscribers (no) 2 302 500 2 302 500
New subscribers (no) 651 300 651 300
Test subscribers (no) 110 900 110 900
Numbers to mailboxes 188 240 53 082
Numbers to newsstands 47 060 13 560
Others (no) 373
Total 3 300 000 3 131 715

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Manufacturing Process of Daily Journal

## Processes Information Pages Copies Distributing to

collecting manufacturing printing destination

1) Collecting, 5) Individual
writing and distribution of
capturing newspapers
information
Activities 3) Formatting 4) Printing
and page layout
2) Collecting, 6) Distribution to
developing and subscribers
capturing of

## Used resources per activities

Resources Activities No. of key Type of key
drivers drivers
Salaries, overheads, editorial costs Meetings 3702,6 Hours
Salaries, overheads, Collecting information 5469,2 Hours
documentation costs
Salaries, overheads, editorial cost Writing articles 10938,4 Hours
Salaries, overheads, editorial costs Capturing information 2734,6 Hours
- Corporate adverts 656
- Associations adverts 119
Salaries, overheads Information formatting 2758,8 Hours
Salaries, overheads Information page layout 4065,6 Hours
Salaries, overheads Advertising page layout 580,8 Hours
Outsourcing costs Printing 3 300 000 Copies
Distribution expenses Individual distribution 235 300 Copies
Distribution expenses Distribution to subscribers 3 064 700 Copies
Salaries, overheads, Company management 8 663,6 Hours
amortisements, operating
expenses
Selling expenses Newspaper promoting 3 300 000 Copies

The activities expenses are distributed over the two types of products function of activities
key drivers that will be represented here by the number of copies (do not forget to bring out
the cost generated by unsold newspapers).

Using the ABC method, calculate the cost of a newspaper distributed directly to subscribers
and the cost of a newspaper distributed in newsstand or mailboxes.