MENU FOR TRAFFORD PRESS
1. INTRODUCTION TO TRAFFORD PRESS GROUP 2. KEEPING TRACK OF PAYMENTS AT TRAFFORD 3. FINANCIAL TRANSACTIONS – TEXTING EXERCISE
4. COSTS AND BREAK EVEN IN THE PUBLISHING BUSINESS 5. CASH FLOW AT TRAFFORD PRESS GROUP
6. PROFIT AND LOSS AT TRAFFORD PRESS GROUP 7. BALANCE SHEET AT TRAFFORD PRESS GROUP 8. TRAFFORD PRESS GROUP – FINANCE
FINANCIAL RECORDING DOCUMENTS 1. Purchase Order
2. Invoice
3. Statement of Account and Remittance Advice 4. Delivery Note
5. Receipt 6. Blank Cheque
ACCOUNTING DOCUMENTS 1. Cash Flow Forecast
2. Profit and Loss Statement 3. Balance Sheet
4. Balance Sheet for Trafford Printing Company (from Company House) EXTERNAL LINKS
1. http://www.traffordpressgroup.com
COSTS AND BREAK EVEN IN THE PUBLISHING BUSINESS
Most businesses have two main kinds of cost:
Fixed Costs
Fixed Costs are costs that do not change however much your business produces. These are costs like rent and rates.
Variable Costs
These are the costs that go up as you make and sell more of your products. Variable costs usually include the materials and selling costs.
Costs at Trafford Press Group
Trafford is a complex business. Virtually every job is different and the cost and price of each job are worked out separately.
It is easier to understand costs and break even with a simple “one product” company.
Costs at Lake District Guidebooks
“Lake District Guidebooks” is a tiny company that has been set up by John Walker. The aim of this company is to re-publish a series of old walking guides to the Lake District. These walking guides set out routes for walkers to follow but they are now out of print and they also need editing.
The main costs for your business are as follows: • Research, Editing and Correcting existing books • Printing Books
• Distributing and Selling
Research, Editing and Correcting
John plans to do this himself. Walking is his passion so he can’t think of a better way to pass his time than checking out & routes and making any necessary corrections - the landscape has changed a bit in the last fifty years. He reckons it will take him 4 weeks to check and rewrite one volume and he plans to pay himself £1000. This is a lot less than he could earn in his normal job – but much more fun!
Printing
You can’t just print one book. Trafford Press advise that it might be possible to print 1000 copies of the guide for £3,000.
Selling and Distribution
It costs money to sell books. John has talked to bookshops and on line booksellers but they all say about the same. They expect to pay John about half the selling price to buy the book from him. If John sells the book to the seller for £5 then they will expect to sell it for £10. To put it another way, if the price of the book is £10 it costs John £5 to sell each book.
BREAK EVEN CALCULATION
The break even point for a business is the number of products that they must sell to cover all their costs. Any sales over and above this break even point will make them a profit.
Break Even can be calculated using either a chart or a formula. The formula method is very quick: Break Even Point = Fixed Costs
_________________________________ selling price per unit – variable cost per unit In the example above the equation will be:
£4000
Break Even Point = _____________________________ = 800 £10 – £5
If John can sell 800 copies of this book then he will cover all his costs. If can sell the last 200 copies then he can hope to make £1000 profit on top. That’s not much – but that’s only on one book. He is hoping to re-publish all 7 volumes!
NB: The above information is loosely based around the famous Wainwright Guides. In April 2003 they were republished by a small publishing company. For further information see:
http://www.franceslincoln.com/flincoln/Booknews.asp
TASKS
1. Experiment by changing the price. What is the effect on break even of raising the price to £12? What happens if price is cut to £8.
2. Suppose Trafford offer to print 2000 copies for £6000. What difference will this make to a) your break even b) the total amount of profit you can make?
3. Look up in your textbook to find out how to construct a break even table and draw a break even chart. Construct a table and draw and label a chart for Lake District Books.
PROBLEM
Suppose a group of students at your school decide to produce a professionally printed book to raise money for the school or for a charity. You might publish a collection of writing and art work by students in your year, it might be a fanzine, a fashion magazine or a mixture of material.
Suppose you decide that in order to increase sales you will allow students who sell copies to keep a percentage of the selling price as a wage.
Use break even analysis to help you to decide the following: • What fixed and variable costs you would have?
• What price to charge? • How many copies to print?
• How much commission to allow the seller to keep? • How much profit to aim for?
