Quote:
Originally Posted by darryl
I accept of course that you have seen this particular figure bandied about, though I personally don't recall having come across it. I suspect that if a publisher assigned this as a fixed internal charge per book it has little if any basis in actual costs.
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It has basis. Any company of any size will calculate a Cost Of Goods Sold for things they make. They have to understand what it cost them to make something when they are deciding how to price it.
Some costs are directly applicable to whatever it is - raw materials, tooling, labor expended in making it, required capital expenditures to gear up to make it - and some costs are general corporate overhead that can't be directly assigned to a specific product. An allocated share of corporate overhead will become a part of Costs of Goods Sold. (And note that
taxes are one of those overhead costs that get allocated. The net profit that becomes the bottom line cherished by financial types if what is left over
after the taxes are paid.)
Any decently managed company will be aware of what it's overhead is and be looking for ways to reduce it, but some things that may look like wins to the outside aren't as simple as they sound. But they won't just pull an overhead number out of their butt. They will know what their "not directly assignable to the product(s) being made" costs are when they do the allocation of overhead.
(And allocating overhead becomes political. At a former employer, there was a clear understanding that investment in new technology needed to be made. My boss, who was SVP Operations, was more aware than most, but dragging his feet. That changed at a meeting where the company's CFO said it was clearly understood that the investment was needed, and would be carried out at a corporate level. My boss changed from foot dragging to "When can we start?", as soon as it was clear the costs would not come out of
his budget.
I managed to keep a straight face and not laugh out loud, but it was a challenge.)
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Dennis