Journals Expense Categories
STEVE COHN, DUKE UNIVERSITY PRESS
Which Costs Should Be Accounted on an Accrual Basis?
As noted in the section on subscription revenues, generally accepted accounting principles call for deferring both subscription income- and issue-related expenses until the relevant issues are actually mailed. Costs that can be deferred in this manner include all production costs, all mailing costs, and any editorial costs that are issue related (e.g., contract payments made on a per-issue basis to a freelance copyeditor).
According to recent (1989-1991) AAUP journals surveys, manufacturing costs-defined to include composition, alterations, negatives, printing, paper, binding, offprints, and reprints-account for approximately 40% of total journals program expenses, and well over that percentage for the smaller journals programs.
Unlike the usual accounting practice for book manufacturing costs, journals production costs are expensed up front, at the time of manufacture. That means no ongoing "cost of goods sold" that needs to be expensed with each sale and no inventory value (and thus no write-down). In turn, that means that the notions of "cost of sales" and "gross margin," which are so important in thinking about book budgets and pricing, have little or no relevance for journals-in fact, managers think quite differently at different presses about what should be included in the term "cost of sales" for journals and whether the concept has any meaning at all as applied to journals.
Because some manufacturing bills-particularly for composition-may need to be paid well be fore an issue is ready to mail, while some may not be paid until well after the issue is mailed, it is necessary in order to get an accurate financial picture to account for production expenses on an accrual rather than a cash basis. In some cases, this means deferring some of the already paid costs to a later period; in other cases, it means making "encumbrances" (expensing an estimated amount that will need to be paid) to account for expenses that have not been paid yet (or, sometimes, even invoiced yet) but that should show up in the same period as the earned revenues for that particular issue. Ordinarily, it is not necessary to keep track of such matters constantly, but the adjustments should be made at any time that an accurate "snapshot" of the journals program's finances is desired; and certainly an accurate picture of this sort is required at the end of each fiscal year.
According to the 1991 AAUP journals survey, postage and handling costs, defined to include "costs to prepare and mail issues to subscribers, [including] costs for envelopes/polybags/labeling," average around 8% of total journals program expenses. Journals may be mailed directly from the printer (in which case the mailing costs are generally included in the printer's billing for the issue), or they may be mailed by the press's own staff, or they may be mailed from a supplier of mailing services.
Like manufacturing bills, postage and handling costs should be accounted in the same period as the earned revenues for a given issue. That means that any postage deposits for second- and third-class accounts should be backed out, and any unpaid mailing costs from outside suppliers should be encumbered, at any time an accurate fiscal snap shot is desired-and certainly at the end of the fiscal year.
In almost all cases, the cheapest method for mailing journals is as second-class mail, where that is permitted. Only regularly published periodicals that appear quarterly or more frequently are eligible for second-class status. The requirements for sorting second-class mail are not much more burden some than those for third-class mail, but the requirements for recordkeeping and reporting to the post office are far more stringent.
Whether back issues are allowed to be mailed at second-class rates, or whether a second-class mailing can be done only the number of times the journal is issued (e.g., only four second-class mailings per year for a quarterly journal) seems as of 1992 to be a matter of dispute, with various postal officials interpreting the regulations differently. Because a second-class mailing requires a good deal of filling out of forms, the savings in cost may not be worth the extra trouble for warehouse employees in any case, for a mailing of only a few issues. Whether the back issues can then be mailed via book rate, or whether they must go as third-class material, seems also to be a matter of postal interpretation.
For mailing journals overseas, the least expensive method by far is via surface delivery (which applies to both second-class and "printed matter" mailings). The problem is that surface delivery can take several months. Some subscribers may choose to pay the extra for airmail delivery (and they should certainly be allowed to do so). And for journals where timeliness is vital, it may be necessary to build costs for airmail delivery into the overseas subscription price. A compromise solution, one that a number of the larger university presses use but that may not be practical for a smaller program, is to use a company that delivers journals by air to overseas points and then deposits them into the local postal systems abroad.
The most recent AAUP journals survey (1991) shows editorial costs, defined to exclude any costs paid by an editor's sponsoring institution and to include those paid by the press for freelance or in-house copyediting and for support of editorial office expenses, averaging 16% of total journals program expenses. These costs, and the proportion of them paid by the press, as opposed to those paid by other sponsors of the journal, vary greatly, depending on the circumstances of the press and those of the particular journal. This is discussed in more detail in the section of this hand book on relationships with journals editors.
The 1991 AAUP journals survey shows marketing costs-for direct mail, ads, exhibits, and catalogs-averaging approximately 5% of total program expenses but varying greatly from press to press (with the smaller journals programs devoting little or no expense to marketing, and some of the larger programs spending a good deal more). Rules of thumb cannot usefully be applied in this area: some journals cover their potential market to the point that extensive marketing will bring little return; others require steady and extensive marketing efforts in order to gain or retain an adequate subscribership.
Marketing efforts and expenditures tend not to be steady but to come in bursts as a "marketing campaign" is undertaken for a particular journal. Be cause journals are ongoing publications, marketing expenditures for journals are more likely to be "optional" than are marketing campaigns for books, in the sense that the campaign doesn't absolutely have to be undertaken right away this month, it could almost as well wait a while, perhaps even until next year.
Where marketing budgets are not clearly separated between journals and books marketing, this tends to work to the disadvantage of journals marketing, as journals marketing projects constantly slide backward under the combined pressure of budgetary tightness and the far more immediate needs of books marketing (where the product is published one time only and can go stale). This problem tends to cause friction, resentment, and low morale among those charged with publishing journals. It also costs the press money in the long run, since a successful marketing campaign for a journal carries its effects far into the future, as many of the recruited subscribers renew year after year. Therefore, this problem should be guarded against; and business managers are often in a good spot to do that.
The expenses considered "other" in a journals program vary a great deal. Some presses throw all but the four categories listed above into "general administrative expenses." But many presses do count subscription fulfillment expenses as a separate category, though there does not seem to be a consensus on just which items should be included in that category: apparently some presses do and some don't include warehousing and shipping department costs, postage costs for renewal notices, and accounting costs in this category, depending on what can easily be broken out in the accounting system being used. Depending on the kinds of journals published and the kinds of financial relationships the press has with journal sponsors, a press may also wish to keep separate track of its royalty payments to sponsors as an expense category.
Additionally, what is counted in the sum total of "general administrative expenses" varies a great deal, depending mainly on the way expenses are divided between journals and books programs. At one extreme, the provisions for allocation of such "overhead" costs can serve to bury a great deal of the actual expense of a journals publishing program in general press expenses; at the other extreme, such provisions can serve to cover a large hidden subsidy of the press's book publishing program through a loading of such costs disproportionately onto a journals program. Examples of both extremes undoubtedly do now exist. While these practices may be expedient for "political" reasons, publishing efficiency is never served by hiding a press's true financial situation. (See the section of this handbook on financial arrangements between books and journals for more details.)