Group Title: Economic information report
Title: Estimating production costs for plants in a nursery
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00026495/00001
 Material Information
Title: Estimating production costs for plants in a nursery
Series Title: Economic information report
Physical Description: ii, 17 p. : ill. ; 28 cm.
Language: English
Creator: Otte, John A
Publisher: Food and Economics Dept., Florida Cooperative Extension Service and Center for Rural Development
Food and Resource Economics Dept., Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville
Publication Date: 1976
Copyright Date: 1976
 Subjects
Subject: Nurseries (Horticulture) -- Costs   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )
 Notes
Bibliography: Bibliography: p. 17.
Statement of Responsibility: John A. Otte.
General Note: Cover title.
 Record Information
Bibliographic ID: UF00026495
Volume ID: VID00001
Source Institution: University of Florida
Holding Location: University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: notis - ABT0584
alephbibnum - 000304014
oclc - 03360571
lccn - 77620853

Full Text





HISTORIC NOTE



The publications in this collection do
not reflect current scientific knowledge
or recommendations. These texts
represent the historic publishing
record of the Institute for Food and
Agricultural Sciences and should be
used only to trace the historic work of
the Institute and its staff. Current IFAS
research may be found on the
Electronic Data Information Source
(EDIS)

site maintained by the Florida
Cooperative Extension Service.






Copyright 2005, Board of Trustees, University
of Florida






IJohn A. Otte Economic Information
Report 64






Estimating Production Costs

for Plants in a Nursery





.-. \- y 1I /f








>---pp/




Food and Resource Economics Department September 1976
Cooperative Extension Service
Institute of Food and Agricultural Sciences
University of Florida, Gainesville 32611























ABSTRACT


A method is presented to show nurserymen how to calculate growing
costs from income tax records. Direct costs are developed from the
nurseryman's daily routine and management practices. Indirect costs
are developed from income tax records.

Key words: nurseries, costs, income tax, and budgeting.








TABLE OF CONTENTS


Page

LIST OF FIGURES. . . . . . . .. . . . ii

INTRODUCTION. . . . . . . . ... .. . . . 1

DIRECT VS. INDIRECT COSTS . . . . . . . .... .... 2

METHOD . . . . . . . . .. . . . . . 5

CALCULATING DIRECT COSTS . . ....... . . . 6

CALCULATING INDIRECT COSTS . . . . . . . ... .. 6

CALCULATING TOTAL COST AND RELATIVE PROFITABILITY FOR
DIFFERENT PLANTS . . .. . . . . . . . 7

ILLUSTRATIVE EXAMPLE . . . . . . . .... .. . .. 8

Calculating Direct Costs . . . . . . . . . 9

Calculating Indirect Costs ..... . . . . 10

Calculating Total Costs and Returns . . . . . ... 13

SHORTCOMINGS OF THIS COST ESTIMATING APPROACH . . . . . 16

SUMMARY AND CONCLUSIONS . . . . . . ... .. . .. 16

BIBLIOGRAPHY. . . . . . . . . . . . .. 17


LIST OF TABLES


Table

1 Direct growing costs for 1,000 ligustrum in one-
gallon cans . . . . . . . . . . .. 9

2 Direct growing costs for 1,000 viburnum in one-
gallon cans . . . . . . . . . 10

3 Indirect costs per square foot of nursery space . . . 13

4 Annual costs and returns comparison for 1,000 square
foot blocks of viburnum suspensum and ligustrum
under two cropping programs . . . . . . ... 14






i











LIST OF FIGURES


Figure Page

1 Process flow of materials and costs to grow a plant . . 3

2 Nursery total annual indirect and direct costs for
all plants in the nursery .................. 4

3 Morton Moneymaker IRS Schedule 1040 F . . . . . 12













































ii













ESTIMATING PRODUCTION COSTS FOR PLANTS IN A NURSERY


John A. Otte


INTRODUCTION


Identifying high and low net return plants- is a continual problem

for nurserymen. Although the grower's direct (variable) and indirect

(overhead) costs determine his total production costs, supply and demand

for various plants determine selling prices in the market place.

The difference between total growing cost per plant and the market

sale price, namely the net return per plant, can be used to rank the

profitability of individual plants. The nursery enterprise will be most

profitable by growing those items with the highest net return per unit

of time and space in the nursery.

Since the grower cannot control costs or accurately predict the

market, increasing profits depends on holding costs down. Reducing

growing costs, in turn, depends on identifying those practices which

have excessive costs.



Items grown in field, container, or landscape nurseries for sale
or propagation.



JOHN A. OTTE is the Area Extension Farm Management Economist stationed
at the Agricultural Research and Education Center in Bradenton, Florida.






1






2


This report illustrates how a grower with limited production records

can use last year's income tax return and his knowledge of day to day nur-

sery production practices to estimate growing costs for individual plants.

Illustrations of calculating total growing costs including overhead

are given for ligustrum and viburnum2. With knowledge of total costs and

current market prices, growers can plan the types and quantities of various

nursery stock which will be most profitable in their situation.


DIRECT VS. INDIRECT COSTS


The nature of what can be called direct and indirect nursery costs

will assist in understanding the following method. Most basically, direct

costs change, depending on the type of plants grown. For example, the

cost of liners varies with the variety of plants. Weeding costs depend

on the container size and length of growing period.

Figure 1 illustrates numerous direct cost items such as soil mix,

liners, containers, and chemicals. These inputs are combined with labor

to grow the plants. Once the plants reach the desired size, they are

either moved up or sold.

Direct costs shown in Figure 1 for all individual plants grown in

the nursery are combined with indirect nursery costs, as shown in Figure 2,

to obtain total annual nursery costs. Since some items such as labor and

supplies fall into both direct and indirect cost categories, they need

to be allocated between the two classes in a reasonable way.



"2Viburnum suspensum was used in this analysis.







3





POTTING TYPE A FERTILIZER
MIX LINERS CONTAINERS CHEMICALS





LABOR



PLANT POTTED
FOR GROWING


COLD PROTECTION->

WATER >

FERTILIZATION- > V

PRUNING -- ---> GROW

PEST & DISEASE
CONTROL >

TIME >

LABOR >__

TOTAL DIRECT COSTS
FOR PLANT A







MOVE UP OR SELL
PLANT A




Figure l.--Process flow of materials and costs to grow a plant.







4



LICENSES
UTILITIES ADVERTISING & BONDS DEPRECIATION





REPAIRS &
LABOR MAINTENANCE INTEREST TAXES RENT SUPPLIES




TOTAL INDIRECT
NURSERY COSTS








DIRECT COST DIRECT COST DIRECT COST
FOR PLANT A + FOR PLANT B + '+ FOR LAST PLANT






TOTAL ANNUAL NURSERY
INDIRECT AND DIRECT COSTS





Figure 2.--Nursery total annual indirect and direct costs
for all plants in the nursery






5


Adding total indirect costs for the nursery, plus direct costs for

all plants grown in the nursery illustrated in the bottom half of Figure

2, gives total annual nursery costs. This total will be higher than

total costs reported on income tax records because returns to unpaid

operators and family labor as well as a return on equity capital will

be included.

In contrast to direct cost, total annual indirect costs remain about

the same no matter what plants are grown in a given growing area. For

example, plastic is usually put down to control weeds between containers

in the entire nursery. Advertising, insurance, and utilities will be

about the same whether ligustrum or viburnum are grown. Given this,

indirect costs can be calculated on a per square foot of total growing

space per month basis. The length of time in the nursery and amount of

space occupied per plant then determine the indirect costs to charge to

individual nursery stock.


METHOD


Nurserymen can use a basic five step method to calculate total grow-

ing costs. First, calculate direct costs for growing an individual type

of plant. Second, estimate total annual indirect costs for the nursery

and calculate indirect cost per square foot of growing space. Third,

prorate indirect costs to individual plants or groups of plants based

on space occupied and time in the nursery. Next, add direct and indirect

costs for each type of plant to obtain total growing costs. Finally,

rank relative profitability of individual plants based on net return

above total costs per unit of growing space per month in the nursery.







6


CALCULATING DIRECT COSTS


Direct growing costs are determined for individual container plants

from the cost of production inputs, such as liners and containers, that

the nurseryman can identify directly with growing individual plants. In

addition, daily horticultural practices such as spraying to control pests.

are allocated to individual plants or groups of plants on a cost per spray

and number of applications basis.


CALCULATING INDIRECT COSTS


Total indirect costs for the nursery are determined by selectively

allocating costs listed on Schedule 1040 F of the nurseryman's tax return.

Care and judgment are required to include as indirect costs those items

which cannot be associated with growing individual plants and not include

those directly identifiable with growing specific items.

Depreciation is an accounting technique to allocate investment costs

over the useful lives of investment items. Depreciation falls into sever-

al classes: equipment, greenhouses, shade houses, and other buildings.

Field grown nursery stock should not be expected to cover indirect costs

on covered growing areas. Depreciation on growing houses should be allo-

cated per square foot to that growing space. Depreciation on equipment

and other buildings (e.g., potting shed) should be allocated to all grow-

ing areas. This allocation will result in different indirect costs per

square foot of greenhouse, shade, and field growing space.

To obtain a true cost estimate it is necessary to include returns

to production inputs which normally go unpaid in a small nursery business.






7


Return to unpaid operator's labor should be included in the total labor

bill before the direct vs. indirect labor allocation is made. An interest

charge on capital, or return the nurseryman could have obtained had he

invested his money in the bank, should be included as an indirect cost.

A step by step approach simplifies indirect cost calculation.

Step 1. Separate costs from IRS Schedule 1040 F into direct and indirect

costs. Portions of some items such as the total labor bill and supplies

can be charged directly to individual plants, while other portions are

indirect costs. The grower must decide what portions of these costs to

allocate between direct and indirect costs.

Step 2. Sum indirect costs for the nursery.

Step 3. Calculate square feet of growing space in the nursery.

Step 4. Divide total indirect cost for the nursery by the number of square

feet in the nursery to get indirect cost per square foot of growing space

per year.

Step 5. Divide indirect cost per square foot per year by 12 to get indirect

cost per square foot of growing space per month.


CALCULATING TOTAL COST AND RELATIVE PROFITABILITY
FOR DIFFERENT PLANTS


Once direct and indirect costs are known, total costs are calculated

by simply adding the two together. Again, a step by step approach simpli-

fies the task.

Step A. Start with the direct cost budget for an individual plant.

Step B. Multiply number of months the plant is in the nursery times square

feet of nursery space occupied by one container times indirect cost per

square foot per month calculated In Step 5 above to obtain total indirect

costs to charge to the plant.





8


Step C. Sum Steps A and B to get total growing costs per plant or group

of plants.

Step D. Subtract total growing cost (Step C) from selling price to obtain

net return above total costs per plant.

Relative profitability to the nursery of individual plants is deter-

mined by ranking them on returns above total costs per unit of growing

space per month. This ranking is accomplished by two more steps.

Step E. Adjust net return above total costs (Step D) to a common growing

space basis. For example, two items, A and B, have 12 and 5 net returns

respectively. If item A requires two square feet per container and B re-

quires only one square foot, the 12 for A would be divided by two to get

net return of 6 per square foot. One square foot would be the base

growing space.

Step F. Divide net return per base growing space by the number of months

to obtain net return per unit of growing space per month. Continuing

the above example, if A requires three months, and B requires two months,

A and B have 2 and 2.5 net return per unit of growing space per month,

respectively. B, therefore, is probably the more profitable item.


ILLUSTRATIVE EXAMPLE


An example was developed for the Morton Moneymaker Nursery to

illustrate the method. Data for the following budgets were developed

from interviews with Tampa Bay area nurserymen and from previously

published work. Reasonable care was taken to assure accuracy of the

data. However, since each nurseryman operates a little differently,

each grower should substitute his own data to use most effectively this

cost calculating approach as a business planning tool.





9


Calculating Direct Costs


Direct cost calculations to grow one-gallon ligustrum and one-gallon

viburnum are shown in Tables 1 and 2. These costs are developed by identi-

fying supplies and tasks used directly to grow these plants. The direct


Table l.--Direct growing costs for 1,000 ligustrum in one-gallon cans


Item Costs
Item


Canning
Liners $0.24 ea. $240.00
Cansa $0.115 ea. 109.25
Soil mix 3.1 yds. @ $10/yd. 31.00
Laborb, fill cans & set in field 20 hrs. @ $3.50/hr. 70.00
Tractor, 5 hrs. @ operating cost (fuel & oil) of $1.24/hr. 6.20

Fertilizing (6 times)
Fertilizer, 6-6-6 100% organic with minor elements
115.4 lb. @ $8.20/cwt. 9.47
Labor, 18 hrs. @ $3.50/hr. 63.00

Pruning (twice)
Labor, 14 hrs. @ $3.50/hr. 49.00

Spraying
Material plus labor 10.00

Weeding in cans
Labor, 33.5 hrs. @ $3.50/hr. 117.25

Loading for shipping
Labor, 25 hrs. @ $3.50/hr. 87.50

Total direct cost to grow 1,000 one-gallon ligustrum plants $792.67

Nursery space required, 1 sq. ft./can 1,000 sq. ft.


aAssumes 5 percent mortality; therefore, there are 50 reusable cans
from the past crop and 950 saleable plants per 1,000 plants propagated
are produced.

bAll labor costs include employer's and employee's contribution to
Social Security, plus Workmen's Compensation.

COne tablespoon per can per application and 52 tablespoons per pound.





10


costs for viburnum are slightly higher than those of ligustrum. This re-

sults primarily from additional fertilizer, weeding, and spraying because

the viburnum are in the nursery longer.


Table 2.--Direct growing costs for 1,000 viburnum in one-gallon cans


Item Costs


Canning
Liners $0.22 ea. $220.00
Cansa $0.115 ea. 109.25
Soil mix 3.1 yds. @ $10/yd. 31.00
Laborb fill cans & set in field 20 hrs. @ $3.50/hr 70.00
Tractor, 5 hrs. @ operating cost (fuel & oil) @ $1.24/hr. 6.20

Fertilizer (9 times)
Fertilizer, 6-6-6 100% organic with minor elements
173.16 lb. @ $8.20/cwt. 14.20
Labor, 27 hours @ $3.50/hr. 94.50

Spraying
Material plus labor 13.33

Pruning (two times)
Labor, 14 hrs. @ $3.50/hr. 49.00

Weeding in cans
Labor, 40 hrs. @ $3.50/hr. 140.00

Loading for shipping
Labor, 25 hrs. @ $3.50/hr. 87.50

Total direct cost to grow 1,000 one-gallon viburnum plants $834.98

Nursery space required, 1 sq. ft./can 1,000 sq. ft.


aAssumes 5 percent mortality; therefore, there are 50 reusable cans
from the past crop and 950 saleable plants per 1,000 plants propagated
are produced.

bAll labor costs include employer's and employee's contribution to
Social Security, plus Workmen's Compensation.





11


Calculating Indirect Costs


Figure 3 shows part II of Schedule 1040 F of Moneymaker's 1975 tax

return. Table 3 shows how the indirect costs were allocated for 1975.

In this example Morton values his labor and management at $10,000

per year. This represents what he could have earned in alternative em-

ployment elsewhere. This value will vary among individual nurserymen.

Adding the $15,821 cost of hired labor results in $25,821 value of all

labor used. Morton estimates 70 percent of all labor can be allocated

to individual plant growing activities. Therefore, 30 percent remains

for the indirect cost. Morton was able to identify 60 percent of his

supplies as direct costs; therefore, 40 percent of all supplies is allo-

cated as indirect costs. Each nurseryman must use his best judgment in

deciding which costs to include in indirect costs and what portions of

other cost categories to split between direct and indirect costs.

Morton initially sets all liners in containers in his greenhouse.

Later he moves the containers to the field. Therefore, greenhouse de-

preciation is included in total indirect costs.

An annual return to the operator's net worth is estimated at $6,000.

This, like depreciation, is not a cash cost. It represents what Morton

could have earned on the $80,000 net worth of the nursery had he invested

the money at 7.5 percent. In other words, the $6,000 represents the re-

turn he did not'receive because he had his money in land, buildings, equip-

ment, supplies, and growing plants instead of alternative investments.

The return to borrowed money is included in the interest charge taken

from the tax return.






12





SCHEDULE F FT'mi Income t.nd Expenses
(Form 1040) li xp n e
(For ) (Compute social security self-employment tax on Schedule SE)
"D;.-rtmintl o h IIe Tratury i- Attlch to Form 1040. t>- See Instructions for Schedj'e F (Form 1040).
Inltrnil Prvenu- Serice >- If rental income, see instructions before using this schedule.

Name(s) as shown on Form 1040 Social security number
123 45 6789
Business name and address................ Morton Moneymaker .................. Empoyer identification number
- -- -- (See instructions)
Location of farm(s) and number of acres in each farm .........
789 : 1591'
T-',.'] Farm InccGm--Cash Receipts and Disbursements Method r'.ib_"i Farm Deductions-For Cash and ll.
Do not include sales of livestock held for draft, breeding, sport, or Accrual Method Taxpayers
dairy purposes; report such sales on Form 4797. Do not include personal or living expenses not attributa-
Sales of Purchased Livestock and Other Items Purchased for Resale ble to production of farm income, such as taxes, insur-
a. Decrpton b. Amount received c. Cost or other bhas ance, repairs, etc., on your dwelling.
"1 Livestock: ........... ..... ................ ... ..... Amount
-.......... 29 Labor h;red. . . ..$ 15,821
30 Repairs, maintenance ....... 09. ; ..
2 Other items: ........ ......... ..... ....... .. ......... . 31 Interest . . . ........ ... ......
32 Rent of farm, pasture .. ......2100
"3 Totals .. . .. $ $ __ 33 Feed purchased .. ....
4 Profit or (loss), subtract line 3, column c from 34 Seed, pants purchased . ..... 2.545
line 3, column b ..... ... P- $ 35 Fertilizers, time, chemicals 1. ,16...
Sales of Market Livestock and Produce Raised 36 Machine hire . . .
and Held Primarily for Sale and Other Farm Income 37 Supplies purchased ... -1909
Kind Quantity Amount 38 Breeding fees .....
5 Cattle .......... ..................... ... 39 Veterinary fees, medicine .
6 Calves . ........................ .. ............. ..... Gasoline, fuel, oil . . .75 ... ......
7 Sheep . . ........................... .. ..... .. ...... .. 41 Storage, warehousing ............................
8 Swine . ....................... ...... ................ 42 Taxes .. ..................... ......
9 Poultry . ... .. ........................ ............ 43 Insurance . . .... ..........8 .........
10 Dairy products . .............................. .................... ..... 44 Utilities . . .. . ....................
11 Eggs . . .............................................. ..... 45 Freight, trucking . .. .. .. .1 2.7.0 .... ......
12 Wool . . .. ................. ................... .............. 46 Conservation expenses ........................
13 Cotton ....... . ............... .. 47 Land clearing expenses .......................
14 To .. .. .. .. _. ......... -. 48 Pension and profit-sharing
14 Tobacco.... .......... plans (see Sch. F instruc-
15 Vegetables .................................................. ..... tions)............ ......
16 Grain ....49 Employee benefit programs
S. . . ..... .. ............... .... other than line 48 (see Sch.
17 Fruits and nuts . ....................... ....... ............... ..... F instructions) . . .... .... .. ......
18 Other (specify): .............. ... lants................. .. 3.,.59.......... 50 Other (specify): .... ..............4646 .....
............... .......- .... -................. .. ............. ........ .. ..... .Sail. .p.urchasedL......... .......2.,91 .........
S................... ... ......Cans ......----..........- -...... ,.31... ......
"OTHER FARM INCOME ....... Advertising.- ... ... ...........Q6..... .....
19 Machine work . . . .. ................................ --------License-..&--bonds.-... .. .. ... 1,324... ....
20 (a) Patronage dividends (See Sch, F instructions) . ....................... ...... ...Chemicals.....------.-----..----------423...- --
(b) Per-unit retains (See Sch. F instructions) . ............................... .Ta.vel.-&..Entertnmt- .........---286 .....-
21 Nonpatronage distributions from exempt cooperatives .... .............. ........ .......................... ...
22 Agricultural program payments: .. ............. ........ .... ......................
(a) Cash . . . .... ....... .... .. ............... ........... ... .............. ......
(b) Materials and services . ...................... .. ................------ -- ----- ...-
23 Commodity credit loans under election (or forfeited) ......... .... .. ........ ............................. ......... ..
24 Federal gasoline tax credit . ............... ........ ...... ....
25 State gasoline tax refund . . . .. ..... .........
26 Other (specify): ...................................................... 51 Add lines 29 through 50 $ 42972
.47..9a 1 152 Depreciation (from line 59, 500 Gl house
d fines-'-. 250 Other bld
27 Add lines 5 through 26 ....... Part Ill) . . .. 0 1r bip
53 Total deductions. Add lines
28 Gross profit *(add lines 4 and 27) . . $ 47,598 51 and 52. .. . $ 45,504
54 Net farm profit or (loss) (subtract line 53 from 28). Enter here and on Form 1040, line 32. ALSO enter on
Schedule SE, Part I, line 1(a) . .$ . . . . s 2,094
SUse amount on line 28 for optional method of computing net earnings from self-employment. (See Schedule SE, Part 1. line 3.)



Figure 3.--Morton Moneymaker IRS Schedule 1040 F





13


Estimated total indirect costs for Morton's nursery for 1975 were

$29,894. Dividing this amount by the total growing area of 96,000 square

feet gives an annual indirect cost of $0.3114 per square foot. Dividing

the annual cost by 12 gives a monthly cost of $0.0259 per square foot of

growing space.


Table 3.--Indirect costs per square foot of nursery space


Item Costs


Overhead labor--[$15,821 (hired) + $10,000
(operator)] x 30% $7,746
Repairs & maintenance 1,209
Interest 571
Rent 2,100
Supplies--40% of total 764

Advertising 606
License & bonds 1,324
Insurance 840
Utilities 1,270
Travel & entertainment 286

Other 4,646
Depreciation
Buildings 750
Equipment 1,782
Return to net worth capital 80,000 x 7.5% 6,000

Total annual nursery indirect costs $29,894

Indirect cost per square foot per year $0.3114
Indirect cost per square foot per month $0.0259

Square feet of total nursery production space 96,000 sq. ft.



Calculating Total Costs and Returns


Since viburnum requires 12 months to grow, the grower can only get

one crop per year. Lugustrum requires only eight months.. By immediately

replanting, the nurseryman can grow one and a half crops of ligustrum per





14


year. Alternatively he can sell the ligustrum after eight months and

leave the growing space vacant for four months.

Table 4 summarizes total growing costs and returns for viburnum and

ligustrum under both growing plans described above.


Table 4.--Annual costs and returns comparison for 1,000 square foot blocks
of viburnum and ligustrum under two cropping programs


1.5 crops 1 crop 1 crop
Item Unit ligustrum viburnum ligustrum


Square feet required Sq. ft. 1,000 1,000 1,000
Time in nursery Mos. 8 12 8
Nursery time charged Mos. 8 12 12
Total direct costs $ 792.67 834.98 792.67
Total indirect costs (sq. ft. of
space x $0.0259/mo. x mos.) $ 207.20 310.80 310.80
Total all costs (direct plus
indirect) $ 999.87 1,145.78 1,103.47
Price/nursery stock sold $ 1.14 1.30 1.14
Gross return (950 saleable
nursery stock) $ 1,083.00 1,235.00 1,083.00
Net return above all costs $ 83.13 89.22 (20.47)
Net return above all costs
per mo. $ 10.39 7.44 ( 1.71)
Crop turnovers per year No. 1.5 1.0 1.0
Annual contribution to net
nursery income $ 124.70 89.22 (20.47)



Since ligustrum and viburnum growing blocks are the same size, costs

and returns for each block can be compared directly without adjusting to

equal square footage.

First, costs and returns for one crop of viburnum are compared to

costs and returns for 1.5 crops of ligustrum. Direct costs per 1,000

square foot block of viburnum are only $42.31 higher than the direct costs

for 1,000 ligustrum. However, total growing costs are $145.91 per block

higher than total growing costs for one crop of ligustrum grown at the





15


rate of 1.5 crops per year. Indirect costs for viburnum are higher by

$103.60 because the viburnum are in the nursery four months longer than

the ligustrum.

The gross return is also higher for viburnum. Gross return is deter-

mined by multiplying selling price times number of nursery stock sold.

Viburnum has a $6.09 net return above all costs per block advantage

over ligustrum. At first glance, one thinks viburnum is more profitable.

However, when net returns per month per block are calculated, ligustrum

has an advantage of $2.95 per month per block. If the grower is going

to keep his growing area filled, ligustrum would be the item to grow.

Compare next the costs and returns for one crop of viburnum and

only one crop per year per block of ligustrum. The ligustrum plants

occupy the growing space for eight months only. However, because the

space remains empty for four months, the indirect costs for the empty

growing space must also be charged to the crop of ligustrum. Total

ligustrum growing costs rise to $1,103.47 due to the $103.60 increase

in indirect costs. Total return remains $1,083 per block. Net return

above all costs becomes a loss of $20.47, resulting in a loss per month

of $1.71 for the block. If the ligustrum growing space will remain empty

after the first crop is sold, this nurseryman would be better off growing

viburnum.

The annual contribution to net nursery income is calculated by taking

net return above all costs per month for the growing block times 12. Grow-

ing 1.5 crops of ligustrum would make the nurseryman the most money.

Viburnum is second best. Growing only one crop of ligustrum results in

a loss. The impact on net income from leaving space idle is self-evident.

Indirect costs on empty growing space can easily erase profits in an

otherwise profitable business.





16


SHORTCOMINGS OF THIS COST ESTIMATING APPROACH


Farm business expenses, not related to the nursery, may be included

on 1040 Schedule F. These items may distort nursery costs. Changes in

growing input prices from last year's records result in errors in cost

estimation.

No adjustment for input inventory changes is included. For example,

a grower may get a "good deal" on plastic to put down between cans. If

he buys a three year supply, all plastic will be charged against crops

grown in the first year and no cost for plastic will be charged against

production in the second and third. years.

Annual total indirect costs are equally allocated among months.

Some overhead items change with seasons. For example, heat is used in

the winter and not in the summer. A monthly calculation of overhead

costs from records is required to more accurately allocate seasonal

costs.

Relative plant profitability is ranked on net return per month.

To calculate total return the grower must predict both price and mor-

tality rate before produce. Both are slippery statistics.

Net return per month may not be the best plant selection variable

for all growers. A nurseryman in a tight cash-flow situation may select

a lower net return per month plant with a shorter turnover period to

generate income to the business sooner.


SUMMARY AND CONCLUSIONS


Direct growing costs can be readily calculated from individual

inputs and horticultural practices. Indirect costs can be calculated





17


from accounting or income tax records. When prices and total costs are

known, net return above total costs can be readily determined. Net return

above total costs per month per growing area can then be used to determine

relative profitability of different types of nursery stock. When growers

are operating on "thin" profit margins, indirect costs on empty growing

space can easily make the business unprofitable.





BIBLIOGRAPHY


[1] Boehlje, Mike and H. B. Howell. Pete Dugood's Case Study. Iowa
State Univ. Coop. Ext. Serv. Paper FM1665, May 1975

[2] Dass, Frank A. and Carolyn A. Almeter. Business Analysis of Con-
tainer Nurseries in Florida, 1974. Food and Resource Economics
Department Econ. Rpt. 41. Gainesville: University of Florida,
November 1975.

[3] Levins, R. A. and Richard Bir. "Figuring Cost for Producing Nursery
Container Plants," The Florida Nurseryman, March 1974.

[4] Perkins, G. R. and R. A. Levins. "Cost-Based Pricing Container-Grown
Plants." Food and Resource Econ. Dept. Staff Paper 24.
Gainesville: University of Florida, August 1974.





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