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 Front Cover
 Preface
 Table of Contents
 Acknowledgement
 Introduction
 Method of study
 Packinghouse costs
 Summary and conclusions














Title: Economies of scale in the operation of Florida citrus packinghouses
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Table of Contents
    Front Cover
        Page 1
    Preface
        Page 2
    Table of Contents
        Page 3
    Acknowledgement
        Page 4
    Introduction
        Page 5
    Method of study
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
    Packinghouse costs
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
        Page 21
        Page 22
        Page 23
        Page 24
        Page 25
        Page 26
        Page 27
        Page 28
        Page 29
        Page 30
        Page 31
        Page 32
        Page 33
        Page 34
        Page 35
        Page 36
        Page 37
    Summary and conclusions
        Page 38
        Page 39
Full Text


Bulletin 606 January 1959



UNIVERSITY OF FLORIDA
AGRICULTURAL EXPERIMENT STATIONS
JOSEPH R. BECKENBACH, Director
GAINESVILLE, FLORIDA
in cooperation with
Marketing Research Division
Agricultural Marketing Service
United States Department of Agriculture









Economies of Scale in the Operation of

Florida Citrus Packinghouses


By ERIC THOR










TECHNICAL BULLETIN








Single copies free to Florida residents upon reque to
AGRICULTURAL EXPERIMENT STATION "
GAINESVILLE, FLORIDA --- --
-'^ /V^ /















PREFACE

This study was made cooperatively by the Department of
Agricultural Economics, Agricultural Experiment Station, Uni-
versity of Florida, and the Marketing Research Division, Agricul-
tural Marketing Service, United States Department of Agriculture.
It is a portion of an over-all study of efficiency in handling and
packing citrus fruit from the grove through the packinghouse.
Other segments of the over-all study relate to (1) grove to high-
way handling of citrus fruit going to processing plants (see
"Cost of Moving Citrus from Tree onto Highway Trucks as
Related to Methods of Handling," Florida Agricultural Experi-
ment Station Bulletin 547, September 1954, by Eric Thor and
Luke D. Dohner) ; (2) grove to packinghouse transportation,
receiving and degreening (see "Cost Analysis of Bulk Handling
Methods for Fresh Citrus," Florida Agricultural Experiment
Station, Department of Agricultural Economics Mimeo Report
55-1, September 1954, by Eric Thor); (3) packing citrus fruit
into shipping containers (see "The Use of Packing Labor in
Florida Citrus Packinghouses," Florida Agricultural Experiment
Station, Department of Agricultural Economics Mimeo Report
57-8, June 1957, by George L. Capel); (4) costs for alternative
methods for performing operations in packinghouses (see "Com-
parative Costs of Alternative Methods for Performing Specific
Handling Operations in Florida Citrus Packinghouses," Florida
Agricultural Experiment Station Bulletin 609, June 1959, by
George L. Capel). This study was also a part of Southern
Regional Marketing Project SM-4, "Increasing Efficiency in the
Marketing and Pricing of Fresh and Processed Citrus Fruits."





















CONTENTS
Page
IN TRODUCTION .. ................ ................... .............. 5

The Role of Citrus in the Florida Economy .. ................. ........... 5

Purpose of Study ............. .... .. ........ .... .. ..... ........................ 5

METHOD OF STUDY ........ ... .......... 6

Logical Framework for Citrus Packinghouse Study -... ................ 6

Estimating Costs ......... ........... ......--.. -...... ....- 9

Nature of Sample of Packinghouses Studied ........................... 11

Simplifications and Specifications ...................... .... .. ............. 11

PACKINGHOUSE COSTS ----... ....... ----- .................... 15

Operating Costs for Single-Unit Model Packinghouses ....... .. -15

Operating Costs for Two-Unit Model Packinghouses ............... 31

Comparison of Costs for Model Packinghouses .......................... 31

Operating Costs for Conventional Packinghouses ...............--.....--...... 33

Comparison of Long-Run Cost Curves for Conventional and

M odel Packinghouses -.......-. ...... ............. ............ 33

Comparison of Synthesized Long-Run Costs and Accounting Data 36

SUMMARY AND CONCLUSIONS ......... ....................... ...... ....... 38



























ACKNOWLEDGMENTS

The author wishes to express his appreciation to the managers and
owners of citrus packinghouses in Florida whose cooperation made this
study possible. Special credit is also due to H. G. Hamilton, head, Depart-
ment of Agricultural Economics, Florida Agricultural Experiment Station,
for administrative direction and support; A. H. Spurlock, Florida Agricul-
tural Experiment Station, and George L. Capel, Agricultural Marketing
Service, United States Department of Agriculture, for helpful suggestions
and assistance in making the economic analysis and preparing this report;
L. L. Sammet and R. G. Bressler, Giannini Foundation of Agricultural
Economics, University of California, for guidance in the analysis; and
Miss Phillipa Williams, Mrs. Malka Romanoff and Mrs. Betty Heron for
much laborious computing and typing work.










Economies of Scale in the Operation of

Florida Citrus Packinghouses

By ERIC THOR

INTRODUCTION
THE ROLE OF CITRUS IN THE FLORIDA ECONOMY
Citrus is the largest single agricultural enterprise in Florida.
As an industry it accounts for approximately 35 to 40 percent
of the state's cash farm income. The cash farm receipts of the
1956-57 citrus crop were roughly 221 million dollars. Total cash
receipts from farm marketing for 1957 were approximately 636
million dollars.
In addition to the income received by the growers, the fresh
fruit packinghouses incurred additional cost estimated at $43,-
649,000 for factors of production. These costs included $18,-
833,000 for packing materials, such as boxes, bags and liners;
$10,924,000 for wages; and S4,402,000 for salaries and selling
expenses; S2,466,000 for direct costs, such as power, light, water
and repairs; S1,606,000 for indirect costs, such as taxes, insur-
ance and depreciation; and S5,417,000 for other costs, such as
inspection and advertising.2

PURPOSE OF STUDY
The general purpose of packinghouse studies is to provide
information to aid in increasing efficiencies and thereby reducing
costs. This may involve (1) an analysis of the relative effi-
ciencies of the different work methods, (2) the development of
new technologies and analysis of their effect upon costs and
(3) a study of the economies that may be associated with scale
of operation.
Determining the most economical organization of a fresh
fruit packinghouse involves studying a combination of the prob-
lems involved in picking, transporting to the packinghouse, pre-

SFormerly Associate Economist, Florida Agricultural Experiment Sta-
tion, Gainesville, Florida; now Manager of Industrial Market Research,
Corning Glass Works. The present publication is largely a revision and
elaboration on Ph.D. dissertation, "The Application of Economic-Engineer-
ing Research Techniques in Planning of Fruit and Vegetable Packinghouses
with Special Reference to Florida Citrus," University of California in 1956.
2 Estimated from a sample of 43 Florida fresh citrus fruit packinghouses.







6 Florida Agricultural Experiment Stations

paring fruit for packing, packing, loading the fruit into a rail
car or highway truck and selling the packed product. In this
broad sense the solution is beyond the scope of the study here
reported. Although parts of this study are devoted to illus-
trating how the picking, packing and selling processes can be
combined, the major emphasis is on the operation of the fresh
fruit packinghouses-especially the determination of cost asso-
ciated with "efficient" operation and the relationship between
these costs and packinghouse size.
The specific objectives of this study are to determine (1)
the estimated savings available to the Florida citrus industry
if packinghouses shifted from the conventional field box auto-
matic dump method to a bulk handling method without chang-
ing scale of operation, (2) the cost relationship of a single-unit
packinghouse (a packinghouse having only one complete pack-
ing unit) and a two-unit packinghouse (a packinghouse with
two completely independent packing units) and (3) economies
which might result from packinghouse consolidation and ex-
pansion.
METHOD OF STUDY
LOGICAL FRAMEWORK FOR CITRUS PACKINGHOUSE STUDY
Packinghouse operations may be divided into two general
categories: (1) picking and hauling operations and (2) packing
operations. These two categories are independent with refer-
ence to rates of output and hours of operation, but they are
interdependent with respect to the work methods employed. For
example, if the packinghouse is designed to handle fruit in field
boxes, it would not be feasible to use bulk handling methods to
transport the fruit from the tree to the plant.
Variations in the volume of fruit picked and hauled by an
individual firm are achieved primarily by varying the rate of
output per hour. Since citrus fruit must be dry when picked
in order to keep mold and decay at a minimum, picking generally
does not start until after the morning dew has dried-usually
between 9:00 and 10:00 o'clock in the morning. Moreover, pick-
ing normally stops around 4:30 or 5:00 o'clock in the afternoon.
This means that picking is limited to six or seven hours daily.
To increase daily volume picked, then, requires increases in out-
put per hour.
Increasing the rate of output per hour in picking and haul-
ing might be accomplished by having workers pick faster and







Economies of Scale in Florida Citrus Packinghouses 7

trucks travel at higher rates of speed, but these higher rates
could not be sustained over long periods. Average or typical
rates of operation can be established that represent reasonably
efficient operating conditions. These rates might not be achieved
because of such factors as mechanical failure, insufficient supplies
of fruit or poor integration of the stages, so that some labor and
equipment is incompletely utilized. With harmonious combina-
tions, however, the sustained "crew" rate of output can be
increased primarily by employing additional workers and addi-
tional units of equipment.
In contrast, total output per season for a given citrus pack-
ing firm is generally increased by increasing the hours of oper-
ation, with rate of production held relatively constant. This
method of increasing output is logical because management, in
building a plant, attempts to select specific items of equipment
-such as the washer, drier, color-add tank, polisher, waxer
and stamper-which are synchronized to handle citrus fruit at
a given rate of output. This sets a "planned" capacity rate for
the individual house. It is true that firms do deviate somewhat
from the set rate by "crowding" the fruit through the equip-
ment or by under-utilization of equipment. However, such vari-
ation in rate of output is limited because deviation from the
the planned rate may affect the quality of the packed fruit. For
example, if fruit is crowded through the soaking and washing
process, it does not receive proper exposure to the chemicals
included in the water, and decay in transit may become more
prominent. Changing rates of processing citrus fruit through
the drier affect moisture content of the peel and the internal
temperature of the fruit; in addition, variation in the rate of
flow through the color-add tank and the wax applicator affects
the external appearance of the fruit.
Under these circumstances, if we assume that there are no
institutional factors which force the packing firms either to pay
a minimum weekly wage or overtime wage rates for employment
in excess of a definite number of hours per week, the total cost
function is linear, as shown graphically by the line ACDE in
Figure 1. This line represents total cost for a packing firm
which (1) varies its output by varying hours of operation while
holding rate of output constant and (2) does not pay overtime
wage rates or assure minimum employment. In this case the
change in labor and other variable cost is proportional to the
change in weekly output and the intercept of OA, which repre-







8 Florida Agricultural Experiment Stations

sents the minimum costs which must be incurred before any
operations are possible.






o IE




3A
0


C


S
0

Weekly Volume Packed (Rt)
Fig. 1.-Relationship between total cost per week and weekly output,
when output is varied by operating at a constant rate but varying hours
of operation, under the assumptions (a) no change in wage rates, (b) as-
sured minimum employment for skilled workers, (c) overtime wages for
employment longer than a specified number of hours.

However, these wage assumptions do not hold for all citrus
packinghouses. The demand for labor by competing firms and
competing industries forces some firms to pay overtime wages
and to guarantee minimum weekly earnings in order to hold
certain classes of labor. In cases where some skilled workers
are assured minimum earnings per week, the total cost will be
increased when a packinghouse operates in the low volume low
hours situation. This is illustrated graphically in Figure 1,
where costs start at B rather than A and increased along the BC
line. Similarly, if overtime wages are paid, the costs will in-
crease along line DF rather than DE. With both types of modi-
fications the relation between weekly output and weekly costs
would follow the "kinked" path of BCDF. While some plants
do not make such guarantees and payments, many do, and these
practices will probably spread as the state becomes more in-
dustrialized and labor better organized.
To summarize briefly, the costs within the picking and haul-
ing operations approximate constant variable unit costs with
increasing rates of output obtained by more or less proportional







Economies of Scale in Florida Citrus Packinghouses 9

increases in number of workers and equipment units. Costs
within the packinghouse, on the other hand, approximate con-
stant average variable costs because volume per week is varied
primarily by changing hours of operation, rather than changing
the rate per hour. Departures from linear total variable cost
functions may be expected from such factors as assured minimum
earnings or employment and payment of overtime wage rates.

ESTIMATING COSTS
The development of the individual packinghouse costs is pri-
marily a problem of addition. The least cost method for each
economic stage may be selected stage by stage, and costs rep-
resenting the most efficient methods for each rate of output
aggregated and combined with the costs described herein as
"other packinghouse costs" into a total cost function.
With discontinuous input-output relations for nearly every
stage, it is clear that, if the synthesized data were to describe
completely the cost conditions under which citrus fruits can
be packed, the development of many individual packinghouse
cost curves would be needed. To simplify the aggregation
process, totals have been calculated for a limited number and
type of packinghouses. Least cost combinations of the available
work methods were synthesized into two types of model packing-
houses: (1) single-unit packinghouse and (2) a two-unit pack-
inghouse. Short-run packinghouse cost curves were developed
for packinghouses of each type and with several capacity rates.
For the single-unit model packinghouse, costs were calculated
for packinghouses with capacity rates of 200, 300, 450 and 750
boxes per hour. The selected rates for the two-unit model
packinghouse were two 200 box-per-hour units, 300 and 200 box-
per-hour units, two 300 box-per-hour units and 450 and 300
box-per-hour units. The short-run costs were then used to ap-
proximate long-run cost functions. Costs of the model packing-
houses were compared with the average costs of the conventional
packinghouses most commonly used during the 1953-54 season.
The cost curves were developed within the same institutional
framework regarding prices of the productive factors, production
standards, rates of output, season variation, type of fruit, type
of pack and level of efficiency.
The approach used to calculate costs in this study combines
an analysis of accounting data of a relatively large sample of
firms with an economic-engineering study of a subsample of







10 Florida Agricultural Experiment Stations

these firms. The combining of the two approaches offsets, to a
certain extent, some of the inherent limitations in each approach.
For example, one of the most common types of packinghouse
studies involves the determination of average costs and volumes
for each of a group of sample packinghouses. These cost-volume
data are frequently presented as a scatter diagram, with an
average regression line fitted to the data. The fitted line or curve
shows the average relationship between volume and cost. Unfor-
tunately, this type of analysis includes a number of limitations-
(1) accounts of modern business may not be entirely statements
of facts but are, to a large extent, expressions of opinions based
partly on accounting conventions, partly on assumptions, explicit
or implicit, and partly on judgment; (2) the price paid for the
various factors of production may vary from firm to firm, and
accounting data do not provide a basis for making these data
comparable; (3) output is usually expressed on a seasonal or
annual basis and the records do not always provide information
necessary to adjust the varying rates of output; (4) the cost
and volume relationship represents some combination of the
effects of scale and of excess capacity, with insufficient detail
to determine the net effect of each; (5) the reported fixed costs
reflect variation in such items as purchase dates of packinghouse
and equipment, and rates and methods of depreciation; and (6)
these studies may not provide a basis for comparing the relative
efficiency of alternative methods of operation, because account-
ing records do not reveal detailed information regarding work
methods, delays and idle work time. As a result, it is only by
chance that the cost-output observations estimated from account-
ing data will approach the lowest possible average cost of pro-
ducing any output when management has had adequate time to
make the necessary changes in all production factors. These
limitations can be overcome, at least in part, by combining ac-
counting with engineering data into what might be termed an
economic-engineering approach.
In this study physical input-output data of labor and equip-
ment used in each job category were obtained through work-
sampling and time study techniques. From these data produc-
tion standards were developed. Physical inputs required for
varying rates of output were synthesized for alternative work
methods for each operation; to these, uniform prices were ap-
plied and costs calculated. Compatible work methods were syn-
thesized into stage cost functions, which became the broad







Economies of Scale in. Florida Citrus Packinghouses 11

"building blocks" that formed the basis for the estimate of the
long-run planning functions. Data on items such as administra-
tive costs, materials costs and other miscellaneous expenses were
obtained from accounting records.

NATURE OF SAMPLE OF PACKINGHOUSES STUDIED
From the total of 274 citrus packinghouses operating during
the 1953-54 season, 43 were selected on the basis of three con-
siderations. First, the sample was restricted to firms packing
for commercial interstate trade. Second, the sample was se-
lected approximately proportional to the total number of houses
in each major geographic producing area. Third, the sample
was limited to houses that possessed rather detailed cost ac-
counting records. The sample houses packed 16,521,526 boxes
(13, bushel equivalent) of fresh citrus during the 1953-54 sea-
son, or approximately 36 percent of the total volume packed in
the state.
From the 43 packinghouses 12 were selected for the detailed
engineering type study. These packinghouses were chosen to rep-
resent a wide range in plant size, relative costs and work methods.
The objective was not to obtain a random sample of the industry,
but rather to obtain houses with certain specifications.

SIMPLIFICATIONS AND SPECIFICATIONS
To estimate the short-run cost curves associated with each
point on the long-run cost curve and determine the combination
of work methods (and their cost functions) that appear most
efficient for packinghouses operating at varying rates of output,
the number of variables and variations must be reduced to man-
ageable proportions. Therefore, a number of simplifications and
specifications are introduced into the analysis. These are as
follows:
1. Geographic location: There are two distinct areas in Flor-
ida in which citrus is grown-the Interior Section and the Indian
River Section. The major portion of Florida oranges is grown
in the Interior Section. Costs are estimated for packinghouses
designed specifically for the Interior area. The area affects the
type of equipment which needs to be included in the over-all plan.
2. Composition of packed output: The proportion of oranges,
grapefruit and tangerines packed in each model packinghouse
will approximately equal the current percentage of each type
of the total fresh citrus fruit packed in the state. The selected







12 Florida Agricultural Experiment Stations

proportions are oranges 53 percent, grapefruit 41 percent and
tangerines 6 percent. Also, the percentage of total citrus fruit
to be packed in each type of container will approximate the cur-
rent percentage, with the exception of a slightly higher percent-
age allocated to fiberboard boxes and a lower percentage to wire-
bound boxes. The reason for this deviation is the increasing
trend toward fiberboard boxes. The percent that each is of the
total follows:

Type of Fruit
Type of Pack Oranges Grapefruit Tangerines
percent percent percent

1% bu. wirebound box .................... 75 80
% bu. wirebound box ...................... ....... 85
% bu. fiberboard box ...................... 15 14 15
8-lb. m esh bag .................................. 5 3
5-lb. m esh bag ................................. 5 3

In the 12 packinghouses studied in detail, only 60 percent
of the fruit received was packed. In cases where pre-grading
and pre-sizing were used, 30 percent of the oranges and grape-
fruit were eliminated before the fruit reached the main grading
table. Therefore, cost will be estimated under the conditions
that (1) 40 percent of citrus fruit will be sized and graded out
and (2) in the case of bulk degreening, 30 percent will be elimi-
nated prior to degreening.
3. Length of season and season variation: The number of
weeks that a specific packinghouse operates varies slightly from
season to season, depending upon maturity of and the demands
for fresh citrus fruits. The 12 packinghouses included in the
detailed input-output study operated from 29 to 40 weeks during
the seasons observed. The approximate mid-point of the ob-
served range, 35 weeks, has been selected as the length of season
for estimating long-run costs. Tangerines usually pass the state
maturity test during the months of November, December and
January. In this study it is assumed that tangerines will be
packed during a 12-week period beginning on the eighth week
of the packinghouse season and ending on the nineteenth week
and oranges and grapefruit will be packed throughout the season.
The season pattern in the volume packed is the average of
the season variation of the 12 packinghouses observed in the
detailed input-output study. An index of weekly variation
follows:








Economies of Scale in Florida Citrus Packinghouses 13


Week Index Week Index

1 32 19 141
2 44 20 141
3 64 21 143
4 63 22 157
5 65 23 132
6 75 24 146
7 97 25 150
8 106 26 142
9 120 27 137
10 125 28 108
11 142 29 100
12 132 30 91
13 136 31 63
14 95 32 67
15 118 33 58
16 141 34 60
17 132 35 39
18 144



4. Wage rates: It was assumed that (a) women employees
worked only during the time the packinghouse would actually
operate, (b) all men workers were assured a minimum of 40
hours of employment for the weeks they were employed and
(c) all hourly workers not paid on a piece-rate basis received
overtime wage rates for employment longer than 40 hours per
week. Wage rates which were considered representative of those
paid by the industry during the 1953-54 season were used in
calculating labor costs.
5. Grading: Many factors affect the amount of grading labor
employed by a packing firm. For the purpose of this analysis,
an average of 5.6 man-hours of grading labor per 100 boxes of
citrus fruit was used in calculating cost. This was the average
of the 12 packinghouses included in the detailed input-output
study.
6. Break-for-lot time: Detailed data from the 12 packing-
houses showed that the break-for-lot time, that is, changing
from one lot of fruit to another lot of the same type, was 6.4
minutes; 11.5 minutes were required when changing lots from
one type of fruit to another. The data also indicated that the
houses tended to pack all types of fruit in season during a given
day. In addition, lots were, on the average changed for every
300 1 -. bushel equivalent of packed fruit. The break-for-lot
time used in this analysis was calculated on the basis of (a)
each type of fruit in season being packed within each house each







14 Florida Agricultural Experiment Stations

day and (b) the packinghouse changing lots every 300 13% bushel
equivalent of packed fruit.
7. Storage of packed fruit: The general practice of Florida
packinghouse managers is to load out fruit the day it is packed.
Very little pre-cooling is done prior to loading in the rail car or
truck. Costs were calculated on the basis that the fruit would
be loaded directly from the packing line.
8. Color-add: Not all oranges pass through the color-add
process. The percentage of oranges to which color-add treat-
ment is applied varies slightly from year to year, depending
upon the natural color of the citrus fruit. During the 1953-54
season 65 percent of Florida oranges sold for fresh consumption
received the color-add treatment. This proportion was used in
calculating the total season cost.
9. Degreening space: The degreening areas needed by a
particular house depend upon (a) the total volume of fruit re-
ceived per week, (b) the number of hours needed for the fruit
to pass through the degreening process and (c) the method
used in handling the fruit from the picking area onto the dump
belt. When fruit is degreened in field boxes, all fruit, including
packinghouse eliminations, passes through the degreening pro-
cess. In cases where bulk handling methods are used for trans-
porting the fruit from the grove onto the dump belt, a portion
of the fruit is pre-sized and pre-graded prior to entering the
degreening rooms. For the purpose of this study, the approxi-
mate average percentages observed in the detailed input-output
study were used in estimating the amount of degreening space
required. They were (a) 40 percent of the volume received
for the conventional field box, automatic dump packinghouses
and (b) 24 percent of the volume for the model packinghouses.
The study of handling methods revealed that the nature of tan-
gerines prohibits handling by bulk methods. Therefore, the
packinghouse plan A included some conventional type of field
box degreening rooms and a dumping table to process tangerines.
10. Types of packinghouses: Analysis has been made of two
basic types of packinghouses. The types differ primarily with
respect to the field handling and degreening methods used. In
the model packinghouses analyzed in this study bulk handling
techniques are utilized for field handling and degreening. In the
conventional packinghouses field boxes are used for field handling
and degreening, with automatic dumping of the boxes when the
fruit is ready for packing.








Economies of Scale in Florida Citrus Packinghouses 15

PACKINGHOUSE COSTS
Costs are synthesized for two types of model packinghouses
(those using bulk handling techniques and improved in-plant
handling equipment) and for conventional field box, automatic
dump type packinghouses (those in which citrus fruits are
handled from the tree to the dump belt in field boxes, and the
packed fruit hand-trucked from individual packing lines to load-
ing station). The procedures for estimating costs for these three
types of packinghouses are illustrated by examples. The long-
run costs of these three types of packinghouses are compared
to estimate the potential savings of one type over another.

OPERATING COSTS FOR SINGLE-UNIT MODEL PACKINGHOUSES
The method of estimating packinghouse costs for a single-
unit packinghouse is explained by using a packinghouse designed
for an "efficient" capacity rate of 300 boxes per hour as an
example. Costs associated with the packinghouse operation and
with the pick and haul operation are estimated separately, and
then combined into total season costs.
Packinghouse Costs.-The first step in the process of calcu-
lating packinghouse costs was to estimate the hours of operation
necessary to pack selected season volumes. This task involved
(1) selecting specific season volumes, (2) calculating weekly
volumes to be packed and (3) estimating the hours of operation
by weeks. The season volumes chosen for the 300-box-capacity
packinghouse ranged from 180,000 to 330,000 boxes. The weekly
volumes shown in Table 1 were derived from the season volumes
by using the index of season variation shown on Page 13. The
weekly hours of operation were calculated by dividing the ca-
pacity volume per hour into the weekly volume and adding break-
for-lot time. The estimated weekly hours of operation for the
single-unit 300-box-capacity packinghouse are shown in Table 2.
Total weekly hours of operation were used to calculate the
total season labor costs shown in Table 3. As specified, it was
assumed that hourly employees in the packinghouse received
overtime wage rates for all employment over 40 hours per week.
In addition, all male employees were assured a minimum of 40
hours of employment for weeks in which they were employed.
Packing labor costs were calculated on a piece-rate with no over-
time or minimum employment. Workers such as the manager
and night watchman were paid by the week with no overtime













TABLE 1.-ESTIMATED WEEKLY VOLUME OF CITRUS FRUIT PACKED BY SINGLE-UNIT MODEL PACKINGHOUSE, 300-BOX-PER-
HOUR CAPACITY, FLORIDA, 1954.


Index of Weekly Volume for Season Volumes of*____
Weeks Season I
Variation 180,000 210,000 240,000 270,000 300,000 330,000
boxes -

1 32 1,552 1,810 2,069 2,327 2,586 2,845
2 44 2,136 2,492 2,848 3.204 3,560 3,916
3 64 3,108 3.626 4,144 4,662 5,180 5,698
4 63 3,060 3,570 4,080 4,590 5,100 5,610
5 65 3,156 3,682 4,208 4,734 5,260 5,786
6 75 3,642 4,249 4,856 5,463 6,070 6,677
7 97 4,710 5,495 6,280 7,065 7,850 8,635
8 106 5,148 6,006 6,864 7,722 8,580 9,438
9 120 5,830 6,801 7,773 8,744 9,716 10,688
10 125 6,072 7,084 8,096 9.108 10,120 11,132
11 142 6,898 8,047 9,197 10,346 11,496 12,646
12 132 6,412 7,480 8,549 9,617 10,686 11,755
13 136 1 6,606 7,707 8,808 9,909 11,010 12,111
14 95 4,614 5,383 6,152 6,921 7,690 8,459 a
15 118 5.731 6,686 7,642 8,597 9,552 10,507
16 141 6,850 7,991 9,133 10,274 11,416 12,558
17 132 6,412 7,480 8,549 9,617 10,686 11,755










TABLE 1.-Continued.

Index of Weekly Volume for Season Volumes of*
Weeks Season
Variation 180,000 210,000 240,000 70,000 70000 ,00 330,000 c

boxes -
18 144 6,996 8,162 9,328 10494 11,660 12,826
19 141 6,848 7,990 ),131 10,273 11,414 12,555
"20 141 6,848 7,990 9,131 10,273 11,414 12,555
21 143 6,948 8,106 9,264 10,422 11,580 12,738
22 157 7,626 8,897 10,168 11,439 12,710 13,981
23 132 6,412 7,480 8,549 9,617 10686 11,755
24 146 7.092 8,274 9,456 10,638 11,820 13,002
25 150 7,286 8,501 9,715 10,930 12,144 13,358
26 142 6,898 8,047 9,197 10,346 11,496 12,646
27 137 6,654 7,763 8,872 9981 11,090 12,199
28 108 5,246 6,121 6,995 7,870 8,744 9,618
29 100 4,856 5,666 6,475 7,285 8,094 8,903
:10 91 4,420 5,156 5,893 6,629 7,366 8,103
31 63 3.060 3,570 4,080 4,590 5,100 5,610
":2 67 3,254 3,797 4,339 4,882 5,424 5,966
:3 58 2,815 3,284 3,753 4,223 4,692 5,161
34 60 2,912 3,398 ,88:3 4,369 4,854 5,339
:i5 39 1,892 2,209 2,523 2839 3,154 3,469
J-- I I
* Volume expressed in 1 1/5 liu.shel rquiva! ent s.


-1
-d








18 Florida Agricultural Experiment Stations

allowance. Total labor costs were increased 7 percent for Social
Security taxes and Workmen's Compensation.

TABLE 2.-SUMMARY OF ESTIMATED WEEKLY HOURS OF OPERATION FOR
PACKING CITRUS FRUITS, SINGLE-UNIT MODEL PACKINGHOUSE, 300-Box-
PER-HOUR CAPACITY, FLORIDA, 1954.

Season Volume*
Week I
S180,000 210,000 240,000 270,000 300,000 330,000
Boxes Boxes Boxes Boxes Boxes Boxes
--- Hours per week**

1 9.02 10.53 12.03 13.54 15.04 16.54
2 12.07 14.08 16.10 18.11 20.12 22.13
3 17.05 19.89 22.74 25.58 28.42 31.26
4 16.81 19.61 22.42 25.22 28.02 30.82
5 17.28 20.16 23.04 25.92 28.80 31.60
6 19.88 23.20 26.51 29.83 33.14 36.45
7 25.43 29.67 33.90 38.14 42.38 46.62
8 31.48 36.72 41.97 47.21 52.46 57.71
9 35.36 41.26 47.15 53.05 58.94 64.83
10 36.79 42.92 49.06 55.19 61.32 67.45
11 41.47 48.38 55.30 62.21 69.12 76.03
12 38.59 45.02 51.46 57.89 64.32 70.75
13 38.64 45.08 51.52 57.96 64.40 70.84
14 28.36 33.08 37.81 42.53 47.26 51.99
15 34.73 40.52 46.30 52.09 57.88 63.67
16 41.21 48.08 54.94 61.81 68.68 75.55
17 38.59 45.02 51.46 57.89 64.32 70.75
18 42.00 49.00 56.00 63.00 70.00 77.00
19 41.20 48.06 54.93 61.79 68.66 75.53
20 36.52 42.60 48.69 54.77 60.86 66.95
21 37.00 43.16 49.33 55.49 61.66 67.83
22 40.50 47.25 54.00 60.75 67.50 74.25
23 34.26 39.97 45.68 51.39 57.10 62.81
24 37.81 44.11 50.42 56.72 63.02 69.32
25 38.74 45.19 51.65 58.10 64.56 71.02
26 36.76 42.88 49.01 55.13 61.26 67.39
27 35.58 41.51 47.44 53.37 59.30 65.23
28 28.26 32.97 37.68 42.39 47.10 51.81
29 26.14 30.49 34.85 39.20 43.56 47.92
30 23.88 27.86 31.84 35.82 39.80 43.78
31 16.81 19.61 22.42 25.22 28.02 30.82
32 17.89 20.87 23.86 26.84 29.82 32.80
33 15.62 18.23 20.83 23.44 26.04 28.64
34 16.08 18.76 21.44 24.12 26.80 29.48
35 10.80 12.60 14.40 16.20 18.00 19.80


Totals 1,018.61 1,188.34 11,358.18 1,527.91 1,697.68 1,867.37

Volume expressed in terms of 1 3/5 bushel equivalents.
** Includes break-for-lot time.

A summary of both annual fixed cost and hourly direct cost
of equipment for the packinghouse section is shown in Table 4.
Total annual fixed costs were estimated by summing the esti-








TABLE 3.-ESTIMATED TOTAL SEASONAL COST OF LABOR FOR PACKING FRESH CITRUS FRUITS, SINGLE-UNIT MODEL PACKING-
HOUSE, 300-BOX-PER-HOUR CAPACITY, FLORIDA, 1954.

Rate per Estimated Labor Cost at Season Volume of* o
Item No. '
Required I 180,000 210,000 240,000 270,000 300,000 330,000 o
Hour Box Boxes Boxes Boxes Boxes Boxes Boxes
--------- dollars ---------
Receiving foreman . 1 .90 1,269 1,368 1,525 1,693 1,875 2,066
Bulk bin receiver ...... 1 .85 1,198 1,292 1,440 1,599 1,771 1,951
Pre-grader ......--....... 2 .85 1,737 2,088 2,476 2,870 3,273 3,682
Dumper ....................... 1 .90 1,269 1,368 1,525 1,693 1,875 2,066
Box supply foreman 1 .90 1,269 1,368 1,525 1,693 1,875 2,066
Assembler --........... ... 2 .85 2.396 2,584 2,881 3,198 3,542 3,902
Labeler .. .. .. 1 .85 869 1,044 1,238 1,435 1,637 1,841
Chuter .................. 1 .85 869 1,044 1,238 1,435 1,637 1,841
Head grader .............. 1 .90 920 1,106 1,311 1,519 1,733 1,949
Grader ..................... 8 .85 6,948 8,353 9,903 11,480 13,094 14.729
Box closer -........... ..... 2 .90 2,537 2,736 3,050 3,386 3,750 4,132
Packing foreman. 1 .90 1,269 1,368 1,525 1,693 1.875 2,066
Packer
Oranges
1%:5 wirebound .. .060 4,23 5,009 5,724 6,440 7,155 7,870
% fiberboard .. .070 1,002 1,169 1,336 1,503 1,670 1.836
8-lb bag ...... ...... I .110 524 612 699 786 875 962
5-lb. bag ............ ...130 620 723 827 930 1,034 1,137
Grapefruit
1% wirebound ..... .045 2,657 3,100 3,542 3,985 4,428 4,871
% fiberboard .... .050 517 603 689 775 861 947
8-lb. bag ............. .090 199 232 265 299 332 365
5-lb. bag ..................... .110 243 284 324 365 406 446


(.













TABLE 3.-Continued.

Rate per Estimated Labor Cost at Season Volume of*
Item No. I___ _____ 1
Required I 180,000 210,000 240,000 270,000 300,000 330,000
Hour Box Boxes Boxes Boxes Boxes Boxes Boxes

------ dollars ----
Tangerines dol
% wirebound --......--........ .110 1,010 1,178 1,346 1,515 1,682 1,850
% fiberboard --..---....-----.-...1 .110 178 208 238 267 296 326
Shipping foreman ...-........-... 1 .90 1,269 1,368 1,525 1,693 1,875 2,066
Hand trucker ............-........--- . 1 .85 1,198 1,292 1,440 1,599 1,771 1,951
Loader .--......................... 1 1.00 1,410 1.520 1,694 1,881 2,083 2,296
Checker ....----.....................-.. 1 .85 1,198 1,292 1,440 1,599 1,771 1,951
Manager ----------------------... 1 75.00 per wk. 2,625 2,625 2,625 2,625 2,625 2,625
Night watchman ------..------. 1 45.00 per wk. 1,575 1,575 1,575 1,575 1,575 1,575
Mechanic ............-- .... .........-. 1 1.00 1,410 1,520 1,694 1,881 2,083 2,296


Total ....---------------------------------........................... 44,478 50,029 56,620 63,412 70,459 77,661
Payroll Taxes** ............................. .... ...... ............... 3,113 3,502 3,964 4,439 4,932 5,436


Total labor cost ----....---------... .......................-..... --- 47,591 |53,531 60,584 67,851 75,391 83,097


Volume expressed in 1 3/5 bushel equivalents.
** Seven percent of total labor costs to cover Workmen's Compensation and Social Security payments








TABLE 4.-ESTIMATED ANNUAL FIXED AND DIRECT EQUIPMENT COST FOR PACKING CITRUS FRUITS, SINGLE-UNIT MODEL
PACKINGHOUSE, 300-BOX-PER-HOuR CAPACITY, FLORIDA, 1954.

Estimated Annual Estimated Direct Cost
Item Number Fixed Cost Per Hour
Required I
Per Unit Total Per Unit Total
---- dollars ---- dollars per hour -
Dump belt 46' x 24" w/1 HPM ..--................................ ... 1 191.32 191.32 .0742 .0742
Conveyor belt 13' x 24" w/con. dr. ..... .... .... ..... ........ 1 3i 1.20 31.20 .0072 .0072
Roller elevator 4' x 60" w/1 HPM .................. .... .. 1 57.00 57.00 .0490 .0490
Pre-sizer 4 run w/2 HPM ................... .......... .......... 1 375.00 375.00 .1850 .1850
Soak tank 15' x 58" w/steam ........ .......... .... .... .... 1 39.43 3),.43 .0169 .0169 .
Slat elevator 10' x 58" w/1 HPM ................... ....... ........ 1 90.00 90.00 .0600 .0600
Conveyor belt 14' x 24" w/con. dr. ..... ..... ............ I 1 19.72 19.72 .0084 .0084
Transverse washer, 30 brush w/3 HPM ....................... 1 360.00 360.00 .2100 .2100
Dryer, 30 brush comp. w/3 HPM ....................... .......... 1 520.00 520.00 .2650 .2650
Vertical lift 12' x 48" w/1 HPM ............... ....... ............ 1 302.10 302.10 .1307 .1307
Conveyor belt 56' x 16" w/I-2 HPM .... 1 101.85 101.85 .0886 .0886
Conveyor belt 40' x 16" w/con. dr .............-..................... .. 1 50.17 50.17 .0215 .0215
Vertical lift 16' x 36" w/1' HPM ................................ 1 240.00 240.00 .1250 .1250
Conveyor belt 38' x 16" w/con. dr ....................................... 1 44.92 44.92 .0192 .0192
Hand trucks, clamp type* ...................................--.. 1 13.35 13.35 .0044 .0044
Hand dump table 16' x 24" w/1 HPM* ..................... 1 66.67 66.67 .0550 .0550
Soak tank 11' x 54" w/steam sq. end* ........ .........- | 1 35.00 35.00 .0150 .0150
Slat elevator 11' x 54" w/con. dr.* ......--....................... .. 1 70.50 70.50 .0235 .0235
90 degree chute 6' x 54" .. ....... ................... .. ............. 1 5.83 5.83 t t
Transverse washer 14 brush w/3 HPM .......... 1 206.70 206.70 .158 .158
Inclined crate elevator 16' x 30" w/2 HPM*- .................. 1 205.50 205.50 .1285 .1285
4 Wheel dolly ....--------.......-..---...--...--.....-..-...-- .... 2 30.00 60.00 t t
Assembly table ........- ------ -----.--------- -------....1 7.50 7.50 t t
Hand truck, clamp type ........ ---.................................. 4 13.35 53.40 .0044 .0044
Box chutes -... ... .......... ....... ............ ...... 3 23.33 69.99 .0100 .0300
Conveyor belt 40' x 12" w/1 HPM ........--- .............. ............... 1 71.63 71.63 .0607 .0607
. _ . . . . .. . . _ .
1-










K.

TABLE 4.-Continued.

Estimated Annual Estimated Direct Cost
Item Number Fixed Cost Per Hour
Required I II
Per Unit | Total Per Unit Total
S-- dollars- dollars per hour -
W axer w/1 HPM ----........-........ -------------. ..- ..---...... 1 leased ........ .0300 .0300
Color add tank w/3 HPM ............-......--............... .......... 1 leased ....... .0300 .0900
Roller rinse elevator 5' x 54" w/con. dr. ............................. 1 78.75 78.75 .0262 .0262
Cross belt 15' x 24" w/% HPM ........................................---- 1 32.08 32.08 .0362 .0362
Drier, 38 brush comp. w/3 HPM .....----- .------..--...........- 1 634.05 634.05 .3014 .3014
Roller elevator 5' x 54" w/con. dr. .................... ..-........... ... 1 57.75 57.75 .0192 .0192
Drip dry slat conveyor 26' x 72" w/11/2 HPM ........... 1 142.50 142.50 .0925 .0925
Grading table double 26' x 22" w/2 HPM ................................ 1 346.73 346.73 .2086 .2086
Marking machine 6 run wv/% HPM .................................. 1 372.90 372.90 .1468 .1468
Cross belt 15' x 24" w/% HPM ............... .................. 1 32.08 32.08 .0362 .0362
Distributing belt 45' x 52" w/3 HPM ................................... 1 315.00 315.00 .2250 .2250
Sizer double 40' comp. w/return belt w/1 HPM ....... 2 341.25 682.50 .1438 .2876
Sizer single 40' comp. w/return belt w/34 HPM .............. 2 180.00 360.00 .0825 .1650
Packed box belt conveyor 36' x 12" w/1 HPM ....................... 3 66.97 200.91 .0587 .1761
Packed box conveyor belt 246' w/1 HPM .......................... 1 287.47 287.47 .1532 .1532
Packing stands ..................... .... ...... .- ...... .... ....... 15 3.50 52.50 .0015 .0225
Hand truck, clamp type .......-....... ... ....................... 4 13.35 53.40 .0044 .0176
Conveyor belt 72' x 24" w/ll2 HPM ... ..-... ..------- .........- 1 127.05 127.05 .0994 .0994
Conveyor belt 52' x 24" w/1 HPM ...-................................. -1 101.15 101.15 .0734 .0734
Bag crates .....----.. --------.... ... ... ......... ..... 75 .37 27.75 I t I -------


Total .. . .. ... .... .... ..... ...... ... ... .. 7,193.35 3.9480

Used for tangerines only.
SDirect repair cost included in fixed cost.







Economies of Scale in Florida Citrus Packinghoiuses 23

mated fixed costs for the individual items of equipment. Total
direct costs were calculated by adding the hourly direct costs
for the specific items of equipment and multiplying by the season
hours of operation.
The next step in estimating packinghouse cost was the calcu-
lation of building costs. The first problem in this process was the
determination of the building size. The space requirements for
each packinghouse were determined after selecting the necessary
equipment and developing an appropriate packinghouse layout.
A summary of the estimated annual fixed costs is shown in
Table 5.4
The investment for acquisition of a building site is important
to a firm planning to build a new packinghouse-both in terms
of the variations in land values from location to location, and
in the influence of location on costs of hauling fruit. However,
land costs were omitted in this study as a simplification. A
partial justification for omitting land costs was that this invest-
ment is related imperfectly to size of packinghouse.
Pick and Haul Costs.-Because the picking and hauling crews
are part of the packinghouse organization, the pick and haul cost
must be added to packinghouse expense to obtain the total costs.
As such, they receive their instructions and pay from the pack-
ing firm. The packing firm may use its picking and hauling
crew for harvesting fruit going to the packinghouse or the pro-
cessing plant. Pickers and loaders generally are paid on the
piece-rate basis. Picking foreman and truck drivers may or may
not be paid on a piece-rate basis. However, for convenience,
the calculations of all wages paid to pick and haul labor were
converted to a piece-rate basis.
The rates used are considered typical of those paid by the
industry during the 1953-54 season. Similarly, equipment costs
were converted to a piece-rate basis. It can be argued that this
is logical because the picking crew and equipment are geared
to an "efficient" rate of output and operate continuously through-
out the season, handling fruit going to the processing plant when
not handling fruit for the packinghouse. This tends to fix both
the rate of output and the length of season for equipment used.
Given the length of season and rate of output, the total volume
of fruit handled per crew can be calculated and cost of equip-

The procedures used in estimating annual fixed cost were based on the
methods used by L. L. Sammet and I. F. Davis, Building and Equipment of
Apple and Pear Packing, Giannini Foundation of Agricultural Economics,
Mimeographed Report No. 141, Berkeley: 1952.
















TABLE 5.-ESTIMATED REPLACEMENT COST AND ANNUAL FIXED COST OF SINGLE-UNIT MODEL PACKINGHOUSE, 300-Box-
PER-HOUR CAPACITY, FLORIDA, 1954.

Insur-
Area Plat- IEstimated Service Depreci- ance, Total
Type Within form Replace- Life ation' Repairs' Interest, Annual
Walls Area' ment I I Taxest Fixed
SCost3' __ Cost
square feet dollars years ----- dollars ----

Packing house area ............... 18,700 3,225 62,550 30 2,085 1,126 2,877 6,088
Electrical wiring .................... 10,000 15 667 180 460 1,307
Boiler unit and installation 12,000 15 800 216 552 1,568
Hard surface around building 7,000 10 700 126 322 1,148


Total ................. ......... 10,111

SCost calculated at the rate of $3.00 per so. ft, concrete block, reinforced building.
SCost calculated at the rate of $2.00 per so. ft.
: Estimated cost based on July 1, 1954, price level.
1 Depreciation calculated by straight-line method.
SRepairs calculated as 1.8 percent of replacement cost.
"o Insurance calculated as 0.6 percent of replacement cost: taxes 1.0 percent: interest 3.0 percent.







Economies of Scale in Florida Citrus Packinghouses 25

ment converted to a piece-rate basis. These rates and the total
season cost for various season output of packed fruit handled
are given in Table 6.
Total Costs per Season.-The summary of total season costs
for picking, hauling, packing and selling is given in Table 7.
The costs are divided into fixed cost, direct labor and equipment
cost, and other cost. Other costs include materials; various as-
sessments; power, fuel, water, etc.; and total administrative and
selling expenses. The methods used in calculating fixed and direct
costs have been discussed. Other costs were calculated by multi-
plying the piece rate given in the specifications for each item by
the season volume. Total costs per season for the various season
outputs were obtained by adding the elemental costs. Average
costs per season were estimated by dividing the total costs by
output.
Long-Run Average Cost Curve for Single-Unit Model Packing-
houses.-An approximation of the long-run cost curve is ob-
tained by plotting the short-run average total unit cost curves
for packinghouses with "efficient" capacity rates of 200, 450 and
750 boxes per hour, in addition to the 300 boxes per hour for
which the computation of costs was given, and then drawing
an envelope curve tangent to these derived curves. The result-
ing relationship approximates the long-run average cost curve
for the particular segment of the industry. This curve is often
referred to as a planning curve because of its importance to
economic interpretation of production problems.
The estimated packinghouse cost curves and the long-run
cost curve for single-unit model packinghouses are shown in
Figure 2. The individual packinghouse cost curves first decline
and then level off as the seasonal volume is increased. The long-
run average cost curve, when drawn tangent to the individual
packinghouse cost curves, declines and levels off within the range
of packinghouse size for which costs were developed. This long-
run average cost curve decreases primarily for two reasons:
(1) more efficient use of certain indivisible worker assignments
(checker, foreman, night watchman), and the guaranteed weekly
pay of these and certain other key workers, and (2) higher
economic efficiency from larger equipment (a large machine
usually has lower costs per unit of output than the small version
of the same machine).

SR. G. Bressler. Jr., "Research Determination of Economies of Scale,"
Journal of Farm Economics, Vol. XXVII (August, 1945) p. 528.










TABLE 6.-SUMMARY OF ESTIMATED LABOR AND DIRECT EQUIPMENT COST FOR PICKING AND HAULING FRESH CITRUS FRUITS, L
SINGLE-UNIT MODEL PACKINGHOUSE, 300-BOX-PER-HOUR CAPACITY, FLORIDA, 1954. o


SRate Estimated Direct Cost at Season Volume of *
Item per
Box 180,000 210,000 240,000 270,000 300,000 330,000
Boxes Boxes Boxes Boxes Boxes Boxes
dollars -
Labor I I
Picking foreman ............----- ..........---- .... .01110 3,330 3,885 4,440 4,995 5,550 6,105
Pickers
Oranges ......................... .................... .18 28,620 33,390 38,160 42,930 47,700 52,470 e
Grapefruit ........-- ....... .--.. ................- .12 14,760 17,220 19,680 22,140 24,600 27,060
Tangerines ....--..... ---..........---- .46 8,280 9,660 11,040 12,420 13,800 15,180
Loaders** .....-----......-.. ....... ..-......--- .. .04 720 840 960 1,080 1,200 1,320
Truck drivers ...................................... .01264 3,792 4,424 5,056 5,688 6,320 6,952

Total .........-.....-..---- ....--- ..... .....--. 59,502 69,419 79,336 89,253 99,170 109,087
Payroll Taxest .......................................... 4,165 4,859 5,554 6,248 6,942 7,636

Total Labor .............. .......... ....... 63,667 74,278 84,890 95,501 106,112 116,723

Equipment
Grove tractor w/lifts .---.....-..-...... ..-.. .02458 6,931 8,087 9,242 10,397 11,552 12,707
Flat-bed goat truck"'** ...------......--......-- .. 00322 58 68 77 87 96 106
Semi-trailer truck I
Tractor ...................--..-... -- ..........- .01625 4,875 5,687 6,500 7,312 8,124 8,936
Trailer ....................-...........-- ........ ---- .00244 732 854 976 1,098 1,220 1,342

Total equipment .................................... 12.596 14,696 16,795 18,894 20,992 23,091

Total direct cost .........................._. 76,263 88,974 101,685 114,395 127,104 139,814
Volume expressed in 1 3/5 bushel equivalents.
** Handled tangerines only.
t Seven percent of total labor costs to cover Workmen's Compensation and Social Security payments.









TABLE 7.-ESTIMATED TOTAL SEASON COST FOR PICKING, HAULING, PACKING AND SELLING CITRUS FRUITS, SINGLE-UNIT t
MODEL PACKINGHOUSE, 300-BOX-PER-HOUR CAPACITY, FLORIDA, 1954.

Total Cost at Season Volume of *
Item 1
180,000 210,000 240,000 270,000 300,000 330,000
Boxes Boxes Boxes Boxes Boxes Boxes
_--- dollars
Fixed Cost I 5
Pick and haul equipment ............. --.....--..... 10,024 11,694 13,365 15,035 16,706 18,377
Packinghouse equipment --.....-..... .......... -7,193 7,193 7,193 7,193 7,193 7,193 ^
Packinghouse building .................. .... 10,109 10,109 10,109 10,109 10,109 10,109

Direct Cost
Pick and haul labor ... ..................... 63,667 74,278 84,890 95,501 106,112 116,723
Pick and haul equipment ................................... 12,596 14,696 16,794 18,894 20,992 23,091
Packinghouse labor ....-------. ....... 47,589 53.531 60,585 67,852 75,393 83,101
Packinghouse equipment ....... 4,017 4,686 5,356 6,025 6,695 7,364

Other Cost
Material . . 77,638 90,577 103,517 116,456 129,396 142,336 2
Color add, wax -.. .... ..... .....-. -.. ......- 4,316 5,036 5.548 6,242 7,194 7,913
Assessments .. .... .. ... ... ........... . -. 13,833 16,139 18,445 20,750 23,056 25,362
Water, light, fuel, miscellaneous supplies .........-... 1,926 2,247 2,568 2,889 3,210 3,531
Total administration and selling ....---............-....--- 17,541 20,300 23,013 25,679 28,299 30,871


Total Season Cost ...-.. -----......--------270,449 310,486 351,383 392,625 434,355 475,971
Average Cost per Box ....--- ............ ..........-.... 1.5025 1.4785 1.4641 1.4542 1.4478 1.4423

Expressed in terms 4f 1 ': 5 buLsht,] equivalents. sC

-1









1.75 t


1.70


1.65 -
SShort-run plant cost curves.
200 for plants with indicated
1.60- capacities in boxes per hour

S1.55
\ 300
S1.50
o so



1oo 750
i -0 s 0 t

b 1.0 Long-run cost curve


S1.35-


1.30


0 -- I i i i II I i I p i i I i I
70 120 170 220 270 320 370 420 470 520 570 620 670 720 770 820 870
Season volume (000, 1-3/5 bushel equivalent)
Fig. 2.-Estimated long-run cost curve for picking, hauling, packing and selling citrus fruits, single-unit model
packinghouses, Florida, 1954.







Economies of Scale in Florida Citrus Packinghouses 29

OPERATING COSTS FOR TWO-UNIT MODEL PACKINGHOUSES
In order to investigate the possibility of reducing packing-
house operating costs by more complete utilization of available
labor, costs have been synthesized for a group of two-unit pack-
inghouses. The procedure used in estimating the total season
cost was, for all practical purposes, the same as for a single-unit
packinghouse. Costs were calculated for (1) a 400-box-per-hour
packinghouse made up of two 200-box-per-hour units; (2) a
500-box-per-hour packinghouse, including a 300-box-capacity unit
and a 200-box-capacity unit; (3) a 600-box-per-hour packing-
house made up of two 300-box-capacity units; and (4) a 750-box-
per-hour packinghouse composed of a 450-box unit and a 300-
box unit.
The packinghouse cost curves and long-run cost curve are
shown graphically in Figure 3. The individual packinghouse
cost curves first decline and then level off as the season volume
is increased. The long-run average cost curve, drawn tangent
to the plant cost curves, first decreases and then levels off. Note
that all the packinghouse curves were not tangent to the long-
run cost curve. The packinghouse with a capacity rate of oper-
ation of 600 boxes per hour was above the long-run curve drawn
tangent to the cost curves of the other plants. This indicates
that, for season output packed by the packinghouse with 600-
box-per-hour capacity, a combination other than two 300-box-
per-hour capacity units probably has lower costs.

COMPARISON OF COSTS FOR MODEL PACKINGHOUSES
The long-run total cost curve for the group of single-unit
packinghouses and the group of two-unit model packinghouses
is shown in Figure 4. These curves show that costs first decrease
and then level off for both the single-unit and two-unit packing-
houses as the capacity rate per hour of the individual packing-
houses increases. As stated previously, this is undoubtedly due
to (1) increased specialization of labor because the aggregate
of resources is larger and (2) qualitatively different and techno-
logically more efficient units of equipment possibilities.
The chart also shows that the single-unit model packinghouses
have lower operating costs than the two-unit model for season
volume less than approximately 380,000 boxes. For larger
season volumes two-unit houses tend to have lower costs. The
difference in cost increases from the "break-even" point of ap-
proximately 380,000 boxes to approximately 4 cents per box









1.75 --


1.70


1.65-

S 1.60
.r Short-run plant cost curves
5 for plants with indicated
S1.5 capacities in boxes per hour
1 ,200


1.3-0

1i, -I ,








04 120 170 220 270 320 370 420 470 520 570 620 670 720 770 820 870
Fig. 3.--Estia Long-run cost curve p h p cus fu ,

.ackinhos 35Flori

1.30


70 120 170 220 270 320 370 h20 470 520 570 620 670 720 770 820 870
Season volume (000, 1-3/5 bushel equivalent)

Fig. 3.-Estimated long-run cost curve for picking, hauling, packing and selling citrus fruits, two-unit model
packinghouses, Florida, 1954.





1.75


1.70 .


1.65-


o 1.60 Single-unit model packinghouse


1.55-






1.350
4 1.40



Two-unit model packinghouse

1.30.



70 120 170 220 270 320 370 420 470 520 570 620 670 720 770 820 870
Season volume (000, 1-3/5 bushel equivalent)
Fig. 4.-Comparison of the estimated long-run curves for picking, hauling, packing and selling citrus fruit by single-unit
model packinghouses and two-unit model packinghouses, Florida. 1954.






32 Florida Agricultural Experiment Stations

at a season volume of 600,000 boxes. The long-run cost curves
for both the single-unit model packinghouses and the two-unit
model packinghouses tend to be nearly horizontal beyond this
point. The difference in operating cost of two types of packing-
houses is due undoubtedly to the fact that the two-unit packing-
house can utilize more completely the available labor in a
packinghouse and reduce the number of weeks that some workers
are employed.

OPERATING COSTS FOR CONVENTIONAL PACKINGHOUSES
Season costs were developed for four conventional packing-
houses of the same sizes as used for single-unit model packing-
house. The primary difference between the two types is that
the conventional packinghouse uses field box handling and de-
greening of fruit, rather than the bulk system. These costs
were estimated within the same institutional framework regard-
ing prices of the productive factors, production standards, rates
of output, season variation, type of fruit, type of pack and level
of efficiency as were the costs for the model packinghouses. It
is assumed that box dumping is performed by a box-dumping
machine.
The individual packinghouse cost curves all decrease at first
and then level off (see Figure 5). The long-run average cost
curve traces the relationship between output and minimum aver-
age total cost, as the capacity rate of packinghouse is varied.
This curve, similar to the long-run cost curves for the model
packinghouses, first decreases and then levels off within the
prescribed output limits.

COMPARISON OF LONG-RUN COST CURVES FOR CONVENTIONAL
AND MODEL PACKINGHOUSES
The long-run cost curves for the three types of packinghouses
are compared in Figure 6. Long-run average total costs for the
three types of packinghouses decrease as the size of the packing-
house, defined in terms of rate per hour, increases. This situ-
ation can be said to exist only for the range in rates for which
costs were actually estimated. In actual operation, diseconomies
might be expected eventually, due to management difficulties
as the size of the packinghouse increased.
Two types of long-run savings may be possible: (1) those
which would result if packinghouses shifted from the conven-
tional field box automatic dump method now in use to the lower





1.80 -

"1.75 Short-run plant cost curves
. 200 for plants with indicated
capacities in boxes per hour
1.70 Z 0
o \
"1,65 300

1.60 -

0-0
8 450Q

P- o750
S1.50 Long-run cost curve o = --
1.5--


1.40 -


o _R I I I I I I I I I I I 1 I I 1
70 120 170 220 270 320 370 l20 L70 520 570 620 670 720 770 820 870

Season volume (000, 1-3/5 bushel equivalent)
Fig. 5.-Estimated long-run cost curve for picking, hauling, packing and selling citrus fruit, single-unit conventional
packinghouse, Florida, 1954.
Co








1.80o

1.75
Long-run cost curves
1.70

Conventional plants 2
1.65 -

1.60 -

1.55- \ \

S1.5D -
o



Single-unit model plants
1.4o

1.35 Two unit model plants

0 I I I I I I I I I I I i I I .
70 120 170 220 270 320 370 420 470 520 570 620 670 720 770 820 870
Season volume (000, 1-3/5 bushel equivalent)
Fig. 6.-Comparison of the estimated long-run cost curves for picking, hauling, packing and selling Florida citrus fruits for
three different types of packinghouses, Florida, 1954,







Economies of Scale in Florida Citrus Packinghouses 35

cost methods available, without changing the scale of the pack-
inghouse and (2) economies which might result from consoli-
dation and expansion. The first of these can be estimated by
comparing the long-run cost curves shown in Figure 6. This
diagram shows that the model packinghouses have lower costs
throughout the range for which costs were estimated. The dif-
ference between the single-unit conventional packinghouse and
the single-unit model packinghouse is approximately 80.13 per
box, for packinghouses with capacity rates of approximately 300
boxes per hour. This difference decreases gradually as the size
of the packinghouse is increased, with a difference of approxi-
mately 0S.10 per box within the range of packinghouses with
capacity rates of 450 to 750 boxes per hour.
The difference between the long-run cost curve of the two-
unit model packinghouse and the conventional packinghouse in-
creases from approximately 80.10 per box for a season volume
of 370,000 boxes to roughly 80.13 per box for the season volume
range from 600,000 to 820,000 boxes, the largest volume for
which costs were calculated.
The three long-run cost curves indicate that savings may
be possible through a moderate degree of expansion and consoli-
dation of the smaller packinghouses. In each case the long-run
curves decrease rather rapidly at first and then tend to become
horizontal, as the rate of output is increased. The curve for the
conventional packinghouse shows that the difference between
a packinghouse operating at a capacity rate of 200 boxes per
hour and a season volume of 120,000 boxes (point of tangency),
and a packinghouse operating at a capacity rate of 750 boxes
per hour and a season volume of 720,000 boxes (point of tan-
gency), is approximately 80.36 per box. The difference between
the point of tangency of the smallest packinghouse for which
costs were calculated (capacity rate of 200 boxes per hour) and
the largest packinghouse (capacity rate of 750 boxes per hour)
is approximately $0.20 per box for the single-unit model packing-
house long-run cost curve. The long-run cost curve for the two-
unit model packinghouse decreases approximately 80.12 per box
from the smallest packinghouse (400-box-per-hour capacity) to
the largest (750-box-per-hour capacity).
The potential savings estimated above apply mostly to firms
interested in building new packinghouses. Firms owning pack-
inghouse facilities need to consider the salvage value of their
present durable facilities in estimating savings that might result







36 Florida Agricultural Experiment Stations

by shifting from existing packinghouse to a model-type packing-
house. No attempt has been made to estimate this value.

COMPARISON OF SYNTHESIZED LONG-RUN COSTS AND
ACCOUNTING DATA
As a matter of interest, the average season cost of the 43
firms from which the 1953-54 accounting data were obtained
have been plotted in Figure 7 along with the synthesized long-
run cost curves. The dots on the chart represent the costs from
accounting records and volume for individual packinghouses
operating with varying amounts excess capacity. The average
costs include the picking, hauling, packing and selling expenses
that were included in the synthesized costs." The packinghouses
mostly used what has been described in this study as the con-
ventional method. One might then expect, theoretically at least,
that all the average cost observations would fall above the con-
ventional synthesized long-run cost curve because this "enve-
lope" curve attempts to define the lowest costs for various
volumes.7
There are several logical explanations for the fact that some
of the average season costs fall below the synthesized long-run
cost curve. The first of these lies in the allocation of fixed costs.
The fixed cost of equipment and packinghouse for the synthe-
sized costs was based upon the 1954 price level. The fixed costs
of the accounting observation were based mostly upon price
levels lower than that existing in 1954. Also, in some cases, the
investments in equipment have, in an accounting sense, been
depreciated completely. A second factor that influences the
relative level of the synthesized and accounting costs is the level
of wage rates paid by the individual firms. Many firms paid
wage rates lower than those used in the development of the
synthesized costs. In addition, the assumptions regarding over-
time wage rates and assurance of minimum employment affected
the level of the long-run cost curve. As stated earlier, not all
packinghouses follow this procedure. Another factor that in-

SDetailed discussion of these season costs have been reported by Eric
Thor and A. H. Spurlock, Cost of Packing and Selling Florida Fresh Citrus
Fruits, Department of Agricultural Economics, University of Florida,
Mimeo Report 55-4 (Gainesville: January, 1955); and A. H. Spurlock,
Cost of Picking and Hauling Florida Citrus Fruits, Department of Agri-
cultural Economics, University of Florida, Mimeo Report 55-5 (Gaines-
ville: January, 1955).
7Detailed discussion of the relationship of accounting data to synthe-
sized cost curves-see R. G. Bressler, op. cit., pp. 526-528.








Economies of Scale in Florida Citrus Packinghouses 37

fluences the level of the accounting costs is the percentage of
the various types of fruit packed in the individual packing-
houses. For example, the packinghouse represented by the aver-
age cost observation of $1.30 per box with a season volume of
380,000 boxes specialized in packing grapefruit (74.2 percent
of 1953-54 pack). The piece rate for picking and packing grape-
fruit was less than that for oranges and tangerines. This higher

1.90 o

1.85 o
0
1.80 -

1.75 I Conventional plants
1.70



1.65 o

00
1g 60 o o \



S \ 0


S- Single-unit model plants
o 0 o
1.40 - oa
0



1.30 o

1.25


1 2 3 4 5 6 7 8 9 10 U

Season volume packed (000,000, 1-3/5
bushel equivalent)

Fig. 7.-The comparison of the synthesized long-run costs and the aver-
age season cost of 43 packing firms for picking, hauling, packing and selling
Florida citrus fruits, 1953-54.







38 Florida Agricultural Experiment Stations

percentage of grapefruit tended to result in lower average cost
than if the firm had packed the same percentage of each type
of fruit and type of pack as assumed in computing the synthe-
sized costs.
The relationship between the synthesized long-run cost curves
and the average cost-volume relationships based on accounting
data is not well defined. This is because the two sets of cost
estimates are not comparable in a true sense. The long-run
synthesized cost function shows the cost level that may be ex-
pected from packinghouse operations of various sizes, when
they are organized as efficiently as possible under specified con-
ditions. The average cost-volume relationships based on account-
ing data combine and confuse economies of scale with internal
efficiencies, so that the results describe neither the short-run
cost changes that an individual packinghouse may achieve by
expanding volume and "spreading overhead costs" nor the long-
run cost changes that result from adjustments in scale of oper-
ation. Finally, as pointed out, the accounting costs have not
been standardized with reference to factor prices.

SUMMARY AND CONCLUSIONS
From the analyses presented it is apparent that there are
three pronounced types of long-run economies possible in the
operation of Florida citrus packinghouses: (1) those which would
result if packinghouses shifted from the conventional field box
automatic dump method to the lower cost methods available,
without changing the scale of the packinghouse; (2) savings
that might result if firms packing more than 380,000 boxes per
season shifted to a two-unit type operation; and (3) economies
which might result from consolidation and expansion. The dif-
ference in costs between the single-unit conventional packing-
house (Fig. 5) and the single-unit model packinghouse (Fig. 2)
is roughly $0.13 per box, for packinghouses with capacity rates
of approximately 300 boxes per hour. This difference decreased
gradually as the size of the packinghouse increased, with a differ-
ence of approximately $0.10 per box for packinghouses with the
range of 450 to 750 boxes per hour. The difference between the
long-run cost curve of the two-unit model packinghouse and the
conventional packinghouse increased from approximately $0.10
per box for packinghouses with capacity rates of 400 to 450 boxes
per hour to roughly $0.13 per box for packinghouses with capacity
rates of 600 to 750 boxes per hour.







Economies of Scale in Florida Citrus Packinghouses 39

Single-unit model packinghouses have lower operating costs
than the two-unit model for season volume of less than approxi-
mately 380,000 boxes. For season volumes larger than this,
two-unit houses tend to have lower costs. The difference in
costs increases from the "break-even" point of approximately
380,000 boxes to approximately 4 cents per box at a season
volume of 600,000 boxes. The long-run cost curves for both the
single-unit model packinghouses and the two-unit model packing-
houses tend to be nearly horizontal beyond this point. The dif-
ference in operating cost of two types of packinghouses is due
undoubtedly to the fact that the two-unit packinghouse is able
to utilize more completely the available labor and can reduce
the number of weeks that some workers are employed.
Increasing the scale of the conventional type packinghouse
from 200 boxes per hour, with a season volume of 120,000 boxes,
to 750 boxes per hour, with a season volume of 720,000 boxes,
would reduce the average cost approximately 80.25 per box. The
difference in average cost of a 200-box-per-hour packinghouse
with a season volume of 120,000 boxes and a 750-box-per-hour
packinghouse with a season volume of 720,000 boxes for the
single-unit model packinghouse is approximately S0.20 per box.
Increasing the size of the two-unit model packinghouse from 400-
box-per-hour capacity with a season volume of 250,000 boxes to
750-box-per-hour capacity with a season volume of 720,000 boxes
would reduce the average cost S0.12 per box.
These potential savings to the citrus industry are only rough
indications because, as pointed out earlier, the sample of pack-
inghouses from which data were obtained cannot be said to be
truly representative. Also, most of the possible savings involve
changes in durable facilities and, therefore, would probably be
economical only as existing facilities are worn out. The real
importance of estimating potential savings to the industry is to
suggest the general possibilities available through increasing
efficiency and economy within packing plants and through con-
solidation.





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