• TABLE OF CONTENTS
HIDE
 Front Cover
 Foreword
 Acknowledgement
 Table of Contents
 Introduction
 Objective
 Use in management decision...
 Explanation of the record...
 Essential records
 Summary and conclusions






Group Title: Economics Report - University of Florida. Agricultural Experiment Stations ; no. ?
Title: A method of determining machinery operating costs and costs of production practices in producing Florida citrus
CITATION THUMBNAILS PAGE IMAGE ZOOMABLE PAGE TEXT
Full Citation
STANDARD VIEW MARC VIEW
Permanent Link: http://ufdc.ufl.edu/UF00027782/00001
 Material Information
Title: A method of determining machinery operating costs and costs of production practices in producing Florida citrus
Series Title: Ag. econ. report
Physical Description: iv, 22 leaves : ill. ; 28 cm.
Language: English
Creator: Anderson, Charles L., 1927-1976
Deason, Douglas Louis, 1935-
Publisher: Dept. of Agricultural Economics, Florida Agricultural Experiment Stations and Florida Cooperative Extension Service, Institute of Food and Agricultural Sciences, University of Florida
Place of Publication: Gainesville
Publication Date: [1971]
 Subjects
Subject: Citrus fruit industry -- Costs -- Florida   ( lcsh )
Citrus -- Machinery -- Costs   ( lcsh )
Genre: government publication (state, provincial, terriorial, dependent)   ( marcgt )
non-fiction   ( marcgt )
 Notes
Statement of Responsibility: Charles L. Anderson, Douglas L. Deason.
General Note: Title from cover.
General Note: "July 1971."
Funding: Florida Historical Agriculture and Rural Life
 Record Information
Bibliographic ID: UF00027782
Volume ID: VID00001
Source Institution: Marston Science Library, George A. Smathers Libraries, University of Florida
Holding Location: Florida Agricultural Experiment Station, Florida Cooperative Extension Service, Florida Department of Agriculture and Consumer Services, and the Engineering and Industrial Experiment Station; Institute for Food and Agricultural Services (IFAS), University of Florida
Rights Management: All rights reserved by the source institution and holding location.
Resource Identifier: aleph - 001752418
oclc - 26832301
notis - AJG5368

Table of Contents
    Front Cover
        Front Cover
    Foreword
        Page i
    Acknowledgement
        Page ii
    Table of Contents
        Page iii
        Page iv
    Introduction
        Page 1
    Objective
        Page 1
    Use in management decision making
        Page 2
    Explanation of the record system
        Page 3
        Page 4
        Page 4b
        Page 5
    Essential records
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
        Page 12
        Page 13
        Page 14
        Page 15
        Page 16
        Page 17
        Page 18
        Page 19
        Page 20
    Summary and conclusions
        Page 21
        Page 22
Full Text



A Method of Determining Machinery


Operating


Costs and Costs of Production


Practices


in Producing Florida


Citrus


Department of Agricultural Economics
Florida Agricultural Experiment Stations and
Florida Cooperative Extension Service
Institute of Food and Agricultural Sciences
University of Florida, Gainesville


Charles L. Anderson
Douglas L. Deason


II I I I L J -- ~rrSI
I ~b-~rrs~c~-~laapaP~learr~


---`-~--~-- ~






















FOREWORD


The method of records and analysis presented here is specif-
ically designed for use by firms producing citrus. However, with
slight modification this system can be used by any agricultural
production unit wishing to make better determination of costs of
operation. A cattleman, dairyman, swine producer, etc., can keep
the same records and arrive at average cost per unit of product
by the same procedure. This should make the publication useful not
only for citrus producers but also for many other types of firms
involved in agricultural production.













ACKNOWLEDGMENTS


The following individuals and organizations have been of great

assistance in making this publication possible:


Dr. E. W. Cake
Professor of Agricultural Economics
Cooperative Extension Service, IFAS
University of Florida
Gainesville, Florida 32601

Bobby R. Bennett
Florida Farm Bureau
Gainesville, Florida 32601

Plymouth Citrus Growers Association
Plymouth, Florida 32768

Mack Jones
Formerly Extension Agent Farm Management
Cooperative Extension Service, IFAS
Lake County
Tavares, Florida 32778

James Hand
Extension Agent Farm Management
Cooperative Extension Service, IFAS
Lake County
Tavares, Florida 32778

Haines City Citrus Growers Association
Haines City, Florida 33844

Golden Gem Citrus Growers Association
Eustis, Florida 32726







TABLE OF CONTENTS


Page


FOREWORD . . . .

ACKNOWLEDGMENTS . . . .

LIST OF FIGURES . . . .

LIST OF FORMS . . . .

INTRODUCTION. . . . .

OBJECTIVE . . . .

USE IN MANAGEMENT DECISION MAKING .

EXPLANATION OF THE RECORD SYSTEM. .

ESSENTIAL RECORDS . .. . .

Forms for Recording Data . .


Form 1 Daily Worksheet for Crews (Spray
Form 2 Daily Worksheet for Crews (Grove
Form 3 Weekly Payroll . . .


Department)
Service). .


Form 4 Monthly Time Record of Labor by Practice
Form 5 Daily Hours of Machine Use by Practice .
Form 6 Machine Use and Practice Summary .


ANALYSIS . . . . . . .

Costs by Individual Machine Categories and Practice. .

Form 7 Equipment Operating Costs by Individual
Machine and by Category. . . .
Form 8 Summary of All Costs by Practice . .

SUMMARY AND CONCLUSIONS . . . . . .


LIST OF FIGURES


Figure
1 Flow chart of records system for deriving the costs of
machine operations involved in citrus production .


11.


iii


1


. . . .






LIST OF FORMS


Form

1

2

3

4

5

6

7

8


DAILY WORKSHEET (SPRAY DEPARTMENT) . .

DAILY WORKSHEET (GROVE SERVICE) . .

WEEKLY PAYROLL . . . . .

MONTHLY TIME RECORD OF LABOR BY PRACTICE . .

DAILY HOURS OF MACHINE USE BY PRACTICE . .

MACHINE USE AND PRACTICE SUMMARY.. .. ..

EQUIPMENT OPERATING COST BY INDIVIDUAL MACHINE AND

SUMMARY OF ALL COSTS BY PRACTICE . . .


Page


CATEGORY.













A METHOD OF DETERMINING MACHINERY OPERATING COSTS AND
COSTS OF PRODUCTION PRACTICES IN PRODUCING FLORIDA CITRUS


Charles L. Anderson and Douglas L. Deason


INTRODUCTION

This publication advances a method for determining the cost of
machinery operation. These data can be combined with labor and super-
vision costs into total costs per hour, per acre, per tank, etc., of
the many production practices necessary in the production of citrus.
Many individuals and organizations are showing an interest in better
methods of record keeping. It is the hope of the authors that know-
ledge of the method presented in this report will stimulate further
interest.


OBJECTIVE

The primary goal of a record keeping system is to measure,
compare and predict the average cost per unit of production. This
can be determined in the citrus industry in unit costs such as cost
per box, cost per.pound solids, etc. Estimates of citrus production
costs need to be improved. An essential step in this process is to
define the separate cost components which make up production. Exam-
ples of these are the cost of discing one acre and the cost of spraying
one acre. These costs can then be combined with yield data to arrive
at average total cost per unit of product.



Charles L. Anderson is assistant professor of agricultural economics
at the University of Florida. He is an area economist stationed at the
Agricultural Research and Education Center, Lake Alfred.

Douglas L. Deason is assistant professor of agricultural engineering
at the University of Florida. He is stationed at the Agricultural Re-
search and Education Center, Lake Alfred.













A METHOD OF DETERMINING MACHINERY OPERATING COSTS AND
COSTS OF PRODUCTION PRACTICES IN PRODUCING FLORIDA CITRUS


Charles L. Anderson and Douglas L. Deason


INTRODUCTION

This publication advances a method for determining the cost of
machinery operation. These data can be combined with labor and super-
vision costs into total costs per hour, per acre, per tank, etc., of
the many production practices necessary in the production of citrus.
Many individuals and organizations are showing an interest in better
methods of record keeping. It is the hope of the authors that know-
ledge of the method presented in this report will stimulate further
interest.


OBJECTIVE

The primary goal of a record keeping system is to measure,
compare and predict the average cost per unit of production. This
can be determined in the citrus industry in unit costs such as cost
per box, cost per.pound solids, etc. Estimates of citrus production
costs need to be improved. An essential step in this process is to
define the separate cost components which make up production. Exam-
ples of these are the cost of discing one acre and the cost of spraying
one acre. These costs can then be combined with yield data to arrive
at average total cost per unit of product.



Charles L. Anderson is assistant professor of agricultural economics
at the University of Florida. He is an area economist stationed at the
Agricultural Research and Education Center, Lake Alfred.

Douglas L. Deason is assistant professor of agricultural engineering
at the University of Florida. He is stationed at the Agricultural Re-
search and Education Center, Lake Alfred.









One way to estimate individual production efficiency is to com-
pare costs of the many production practices with industry averages,
or better, with averages of the more efficient operators within the
industry. However, this is difficult to do because of a lack of
detailed records and uniform methods of analysis. If an industry-
wide approach to determine cost data were adopted, more meaningful
comparisons could be made. A method by which such cost data can be
generated is presented in this report.


USE IN MANAGEMENT DECISION MAKING

A comprehensive system of machinery and labor records plus the
resulting analysis can serve as the basis for making many management
decisions. Such a machinery information system, designed to aid
management, is explained in detail in the body of this report.
This records system provides useful information on both labor
and machinery. Some possibilities for involving this records system
in both machinery and labor management decisions are presented below.
What aid to management can adequate record keeping and analysis
provide? The information from this system of records and analysis
can be used either in short-range or long-range business planning or
both. The results obtained by using this system also provide data
on the actual historical costs of carrying out specific production
practices. This is essential both for accurate enterprise analysis
and for establishing customer charges. Along with other sources of
information, the records provide management with the data necessary
for accurate budget projection. Accurate cost and usage documenta-
tion may serve as a-basis for making decisions relating to the purchase
of additional, new or improved equipment. Reduction in a line of
equipment might also be indicated.
Some management decisions, which would be facilitated by the
accumulation of several years of records, are worthy of mention. For
example, with a set of records on the performance of alternative items
of equipment -- tree hoes, discs, choppers, herbicide applicators, etc. --
which are designed to accomplish specific objectives, partial budgets1



iPartial budgets are comparisons of possible changes in costs and









comparing the various alternative methods may be developed to determine
which practice is more economical. Repair and other operating costs
related to the age of the machine can also serve as guides in making
replacement decisions, etc. Information of this type for machinery
used in the production of most Florida crops, particularly citrus,
is generally nonexistent. Over a number of analysis periods the
records will give valuable information on the trend in machinery
economics, labor efficiency, machine to labor ratios and the point,
if any, at which to discontinue substituting machinery for labor.
The economics of production dictates that scarce resources be
allocated to produce a product at the lowest unit cost. Machinery
and labor records make it possible to plan practices so as to make
full use of these resources. This system records periods of peak
labor requirements and possible periods when surplus labor is likely
throughout the year. By studying this situation, there is an oppor-
tunity to shift some practices that do not have to be done at a specific
time to a period of surplus labor. This change can contribute to making
year-round employment a more realistic and attainable goal. Thus the
proposed type of records and analysis can be a basis for management
decisions which affect the future plus serving as an accurate indicator
of where a firm has already been.


EXPLANATION OF THE RECORD SYSTEM

The data record forms, transfer procedures and final analysis
forms necessary to arrive at the primary objective of determining the
cost per unit of product are set forth in Figure 1. In/he figure the
blocks enclosed in dotted lines encompass the record frms to be kept
by the firm. Solid lines enclosing blocks designate analysis forms.
Beginning at the bottom of Figure 1 and progressing upward, the
chart shows the compilation of data needed to arrive at Total Hourly
Machine Costs (by individual machine and by groups of machines). Then,
as continuing steps in the flow chart are followed, the unit costs of
each practice are developed.



returns in a given time period where there is a contemplated change in
the use of production resources.









Form 8, Form 8,
Col. 14 Col. 15
Cost per Cost per Cost per Cost per
hour of tank of equivalent acre of
pracracticep practice tank____ "- practice

Form 8, Col. 13. Form 8 Col. 12
Total overall cost_ eJGeeneral administrative
of each practice and miscellaneous --
x eenses audit) _

Form 8, Col. 11 Form 8. Col. 10
Total machinery, labor, IProduction department,
and supervision cost salaries plus auto
by practice expenses laudit2 _I

Form 8, Col. 5, 7 & 8 Form 8, Col. 9 Form 8, Col. 3
Labor costs for each Total Labor and Machine cost by practice.
practice, skilled, machinery costs_ This includes costs of all
unskilled, and total by practice individual machines involved
in a particular practice
SiForm 4 1
Lab.orl ITime record
,Ratesl 1by practice
for labor I

Form 7, Col.. 12
Total Hourly Machine or
-->Machine Group Cost of
Operation (Fixed + Variable)


,Opportunity I I insurance, Taxes,, ,Depreciation,
(Cost for Capital License (audit) (audi-t)
Inves tment (op tional i

Form 7, Col. 8
Direct Cash Operating Cost Analysis
Calculated by machine or by machine group
I IIX-




Form 7. Col. 12


/-


.. Total Hourly Machine or
Machine Group Cost of
Operation (Fixed + Variable)

- ----------------1' I
Insurance, Taxes,, iDepreciationl
pital License _(audit)_ (audit)
optionala2


IGarage Chargesi
by _Machine_ _


IGarage Overhead1
I- (auditL -


IMacnine Shop Chargesl
LbyMachine


_jMachine Shop Overhead
L adt t


Form 6 1 _
iMonthly Use and Practice Summary
(Gives monthly totals of hours use for
leach item of equipment by practice andi


-- by machine, also summarizes fuel use
bymachine

Form 5 Form 4 Form 4
iDaily Hours of Machinery Use by Practicel ITime records of labor Information forl
IRecords the daily hours of upe for each i Ly practice Jmonthly)I 2aroll -
|jiece of equipment by jjob Erformed-fuel

Form 2 F_ l orm Form 3
Grove Service Daily Worksheet Spray Department Machine Emplo ye Hours
Records practice, equipment No., equipmentI lHours of Operation Record I Time cards, etc
practice, rain hrs., etc. and total hours,I Imachine no., description, hours
,recorded by operations_ ___ I operated, fuel use Tanks applied,,
etc. I


Figure l.--Flow chart of records system for deriving the costs of machine operations involved
in citrus production.


1Opportunity
ICost for Ca
Investment


-3LI


-V----


Form 7, Col. 8
- Direct Cash Operating Cost Analysis
lCalculated by machine or by machine grou


e I




5


Data kept daily by machine operators (Forms 1, 2 and 3)2 and
verified by the foremen are combined (Figure 1) to complete forms
which show Daily Hours of Machine Use by Practices (Form 5) and:
Time Records of Labor by Practices (Form 4) as well as to make up
payroll information.
Form 6 is completed from data compiled on Form 5 (Figure 1).
Data from Form 6 are combined with Fuel Records (these can be kept
on Form 5), Garage Charges (including Garage Overhead) and Machine
Shop Charges (including Shop Overhead) to arrive at the Direct Cash
Operating Cost Analysis block. These data are found later in Column 8,
Form 7.
As shown in the group of blocks in the middle of Figure 1, the fixed
costs of Insurance, Taxes, Licenses, Opportunity Costs (Interest on
Investment) and Depreciation are combined to give Total Hourly Machine
or Machine Group Cost of Operation. This is the cost of operating
machinery without the consideration of labor or supervision.
Next, in the flow of information shown in Figure 1, Form 8,
Col'. 3 contains data developed from Form 7, Col. 12 and Form 6. Total
Labor Rates and Time Record for Labor by Practices (Form 4) are combined
to arrive at Total Labor Cost for Each Practice (Form 8, Columns 5, 7
/and 8). These data are then aggregated with data from Form 8, Col. 3
S to show Total Labor and Machinery Costs by Practice (Form 8, Col. 9).
To these costs are then added those of Supervision and Auto Expense
which, in turn, are combined with General Administration and Miscella-
neous Charges to arrive at Total Overall Costs by Practice (Form 8,
Col. 13). These data can be divided by total hours, tanks, acres,
etc., to arrive at the objective--costs per unit for each production
practice or by yield data to calculate costs per box or pounds solids.
In looking at the overall organization of this method of cost
accounting, the advantages derived from carrying out the several steps
necessary to arrive at the objective can be visualized. All steps in
this analysis may not be applicable to firms of different sizes and
structures. For example, after calculating the Total Labor and Machinery


2These individual forms and others will be discussed fully later in
text. These forms may also be used to charge out work to clients or
members, whatever the case may be.








Costs, a small operator might have sufficient information to fulfill
his analytical needs. A larger operation with only one manager would
probably need to move to the next step in order to assure the coverage
of all administrative costs. Variations of the method presented may
be adapted to various sizes or types of operations.


ESSENTIAL RECORDS

The method used to present the mechanics of the record keeping
system recommended will be that of taking one group of machines
through the entire analysis. It is not the intention of the authors
to prescribe here the exact forms to be used by any one firm, but to
describe the data necessary for analysis and comparison. Many firms
are probably keeping most of these data in one form or another.
Actual records are used as sources of data in several examples
which are illustrated in the various Forms shown in this report.
Nevertheless, some extreme hypothetical cases, including a supply
truck with very high costs, have been included. It is unusual to find
repair costs as high as those shown for this particular truck while
depreciation is also at a very high level. Normally, trucks with such

high repair costs are older trucks which are almost completely depre-
ciated. It will be quite evident that the data in the example of the
truck cited will show an increased total cost of spraying. The analysis
presented shows some of the many ways that well-kept machinery records
can be useful in making management decisions.


Forms for Recording Data

Form l.--Daily Worksheet for Crews (Spray Department)

Form 1 is kept by individual crews and is verified by the foremen.
In the example cited on Form 1 four pieces of equipment are involved--
one tractor, one air-blast sprayer and two supply trucks. In the
example form it is clear that the tractor and sprayer operated eight
hours and each supply unit operated three hours. The fuel consumed is
noted as well as equipment numbers, tanks applied and type of spraying,
whether dilute or concentrate. If the spray had been a concentrated
one, the concentration (2X, 6X, etc.) would have been noted under remarks.















DAILY WORKSHEET (SPRAY DEPARTMENT)


Equip.
No. Type of Equipment Hrs B/D Rain Fuel Tanks Remarks

/ Spray Tractor L
Sprayer g /6 Dilute
S Supply Truck 5
Transport Truck
2-Wheel Trailer
Crew Truck
Hand Tractor Sprayer
Hand Truck Sprayer__ _
2 Supply 7ruck 3 5' _
Finished Unfinished ^ Acres
Date j/gY70 Foreman 5ohn Doe-







Form 2 DAILY WORKSHEET (GROVE SERVICE)
Grower Grove No. Grove Name

Equip. Tray. jRain B/D Equip. Total
No. Employee Detail of Work Time Time Time Time Hours


Im' __>___







Finished Unfinished Acres
Date Foreman


Form 1








Preferably, the foremen should mark these forms as to whether or not
the spraying (or other) operation in a particular grove or block was
completed and, when completed, make an entry in the acreage blank.
The most difficult data to obtain with any degree of accuracy
on this form are the amounts of fuel used. If it is impossible to
get accurate data, fuel consumption may be estimated by periodic
checks of fuel consumption by different machines.


Form 2.--Daily Worksheet for Crews (Grove Service)

Where the Production Department is divided into two units such
as Grove Service and Insecticide, Form 2 (see p. 7) should be used by
the Grove Service Department. If there is only one department, Form 1
could be revised accordingly. Both forms could show travel time, a
significant variable in total costs per tank when the groves are spread
over a wide area. They could also show, as does Form 2, a column for
labor.


Form 3.--Weekly Payroll

Form 3 is optional. In cases where workers punch in and out
on a time clock, it would probably be helpful to keep this form on a
weekly basis. If data for labor are recorded on Forms 1 or 2, it is
really not necessary to keep Form 3. Form 4 is sufficient.


Form 4.--Monthly Time Record of Labor by Practice

Form 4 is a monthly summary of time records for labor by
operation. In this case study the hours for labor are taken directly
from Form 1. In the example cited the major item to keep in mind is
that supply truck operators are on the job for the same number of
hours as the tractor driver. Form 1 could be revised to show the
data in the same manner as Form 2; that is, equipment time and a total
column would show labor hours. At the end of the year the data in the
right-hand column of Form 4 for each of the 12 months can be added to
show total labor by practice for the year. For the present this is the
only use made of Form 4; however, transfers from it will be utilized
again in the analysis section of this report.






FORM 3


Foreman John Doe


WEEKLY PAYROLL

Week Ending 9/ //70 _


Total
Employee 2 3 4 5 6 7 8 Hours


~262-79- s3;27 8____

2;s1- 86-- 2/ 8

2o0 -9.5--378 ___ ___

































I__








MONTHLY TIME
MONTH ENDING


RECORD OF LABOR BY PRACTICE


INSECTICIDE DEPARTMENT
1 2 3 4 5 6 7 8 18 19 20 21 22 23 24 25 26 27 28 29 30 31 TOTAL

Air-blast Spray, Dilute 50
Air-blast Spray, 2X 51
Air-blast Spray, 6X 56
Boom Sprayer 60
Unskilled 60___
Hand Spray 61
Unskilled 61
Pre-bank Spray 65
Unskilled 65_
Herbicide Spray 68
Unskilled 68_
Dusting 69
Fill/Empty Heaters 70
Unskilled 70
Hand Operations 72
Unskilled 72_
Warehouse 77
Unskilled 77
Other Operations 79
Unskilled 79
Maint. & Overhead
Unskilled
TOTAL

*Obviously, this form is abbreviated and should have a column for each day of the month.


FORM 4








Form 5.--Daily Hours of Machine Use by Practice

This form is designed as a daily worksheet for data taken from
Forms 1 and 2. It is a listing of all equipment by groups. A column
is shown for each day in the month in which to record practices,
hours and fuel. Data are transferred from this form to complete
Form 6.


Form 6.--Machine Use and Practice Summary

Form 6 is a monthly total from Form 5 and is a very important
step in the data recording process. The data entered here are all
present on Form 5; however, Form 6 not only organizes the information
into systematic groups but also aids in checking for errors. The
columns show the total hours each group of equipment was used in a
practice and the rows (hortizontally) indicate the total number of hours
a single piece of equipment was used. A very important value of Form 6
is that before Daily Worksheets have been filed, it shows a check on
hours at the end of the month. The total hours of spray tractor use,
in this case eight, and the Total Use of Equipment should be the same.
If the total hours for spray tractors in each practice does not equal
the total amount of hours spray tractors were used, an error was made
in recording or transferring data.
Data from Form 6 are combined with charges received from the
Garage and Machine Shop to begin the analysis of the operation. This
is done later on Form 7.


Garage and Machine Shop Charges

These charges are presented monthly to the Production Department
by the Garage and Machine Shop. They are kept for individual pieces
of equipment. No effort is made to charge such items as welding rods,
small items of steel, electricity, etc., to individual tractors, discs,
machine hoes or the like. Two additional charges, Garage Overhead
and Shop Overhead, are made to account for such expenditures. One way
of allocating these costs to individual equipment units is by calculating
the ratio of Garage or Shop Charges to each unit to the total Garage or
Shop Charges for any month or the entire year. This percentage may be
used in allocating the overhead charges to a piece of machinery.















DAILY HOURS OF MACHINE USE BY PRACTICE


Equip. 9/3/70
Item No. Code & Hours Fuel 9/29/70 Fuel 9/30/70 Fuel


Spray Tractors 1 50-

I" 2

"U3

"I 4

Sprayers 1 50 -0

1? 2

i" 3

4 ______________________

Supply Trucks 1 50 -3

," 2 50-3

SI 11 3

It 2I 4

.I 5 ..

6

"6 7


Note: Obviously,
column for


this form is abbreviated and should have a
each day of the month.


FORM 5











FORM 6


MACHINE USE AND PRACTICE SUMMARY
(PLUS MONTHLY FUEL RECORD BY MACHINE)


Production Practice Codes Totala
Item No. 50 51- 52 70 72 77 78 79 Hours Fuel


Spray tractors 1 K **g

11 IT -

"I 3

,4

Total* g ***

Sprayer 1 **

2

3

it 4

Total* ***

Supply trucks 1 3 **

2 **

i" 3

I9 9? 4

II I" 5

6

II II 7


Total* ***__

aData in Columns 50 through 79 added horizontally.
*Machinery Category Use by practices.
**Total Individual Machine Use.
***This figure should total both vertically and horizontally.







Example: Assume that Tractor No. 25 had received $100 in repairs
in the Garage for the past month and that the total Garage Charges
for all equipment (excluding overhead) were $1,000 for the month. By
dividing the repairs for Tractor 25 by total Garage Charges,

$100 = .10 or 10%,
$1000
it is determined that the percent of total repairs for the month repre-
sented by Tractor 25 equals 10.
If a further assumption is made that Total Garage Overhead for the
same month was $150, this figure can be multiplied by 10 percent (from
the example calculated in the preceding paragraph). As a result, $15
would be added to the Garage Charges on Tractor 25. The same procedure
can be followed on Machine Shop Charges and Machine Shop Overhead.
Once these calculations have been made, these data and the data
from Form 6 can be used to begin the Analysis on Form 7.


ANALYSIS

Costs by Individual Machine Categories and Practices

Form 7.--Equipment Operating Costs by Individual Machine and by Category

This form, the first analysis form, will be discussed in detail.
The data for making entries come from several sources. The first
eight columns are developed from Form 6 and the charges made by the
Garage and Machine Shop.
This form is discussed by columns so there will be better under-
standing of the data sources.
The items column and the first numbered column come directly
from Form 6. In effect, they consist of a listing of equipment by
category and number. The first two pieces of machinery (Tractor No. 1
and Air-blast Sprayer No. 1) are the only equipment used in their
respective categories; consequently, there is no need for totals in
these categories. The figures listed are for the respective units.
The other two pieces of equipment being followed through the analysis
are two supply units; therefore, summations are made in the row opposite
Total for the Supply Truck category.










EQUIPMENT OPERATING COST BY INDIVIDUAL MACHINE AND BY CATEGORY


1 2 3 4 5 6 7 8a 9 10 11 12b 13c
Direct Total
ITEM Garage Shop Cash Int. Taxes Total Hourly
Garage Over- Shop Over- Oper. on Lie. Mach. Mach.
Fuel Charges head Charges head Cost Deprec. Inv. Ins. Cost Cost
No Hrs gals $ $ $ $ $ $ $ $ $ $ $

Spray tractor 1 725 /Oj50s/8.5- a8.568 6.oo 5.70 ~ .6 -90./' 4L75.0o /08.O3 J).6J //q3.2.q /.65



Total
Sprayer 1 72: +350 5-3.7s 758.19 15.G6 32,72. /.(o9 137r.zl /OSo.oo -"0o //9.(o 3073 i 2-Z
2
3
S____4_______

Total __
Supply truck 1 2'7/L 4S13 /1OO 1673. 6 35.02. 86./7 /3o0q 2070.5O 368.70 17500 96.,2 2660.6 9.o
2 2.72 #53 I5.oc 378./O 79/ --- -- 386.0/ 56.0o 0 /0 (/-o.5~ 501.55 70
"' 3
II i 4-
"i 5
i" 6
i T7
Total 554. ______69.29 5. 83

aDollars in Columns 3 through 7 added horizontally
bDollars in Columns 8 through 11 added horizontally.
cDollars in Column 12 divided by hours in Column 2.


FORM 7








Before the question arises, an explanation of the seeming dis-
crepancy existing between the 8 hours listed as total use of Tractor
No. 1 on Form 6 and the 725 listed on Form 7 is in order. Whereas
Form 6 is a monthly summary, totals from 12 of these forms are then
summed up on Form 7. Similarly, this procedure is followed for other
individual units of equipment.
The illustration shown in Form 6 relates to the use made of
this tractor for dilute spraying. Complete records on the use of
this unit throughout the year would likely show it was also used in
other practices. Such hours of use would have been included in the
monthly summary (Form 6) and would have been transferred from the
column entitled Total Hours, which is the next to the last column on
Form 6.
Column 3, Form 7 is the total from 12 months of fuel use trans-
ferred from Form 6. The average price of fuel for the year is deter-
mined from general office records and the monetary expenditure portion
of this column can be completed. In some cases, as mentioned earlier,
forms for keeping these raw data need not be identical. In other words,
the fuel record may be a sheet kept at the supply tank which also lists
equipment and dates. This record can be filled out by the equipment
operators as they fuel the equipment. Whatever the manner of keeping
the fuel record, a real effort should be made to insure its accuracy.
As previously discussed, Columns 4, 5, 6 and 7 are monthly
charges from the Garage and Machine Shop with overhead from both
calculated. The'first total in the process of determining the cost
of operating machinery is Column 8, Form 7. This column is a total
of costs in Columns 3, 4, 5, 6 and 7, and represents, as its title
explains, Direct Cash Operating Cost.
Column 9 is taken directly from the Depreciation Schedule and
is annual depreciation on each piece of equipment.
Interest on Investment (Column 10, Form,7) is the opportunity
cost of investing capital in tie piece of equipment instead of investing
it in another factor of production. This is calculated from data
appearing on the Depreciation Schedule also. The average value for the
period for any depreciable item may be determined by taking the Net
Book Value at the beginning of the fiscal year and adding the Net Book








Value at the end of the fiscal year and dividing this total by two.
This average value, multiplied by some predetermined capitalization
rate (interest rate), amounts to the opportunity cost or interest
on investment.
Column 11 is an allocation of a charge for Taxes, Licenses and
Insurance. If data on these items are not available for each unit of
equipment, they must be allocated. One method of doing so is on an
hour of use basis. The hours an individual piece of equipment is
used are divided by the total hours all equipment is used; the result-
ing fraction is then multiplied by the total cost of Taxes, Licenses,
and Insurance. This method will result in a reasonably accurate
estimate of these charges for machine use.
The Total Machine Cost, excluding any charges for Operating
Labor or Supervision, is shown in Column 12 of this form. It is
simply a total of Columns 8, 9, 10 and 11. In making an estimate at
any time during the year of what it costs to operate a machine, data
such as these in Column 8 (Cash Operating Cost) divided by the hours
of use to date could be combined with the total fixed costs from the
previous year (Columns 9, 10 and 11) divided by the hours use of the
previous year. This would be a good estimate and would be more accurate
than only considering total costs for the year in question. This is true
because there are periods of a year when some equipment is used many
more hours than in other periods of the year. For example, a watering
truck might be utilized only slightly or none at all while it is rain-
ing, but would be used daily in dry periods. By dividing the cost of
this machine into variable and fixed components, the cost per hour
could be calculated at anytime.
The Total Hourly Cost is shown in Column 13 of Form 7. It is
calculated by dividing Column 12 by Column 2. In most cases this should
be calculated as it was in the example for all Supply Trucks. Here,
the total cost for the two trucks was divided by the total hours of
use of both trucks; thereby showing actually an average cost of operating
the trucks. Of course if it is desired to know what each piece of
equipment costs to operate, calculations may be made only on the data
for one unit. Such has been done in the case of the Tractor and the







Air-blast Sprayer, since only one of each was involved in the example
used here.
An unsolved question of concern to the authors with respect to
the material in this section relates to the point at which a repair
becomes a capital expenditure instead of an expense. The decision
made could result in substantial variations in costs from year to
year. In the case of Supply Truck No. 1, it would be rather difficult
to justify so high an amount of Garage Charges as an expense in one
year. A bias in the analysis might result.
There may be a situation where high repair costs should be
considered as capital expenditures and added to the Net Book Value of
the machine. This would extend the life and spread depreciation costs
over several years. It is possible that, if enough trucks were involved
the data on average repairs would be fairly accurate figures. Never-
theless, the possibility of error still exists. This should be under-
stood and considered in record keeping and in the analysis of an operation.


Form 8.--Summary of All Costs by Practice

This form is a summary for the year, but could be used as a
monthly summary if the need were present. The first column is a listing
of practices carried out during the year. The first numbered column
is simply the code number which has been assigned to each practice.
These code numbers simplify the record keeping. Entries recorded on
Forms 5 and 6 show how the code numbers facilitate the recording of
raw data. Instead of the necessity of writing out the enterprise or
practice name each time an entry is made, the code number can be used,
thereby taking up less space in a necessarily limited area.
The data for each major unit used in a practice are transferred
from Form 6 to Column 2 (Hours of Operation) of Form 8. An example is
the Spray Tractor hours listed under Practice 50. If several tractors
werd involved, it would be the total hours that Spray Tractors were
Used in dilute spraying (Practice 50). These hours are multiplied
by the hourly cost of operating Spray Tractors (Column 13, Form 7).
The same is done with hours operated and the costs per hour of the spray
machine and the two supply units; these are totaled to give the amount
in Column 3. Major equipment hours are used for the data in Column 2,












SUMMARY OF ALL COSTS BY PRACTICE


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15a
Total
Labor Prod. Total
ITEM Hrs. Total Unskilled Total & Dept. Total G & A Total Cost Total
of Mach. Skilled Labor Labor Labor Mach. & Col. and Col. per hr. Cost
Code Oper. Costs Hrs. $ Hrs. $ 5 + 7 3 + 8 Auto 9 +10 Misc. 11+12 13-2 per tank


Spray, Dilute 50 72 5 1'"T321 2/75 4oq.22Z 409q72 1//55. 753.? 2I7Z,4 19O.2w ib.171 38 19.65 9.57

Spray, 2X 51

Spray, 6X 56

Boom Spray 60

Hand Spray 6 61_

Pre-bank Spray 65 __

Herbicide Spra) 68


aColumn 14 divided by number of tanks of dilute spray that have been
records are kept as notes on daily work sheets.
Note: The cost data illustrated are not presented as representative
represent costs which are probably somewhat higher than normal.


applied during the year.

of any actual operation.


These

They


FORM 8








but it is essential to return to Form 7 to obtain the hours each cate-
gory of equipment is used in a practice; this figure is multiplied by
the costs per hour of operation (Form 7, Col. 13) to calculate total
cost of each category of machine used in a practice. These totals
for the different categories are then added to give the figure which
is entered in Column 3, Form 8.
Data on hours worked by skilled and unskilled labor (Columns 4
and 6) are transferred directly from Form 4. Before these entries
are made, totals must be computed of the data contained in the monthly
Form 4 reports. Columns 5 and 7 must be calculated from the hours
recorded and the payroll information in the main office on-total wages
paid. Since individual workers are not classified on the basis of work
practices carried out, several assumptions in calculating hourly costs
of labor are necessary. The first assumption is that all equipment
operators are skilled in one degree or another. The second assumption
follows'-- their wages differ with their skills and length of employment.
The only group of workers with the same pay scale are those classed
as unskilled. To determine an average hourly cost for skilled workers
it is necessary to multiply the hours worked by the unskilled by the
hourly wage rate (including fringe benefits) for the unskilled and
subtract this figure from total wages paid. The remainder can then
be divided by the number of hours of skilled labor to arrive at the
average hourly wage for skilled employees. Column 5 can be calculated
next by multiplying the hours in Column 4 by the average hourly wage
for skilled workers.
Column 8 is a total of Columns 5 and 7 and amounts to Total
Labor Costs by Practice. When this is added to Column 3, the total
cost of Machinery and Labor by Practice is determined and entered in
Column 9.
The next step is to develop the data for Columns 10 and 12. This
is done by dividing the data in each row under Column 9 by the total
shown in this column. The resulting fraction is then multiplied by
the total costs charged for Production Department Expenses, including
Auto Expense, to develop Column 10, and by General Administrative plus
Miscellaneous to arrive at Column 12. If Column 11 is determined by








adding Columns 9 and 10, then it is necessary to add Column 12 to this
total to arrive at Total Costs (Column 13).
Column 14 is calculated by dividing dollars in Column 13 by
hours in Column 2. Column 15 is calculated by dividing dollars in
Column 13 by the number of tanks of dilute spray applied during the
year. These data can be kept on any of the daily or monthly forms
as notes. The acreages covered can be similarly noted.
When there is a discussion of equivalent tanks, this usually
refers to the coverage of a dilute spray. For example, if the costs
of 2X concentrate instead of dilute had been calculated, the cost of
an equivalent tank would be determined by dividing the cost of a 2X
tank by 2. This assumes twice the coverage by the concentrate tank.


SUMMARY AND CONCLUSIONS

The time has passed when production costs per acre are suf-
ficient data for management decisions. Perhaps such costs were never
satisfactory, but with the continual rise in prices of all inputs
(labor, machinery, materials, etc.), it will be more necessary in the
future to eliminate the "seat of the pants" decisions from citrus
production. A wrong decision in the years ahead will be more costly
than in the past and could very easily result in the failure of a
citrus growing business.
The old adage, "It's time to quit cutting bait and start
fishing," has been attributed by Orange County Extension Director
Henry Swanson as being particularly pertinent to the subject of this
report. It is possible to do just that with a good system of records
and analysis. The method described herein can be a very helpful tool
to management. It generates data on an individual operation which
can be very useful to management in decision making. Furthermore,
if several firms were following this procedure, there would be a basis
for comparing costs between organizations.
Many of the data required in the record keeping system recommended
are already kept in one form or another to meet the current requirements
of the Internal Revenue Service and the Department of Labor. It appears
that a small amount of additional detailed information would be appropriate




22


in designing an operating cost system for improved management efficiency.
In other words, if it is necessary to keep records for these external
organizations, why not make them useful for internal decisions?
The format presented here has been in the development stages
for several years and has proved useful as well as workable. It is
up to the citrus organizations to decide whether or not to make use of
it. Anyone can be average, but that's not.enough in today's economy.
THE CHALLENGE IS HERE! Do you know what your costs are?




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