Transcript Organics - Guam Sustainable Ag

Record Keeping for
Cost Analysis
Prepared by:
L. Robert Barber, Roland Quitugua & Ilene Iriarte
For:
Guam Cooperative Extension Service & Guam Department of
Agriculture
Funding provided by:
United States Department of Agriculture Natural Resources
Conservation Service, Western Region Sustainable Agriculture
Research and Education, Administration for Native Americans,, &
Sanctuary Incorporated
Record Management
• Financial records: to determine whether you are making
or loosing money (develop enterprise budgets) and how
much.
– Needed for pricing (cost analysis), government program
participation, and taxes.
• Production records: to prove compliance (organic),
maximize disaster benefits, plan activities and rotations,
ensure practices being implemented and anticipate
problems.
• Observation information: spot problems early, note
trends or capture ideas
• Most basic method: Start with a daily log of what you
do, use, observe, time involved (labor).
Accurate Record Keeping
• Requires a paper trail, very difficult to do after
the fact.
• Need a system to generate and store
information.
• If you have the information recorded and stored
you can later:
– Determine how to cut costs
– Claim maximum disaster benefits
– Maximize tax benefits
• “Make it a habit”
Record Collection Organization
• 1st Step is to generate & organize your records
• UOG-CES developed the FROG system
– (Friendly Record Organization for Guam)
– Convenient portable filling system
– Contains DAILY LOG
• Notes on what you do, what you used
– Generate & collect production cost and sales
information
– Keeps records in one place
• Date all entries
FROG System
• Based on a divided plastic portfolio
organized into several main categories:
– Contains all materials necessary for record
generation.
– Sales Receipts (Income)
– Crop/Enterprise Expenses (Reciepts, log:
materials use, log: time used)
– Whole farm costs
– Daily log & recording material
Determining Profitability
• INCOME:
Income – Expenses = Profit
– Production Quantity
– Market Price (Selling Price)
• EXPENSE:
– Fixed Costs (Whole Farm & Long Term)
– Variable Costs (Out of Pocket Costs & Labor)
Budget; Planning
• Good planning is essential for increasing
profits & insuring success
• Key planning tool is a summary of
expected costs (having a Budget)
• Most important input to use in planning is
past records of actual costs & returns
– First time may have guess
– Use past experiences and other “applicable”
resources
Costs (Handled Differently)
• Variable Costs: (Direct into Budget)
– Costs that change during the production cycle
– Frequently called out of pocket expenses
– Ex: are labor, feed, water, marketing
• Fixed Costs: (depends on life & number of
enterprises)
– Costs that remain the same during the production
cycle
– Ex: are chicken tractor canopy & tarp, vehicle,
property tax
Costs (Handled Differently)
• Variable Costs: (Direct into Budget)
– Costs that change during the production cycle
– Frequently called out of pocket expenses
– Ex: are labor, feed, water, marketing
• Fixed Costs: (depends on life & number of
enterprises)
– Costs that remain the same during the production
cycle
– Ex: are chicken tractor canopy & tarp, vehicle,
property tax
Fixed Costs
• Depreciating costs
– Estimating multi-year/crop cycle costs that occur in
one year but benefit the producer for many years
• Ex: Truck, irrigation equipment, vehicle
– If these costs are charged to one year it would look
like the business is unprofitable
• You can deal with this by:
– Divide these costs by the number of years the item
would be useful, & this value is charged for each year.
Depreciating Costs:
Estimating Multi-Year Fixed Costs
• Simplified Example:
– If a truck is bought for $20,000 and will be useful for 5
years, it would have an annual cost of $4,000
$20,000
$4,000
5 yrs.
• It is important to recognize these costs & set
money aside for it each year; for replacement
purposes
Fixed Costs for Chicken Tractor
ITEM:
Cost:
In Months
Monthly Cost
1. 8’x10’ Frame
$75.00
60
$1.25
2. Tarp
$20.00
12
$1.67
3. 2-T-Fittings
$14.00
48
$0.23
4. 4-Corner Fittings
$14.00
48
$0.23
5. 5-10’¾” Pipes
$40.00
48
$0.66
6. Roll tie-wire
$3.50
48
$0.07
7. 40ft Wire Mesh
$87.60
48
$1.83
8. 2-12’ 1 3/8” Pipe
$21.58
60
$0.36
9. 2-1” Frame Hinge
$8.96
60
$0.15
10. 5 Gallon bucket
$5.99
24
$0.25
11. 2-2”x4”12’ lumber
$17.08
36
$0.47
12. 1/4” -8’x4’ Plywood
$35.70
36
$0.99
13. ½ lb Common Nail
$0.43
120
$0.00
14. Labor
$24.00
TOTAL:
$367.84
$8.16
Fixed Costs to Consider
Initial Investment
VS.
Allocated Investment Cost per Cycle
Production Costs
• Explore costs and their alternatives
weighing their pros and cons
How To Calculate Profit
Dozens of Eggs Sold
x Sale Price per Dozen
Production Costs
= Profitability
Breakeven Price
• Breakeven price is the unit price that one
must obtain in the market in order to
cover cost of production
• To calculate breakeven price you:
– Divide the cost of production by the total
number of units produced
Breakeven Price
• Ex: If it cost $100 to produce 45 dozen
eggs, the breakeven price would be $2.22
per dozen of eggs
$100
45 dozen
$2.22 Per
Dozen Eggs
Home Work: Cost Analysis
• Due Friday before class starts
• Build a chicken tractor with the intention to sell
eggs produced for a profit.
• Compare two systems starting with baby chicks
or purchasing layers
• List: fixed costs, variable costs and break even
point and when can you expect to see a profit?
• Be prepared to recommend and defend one
system.