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GREENHOUSE COST MANAGEMENT Dr. Robin G. Brumfield RCE Specialist in Farm Management Sponsors Risk Education CSREES/USDA Northeast Risk Management Center Rutgers Cooperative Extension Office of Continuing Professional Education Green Industry One of the fastest growing ag sectors

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Greenhouse cost management l.jpg

GREENHOUSE COST MANAGEMENT

Dr. Robin G. Brumfield

RCE Specialist in Farm Management


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Sponsors

  • Risk Education CSREES/USDA Northeast Risk Management Center

  • Rutgers Cooperative Extension

  • Office of Continuing Professional Education


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Green Industry

  • One of the fastest growing ag sectors

  • 2nd largest sector after crops

  • Most important sector in 5 states including NJ

  • Consists of floriculture and nursery

  • Nursery gross receipts were down in 2001, but floriculture still increased


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Challenges to the Industry

  • Public concern about chemicals & water pollution

  • Stalled economy

  • Shift to a mature market

  • New regulations

  • Labor

  • Market segmentation

  • Rising costs, but flat prices

  • Changing technology


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Financial Management is Critical to Success in:

  • Budgeting

  • Managing Cash Flow

  • Controlling Credit

  • Pricing

  • Obtaining Capital

  • Profitability

  • Planning


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OBJECTIVES

  • Identify items with low cost = Comparative Advantage

  • Identify items with high cost - Reduce them!


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Costs Vary From Grower to Grower Because of:

  • Size of operation

  • Location

  • Managerial practices

  • Time of year

  • Market channel

  • Volume of production


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Costs Vary From Grower to Grower Because

  • Other options for greenhouse space

  • Size of permanent crew

  • Availability of part-time labor

  • Type of heating system

  • Greenhouse layout

  • How quickly you pay suppliers


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Everyone’s Costs are Different!

Calculate Your Costs for Your Firm!


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Tools for Cost Accounting

  • Income Statement

  • Spreadsheet


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Overhead Costs

  • Also called Fixed Costs

  • Total overhead costs remain constant as production increases

  • Costs per unit decrease as more units are produced


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Salaries

Depreciation

Interest

Repairs

Taxes

Insurance

Land Rental

Contributions

Heat

Advertising

Dues & Subscriptions

Travel & Ent.

Office Expenses

Professional Fees

Bad Debt

Overhead Costs


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Items from Income Statement(20,000 square foot double poly)

  • Sales $182,610


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Income Statement (20,000 square foot double poly)

  • Directs costs

    • Seeds, cutting, or plant $ 19,092

    • Pots or containers $ 9,490

    • Growing medium $ 9,150

    • Fertilizer and chemicals $ 1,130

    • Tags $ 3,788


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Salaries and Wages

  • Overhead salaries

    (including benefits) $ 37,384

  • General wages

    (including benefits) $ 12,111


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Utilities

  • Heating fuel $ 20,000

  • Electricity $ 3,350

  • Telephone $ 1,480


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Overhead

  • Depreciation $ 16,750

  • Interest $ 16,800

  • Repairs $ 3,725

  • Taxes $ 550

  • Insurance $ 3,240

  • Advertising $ 485

  • Dues and subscriptions $ 100


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Overhead (continued)

  • Travel and entertainment $ 345

  • Office expense $ 314

  • Professional fees $ 550

  • Truck expense & eq. rental $ 7,150

  • Land rental $ 2,000

  • Contributions $ 18

  • Bad debts $ 925

  • Miscellaneous $ 550


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Space Utilization

  • Greenhouse area 20,000 (ft²)

  • Space used for production 75%

  • Weeks in operation 29 weeks


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Variable Costs

  • Variable Costs

  • Also called Direct Costs

  • Total variable costs increase as production increases

  • Cost per unit is constant


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Variable Costs

  • Material costs

    • Flats

    • Inserts

    • Seedlings

    • Media

    • Labels

    • Chemicals

  • Production labor


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Petunia Production

Number of units started 5,000

Square feet per unit 1.64

Weeks to grow 8

Percent sold 98%

Sales price $6.50


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Variable Costs of Petunia Production

Cost Crop Flat

Labor $3,385 $0.68

Seeds 1,320 0.41

Containers 2,900 0.68

Growing media 2,750 0.25

Fertilizer & Chemicals 155 0.03

Tags 823 0.16


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Steps to determine costs per unit

  • Enter Direct Costs

  • Program will allocate these to each crop

  • Other costs will be treated as Overhead Costs

  • Overhead cost is $0.267 per sq. ft.-wk.


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Firm XYZ Production Schedule

Item Petunia Marigold Geranium Geranium Pointsettias

Flats Flats Flats 4-inch 6-inch

No. of units 5,000 3,000 5000 10,000 15,000

Sq. ft./unit 1.64 1.64 1.64 0.11 1.00

Weeks 8 6 13 6 15

% sold 98% 98% 98% 95% 95%

Price $6.50 $6.50 $10.00 $1.20 $5.00


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Firm XYZ Costs

Item Petunia Marigold Geranium Geranium Pointsettias

Flats Flats Flats 4-inch 6-inch

Sales $31,850 $19,110 $49,000 $11,400 $71,250

Profit/crop $2,998 $4,430 $2,519 $4,790 ($2,605)

Profit/unit $0.61 $1.51 $0.51 $0.50 ($0.18)

Profit/sq.ft. $0.05 $0.15 $0.02 $0.73 ($0.01)

Sq.ft.-wk

Price $6.50 $6.50 $10.00 $1.20 $5.00


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Greenhouse Cost Accounting Program

  • Requires Microsoft Excel

  • Contact :Dr. Robin Brumfield

    [email protected]


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Costs :

  • Are grower specific.

  • Vary with production and marketing decisions.

  • Vary with

    • Market conditions

    • Labor supply

    • Age & condition of greenhouse

    • Managerial skill.

  • Should be calculated for your firm!


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