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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:

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record keeping for cost analysis

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
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
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
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
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
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
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
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 differently1
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
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
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
  • It is important to recognize these costs & set money aside for it each year; for replacement purposes

$20,000

5 yrs.

$4,000

fixed costs for chicken tractor
Fixed Costs for Chicken Tractor
  • ITEM: Cost: In Months Monthly Cost
  • 8’x10’ Frame $75.00 60 $1.25
  • Tarp $20.00 12 $1.67
  • 2-T-Fittings $14.00 48 $0.23
  • 4-Corner Fittings $14.00 48 $0.23
  • 5-10’¾” Pipes $40.00 48 $0.66
  • Roll tie-wire $3.50 48 $0.07
  • 40ft Wire Mesh $87.60 48 $1.83
  • 2-12’ 1 3/8” Pipe $21.58 60 $0.36
  • 2-1” Frame Hinge $8.96 60 $0.15
  • 5 Gallon bucket $5.99 24 $0.25
  • 2-2”x4”12’ lumber $17.08 36 $0.47
  • 1/4” -8’x4’ Plywood $35.70 36 $0.99
  • ½ lb Common Nail $0.43 120 $0.00
  • Labor $24.00
    • TOTAL: $367.84 $8.16
fixed costs to consider
Fixed Costs to Consider

Initial Investment

VS.

Allocated Investment Cost per Cycle

production costs
Production Costs
  • Explore costs and their alternatives weighing their pros and cons
how to calculate profit
How To Calculate Profit

Dozens of Eggs Sold

x Sale Price per Dozen

Production Costs

= Profitability

breakeven price
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 price1
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
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.