‘Q ‘A TEXAS AGRICULTURAL EXPERIMENT STATION A. B. CONNER, DIRECTOR College Station. Texas BULLETIN NO. 606 JANUARY 1942 COST AND PROFIT OF GINNING COTTON IN TEXAS W. E. PAULSON Division of Farm and Ranch Economics ' Sfififl‘? O AGRICULTURAL AND DIECHANICAL COLLEGE OF TEXAS T. O. WALTON, President B-4-—941—9M—L180 v LIBRARY O|n-n-_.--81‘“n» ¢anafi1nfi m I! Y A Texas cotton gin of the yesterdays. Courtesy of the Murray Gin Company. A Texas cotton gin of today, ,3 n’? £29 y This bulletin presents a comprehensive analysis of the cotton ginning business in Texas, with especial emphasis on costs and profits. It has been prepared primarily for students of the ginning business. The con- trolling influence of volume of ginning and investment in the gin plant 011 the cost and profit of ginning is analyzed. The distinct parts played by fixed; cost and by variable cost in the cost and profit of ginning are depicted. Factors underlying the success of an individual ginner are developed. The fundamental aspects of a successful ginning business in Texas are revealed. A section has been prepared especially for persons primarily interested in the practical use of the cost and p-rofit analysis. Simple and direct methods are provided for computing standard costs and profits by the tables of costs and of “break even” volumes in Appendix A. A ginner in comparing his actual cost and profit with his computed standard cost and profit may ascertain his own relative efficiency. The profit outlook of the ginning enterprise and the valuation forming the basis of purchase and sale engage the attention of bankers financing the purchasers of gins. This bulletin provides a. check on the profiit possibilities of the gin purchaser as well as on the validity of the valuation placed on the g-in plant whether new or secondhand. m Ginning is a fundamental service required; by cotton growers. Growers L11 desire first class service at a reasonable cost. The profit status of the ginner is of concern both to the ginner and to cotton growers. Various tables are presented to serve as guides for evaluating the position of a ginner in the ginning industry in terms of (1) conditions in his section 0f the state, (2) type of power, (3) volume of ginning, (4) investment in the gin plant, and (5) gin income per bale. The maintenance of the ginning industry, depending upon its con- tinuous and profitable operation, is of concern to ginner, cotton grower, and the general public. Means are provided in this bulletin for appraising the ginning industry of Texas in terms of the present ginning capacity, investment in the gin plants, volume of cotton production, and; gin income. This phase of the analysis is suggestive as to needed adjustments in the ginning industry to insure a stable and efficient ginning business in Texas. CONTENTS Page The Beginning of Commercial Ginning in Texas .................................. --' 8 Investment in Texas Gin Plants ..................... _- 8 Problems of Texas Gin Industry __________________________________________________________ __ 9 Purposes Served by Analysis of Ginning Costs and Profits‘ .............. _- 11 Records of Ginning Costs ______________________________________________________________________ _- 11 Factors Influencing Cost of Ginning ____________________________________________________ __ 14 Various Types of Averages _____ __ _ 16 Investments of Gins Studied __________________________________________________________________ __ 17 Volume of Ginning of Texas Gin Plants ______________________________________________ _- 19 Average Costs of Ginning ______________________ __ _ 22 Factors in Estimating Equation __________________________________________________________ __ 24 The Residual Cost __________________________________________________________________________ __ 25 Relation of Estimated Costs to Actual Costs ______________________________________ __ 26 Fixed Costs ____________________________________________________________________________________________ __ 28 Items of Cost _________________________________________________________________________________________ _- 28 Standards for Items of Cost .......................................................... __ 29 Fixed Costs of Items of Cost ........................................................ -_ 30 Variability of Items of Cost _________________________________________________________ __ 31 Cost of Gin Labor _______________________________ __ ____ 32 Hour Costs of Gin Labor, Fixed and Variable ______________________ _- 35 High and Low Hour Costs of Labor ____________________________________ -_ 36 Hour Costs Per Bale ______________________________________________________________ __ 36 Daily Gin Crews and Volume of Ginning ____________________________ -_ 38 Cost of 'Power____ __ _________________________________ __ 39 Cost of Repairs _____________________________________________________________________________ __ 42 Cost of Insurance and Taxes ________________________________________________________ __ 43 Cost of Depreciation ______________________________________________________________________ __ 44 Cost of Management ______________________________________________________________________ __ 46 Miscellaneous Cost __________________________________________________________________________ __ 46 Net Profits of Ginning .......................... -_ ______ _- 47 Uses of Volume Equation .............. __ -__- 49 Volume Required to Attain a Specified Cost Per Bale ______________ __ 50 Volume Needed to Yield a Specified Profit _________________________________ __ 51 Effect of Changes in the Gin Income Per Bale ____________________________ __ 51 Ginner Buying of Cotton ____________________ -_ _ 52 Volume Required to Warrant a Specified Investment in Gin Plant 55 Interest in Secondhand Plant ______________________________________________ __ 55 Value of Secondhand Plant .................................................. -_ 56 Investment a Given Volume of Ginning Justifies ________________________ __ 59 “Break Even” Volume According to Gin Income and Investment 61 “Break Even” and “Profit” Volumes __________________________________ __ 61 Profit Status of Gin Industry in Texas .................................................. -_ 63 Summary .............................................................................................. __ 69 CONTENTS-{lontinued Appendices" Page A. Tables for Computing Costs and Profits of Ginning ____________ __ 72 Items of Cost 72 Computing Total Costs of Ginning ________________________________ __ 74 How to Use Table of Computed Total Costs ________ __ 75 Computing Items of Cost 79 How to Use Tables of Computed Items of Cost ____ __ 79 Profits of Ginning 89 Tables of “Break Even” Volumes ________________________ __ 89 How to Use Tables of “Break Even” Volumes ____ __ 90 Controlling Costs 98 B. Equations for Estimating Total Costs of Ginning ______________ __ 99 C. Equations for Estimating Items of Cost ______________________________ __ 99 D. Correlations of Volumes of Ginning With Investments, Items of Cost, and Total Costs. Correlations of In- vestments With Items of Cost, and Total Costs __________ __ 101 E. Standard Errors and Coefficients of Determination of the Various Estimating Equations of Average Cost .......... _- 102 [Blank Page in Original Bulletin] COST AND PROFIT OF GINNING COTTON IN TEXAS W. E. Paulson‘ Research Specialist in Marketing The chief objective oi this bulletin is to answer questions pertaining to the ginning business. Such questions relate to the various phases oi the cost of ginning. Such questions also reach into the field oi the profit of the ginning business. The main part of this bulletin has been prepared ior students oi the ginning business. The fundamental factors influencing the cost and profit of ginning are revealed. The role of fixed and variable costs in the cost and profit oi ginning is depicted. The relation oi the volume oi ginning and the investment in the gin plant to the cost and profit oi ginning is analyzed. Means are provided for appraising both the profit status oi the Texas gin industry under existing ginning capacity, volume oi cotton production, and gin income per bale and the position in the gin industry of the individual ginner. In Appendix A, tables for computing costs and profits of ginning have been especially prepared for ginners, and others, whose primary interests center in devices ior computing costs and profits of ginning. These individuals are interested in the application of the results obtained through the analysis of _costs and profits of ginning. The individual ginner who may wish to determine his relative position in the gin industry may find all the information and explanations required in computing standard costs and profits oi ginning applying to his own situation as to section of the state, type oi power, size oi gin, volume oi ginning, investment in the gin plant, and gin income per bale. Thus Appendix A is complete in itseli in that no reference need be made to any other portion of this bulletin in order to carry out the specific purposes for which this section was developed, lAcknowledgments are made to: The Cooperative Division of the Farm Credit Administration for assistance in obtaining and in editing of schedules on cooperative gins for the seasons 1932-33 to 1935-36. The Houston Bank for Cooperatives for giving access to the records of the cooperative gins financed by that institution. The eight line ginners for giving access to the cost records oi their gin units. John C. Thompson, Executive Secretary, Texas Cotton Ginners’ Association. for his cooperation in gaining the active interest of line ginners in the study. A. M. Pendleton, Manager, Gin Department of the East Texas Cotton Oil Com- pany, for reading the manuscript and for offering many helpful suggestions Sterling C. Evans, former president, ‘Houston Bank for Cooperatives, for his dynamic interest in the study which has greatly stimulated its development. J. J. Danforth for his active assistance in obtaining and in editing of gin schedules, and for performing much of the statistical analysis of the study. The many colleagues in the A. and M. College of Texas for their assistance in many ways in the development of the study. 8 BUL-LETIN NO. 606, TEXAS‘ AGRICULTURAL EXPERIMENT STATION THE BEGINNING OF COMMERCIAL GINNING IN TEXAS For a hundred years following the invention of the cotton gin, im- provements in gin machinery made relatively little progress. The modern cotton gin is largely the development of the past 60 years. It seems that the United States Census made no reference to the Texas ginning industry before the Tenth Census of 1880. According to this report, the vast majority of the gins had from 40 to 50 saws. Most of these one-stand gins were operated by horse- or mule-power. In contrasting the relative merits of animal and steam power, the report stated: “On account of safety and cheaper insurance horse- or mule-power is preferable!“ In those days the typical cotton plantation had its own gin plant. Com- mercial ginning was almost unknown. The cost of ginning to the cotton grower was the cost of operating the plantation gin. The Census reports of 1880, 1890, and 1900, in commenting on th-e ginning industry called attention to a tendency towards consolidation into larger operating units. The following statement is from the Twelfth Census report: “The combintaion of the gin and the press afforded a wide field for inventors, and. each decade during the nineteenth century has wit- nessed improvements over the preceding. These improvemnts have tended to consolidate the cotton-ginning industries, and instead of many small ginneries there are now large central ones. Cost of ginning has de- creased, and small planters have found that the cost of keeping their ginneries in repair and the expense for labor and livestock necessary to operate them are greater than the fees of the large ginneries, which has led to the abandonment of small ginneries.” This stat-ement is illuminat- ing in several respects. It pictures a stage in the transition from the one-stand plantation gin to the larger custom gin. It indicates one way in which cotton growers of forty years ago lowered their cost of ginning service. It would appear that commercial ginning had its beginning 40 to 50 years ago. INVESTMENT IN TEXAS GIN PLANTS The total investment, exclusive of land, in all gins of Texas is approxi- mately $62,800,000, or an average of $18,848 per gin. The investment in land adds about $3,660,000, or $1,098 per gin. Thus the total invest- ment is $66,460,000, or $19,946 per gin. These estimates are based on the investments in the gins studied according to size and type of power applied to all gins according to size and type of power as reported by the Census Bureau for the year 1935. In canvassing possibilities for improving the economic status of the cotton grower, attention needs to be given to the grower’s cost of ginning service. Cost of ginning may have one of two meanings. The cost o! ginning to a grower patronizing a commercial gin is his outlay for gin 1Cotton Production in Texas, Tenth Census, Volume 5, Part I, page 157. zAgriculture, Twelfth Census, Volume VI, Part II, page 410. COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 9 tolls and bagging and ties; cost of ginning to the ginner is his cost of operating the gin plant. The weight of the ginning charge upon the grower is directly related to the price received for lint cotton. During the eight-year period, 1931-32 to 1938-39, cotton growers of West Texas paid an average of about $6.57 a bale for gin tolls and patterns. These charges absorb 26.3 per cent of the returns on five cent cotton; 13.1 per cent on 10 cent cotton; and 8.8 per cent on 15 cent cotton. Obviously, during periods of low cotton prices, growers are most concerned about reducing the cost of the ginning service. Any consideration of the possibilities of reducing the cost of ginning service to growers must take into account the economic interests of the ginner. A reduction in the gross income cuts into the ginner’s net income unless offset by other factors such as increased volume of ginning or increased efficiency in operations. The quality of the ginning service is of concern to the grower. First class service depends upon a fully equipped gin plant maintained in a high state of repair. A ginner oper- ating at a loss over a period of years would not be in position to make the repairs and replacements essential to first class service. PROBLEMS OF TEXAS GIN INDUSTRY Texas ginners of today are passing through a most trying period. During the past ten to twenty years, changes have occurred affecting both the cost and the income of ginners. Charges for ginning service per bale have been declining. Reductions in cotton acreage resulting in declining production of cotton have decreased the ginner’s volume. These changes have lowered his gin income and increased his cost of ginning per bale. There is an increasing tendency of growers to d-eliver seed cotton to the gin in greater than one bale lots late in the afternoon. This practice increases the ginner’s cost of storing seed cotton and increases his cost of gin labor through the necessity of payment for overtime. Growers tend to gather their seed cotton rougher each year as the cleaning and extracting equipment is improved. This forces the ginner to install the lastest machinery, thus adding to his investment load with no propor-‘ tionate compensation. If the present low production of cotton be continued in Texas, ginners will be forced to make sharp adjustments. The Texas gin industry has never been static. It has continuously been making changes in the number of plants, the size of plants, the type of power, and the type of equipment installed in the gin plant. The greatest number of gins ever reported in Texas was 4,833 for ‘the season 1902, the first year Census ginning records were compiled. The number of gins receded to a low of 4,452 in 1909. Then followed an increase in numbers to a high of 4,695 in 1913. This was followed by a decrease in numbers to a low of 3,772 in 1922. The number of gins then increased to a high of 4,030 in 1929. The number of gins in Texas has steadily declined ever since reaching 3,332 in 1939. 10 BULLETIN NO‘. 606, TEXAS» AGRICULTURAL EXPERIMENT STATION The number of gins does not give a true picture of ginning capacity. The size of the gins must also be taken into consideration. Fortunately, the Census Bureau has made a number of special surveys of all gins pertaining to such factors as size and type of power. Changes as to the number of gins, average size, and relative capacity, based on the Census surveys, are shown in Table 1. Table 1.—G-1nning Facilities 1n Texasl Average Saws Number o! Gins Number o1 Gins Per Gin 4/80 Equivalent" Year Actual Relative Actual Relative Actual Relative‘ 1906 -_- 4.532 100 204 100 2,889 100 1909 ________________________________ __ 4,452 98 229' 112 3,186 110 1914 ________________________________ __ 4,694 104 271 133 3,975 138 1919 4,113 91 E9 147 3,843 133 1935 ________________________________ __ 3,564 79 3'37 165 3,753 130 lDepartment oi! Commerce, Bureau of the Census: Cotton Production and Distribution, Season oi 1919-20, Bulletin 145, pages 3643-. Cotton Ginning Machinery and Equipment tor Tefqecitaiggiaws‘ of all gins divided by 320, the number of saws in a 4/80 gin. “Number of gins, average number of saws per gin, and number o1 4/80 equivalent gins tor 1906 taken as 100 per cent. As between 1906 and 1935, the number of gins in Texas decreased by 21 per cent. The average size of gins, as measured by the number of saws, increased by 65 per cent. On the assumption that the number of saws in a gin is a measure of its capacity, the number of 4/80 equivalents is an index on ginning capacity. In 1935 as contrasted with 1906, Texas had 968 less gins but an increased ginning capacity of 30 per cent. The surveys of the Census Bureau on ginning facilities show the number of gins by types of power. Table 2 indicates the prevalence of the various types as percentages of the total number of gins. Table 2.-Number of Gins 1n Texas with Various Types of Power Expressed as Percentages of Total, Numberl ‘ Number Type o1 Power Year } o 1 Gins” Gaso- Elec- l S-team Water line Animal tric Diesel Gas Total ’ l 1906 l 4,232 96.9 1.7 0.8 0.5 0.1 ---- ___ 100.0 1909 1 4,057 96.0 1.3 2.1 0.3 0.3 --__ _-- 100.0 1914 j 4,361 93.2 0.9 4.6 0.1 1.2 ____ --_ 100.0 1919 i 3,582 88.5 0.5 6.8 0.1 4.1 _-_- __- 100.0 1935 3,5641 42.7 0.3 -_- _-_ 19.6 29.5 8.7 100.83 lDepartmcnt of Commerce, Bureau of the Census: Cotton Production and Distribution, Sea- son ot 1919-20, Bulletin 145, pages 36-43. Cotton Ginning Machinery and Equipment for Texas, 1935. “Active gins, 1906, 1909, 1914, and 1919‘; all gins, 1935. sMultiple battery gins with more than one type oi power. counted for each type. As between 1906 and 1935, the most striking changes in the relative importance of the various types of power were: the decided decrease of COST AND PROFIT OF‘ GINNING COTTON IN TEXAS 11 steam power; the increase of electric power; and the introduction of Diesel and gas engines later than 1919. PURPOSES SERVED BY ANALYSIS OF GINNING COSTS AND PROFITS A careful analysis of the economic condition of the ginning industry should serve as a guide in the period of adjustment ahead. In such a study, an analysis of costs and profits of ginning should play a leading part. A comprehensive analysis of ginning costs and profits should be of service to ginners, cotton growers, and the general public in several ways. 1. A cost analysis makes possible the establishment of standards of per- formance. A ginner in comparing his costs with these standards may determine his own relative efficiency. The matter of costs of operation is particularly significant during a period of retrenchment. A ginner faced with the question whether or not he can continue in the ginning business may find the answer in comparing his costs, volume of ginning, and gin income with the general averages of all ginners. 2. The fairness of a given charge for ginning service may be judged only in terms of the cost of performing the service. The charge for ginning service may be a matter of conflict between grower and ginner. Especially during periods of low cotton prices, the grower may feel that the charge is too high. Likewise, during periods of low production, the ginner may feel that the charge is too low. With cost data at hand, an amicable adjustment of differences be- tween cotton growers and ginners should be facilitated. 3. A knowledge of costs of ginning at various volumes and investments should be useful to an individual about to enter the ginning business. The probable net income can be estimated in terms of investment in the gin plant, the prospective volume of ginning, and the gin income per bale, provided the cost of ginning can be estimated at the given investment and volume of ginning. Cost data should prove useful in arriving at the value of a secondhand gin plant. 4. Notwithstanding the changes in type of power shown in Table 2, the question still remains as to the relative advantages of the various types of power under specific circumstances. A cost analysis on the basis of type of power should be suggestive to the ginner faced with the problem of making a decision in this matter. 5. An analysis of ginning costs is basic in a general evaluation of the effects on the ginning industry of a governmental program which either increases or decreases the volume of cotton production. In that volume of ginning is so critical in costs and net profits of ginning, Whether. the production in Texas be fixed, for instance, at 3,000,000 bales annually, or at 4,500,000 bales, is of vital concern to the Texas ginning industry. 6. In analyzing both costs and profits of ginning, an appraisal may be made of the relations of volume of ginning, cost, and gin income per bale to net profits of ginning. The net returns on the investments in gin plants reveal the general profit, or loss, status of the industry. A profit analysis should throw light on the number, of gins the various volumes of cotton production can adequately support. RECORDS OF GINNING OOSTS Cost records were procured on cooperative gins operating in Texas through extensive field trips in 1934 and 1936. This phase of the study was in cooperation with the Cotton Section of the Cooperative Division in the Farm Credit Administration. The Cotton Section also edited the schedules obtained. Later records on cooperative gins were acquired from the Houston Bank for Cooperatives on the gins financed by that institution. Cost records were also secured from eight private line gin- ners. In such instances, records were obtained at the main offices on 12 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT‘ STATION the gin units operated. No records were procured from single unit private gins. The task of contacting these gins in terms of records obtainable was too great to be undertaken. The locations of the gins from which records were obtained are shown in Figure 9. The number of gins within the county is indicated without any particular effort to locate exactly each gin. Records on individual gins covered periods from one to seven ginning seasons, and in a few instances, for even a longer period. Cost records over a period of years should reflect a truer view of the conditions under which gins are oper- ated than would be the case if all the cost records had been obtained for a single season. In the main, records were secured on the seasons 1930-31 to 1938-39. More than 1,200 records were collected, edited, and analyzed. This cost analysis is based on a total ginning volume of 1,840,000 bales. During the period 1933-34 to 1937-38, the counties in which these gins are located produced 71 per cent of the total Texas crop—-60 per cent of the crop in the Blackland Area; 84 per cent in the High and Low Plains Area; and 73 per cent in the Gulf Coast Area. In studying the factors affecting the cost of ginning, the greater the uniformity of the conditions under which the gins are operated the greater the reliability of the results obtained. The matter arises whether the state should be taken as a unit, or whether it should be divided into a number of sections. As among the various areas of Texas, fundamental differences occur in the ginning industry. On about 20 per cent of the cost records obtained, information was secured as to the number of days, each season, these gins had a crew. According to this information, gins in the Gulf Coast Area operate around 70 days in a season; gins in the Blackland Area around 80 days; and gins in the High and Low Plains Area around 125 days. The number of days of ginning has a bearing on the necessary capacity. The fewer the days in which ginning service must be performed, the greater the capacity needed to gin a given volume. A large percentage of the cotton is picked in the Blackland and Gulf Coast Areas while a large percentage of the crop is snapped in the High and Low Plains Area. Methods of harvesting are reflected in the weight of seed cotton per bale. Over a period of years, the average weights of seed cotton per bale were: Gulf Coast Area, 1,460 pounds; Blackland Area, 1,515 pounds; and High and Low Plains Area, 1,890 pounds. Gins in the Plains Area must be equipped with the latest cleaning and extracting equipment. This adds to the investment in the gin plant. More and more gins in the other two areas are being equipped to handle snapped seed cotton. The gin income per bale is significant in the profits of the gin business. Gin income as defined in this discussion is the total of the gin toll and the profits on patterns and cottonseed. The gin toll per bale depends upon the gin rate per cwt. of seed cotton and the weight of seed cotton per bale; net profits on patterns and cottonseed depend upon the margins =ww—v COST AND PROFIT OF GINNING COTTON IN TEXAS 13 between purchase and sales prices, and in the case of the latter, the pounds of cottonseed per bale left with the gin. The average gin in- comes per bale, for the period 1930-31 to 1938-39 were as follows: the Blackland Area, $5.20; the Gulf Coast Area, $6.40; and the High and Low Plains Area, $6.85. For reasons enumerated above, and others, the state was divided into the three sections shown in Figure 9. The logic of dividing the state into three sections and of segregating gins according to type of power may be verified graphically. Figure 1 shows total costs of ginning for Diesel Plants according to sections of F: |z 1v ~10 0 l 1 ~l i‘! r i, Cost Or Gmmuq (000 Donna) '1" . Cos? Or Gnumuq (ooo Dorums) I § ;___i_ 4 5f 3O 35 I l I | | l 1 | I n 1 | I I ' VOLUME 0F G-mnmq (o0 BALES) l5 2O Z5 Pig‘. 1.—'.I.'ota1 costs of ginning for Diesel plants according to section of the state. Line A, High and Low Plains Area; Line 2B, Gulf Coast Area; Line C, Blackland Area. the state. These differences in cost seem great enough to warrant. separate consideration by sections of the state. Figure 2 shows tptal costs of ginning according to type of power in the Blackland Area. These. difierences seem of sufficient importance to justify a cost analysis by type of power. 14 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION I 0 I I ~l I U‘ C“ l I l I UI u! 1 -'> Cosr OF Qmmuq (ooo DoLLAns) U‘ l Cosr OF Gmmuq (ooo DOLLARS) N 4F I L ~ VOLUME OF Gmmuq (oobAtes) 5 1o 15 2o 2s I l 1 1 1 1 1 1 1 1 1 1 Pig. 2.-'1'ota1 costs of ginning according to type of power in Blacklana Area. Line A, electric power; Line 1B, steam power; Line C, Diesel power. FACTORS INFLUENCING COST OF GINNING In the analyses of ginning costs made by other investigators‘ the volume of ginning has been taken as the factor explaining variations in costs among gins. Volume is by far the most important single factor in explaining variations in costs. Still this does not preclude the testing of other factors which may supplement volume in more completely ex- plaining variations in cost. The investment in the gin plant, for instance, is a second factor that may be considered. Since depreciation is included as an item of cost and since depreciation is computed at a standard rate, this cost is proportional to the investment in the gin plant. To the extent that both the risk covered by insurance and the assessed valuation for taxation are related to the investment in the gin plant, these costs are lHathcock, Practices and Costs of Cotton Gin Operation in a Selected Section of North Carolina, 1924-1925. January, 1927. Bureau of Agricultural Economics. Hathcock, Development of Cooperative Cotton Gins in Northwest Texas. June, 1927. Bureau of Agricultural Economics. Weaver and Herrmann, Cooperative Cotton Gins in Oklahoma, 1933-1934. April, 1937, Bulletin 12. Farm Cr-edit Administration. Burgess and Weaver, Expenses, Income and Dividends of Oklahoma and Texas Cooperative Cotton Gins. June, 1940, Bulletin 41, Farm Credit Adminis- tration. COST AND PROFIT OF GINNING COTTON IN TEXAS 15 influenced by the investment. Owners of gins with large investments tend to pay higher salaries to their managers in that properties of greater value require a superior type of management. As a means of testing the influence of investment on costs of ginning, the Diesel plants of the High and Low Plains Area were divided into three groups according as investments were low, medium, and high. The average cost of each group was determined in terms of its volume of gin- ning. In Figure 3 Line B is the cost of the high investment group; Line C of the medium investment group; and Line D of the 10W invest- ment group. The significance of investment on costs of ginning is obvious. The investments in these Diesel plans ranged from $14,000 to $54,000. a‘ If‘ 45 i L u é i L Cost Or qmwq (OOZDOLLAII!) | ID Corr Or Qmmnq (coo Dounnas) CD VOLUME OF G-zuunuq (ooBALss) 5 IO l5 zo 2s ; 1 | 1 | | | | | | A 1 l n | 3O 55 rig‘. 3.—'1‘ota1 costs of ginning of Diesel plants in the I-Iigh and Low Plains Area. Lines B, C, and D, ginning costs of plants with high, medium, and low investments according to the one variable, volume. Line A, ginning costs of plants with an investment of $54,000 according to the two variables, volume and investment. Line E, ginning costs 0f plants with an investment of $14,000 according to the two variables, volume and investment. 16 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION The costs of gins with these investments were computed in terms of investment and volume. Line A in Figure 3 represents the costs of the $54,000 gin and Line E the costs of the $14,000 gin. VARIOUS TYPES OF AVERAGES A comparison of the various- kinds of average total costs should be of interest, Three types of averages are pictured in Figure 4. The arithmetic average, or mean, as the standard cost is represented by a point. This standard does not recognize the effects of volume through its range and investment through its range. In using the mean as the . . F3 61' (ooo Dotuna) Con OF GINJINQ "IO | I0 '5 (6 J J o a s=- .9 g 2"‘ E d!‘ -5 55- P ll 3 -1 2- -| l" Vowm: OF Qmumq (o0 but!) ,= IO".=.°.Z.5.=.°.¥. | 1 | 1 | Pig. 4.—Various types of average costs of Diesel gins in the High and I-ow Plains Area. Point A, arithmetic average. Costs through the range of volume measured on Line B. Line C measures average costs based on the one variable of volume of ginning. Line I! measures the average cost of a gin with an investment of $54,000 according to the two variables, volume of ginning and investment. Line I) measures the average cost of a gin with an investment of $14,000 according to the two variables, volume of ginning and investment. COST AND PROFIT OF‘ GINNING GOCFTON IN TEXAS 17 standard, costs as the volume of ginning changes are measured along Line B. It should be evident that these average costs are far too high at a 10w volume and far too 10W at a high volume of ginning. The mean may be satisfactory for gins of average volume and average in- vestment. But as the volume and investment diverge farther and farther from the average, the mean becomes more and more inadequate as a standard. Standard average costs based on the one variable, volume, move along Line C. In this instance, the effects of investment are averaged. It should be evident that the average costs to the extent that they are in- fluenced by investment, are too high on gins with low investments and too low on gins with high investments. Standard average costs based on the two variables, volume and invest- ment, for investments between the extremes of $14,000 and $54,000 move along lines at proportionate distances between Lines D and E. That is, for a plant with an investment of $34,000, the cost line lies mid-way between Lines D and E. It should be evident that the average cost approaches closer to the actual as the location of the computed average cost moves from a point to a line to an area. INVESTMENTS OF GINS STUDIED A summary of the investments of the gins analyzed in this study is found in Table 3. By adding the standard deviation to the average investment, and by subtracting the standard deviation from the average investment, upper and lower limits are placed on investments which include about two-thirds of the gins in the group. For instance, the average investment of steam plants in the Blackland Area is $14,587; the standard deviation is $6,136. The upper limit is $14,587 + $6,136, or $20,723; the lower limit is $14,587 ——$6,136, or $8,451. Thus about two-thirds of the steam gins in the Blackland Area have investments ranging from $8,451 to $20,723. At first thought, the wide range of investments would seem difficult to explain. There are several reasons for these differencs. From the manner of obtaining plants now operated, ginners may be classified into two groups: those who built new plants; and those who purchased second- hand plants. As for the investment in the plants built new, such factors have been of influence as: the general price level at the time of con- struction; the completeness of the machinery installed as to cleaning and drying equipment and the like; and the number and type of buildings. As for the investment in the plants bought secondhand, such factors have been of influence as: the age of the plant and its replacement value at the time of purchase; the cost of an alternative new plant; and the prospective volume of ginning as an index on probable net profits. Many of the secondhand plants with low investments reflect the capitalization of small profits resulting from low volumes of ginning. 18 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION .uO~ HEM “O UGQ~ QM uflwsammfwnfi HO wfimsmififi so Q1 CU aasa:aa~m>**;~ I QZNOOOQJQHIBHNH r-o Q d8? ¢¢¢.¢@.~¢¢.¢w ¢¢Q.¢w.~¢¢.¢» ¢@o.¢».~¢o.@@ @¢o“@@-_¢¢.¢m ¢¢@.¢m-@@¢.m¢ ¢¢o.mw.H¢@.¢¢ ¢¢Q.¢+-@@Q.mm ¢¢¢,@m.H¢¢.¢m ¢@o.@M-~¢Q.mN .................................. -- ¢@@.mm.~¢¢.@w ¢8..om.§>mH ¢¢¢.mH.@¢¢.¢H .................................. --¢¢¢.oH ea Qhw u-u 6i +3 Q [-4 umfiw wfiw Ho HQDGHDZ Ampmsofiv _uflwaumw>flH ¢»~.HH @mw.m~» E». fi. ma. 3w ¢@N.~H @~w.w@w S?» as: 5w N~N.oH >¢@.¢ww fig w: 6% m¢¢.¢ ~¢~.w~w @@N.@ m@~.@Hw ¢mH.@ ~wm.¢H» ......................... -- =o:@“>2H @~@@u@~w ......................... I fiSEQmEEH QM w$>< sbuwfim EwSQ mwSA 9232a 3E5 Safim afiazm _@m@m- Ewwew _ s34 3.80 flaw s34 wflfim BoQ wna swfi s34 Ufld Eufim _ fin-ONEHQ-Hq mpfiwwn .375 n“ PQOQMPMUPAMHI-M QHRQ-H- COST AND PROFIT OF GINNING COTTON IN TEXAS 19 As will be developed more clearly later in this discussion, the cost of ginning rises with an increase in the investment. It would appear from this that a 10w investment in the gin plant would be a much desired advantage. On this point, several qualifications need to be made. If the gin with a 10W investment is not properly equipped so that ginning of a poor quality results, patrons may lose considerably from discounts on the price of their cotton. An increase in the investment to provide the necessary facilities to insure high quality ginning might pay large dividends both to patrons and ginner. This point may be illustrated by the experiences of Louisiana ginners installing mechanical driers. The Louisiana Extension Servicel reported that patrons of gins with driers received a premium of $3.00 a bale for their cotton in the season of 1938-39. Thus a drier costing, say $3,000, would pay its entire cost of investment to the community the first year on a volume of 1,000 bales. The gins of low investment do not possess all the cost advantages indicated in average costs. The average life of a secondhand gin is considerably shorter than that of a new plant. This means that replace- ments, on an average, must be made sooner in the secondhand plants than in new plants. Furthermore, since the same rate of depreciation was charged regardless of the investment, the depreciation reserves in the low investment plants may fall far short of taking care of replacements as needed. A ginner with a low investment in his plant would be following conservative business practice if he were to charge ofl deprecia- tion at rates somewhat higher than the rates of the schedule used in this study. VOLUME OF GINNING OF TEXAS GIN PLANTS The factorof greatest significance in explaining differences in ginning costs is the volume of ginning. For the ginning industry as a whole, the average volume per gin from year to year is determined by the relation of ginning capacity to the volume of cotton production. The average volume per gin by sections of the state for the t-en-year period 1928-29 to 1937-38 is shown in Table 4. Another measure of volume of ginning is the number of 12-hour days required to gin the crop with all gins running at full capacity. The surveys of the Census Bureau on ginning facilities in 1919 and 1935 ascertained the number of bales each plant could gin in a 12-hour day running at full capacity. Using the 12-hour capacity for Texas gins as reported in 1935, the number of 12-hour days required each season to gin the crop for the period 1902 to 1938 was computed. On an average, the Texas crop could have been ginned in about 26 12-hour days per season. The number of 12-hour days, per season, required to gin the crops of the Blackland, the High and Low Plains, and the Gulf Coast Areas lMarketing Activities, Bureau of Agricultural Economics, February l6, 1938, p. 25. 20 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Table 4.-Average Volume of Ginning ‘by Sections of the State High and Low Blackland Area Plains Area Gulf Coast Area Year No. of Average No. 0t Average No. of Average Gins Volume Gins Volume Gins Volume I 1928 __________________________ -- 2,2218 1,258 916 1,432 811 1,185 19:29 __________________________ __ 2,210 953 928 1,214 830 822 1930 .......................... -_ 2,144 951 905 913 833 1.376 1931 __________________________ _- 2,085 1.344 873 1,8102 828 1.109 1932 2,008 971 912 2,125 817 729 1,953 1,019 911 1,744 796 1,050 1 , 919 701 896 487 774 791 1,882 706 892 1,255 760 657 1,908 823 894 1,025 778 563 1,811 1,199‘ 901 2.313 750 1.119 Average ........................ _- 2,015 998 902 1.431 798 944 and of all Texas, and of California for the period 1928-29 to 1937-38 is shown in Table 5. Table 5 merits careful study. It should be evident from this table that the Texas gin industry is sufiering from over-capacity. The average volume per gin in California is nearly three times as great as that in Texas. It does not follow that two-thirds of the gins in Texas should be eliminated. It may be that weather and harvesting conditions in Texas are such that ginning service must be performed in a shorter length of time than in California. If this be the case, the resulting lower volume in Texas makes the cost of ginning higher than in California. This increased cost of ginning, in the long run, must be borne by the Texas cotton growers. A summary of the volume of ginning of the gins analyzed is given in Table 6. About two-thirds of the Diesel gins in the Blackland Area. had volumes ranging from 657 to 1,833 bales. This is based on the limits Table 5.—Nu.mber of 12-Hour Days Required to Gin the Crop for the Season. all Gins Running‘ at Full Capacity Areas Year Cali- High and Low Gulf fornia Blackland Plains Coast All 1928 27.7 31.5 26.1 31.2 51.0 1929 21.0 26.7 18.1 24.4 67.7 1930 20.9 20.1 30.3 25.3 70.0 1931 29.6 39.7 24.4 33.6 51.1 1932 21.41 46.8 15.9 29.1 44.8 1933 22.4 38.41 23.1 28.8 70.1 1934 15.4 10.7 17.4 16.6 79.8 1935 15.6 27.6 14.5- 193 65.5 1936 18.1 22.6 12.4. 19.5 54.7 1937 26.4 50.9 26.4 33.8 136.6 Average 22.0 31.5 20.9 26.3 72.6 21 COST AND PROFIT OF GINNING COTTON IN TEXAS SH; 8 NHH S. B mmH 3N R. aHH B» ................................ 1:33. 2 t- l- w 2- --- H :- l- i- H20 Has H86H H. i- --- H i- i- t- l- I- .................................. -- géHéoHim H i- i- H. i- H --- i. --- i- e85 A86 H i- --- w t- H H t- --- Q86 -H8.H H l- H i- H a i- --- --- .... -- :- 08;. .S¢.@ H: --- i- a H H m i- H t- .................................. -- 8H6 H85 S l- i- H i- H. w t- i- .................................. i e8; .53. wH --- --- m t- H 2 --- i- --- HHS; -53“ mu --- H. H H a 2 a H .................................. -- o8; HS; Ha l- m H H H HH H H :- .................................. -- 8H; -53 wH m H w H HH HH H H H .................................. -- 03d H8; H2 m HH H a 2 HHH w 8 m .................................. -- o8; H8; oHH H wm H mH Ha 2 S mm H: .................................. -- o8; HE; H2 H. HH. H w Ha 8 HHH E B - 8m; H8; 2H HH w; H. oH wH Q 8 .3 SH ¢8.H HS 5H w 3 H a 8 Ha H 3.. 3 .................................. -- 8m 8 H5 ~duOHH QUMOOQN Ghmv wO hmflgz Uwflflmmv $3M HHHHHHHG EH HHH 8H.” 2H; a8; S»; HG wHa a ......................... -- HHBHERHQ @8955 8H; 3H; 8H; SH; wma; m8; Hm»; 3H; H8 - HHHHHHHHHG omahriw 2.585 Honda QMHQH QTSOQEH Emma afiwum Qrnuugm Hvmwa 5.25m n34 3x00 HHHHG s34 HHHHHHHHM BoA Ufld $5 3H4 HHHHHHHHHBHHQ mvim Ho HBHHHHHZ $35134 maflarn mHHHHHHHHG no oHHHHHHo>|l6 oHncH 22 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT‘ STATION set on volume by one standard deviation of volume being added to the average volume and one standard deviation being subtracted from the average volume. About two-thirds of the Diesel gins in the High and Low Plains Area had volumes ranging from 624 to 2,748 bales. It should be evident from this that fluctuations in volumes of ginning are far more violent in the High and Low Plains Area than in the Blackland Area. The volume of a gin plant for a given year is important. But the average volume over a period of years is much more important. Local changes in the competitive situation and in the size of the cotton crop are factors explaining fluctuations in the volume of a plant from season to season. All gins on which records have been obtained for three seasons, or more, were segregated. The average volume of each gin was determined for the number of seasons represented. From these averages, Table 7 was compiled. As an indication of the volume status of the gins studied, Table 7 is much more significant than Table 6 It is to be noted that one steam plant in the Blackland Area had an average volume of less than 250 bales. Of all "the gin plants, 15.3 per cent had an average volume of less than 750 bales; 22.7 per cent had an average volume of less than 1,000 bales. The average number of seasons per gin for the plants represented in Table 7 was as follows: Blackland Area, 5.5; High and Low Plains Area, 4.3; Gulf Coast Area, 3.9; and all Areas 4.6. AVERAGE COSTS OF GINNING In determining costs of ginning, the cost records were segregated according to section of the state, type of power, and size of gin whether one or multiple battery. Total costs were used in that the effects of changing volume and investment assume straight line relations to total costs. In each of the gin groups, the investments in the gin plants and the volumes of ginning were correlated with the total costs of ginning. This procedure yielded an equation for estimating the average cost of each group. This average cost is weighted for volume and investment. The equations for estimating average costs of ginning according to section of the state and type of power are given in Appendix B. If this analysis should be used as the basis for establishing gin tolls to be charged by ginners, the average cost would be somewhat too low. That is, a gin toll satisfactory to the ginner of average cost would result in an unsatisfactory situation for about one-half the ginners. As the basis for establishing gin tolls, bulk costs would be much more satisfac- tory than average costs. Bulk costs of ginning were derived in this manner. All gins in each group with actual costs higher than the average were segregated. In each case volumes of ginning and investments in the gin plants were correlated with total costs. This procedure yielded estimating equations for the high cost half of the gins in each group. About three gins in every four have costs lower than the bulk cost. Gin tolls satisfactory to the ginner with bulk costs would be satisfactory to 23 COST AND PROFIT OF GINNING COTTON IN TEXAS NNN N NN NH HH NN NN 3 HN NN ............................... EHNNNNH. H i- i- H l- i- 8N.N.H8_N H i- i- H i- i- :- I- -: .................................... t NNN.N.H_NN.H N --- l- N i- i- --- -2 --- .................................... l 8N.H.HNN.N H l- I- H I- l- l- .................................... -- ¢8.N.H_8.N N i- l- l- i- i- N --- .................................... i oooéHQNiHH N l- i- N --- H --- l- l- oNNJwHQQQ H. --.. i- H i- H N i- --- -1 .................................... l ogéHoNsN N I- i- N i- H N i- H --- .................................... -- NNNNHNNN H.H H i- N N N N N H .................................... -- NNNNHNNN NH I- H N N H N H N --- .................................... I NNNNHNNN NH I- N i- N N N i- N :2- NNNNHNHH NN H H --- i- N N N N H .................................... i NNH.H.HNN.H NN I- N I- I- N N N H. N .................................... -- NNN.H.HNN_H NN H H. I- N H. N N H NH .................................... -- NNNHHNNH HN H. N :- N N H H N N .................................... -- NNNHHNH. NN l- N l- H H N H N H. ..................................... i NNH. HNN N H N l- i- l- -1 l- i- N .................................... l 8N HNN H i- -1 l- I- --- i- l- H --- NNN 8 QD 0232M HNNBQ QMMNHH “x585 fivmgg Efiwum 2592mm $35 Eflwuw QQHQ uNuoO Hfln-mv GQHQ wflmflwnfi 30mm mvflfi 89m n34 UDMRNQSMQ H.308 NNHNm “o Ufldhmv 508:2 5 NEHHHoHv NEG HO Hwflsflz ONO‘ HO NNQODOOQ OOH-HH- HO WUOuHOm HON Dfiuw HO Gan-HOP Hddhnfiq ONGHOP¢II§H OMAENH 24 BULLETIN NO. 6406, TEXAS AGRICULTURAL EXPERIMENT STATION about 75 per cent of all ginners. The equations for estimating bulk costs of ginning according to section of the state and type of power are given in Appendix B. Of interest regarding the estimating equations is the matter of the percentages of variations in costs among the gins accounted for by the variables in the equations. Table 8 shows the percentages of variations in costs accounted for by volume as a single variable, investment as a Table SF-Percentages of Variations in Total Costs Accounted For i Single Variable l Two Variables TYDB Area of Influence of Each l Total l Power Volume Invest- in Combination * Influence i ment -—-————- l of Both ; Volume lInvestmentl Variables l l 1 l Steam 567.6 46.2 42.4 l 28.7 l 71.1 Blackland l Diesel 63.9 50.4 47.4 l 29.0 76.4 Electric 72.6 34.8 l 64.2 11.0 l 75.2 High 1 Steam 74.6 l 12.2 l 71.5 * 4.9 a 76.4 and ~ Diesel 53.6 ‘ 25.0 50.4 21.1 l 71.5 Low l Electric 78.1 19.4 74.1 14.6 l 88.7 Plains l Large Gins 70.4 16.0 66.7 10.4 f 77.1 Gulf I Diesel , 49.9 29.9 46.1 25.1 71 2 Coast l Electric l 85.9 46.2 75.3 l 12.9 ss 2 single variable, and volume and investment combined. The data in Table 8 answer the question regarding the relative importance of volume and investment taken singly and combined in accounting for variations in costs among gins. FACTORS IN ESTIMATING EQUATION It would appear that the correlating of total costs with investments and volumes of ginning resolves costs into three distinct divisions: (1) that portion of the costs which is unrelated to both the investment and the volume of ginning; this may be designated as the residual cost; (2) that portion of the costs which is related to the investments in the gin plants; and (3) that portion of the costs which is related to the volume of ginning. The meaning of the equation may be illustrated with th-e equation of steam gins in the Blackland Area. In relating total costs of ginning to the investments and volumes of ginning in the case of 189 cost records of this group, the relation is found to be positive for investments. That is, as investments increase, costs increase. The rate of increase is $00930 for each additional dollar invested. Likewise, the relation is found to be positive for volume of ginning. The rate of increase is $1.78 for each additional bale ‘ginned. But after the costs related to investment and to volume of ginning are accounted for in total costs of ginning, a residual cost of $1,730 must be added to arrive at total estimated costs. COST AND PROFIT‘ OF‘ GINNING COTTON IN TEXAS 25 The estimating equation is a formula. The solution of the formula, or equation, calls for the substitution of the proper “unknowns.” The ginner with a single battery steam plant in the Blackland Area may sub- stitute for I in the equation his investment in the gin plant less the investment in land; in multiplying this investment by $00930 he de- termines his estimated investment cost. He may substitute for V the number of bales ginned; in multiplying the volume of ginning by $1.78 he determines his estimated variable cost. By adding $1,730 to the ' estimated investment and variable costs, he arrives at his estimated total cost of ginning.‘ The Residual Cost Volume of ginning and investment in the gin plant by no means exhaust the variables influencing the cost of ginning. For this reason the residual cost in the estimating equation with the variables volume and investment includes, in part, the influence of these other variables. As more variables are introduced into the estimating equation, the residual cost grows less. In the case of all cost records, the size of the gins in number of saws was known. In the case of 123 records of steam gins in the Blackland Area, the number of days each gin had a gin crew during the season was known. This made possible the use of various combinations of variables up to four in number in estimating equations for these 123 records. The following equations were derived: Cost: $2,142 + $3.07V Cost: $1,992 + $1.77V + $0.0830I Cost: $1,587 + $1.63V + $0.0791I + $10.43D Cost: $1,572 "l- $1.74V + $0.0756I + $1.638 Cost: $1,004 + $1,52V —I— $006831 + $2.288 + $11.49D’ In the equation with number of saws added as a third factor to volume and investment, the $1.63 means that costs are increased by that amount for each saw in the gin plant. This cost for a 5/70 is $1.63 >< 350, or $571; and for a 5/80, $1.63 >< 400, or $652. In the equation with number of days of ginning added as a third factor to volume and in- vestment, the $10.43 means that costs are increased by that amount for each added day of ginning. This cost for a gin operating 60 days is $10.43 X 60, or $626; and for a gin operating 70 days, $10.43 >< 70, or $730. One could. logically conclude from an examination of the equations above that as the number of variables is increased greater accuracy in the estimating of costs would be attained. Before drawing final con- clusions, however, it would be well to note the percentages of variability accounted for with the various combinations of variables. This is shown lTables 37, 38, 39, and 40 in Appendix A were compiled to facilitate the estimation of average total costs of ginning, "V—-Volume of ginning in bales; I-—Investment in gin plant in dollars; D- Number of days with gin crew for season; S-—Size of gin in number of saws. U situation. 26 BULLETIN NO. 606, TEXAS‘ AGRICULTURAL EXPERIMENT‘ STATION in Table 9. A considerable gain in the percentage of variability ac- counted for is made by adding investment to volume of ginning. By adding number of days of ginning to these two, the percentage is in- creased by 1.0 per cent; by adding number of saws to investment and volume, the percentage is increased by 0.3 of one per cent; by adding number of saws and number of days of ginning to investment and volume of ginning, the percentage is increased by 1.4 per cent. Table a-Percentages in Variations in Costs Accountea For-Steam Power- Blackland Area Volume 1 Investment Number Number of in Gin of o1 Days Total Ginning x Plant Saws Ginning 59.9 -_-- .._.._ __-- 59.9 441.5 27.7 __.- _-__ 72.2 41.0 26.4 ......- 5.8 73.2 43.9 25.3 3.3 ____ 72.5 39.8 22.8 4.7 6.3 73.6 It should be evident from Table 9 that the two variables, volume and investment, serve the purpose in estimating costs. The gain from adding number of saws in the gin plant and the number of days of ginning is too slight to justify the added complications of using four variables instead of two. Investment in the gin plant and the size of gin as measured by number of saws are closely correlated. Thus size is but another aspect of investment. Investment alone amply takes care of the Volume of ginning and the number of days of operating the gin plant are correlated. Thus the number of days of ginning is an aspect of the volume of ginning. Consequently, volume alone takes care of the situation quite as well as volume and number of days of operation taken as separate variables. RELATION OF ESTIMATED COSTS TO ACTUAL COSTS The estimated cost for each gin analyzed was computed in terms of its volume and investment. The p-ercentage relation between the estimated and the actual cost was then determined. Table 10 shows the variations of actual costs from estimated costs according to percentage classes. Of the gins with actual costs from 5 per cent lower to 5 per cent higher than the estimated costs, the Diesel group of the Gulf Coast Ar-ea had the lowest percentage, 23.4; the electric group of the High and Low Plains Area had the highest percentage, 42.1; all groups of gins had a percentage of 28.4. Of the gins with actual costs from 15 per cent lower to 15 per cent higher than the estimated costs, the steam group of the Blackland Area had the lowest percentage, 56.7; the multiple battery gins of the High and Low Plains Area had the highest percentage, 73.8; all groups of gins had a percentage of 64.2. Of the gins with actual COST AND PROFIT OF GINNING COTTON IN TEXAS HBNH. mm EH 2 E m2 8m 2w EH mHw 2H5 Ho HwQHHHHHz 98H 93H 98H o o3 o 8H 98H c 3H oéoH QJQQH 98H II H.308 i. I--- H.H . . , . . . . . -- HZ. Ha NH NH m ¢ 35m H.H II- wH mH w H mH Yo w.” ll- m6 .53 NH » . . I . | . . | . . . . A . . . - . I 2 NH II- NH ma $13 Hwnwfim QH Ha HQ i. 9m H40. m.» ma ma. H6 fiém H; Hmm 3 QM méH 3 wdH ma H; ma: mgH H.wH HWHN adH Ham H. mH HamH 2H ~2wH wéH m mH m3. Hiwa ¢ m“ Haw aém H NH H5“ “é 9% wHm Hdm m A EH mHm HiwH Q2 0.3 Q2 9S Q8 NHH 2H fie Q3 Ha 2H H: m. Ha “a m.» m? H HH H92 2 N6 m.» m.H m m a6 H4“ 2 HQ H6 5.8 530A o..." H.m m.” we I!» w.» m.“ m.» 9o w m mi». i. i--- f. l--- wH w o 9H . . . . . . . . -- i. $3 HaH i--- Z. mH m.H .1 NH NH . . . . . . . . -- 9% $232M HQmBQ QMHQA QTSQQEH Bmfifi B“ 8m 0232M HHEBQ EH35 nowfirifw =4 omfinwfiwm Uwudsmammm 3 EH53» 3H4 H230 bow 53H mHHEHnH 30H 93 swim H32» Hifimofim $5.6 mo momauqoonufiv MPMOO flgO-H- ONGHQ?‘ Ubfifiannwflm" UHG a$5PO< §UQBHON MQOMHwGHOHI-OH OHfid-H- 28 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION costs from 25 per cent lower to 25 per cent higher than the estimated costs, the Diesel group of the High and Low Plains Area had the lowest percentage, 76.8; the Dieselgroup of the Blackland Area had highest percentage, 90.0; all groups of gins had a percentage of 83.4. FIXED COSTS A decided advantage of an analysis of ginning costs in terms of total costs arises from the fact that this procedure facilitates a division of costs into fixed and variable. The total of residual and investment costs is the fixed cost. The relation between volume of ginning and the fixed cost is the clue to the effect of volume upon ginning costs. An analysis of ginning costs in terms of per bale costs does not permit of this division of costs. The total cost analysis does not preclude the use of per bale costs whenever that may be preferable in that total costs can readily be converted into» per bale costs. As a means of emphasizing the relation of fixed cost to volume of ginning, Table 11 has been prepared. In each instance, the fixed cost Table 11.—'.Eixed. Costs per Balel Blackland Area High and Low Plains Area Gulf Coast Area Bales Ginned Steam Diesel Electric Steam Diesel Electric Large Diesel Electric 50o $11.18 $7.27 $5.85 $9.92 $10.04 $11.91 $11.63 $8.37 $4.92 1.000 3.08 3.64- 293 4.96 5.32 4.46 5.82 4.18 2.47 1,500 2.06 2.42 1.95 3.31 3.55 2.97 3.87 2.78 1.64 2,000 1.54 1.82 1.47 2.48 2.67 2.23 2.91 2.09 1.23 2,500 1.24 1.45 1.17 1.99 2.12 1.79 2.33 1.67 0.99 3,000 1.03 1.22 0.98 1.66 1.77 1.49 1.94 1.40 0.82 Variable Cost $1.78 $1.37 $2.05 $2.25 $ 1.76 $2.42 $ 1.751 $1.99 $2.59 lVolume 0t the large gins (multiple battery) twice that listed in each instance. assumed is that of the gins of average investment. This table shows fixed costs as per bale costs at the various volumes oi‘. ginning. A careful study of Table 11 should result in an indelible impression of the relation of fixed costs to volume of ginning. As volumes increase, fixed costs seem to melt away. This results from the fact that fixed. costs per bale vary inversely with the volume of ginning. In Table 11 the variable costs per bale listed, if added to the fixed costs give total [costs of ginning per bale at the specific volumes of ginning. ITEMS OF COST A ginner in estimating his total cost may find his actual cost con- siderably out of line with the estimated. In a case of this kind, an estimate of total costs alone may be quite unsatisfactory. The ginner may wish to know why his costs are higher, or lower, than the estimated. 1 pun-n-v-v COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 29 A further analysis may be needed in terms of the various items of cost making up the total. An indication of the relative importance of the various items of cost may be gained from Table 12. For each group, costs of average volume and average investment are shown. Table 12.-Means of Items of Cost Expressed as Percentages of Total Mean Costs, 1930-1938 Arefla Type {Means oi Percentages of Total Mean Costs 0 1 of Total State Power ' Costs Labor Ins. 8a , 1 0i. Sal. Power Repairs Taxes Depr. Mgt. Misc l 1 l Steam $ 4,621 20.6 12.6 10.4 10.5 20.9 18.6 6.4 Black- 1 Diesel 5,337 23.4 7.8 9.2 12.5 19.6 21.4 6.1 land Electric 5,657 19.9 19.3 , 7.5 11.4 16.2 19.9 5.8 i High f Steam 9.605 28.1 v.4 15.5 9.3 16.9 13.4 9.; and Diesel 8,292 27.7 6.1 11.8 9.3 22.6 14.8 7. Low ‘ Electric 8,738 24.2 16.9 7.3 10.1 19.3 15.6 6.6 Plains J Large 20,027 33.4 9.0 9.6 11.1 18.3 10.6 8.0 I Gull l Diesel 6,706 22.7 5.41 11.7 9.5 23.6 18.3 8.8 Coast Electric | 5,563 25.8 14.2 9.4 9.7 18.5 15.1 7.3 It is to be noted that seven times out of nine, gin labor and office salaries made up the highest percentage of total costs. The only other item to contest these two for top rank was the cost of depreciation. This cost was relatively important because of the low average volume of gin- ning of the groups of gins. ” Standards for Items of Cost In the same sense that a standard for total cost may be useful to the ginner, so standards for items of cost should be serviceable. An estimating equation may be derived for each item of cost in terms of the volume of ginning and the investment in the gin plant. But in case the one variable, or the other, may be unimportant in explaining dif- ferences in costs among the gins, little is to be gained by including such variable. For instance, the labor cost of steam gins in the Blackland Area correlated with volume and investment gives a factor for investment that is quite insignificant. The estimated labor costs on 1,000 and 2,000 bales computed from an equation with volume as the only variable are $1,041 and $1,661. Inusing an equation with the two variables, volume and investment, the estimated costs on these volumes for a gin with an investment of $10,000 are $1,023 and $1,623; and the estimated costs for a gin with an investment of $20,000 are $1,045 and $1,645. It would appear from these examples that the difference in the estimated labor costs, in this instance, whether the estimating equation be based on the one variable, volume, or on two variables, volume and investment, is 30 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION so slight that investment as a variable may well be disregarded. Like- wise, with other items of cost, if investment, or volume, proved insig- nificant in estimating the cost, such variable was disregarded. In a few instances, the size of gin as measured by the number of saws was found to have a significant relation to items of cost. In such cases, size was included in the estimating equation. In several instances, none of the three variables was found having a significant relation to specific items of cost; hence the mean cost was accepted to represent the esti~ mated cost. . A series of equations for estimating costs, average and bulk, of the various items of cost have been derived. These equations are given in Appendix 0.1 The correlations between volumes of ginning and costs, totals and items, and between investments in the gin plants and costs. totals and items, according to section of state and type of power are given in Appendix D. The standard errors and coefficients of determination of the equations for average cost by totals and by items are given in Appendix E. Fixed Costs of Items of Cost Volume of ginning and investment may be correlated with the total cost of each item. Thus the residual, investment, and variable costs of the equations of total costs are allocated according to the various items of cost. Table 13 lists fixed costs by items according to type of power, size of gin, and section of the state. The part of the fixed cost accounted for by investment cost was based on average investment in each group of gins. Table 13.-—'J.‘ota1 Fixed Cost Allocated to Items of Cost‘ (1930-1938) l G t Blackland Area High and Low Plains Area l Gulf Coast Area os Itemg 1 Steam Diesel Electric Steam Diesel Electric Large i Diesel Electric Labor $ 433 $ 374 $ 107 $ 529 $ 508 $ 273 _$ 999 ‘ $ 409 $ 180 Power 271 128 159 362 202 406 563 88 Repairs 353 367 165 448 545 96 629 328 48 Insurance 416 583 455 398 397 401 1 ,028 302 232 Taxes ---- --__ --_- 324 254 310 932 24s 162 Dep. 958 1,083 886 1,586 1,872 1,693 3,7 i 1,573 1,006 Managem’t 519 1,017 991 985 988 1,191 1,90’? 953 838 Of. Sal ___- _--- ____ 211 136 131 934. ____ ____ Misc. 186 169 166 116 421 111 869 284 —18 l Total l 3,087 3,721 2,929 4,959 5,323 4,612 11,629 4,185 2,455 lAverage investment in ginplants. See Table 3. 2Insurance and taxes combined in Blackland Area; labor and oifice salaries combined in Blackland and Gulf Coast Areas. lTables 41 to 49 in Appendix A were compiled to facilitate the estimation of average costs of the various items of cost. COST AND PROFIT OF GINNING COTTON IN TEXAS 31 The data in Table 13 emphasize the fact that each item of ginning cost carries an element of fixed cost. This means that cost items may not be classified, in their entirety, as fixed or variable. A gin which may stand idle for a season presumably would have no labor or power cost; perhaps it would have no repair or management cost. As these items of cost are eliminated, fixed costs would drop cor- respondingly. Thus to continue costs as a straight line to the 0-Bale Axis as in Figures 1, 2, 3, and 4 results in an estimated fixed cost for idle ‘ gins considerably above the actual. This estimated fixed cost on the 0-Bale Axis, however, should be considered as the fixed cost of gins through the normal range of volume rather than as the fixed cost of gins with no volume. Practically, these over-estimates of costs in the low range volumes are not significant. No ginner can long survive in the business with a volume much below 400 or 500 bales. An over-estimate of costs at these and lower volumes would mean that the length of the period of possible survival is somewhat longer than estimated costs would indicate. Variability of Items of Cost Costs of the various items, except depreciation, vary to a greater degree than is the case with total costs. A gin of average efiiciency, for instance, may have several items higher in cost than the average; these costs, however, are counterbalanced by other items lower than the average. Some of the variations in items of cost result from lack of uniform standards in classifying items of cost. In some cases charges may be made to miscellaneous cost which properly belong to some other item. In borderline cases, it may be a matter of choice to which of two items a specific cost should be charged. As a means of comparing variability of total costs with that of the items of cost, Table 14 was compiled. The number of all gins was ascer- tained with actual costs varying with estimated costs from 5 per cent below to 5 per cent above; from 10 per cent below to 10 per cent above; and so on. The number of gins within each percentage group was con- verted to percentages of all gins. The number of all gins was determined with actual costs of labor, power, repairs, and so on, varying from their estimated average costs from 5 per cent below to 5 per cent above; from 10 per cent below to 10 per cent above; and so on. The number of gins of each group was "then reduced to an index of the number of gins with total costs within the same percentage limits. Table 14 indicates that costs of labor are the least variable and costs of repair are the most variable in terms of total costs. For every 100 gins which have actual total costs within the range of 5 per cent below to 5 per cent above their estimated total costs, 63 gins have actual labor costs and 27 have actual repair costs within the range of 5 per cent below to 5 per cent above their estimated costs. For every 100 gins which have actual total costs Within the range of 50 per cent below to 50 per cent above their estimated total costs, 87 gins have actual labor 32 BULLETIN NO. 606, TEXAS AGRICULTURAL» EXPERIMENT STATION Table 14.—Va.ria.tions of Actual Costs, Total and and Items from Estimated Costs, Total and Items—A11 Gins ~ Index on Number of Gins3 Vari- Total ationsl Costsz Insur- Manage- Office Miscel- Labor Power Repairs ance Taxes ment Salary laneous 5- 5 28.4 63 47 27 38 34 59 50 28 10-10 47 . 8 62 49 27 43 38 56 42 3O 15-15 64 . 2 62 50 27 47 41 58 42 32 20-20 75.4 65 54 29 50 45 61 42 35 83.4 70 56 33 53 49' 65 4o 38 30-30 89 .0 73 59' 35 57 54 68 49' 41 35-35 91 .6 78 64 38 (i1 57 70 53 44 4040 94.0 81 67 41 64 60 7 3 56 48 4545 95.8 814 70 44 67 64 76 59 52 5650 96.9 87 72 46 71 67 77 61 55 lPercentage variations oi actual costs, above and below, estimated average costs. ZPerc-entage oi all gins with total costs within the percentage variations of actual costs. above and below, estimated average costs. 3As to total costs of all gins, 28.4 per cent have actual costs from 5 per c-ent below to 5 per cent above estimated average cost; for every 100 gins having total costs within this range, 63 have labor cost, 47 power cost, 27 repair cost, 38 insurance cost, 34 tax cost, 59 man- agement cost, 50 oflfilce salary cost, and 28 miscellaneous cost within the 5-5 interval. costs and 46 have actual repair costs within the range of 50 per cent below to 50 per cent above their estimated costs. In the matter of variability, this point needs to be stressed. Of the 54 gins with repair costs outside the 50-50 per cent limits of estimated costs- for every 100 gins with total costs within these limits, about one-half have actual repair costs higher than the 5O per cent above estimated costs and about one- half have actual repair costs lower than the 50 per cent below estimated costs. Cost of Gin Labor Cost of gin labor has a peculiar relation to volume of ginning. The per bale costs of such items as taxes and depreciation are merely a matter of simple division——-the costs divided by the number of bales. The day-to- day volume of ginning is of little consequence. The manager has no control over these costs other than through his influence over the total volume of ginning. On the run for the season, much the same statements may be made of labor costs. But the labor cost expressed in the total for the season covers up details of vital significance. The volume ginned from day to day during the course of the ginning season is of consequence in the results summarized in the total cost. The gin manager does have considerable control over the cost of gin labor through the possibilities afforded of adjusting the size of the crew in conformity with the volume to be ginned for the day. A number of ginners from whom records were obtained made no dis- tinction between gin laborers and office employees. The combining 0t the costs of these two groups presumably is on the theory that the office man in weighing theseed cotton and in making out the necessary papers for the patrons is virtually a member of the gin crew. This line of 1 ._l.,r._.1........ __l._,.,.....».._ ..1_.||A—4 COST AND PROFIT OF GINNING COTTON IN TEXAS 33 reasoning does not necessarily hold good 0f the time the bookkeeper spends on compiling the various records of the business. In this section of the discussion, the designation gin labor cost includes the cost of office salaries. ‘Office salaries are relatively less important than costs of gin labor being from one-seventh to one-fifth as great in amount. Attention may be called to three important relationships of labor cost to total cost: the fixed cost of labor to total fixed cost; the variable cost of labor to total variable cost; and the total labor costs to total costs of ginning at various volumes of ginning. These relationships are shown in Table 15. Table 15.--Re1ation of Labor Costs to Total Costs of Ginning‘ l Percentages Area 1 Type of i of Costl Volumes of Ginning (Bales)2 State Power l Fixed Variable 500 1,000 1,500 2.000 2,500 3.000 l Steam 14.0 34.8 18.7 211.6 23.7 25.2 26.3 27.2 Blackland i Diesel 7.6 60.6 16.0 22.1 26.8 30.4 33.3 35.8 l Electric 3.7 36.6 i 12.2 17.2 20.5 22.9 24'.6 26.0 l High Steam 10.7 42.7 15.8 19.3 21.8 23.8 25.3 26.6 and I Diesel 9.5 56.3 15.0 19.2 22.4 25.0 27.1 28.8 Low 1 Electric 5.9 41.3 11.8 15.7 18.4 20.5 22.0 23.3 Plains l Large 8.6 54.3 14.6 19.2 22.8 25.8 28.2 30.3 Gulf Diesel 9.8 42.7 16.3 20.7 23.0 20.3 28.2 29.7 Coast i Electric 9.5 39.4 18.8 24.8 27.8 29.8 31.2 32.2 lRelaticn between fixed cost of labor and total fixed cost at average investment: relation between variable cost of labor and total variable cost. 2Volume of large gins double that of single battery gins. As the volume of ginning increases, wages of gin labor and salaries of office workers account for an increasing percentage of total costs of ginning. At a volume of 500 bales, the percentages of total costs ab- sorbed by wages range from a low of 11.8 for electric gins of the High and Low Plains Area to a high of 18.8 for electric gins of the Gulf Coast Area; at a volume of 3,000 bales, the percentages of total costs absorbed by wages range from a low of 23.3 for electric gins of the High and Low Plains Area to a high of 35.8 for Diesel gins of the Blackland Area. This behavior of labor cost is a reminder of the optimism of Bastiat and Carey‘ who believed that the share going to labor increases both absolutely and relatively with improvements in methods of produc- tion. This increasing share to labor can be explained in terms of variable costs. As volume of ginning increases, the variable part of total costs accounts for a larger and larger portion. It is to be noted that the var"able costs of labor constitute from one-third to three-fifths of the total variable costs of ginning. Fixed costs of labor range between a low of 3.7 per cent of total fixed costs to a high of 14.0 per cent. ‘Bastiat (1801-1850) was a French economist; Carey (1793-1879) was one of the early American economists. 34 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION The dollar cost of gin labor is the result of two main factors: the rate of wages paid; and the relative efficiency with which labor is employed. Table 16 shows wages paid per 10-hour day by sections of Table 16.—'W'a.g‘es Paid Texas Gin Labor Wages Per IOl-Hour Day Wage Indexl Year Black- Gulf Black- Gulf land Plains Coast land Plains Coast 1929 ___________________ _- $3.86 -___ $3.85 134 --_- 134 19310 ___________________ __ 3.78 _-__ 3.80 131 _--- 132 1931 ___________________ -_ 2.96 ____ 3.00 102 -___ 104 1932 ___________________ -_ 2.46 ___- 2.65 85 -_-_ 92 1933 ___________________ __ 2.75 --_- 2.77 95 _--_ 96 1934 ___________________ __ 2.69 ___- 2.80 93 --_- 9'7 1935 ___________________ -_ 2.63 $2.79 2.83 91 97 98 1936 ___________________ __ 2.73 2.82 2.95 94- 98 102 1937 ___________________ _- 2.77 3.14 3.20 96 109' 111 lWeighted average taken as 100. the state. The data in this table are based on a relatively small sample in that this information was gained only in case a detailed labor record was obtained. The Blackland wage rates are based on 128 records; the High and Low Plains on 83; and the Gulf Coast on 38. To express costs of gin labor in terms of dollars may raise a number of questions. A ginner with a high labor cost, for instance, may be paying high wages, or he may be using labor inefficiently. The answer to these points may be found through an analysis of physical, or hour, costs of labor. Efficiency of labor is a matter of the adaptability of the men to the task in hand and of the organization and direction of the crew by the gin manager. According to a rather widely accepted practice, a gin laborer is entitled to a full day’s wage by reporting for work in the morning even though circumstances may be such that no ginning is done during the day. Because of this, gins show crews for a number of days each season in which no volume is ginned. Days of no ginning, or of a low volume of ginning, may be due to the uncertainties during the opening and closing of the ginning season, to weather conditions, to break-downs in the gin plant, and to other circumstances. Besides attempting to keep down the size of the crew so as to economize on labor cost, the gin manager must keep in mind that his patrons as they bring in their loads of seed cotton demand quick service. A patron lost because of slow service may be a patron lost for the remainder of the season. Seed cotton is non-perishable. This means that from the physical standpoint there is no pressing need to gin the product on the day of delivery. One purpose of the seed cotton house is to permit the accumu- lation of a stock during days of low delivery so as to have a sizeable volume to gin a few days later. Such accumulation, however, may _ . ......_. ..__.l_,.._._.....m COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 35 require the patron to Wait for ginning service. There are several ob- jections to this. In the first place, a competing ginner may stand ready to offer immediate service. In the second place, the patron may need to dispose of the lint and cottonseed at the earliest possible time because of his financial status. Hour Costs of Gin Labor, Fixed and Variable Cost of labor is usually viewed as an operating or variable cost. The analysis made of dollar costs of labor indicates that this cost is both fixed and variable. The question may be raised as to the reason for the fixed element in labor cost. The answer may be found through an analysis of hour costs of labor. Two situations have a bearing on fixed costs: the days a gin has a crew but does no ginning; the varying relations from day to day between the size of the crew and the number of bales ginned. Detailed labor records showing daily dollar and hour costs were obtained on 68 and 44 steam and Diesel gins in the Blackland Area, and on 52 and 31 steam and Diesel gins in the High and Low Plains Area. Hour costs are in two categories: the total hours of the days of no ginning; and the total hours of the days of ginning. By correlating the volume of ginning with these hour costs, the following estimating equations were derived: Blackland Area Steam Power Total Hours of Labor: 1,677 Hours + 1.8HV‘ Hours of Ginning I 1,253 Hours + 1.5HV Hours of No GinningI 424 Hours —|— 0.3HV Diesel Power Total Hours of Labor: 794 Hours + 2.2HV Hours of Ginning I 368 Hours + 2.1HV Hours of No Ginning I 426 Hours + 0.1HV High and Low Plains Area Steam Power Total Hours of Labor::2,225 Hours+ 2.1HV Hours of Ginning I 1,296 Hours + 1.8HV Hours of No GinningI 929 Hours + 0.3HV Diesel Power Total Hours of LaborI1,502 Hours + 2.6HV Hours of Ginning I 647 Hours-l- 2.1HV Hours of No GinningI 855 Hours + 0.5HV The fact of a small variable cost in the hours of no ginning means that the hours of no ginning increase slightly as the volume of ginning increases. 1H—Hours; V—Volume of ginning; 1.8HV means 1.8 Hours times the number of bales ginned. 36 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION .High and Low Hour Costs of Labor On the basis of the relationship between actual hour costs and esti- mated hour costs, ten steam plants of high cost and ten steam plants of low cost in the High and Low Plains Area were selected. The hour costs per bale for the high and low cost gins and the total for both groups according to volume of ginning per day are given in Table 17. Table 1'7.—Hour Costs of Gin Labor—'1‘en High Cost and Ten I-ow Cost Gins- Steam P1ants—I-.lIigh and Low Plains Area. l Hours Per Bale l Index of Hour Costl Bales i Per Day High Oost Low Cost All Gins lHigh Cost Low Cost All Gins 1-10 __________________ __ 6.9 5.3 6.1 256 196 226 11-20 __________________ __ 3.5 2.8 3.1 130 104 115 21-30’ __________________ __ 2.7 2.1 2.4 100 78 89 31-40 __________________ __ 2.3 2.0 2.2 85 74 82 41-50 __________________ __ 2.3 1.5 2.0 85 56 74 01-60 __________________ __ 2.0 1.5 1.7 74 56 63 - __________________ _- 1.7 1.2 1.4 Q 44 52 Average ______________ -_ 3 1 2 4 2.7 115 89 100 lAverage hour cost of labor o! all gins‘ taken as 100. It is evident from Table 17 that hour costs of labor per bale are very high for a volume of ginning of 10 bales, or less, per day. After a volume of 40 bales per day has been reached, increases in volume result in moderate decreases in the hour costs per bale. For the gins of high and low hour costs of labor, 22.3 and 29.6 per cent of the total hours of labor were accumulated on days of no ginning; 23.0 and 18.5 per cent of the total hours were accumulated on days when 10 bales, or less, were ginned. Hour Costs Per Bale The hour costs per bale of the days of no ginning, of the days of ginning, and of total time are significant indexes on labor cost. For each of the 20 gins summarized in Table 17 estimated hour costs per bale for days of ginning, no ginning, and total time were computed. The percentage relationships between actual and estimated costs were calculated. Each gin was then ranked on the three costs, No. 1 having the lowest cost and No. 10 the highest. The hour costs of the gins with labor cost below the average are shown in Table 18 and of the gins with labor cost above the average are shown in Table 19, The gin with the lowest total labor cost in the low -cost group ranked second on days of no ginning and first on days of ginning; the gin ranking second on total cost was first on days of no ginning and seventh on days of ginning. The gin with the lowest total labor cost in the high cost group ranked eighth on days of no ginning and first on days of ginning. COST AND PROFIT OF GINNING COTTON IN TEXAS 37 Table 18.—Eours of Labor Per Ba.1e—Stea.m G-ins of High and. Low Plains ARR Labor Cost Below Average Gin Number 1 2 3 4 5 6 7 8 9 10 Bales Ginned 1,791 1,182 652 2,878 788 1,827 380 866 l,%6 1.078 Actual Cost Days No Ginning 0.5 0.6 1.3 0.5 1.1 0.8 3.8 2.0 1.3 1.6 Days Ginning 1.8 2.4 2.9 1.8 3.0 2.1 4.5 3.1 2.8 2.6 Total Hours 2.3 3.0 4.2 2.3 4.1 2.9 8.3 5.1 4.1 4.2 Estimated Gost Days No Ginning 0.8 1.1 1.7 0.4 1.5 0.8 2.9 1.5 1.1 1.2 Days Ginning 2.5 2.9 3.8 2.5 3.4 2.5 6.2 3.9 3.2 3.2 Total Hours 3.3 4.0 5.5 21.9 4.9 3.3 9.1 5.4 4.3 4.4 Percentage Actual of Estimated Days N0 Ginning 63 55 76 125 73 100 131 133 118 133 Days- Ginning 72 8'3 70 72 88 84 73 79 88 81 Total Hours 70 75 76 79 84 88 91 94 95 95 Ranking Days No Ginning 2 1 4 7 3 5 8 9 6 10 Days Ginning 1 7 4 1 10 8 3 5 9 6 Total Hours 1 2 3 4 5 6 7 8 9 10 Table 19.—Eours of Labor Per Ba.1e—Stea.m Gins of High and Low Plains A1198 Labor 00st Above Average Gin Number 1 2 3 4. 5 6 7 8 9 10 Bales Ginned 248 2,938 1,002 1,%8 1,353 1,639 1,580 1,135 246 1,302 Actual Cost Days No Ginning 4.8 0.6 0.7 0.7 0.9 0.6 1.0 1.1 6.2 1.2 Days Ginning 6.5 2.5 3.9 3.5 3.2 3.3 3.1 3.8 7.1 3.5 Total Hours 11.3 3.1 4.6 4.2 4.1 3.9 4.1 4.9 13.3 4.7 Estimated Cost Days No Ginning 4.0 0.6 1.2 1.0 1.0 0.9 0.9 1.1 4.1 1.0 Days Ginning 7.1 2.3 3.1 2.8 2.7 2.6 2.6 3.0 7.0 2.8 Total Hours 11.1 2.9 4.3 3.8 3.7 3.5 3.5 4.1 11.1 3.8 Percentage Actual of Estimated Days No Ginning 120 100 58 70 90 67 111 100 151 120 Days Ginning 92 109 126 125 119 127 119 127 101 125 Total Hours * 102 107 107 111 111 111 117 120' 120 124 Ranking Days No Ginnlng 8 5 1 3 4 2 7 5 10 8 Days Ginning 1 3 8 6 4 10 5 9 2 6 Total Hours 1 2 3 4 5 6 7 8 9 10 The manager in handling his gin crew seems to- have two main prob- lems: to keep as low as possible the hours of labor on days of no ginning; and to keep his gin crew to the lowest number of men on days of ginning consistent with prompt and effective service to patrons. Of the gins with labor cost below the average, the best record for cost on days of no ginning was 55 per cent of the average; for cost on days of ginning, 72 per cent of the average; and for total cost, 70 per cent of the average. The highest cost of days of no ginning in this group was 133 per cent 38 BUL-LETIN NO. 6'06, TEXAS» AGRICULTURAL EXPERIMENT STATION I of the average; of days of ginning, 88 per cent of the average; and of total hours, 95 per cent of the average. Of the gins with labor cost above the average, the best record for days of no ginning was 58 per cent of the average; for days of ginning, 92 per cent of the average; and for total hours, 102 per cent of the average. The highest cost of days of no ginning in this group was 151 per cent of the average; of days of ginning, 127 per cent of the average; and for total hours, 124 per cent of the average. Daily Gin Crews and Volume of Ginning The size of the daily gin crew and the daily volume of ginning for the whole season are shown for the gin of second lowest labor cost of the low cost group in Table 20 and for the gin of third lowest labor cost of the high cost group; in Table 21. The hour cost of labor of the second gin is 36 per cent higher than that of the first. As one scans the crew size in Table 20, the figure 4 is prominent; as one scans the crew size in Table 21, the figure 5 is prominent. The low cost gin had a four man crew for 53 days and a five man crew for 16 days out of a total of 106 days; the high cost gin had a four man crew for eight days and a five man crew for 62 days out of a total of 105 days. The low cost gin had 70 days of. ginning and the high cost gin had 75. Table 20.—G1n Crew and Volume of Ginning ‘by Days-Steam Gin with I-ow Labor Cost-High and Low Plains Area Size R / B Size R/ B i Size R-/ B Size R/ B Date Grew Ginned Date Grew Ginned ll Date Crew Ginned Date Crew Ginned Oct . Nov \ Dec . Jan . 1 3 2 4 4 8 6 1 0 6 5 27 2 3 0 5 4 9 7' 1 0 7 6 1 3 1 0 6 4 11 9 4 1O 9 4 21 4 1" 0 7 4 12 | 10 4 19 10 4 29 5 1 O 8 4 0 > 11 4 22 11 5 82 7 1 0 9 2 0 ; 12 4 21 12 1 0 8 1 3 12 2 0 é 13 5 52 13 5 52 9 1 3 13 3 0 i 14 5 23 14 4 O 12 4 7 14 4 14 z 15 1 0 15 4 19 14 4 13 15 4 15 16 5 48 16 4 19 15 4 13 l 16 4 18 17 5 11 17 4 19 16 4 0 18 4 0 , 18 5 66 18 4 2 17 4 10 19' 4 33 1 19 5 23 22 1 0 18 2 0 20 4 29 20 5 27 24 5 17 19 2 0 2'1 4 18 21 5 7 25 5 19 21 4 8 22 4 36 23 4 26 Feb. 22 4 10 23 4 0 25 4 0 1 4 8 23 4 12 24 1 2 26 3 19 3 1 0 24 1 0 25 2 0 27 4 0 4 1 0 25 1 0 26 2 0 28 4 0 5 1 0 26 1 0 27 2 0 29 1 0 8 4 11 28 3 4 29 4 12 30 4 22 14 4 17 29 5 16 30 4 12 31 3 0 15 4 11 30 4 12 Dec . J an . 2'1 1 0 31 4 2 2 4 15 1 3 0 22 4 13 Nov. 3 4 15 2 4 8 29 4 10 1 4 3 4 4 10 3 5 27 2 4 41 5 4 6 4 5 27 COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 39 Table 21.—G1n Crew and Volume of Ginnlng by Days-Stea.m Gin with E1811 Labor Cost-High and Low Plains Area Size R/ B Size R / B Size R»/ B Size R/ B Date Grew Ginned Date Grew Ginned Date Crew Ginned Date Crew Ginned Sept . Oct. Nov . Dec. 24 4 8 22 6 39 18 5 14 15 1 0 25 4 0 23 5 3 19 5 30 16 5 10 26 4 2 24 5 4 20 6 31 17 5 14 27 4 2 25 5 0 21 6 46 18 5 1O 28 4 6 26 5 1 22 5 28 19 6 12 30 4 8 27 1 0 23 5 20 20 5 5 Oct . 28 5 - 12' 24 2 0 21 5 3 1 5 10 W 6 28 25 5 0 22 1 0 2 5 11 30 5 36 26 5 0 23 3 0 3 5 10 31 5 32 27 5 9 24 4 5 4 5 10 Nov . 28 5 0 25 3 0 5 5 7 1 5 21 29 5 l5 26 3 0 6 2 0 2 5 7 30 5 22 27 3 0 7 5 4 3 1 0 Dec. 28 3 2 8 5 19 4 5 15 1 1 0 J an . 9 5 19 5 5 21 2 5 6 3 2 0 10 6 24 6 5 2'6 3 5 19 4 4 8 11 6 26 7 5 12 4 5 6 14 3 6 12 5 18 8 5 13 5 5 1 16 4 2 13 2 O 9 5 9 6 5 0 25 3 2 14 5 15 10 1 0 7 5 0 Mar 15 5 30 11 5 0 8 1 0 3 2 0 16 6 2'7 12 5 5 9' 5 4 6 1 0 17 6 10 13 5 2 10 5 11 7 3 0 18 5 11 14 5 8 11 5 15 8 1 0 19 5 8 15 5 4 12 5 9 14 3 3 20 2 0 16 5 13 13 5 13 21 5 ' 23 17 1 0 14 5 9' A summary of volume of ginning in terms of the size of crew is given in Table 22. The hour costs per bale for the days of actual ginning are summarized in Table 23. The size of the daily crew of the ginner with the high labor cost, on an average, was larger by 0.9 of a man than that of the ginner with the 10w labor cost. This difference explains in large measure the relative labor costs of the two ginners. Cost of Power The designation Diesel power includes natural gas and oil engines and a very few gasoline engines. If a strict classification had been followed, Table 22~—‘\To1ume of Ginning- According to Size of Gin Crew l Bales Ginned : Percentage Volume Size Grew (No. oi Men) L-ow Cost High Cost Low Cost High Cost 1-3 33 13 2.8 1.3 4 674 34 57.0 3.4 5 474 712 40.1 71.1 6— 1 243 0.1 24.2 Total Volume 1,182 1,002 100.0 100.0 ., .,_,...-pv— 1 Cosi- OF Etecrnuc Cunnem- ( T 'T‘ ‘f -| VOLUME OF Gaumuq (oo BALas) IO I5 20 I l | 1 I l I l l 25 -u| Pig‘. SF-Efiect of Changes in Electric Rate Schedules. Line A mark-s the cost under the old schedule and Line B under the new with consumption at the rate of 20.64 kilowatt hours per bale 811111841- Lines A’ and B’ mark costs under the old and new schedules wiith (‘consumption at the rate of 16 kilowatt hours per bale g nne . invested in a Diesel power unit. Thus the electric gin has the advantage of the lowest cost of depreciation. The electric gin has the lowest labor cost. As a rule, the electric gin saves one man in the gin crew. For a gin with a. low volume of ginning, this becomes significant. The electric gin has the lowest repair costs. The electric gin enjoys the lowest fixed cost. In general, for a ginner with a low volume of ginning, the cost advantage lies with‘ electric power; steam power is next in line with Diesel power at the greatest cost disadvantage. For the ginner with a large volume of ginning, the cost advantage lies with Diesel power; steam power is next in line with electric power at the greatest cost advantage. At a high volume, the Diesel gin capitalizes on its low variable cost; the electric gin suffers from its high variable cost. Cost of Repairs Costs of repairs are influenced relatively little by volume of ginning in steam and Diesel gins of the Blackland Area. In all other instances of types of power, volume is rather a significant factor in repair costs. If costs of ginning be considered by single seasons one of the items of COST AND PROFIT OF GINNING UOTTON IN TEXAS 43 greatest influence in the high cost gins is that of repair costs. For instance, in the case of the 53 high cost and 52 10w cost steam gins in the Blackland Area, while total costs of the former were greater by 56 per cent, repair costs were greater by 217 per cent;= for 38 high cost and 38 low cost Diesel gins, these percentages were 48 and 186; and for the 22 high cost and 22 low cost electric gins these percentages were 44 and 234. Various reasons may be advanced for irregularities in repair costs. In the first place, there is no standard for measuring levels of repair. Some ginners keep their plant in a much better state of repair than other ginners. In the second place, a considerable part of repair work may be delayed from season to season. Thus during a period of years repair costs may run low while in the year when a thorough overhauling is made, the repair cost runs high. A line ginner with 20 gins, for instance. may select five gins this year for a thorough repair job; next season another group of five is selected and so on through the complete cycle. For a given gin, repair -costs from year to year may be quite irregular. In the third place, repair cost the current season is related both to the volume ginned the preceding season and to the anticipated volume the coming season. If the volume the preceding year were high, the ginner may be forced to do considerable repair work. If the volume the pre- ceding year were low, perhaps very little repair work will be needed. If a. low volume of ginning be anticipated, the ginner keeps the repair bill at the lowest possible figure. In the fourth place, the difiicult problem presents itself of drawing the line between repairs and replace- ments. Gin managers do not necessarily agree upon the division. Furthermore, in some cases part of the repair cost may not be listed under repairs. For instance, some managers may do repairing with the gin crew on days of low ginning or no ginning. The cost of such labor would appear in cost of gin labor. In some instances, the manager may be employed for the whole year, or for a period longer than the ginning season. Such manager may spend part of the off season in doing repair work. In these instances, this portion of repair labor would appear as part of the cost of management. The relations between the fixed and variable costs of repair to total fixed and variable costs and between total repair costs at various volumes and total costs of ginning are shown in Table 25. Cost of Insurance and Taxes Costs of insurance and taxes combined may be characterized as fixed to a much greater degree than variable. While volume is a factor in six cases out of nine, the costs per bale, with the exception of electric gins in the Gulf Coast Area, are so low as to have but a moderate effect on total costs of these items. In three cases out of nine, investment is a factor and in three cases out of nine, size is a factor. 44 BULLETIN NO. 6016,’ TEXAS‘ AGRICULTURAL. EXPERIMENT STATION Table 25.—-Re1ation of Repair Costs to Total Costs of Ginning- A Ty Percentages rea pe of of Oostl j Volume of Ginning (Bales)? State Power ‘ Fixed Variable 1 500 1,000 1,500 2,000 2,500 5,000 i Steam 9.9 11.2 i 10.2 10.4 10.5 10.6 10.7 10.8 Blackland Diesel 8.8 10.2 9:1 9.2 9.3 9.4 9.5 9.6 Electric 7.9 7.3 7.7 7.6 7.6 7.5 7.5 7.5 High Steam 9.5 21.8 11.8 13.3 14.5 15.3 16.0 16.6 and Diesel 10.3 14.2 I 10.9 11.3 11.6 11.9 12.1 12.3 Low Electric 1.7 13.6 1 4.2 5.8 7.0 7.8 8.5 9.0 Plains Large 14.5 15.4 14.6 14.7 14.8 14.9 14.9 15.0 Gulf Diesel 7.0 18.1 9.2 10.6 11.6 12.4 13.0 13.5 Coast Electric ---- 18.5 7 5.4 8.8 10.8 12.1 13.0 13.7 lRelation between fixed costs of repair and total fixed costs at average investment; relation between variable costs of repair and total variable costs. zVolume of ginning of large gins double that of single battery gins. Cost of insurance varies according as the gin buildings are all wood, wood iron-clad, brick, or all steel. The available fire protection is also a factor whether the gin is located in the open country with no outside fire protection or within the city limits. Gins which have installed auto- matic sprinkler systems enjoy .a considerable reduction in rates. The percentage of the investment protected by insurance is also a factor. Volume of ginning has a slight influence in that cotton and cottonseed are insured While on the gin premises in the process of ginning. Taxes vary according to rates and bases of assessment. Rates usually are higher in the city than in the country. In many instances, the size of gin rather than its investment is made the basis of assessed valuation. The relation between the fixed and variable costs of insurance and taxes to total fixed and variable costs and between total costs of insurance and taxes at various volumes and total costs of ginning is shown in Table 26. Cost of Depreciation There are, in the main, three ways in which ginners handle deprecia- tion. The first group disregards this. cost. At the end of the season after all out-of-pocket expenses have been paid, whatevenis left over is considered as profit. The second group charges ofi depreciation in its balance sheet. No reserve against depreciation, however, is set aside. Thus total assets shrink from year to year. But the profit of operation is handled in much the same manner as in the first group. The third group not only charges off depreciation but also sets aside a reserve against depreciation. Perhaps the greatest difficulty in this matter of depreciation follows from the fact that it does not represent an annual out-of-pocket expense. At the time the gin plant is acquired, its cost is very real. Ten, or fifteen, .__..,..._......_.__.n_i.._._.._ ____- ..__,........ COST AND PROFIT OF GINNING COTTON IN TEXAS 45 Table 26.—Re1a.t1on of Costs of Insurance and Taxes to Total Costs of G-lnmng I Percentages Area . Type of § of Gostl Volume of Ginning (Bales)2 State i Power Fixed Variable 500 1,000 1,500 2,000 2,500 3,000 Steam 9.3 4.5 8.2.‘ 7.6 7.1 6.7 6.5 6.3 Blackland Diesel 18.4 _-_ 15.5 13.4 11.8 10.5 9.5 8.6 i Electric 22.0 __- 16.3 12.9 10.7 9.1 8.0 7.1 High ‘ Steam 14.7 3.6 12.6 11.2 10.2 9.4 8.8 8.3 and Diesel 12.3 3.4 11.0 10.1 9.3 8.7 8.3 7.9 Low Electric t 15.8 3.7 13.3 11.6 10.5 9.6 8.9 8.4 Plains _, Large 19.1 __- 16.6 14.7 13.1 11.9 10.9 10.0 Gulf ; Diesel 13.0 3.5 11.2 10.0 9.1 8.4 7.9 7.4 Coast 1 Electric 11.8 8.1 10.6 9.9 9.6 9.3 9.1 9.0 lRelation between fixed cost of insurance and taxes and total fixed cost at average invest- ment; relation between variable cost of insurance and taxes and total variable cost. zVolume of ginning of large gins double that of one-battery gins. or twenty years later when extensive replacements of machinery have to be made, the cost of the replacements becomes very real. N0 one can deny the fact that in the long run, as machinery wears out, an out-of- pocket expense is involved. The theory of the yearly reserves set aside is that as replacements are needed, their cost may be met out of the reserve. No one maintains that the rate of depreciation can be determined with absolute accuracy. At best, the rate applied is nothing more than an estimate. To make costs comparable, the same rate was applied to all gins whether depreciation was charged or not, or whether the rates were higher or lower than the uniform rate. The schedule of depreciation applied in this analysis is given in Appendix A. The cost of depreciation is primarily fixed. The relation between the cost of depreciation at various volumes of ginning and total costs of ginning is shown in Table 27. '.I.'a.b1e 27.—Re1a.t1on of Depreciation to '.l'ota.1 Costs of Ginning‘ Percentages Area Type of of Volume of Ginning (Bales)1 State Power 500 1,000 1,500 2,000 2,500 3.000 i 1 Steam 24.2 19.9 16.9 14.7 13.1 11.7 Blackland Diesel 24.8 21.2 18.4 16.2 14.4 13.0 i Electric 22.7 18.2 15.3 13.2 11.6 10.4 High Steam 26.2 22.2 19.4 17.1 15.4 14.0 and Diesel 30.2 26.5 23.5 21.2 19.3 17.7 Low Electric 29.1 24.0 20.5 17.8 15.8 14.2 Plains l Large 28.0 24.6 22.0 19.8 12.0 16.5 Gulf 1 Diesel 30.4 25.6 22.1 19.5 17.4 15.7 Ooast Electric 1 27.9 21.0 16.9 14.2 12.2 10.8 lVolume of ginning of large gins double that of single battery-gins. 46 BUL-LETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Cost of Management The cost of management is principally the manager’s salary. Prac- tically all the gins studied had salaried managers. These managers were employed for periods of time from the length of the ginning season to the whole year. In most instances the managers were paid a straight salary. In a few instances, the manager received a bonus after a certain volume was ginned or a certain profit earned. The cost of management also included such travelling expenses as were allowe-d the manager. If directors were allowed a fee for serving on the board, such expense was charged to management. In the case of the line gins, the cost of super- vision from the central office was allocated against cost of management of the gin units. In the case of average cost of management, volume is a factor five times out of nine. Size of gin is a factor two times out of nine; invest- ment is a factor five times out of nine. In two cases none of the three variables was found to be significant so the mean was accepted as the estimated average cost. The relation between the fixed and variable costs of management to total fixed and variable costs and between total cost of management at various volumes and total costs of ginning is shown in Table 28. Table 28.-Relation of Cost of Management to Total Costs of G-inmng A p T Percentages rea ‘ ype 0f p of Oostl \ Volume of Ginning (Bales)'*’ State l, Power . i Fixed Variable l 500' 1,000 1,500 2,000 27,500 3,000 i i Steam 16.8 21.9 18.0 18.8 19.3‘ 19.7 20.0 20.2 Blackland Diesel 28.1 --__ 24.8 22.4 20.6 19.1 18.0 17.0 Electric 33.8 ____ 26.4 22.0 19.1 17.0 15.5 14.3 High Steam 19.9 6.7 17.4 15.7 14.4 13.5 12.8 12.2 and Diesel 18.6 8 0 17.1 16.0 15.1 14.4 13.9 13.4 Low Electric 25.8 ____ 21.3 18.3 16.2 14.7 13.5 12.5 Plains Large 16.4 2 9 14.6 13.2 12.1 11.2 10.5 9.9 Gulf Diesel 22.7 11.1 20.5 18.9 17.8 17.0 16.3 15.8 Coast Electric 35.2 -___ 22.4 16.6 13.2 10.9 9.3 8.1 lRelation between fixed cost of management and total fixed cost at average investment; relation between variable cost of management and total variable cost. zVolume of ginning of large gins double that of one-battery gins. Miscellaneous Costs Some of the gin managers carry expenses under 18 to 20 items. In such cases items like supplies and tools, auditing and legal, telephone and telegraph, oifice supplies, and advertising and donations were included in miscellaneous costs. Difference in miscellaneous costs among ginners may be quite as much a reflection of the freedom with which they throw costs into this item as of relative efficiency with which they operate the gin plants. i l COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 47 The relation between the fixed and variable costs of the miscellaneous items to total fixed and variable costs and between total miscellaneous costs at various volumes and total costs of ginning is shown in Table 29. Table 29-—Re~1at1on of Miscellaneous Costs to Total Costs of Ginning‘ Percentages Area Type l 0f of Clostl Volume ot Ginning (Ba1es)2 State Power Fixed Variable 500 1,000 1,500 2,000 2,500 3,000 Steam 4.4 10.1 5.7 6.6 7.1 7.6 7.9 8.2 Blackland Diesel 5.1 8.0 5.6 5.9 6.2 6.4 6.6 6.7 Electric : 5.7 5.9 5.8 5.8 5.9 5.9 5.9 5.9 High 1 Steam 2.4 16.9 5.1 6.9 8.3 9.3 10.1 10.8 and Diesel 7.9 7.4 7.8 7.7 7.7 7.7 7.6 7.6 Low Electric 2.4 11.2 4.2 5.4 6.3 6.9 7.4 7.8 Plains Large 7.5 8.6 7.6 7.8 7.9 8.0 8.0 8.1 Gulf Diesel 6.8 1221 7 8 8.6 9.1 9.5 9.8 10.0 Coast Electric ___ 13.5 5.5 8.6 10.4. 11.6 12.4 13.1 lRelation between fixed cost of miscellaneous items and total fixed cost at average invest- ment; relation between variable cost of miscellaneous items and total variable cost. zVolume of ginning of large gins double that of one-battery gins. NET PROFITS OF GINNING The ginner is interested in earning a net profit. His cost of ginning is a barrier, so to speak, across his flow of gin income. The height and width of the barrier depend upon the ginner’s relative efiiciency of operation, investment in the gin plant, and volume of ginning. The volume of the flow of gin income depends upon the number of bales ginned and the gin income per bale. Only as the flow of gin income be great enough to overflow the barrier of cost is there any possibility of a net profit. With implements for estimating costs at hand, one stands on the threshold of the realm of profits with the necessary equipment for explor- ing this phase of the ginning business. The transition from costs to profits may be made through the equation: Gin Income = Cost of Ginning i Profit The typical gin business has three kinds of costs and incomes. The costs are those of: the operation of the gin plant; the purchase of bagging and ties; and the purchase of cottonseed from the patrons. The incomes are those derived from: the gin toll; the sale of bagging and ties to patrons; and the sale of the cottonseed. Three terms need to be defined. Ginning profit is the difference between the cost of operating the gin plant and the gin toll. Gin income is the gin toll plus the net profits on bagging and ties and cotton- seed. The gin income per bale is the total gin income divided by the number of bales ginned. Profit, or loss, on sideline business and on lint cotton pur- chased may be reduced to a per bale basis and the gin income per bale adjusted accordingly. 48 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Net gin income is the difference between the gin income and the cost of operating the gin plant. Ginning profit is very sensitive to volume of ginning. At a low volume heavy losses may result; as volume increases the losses diminish until the break-even point is reached; as volume increases beyond this point, profits increase markedly. Volume of ginning does not have this same effect on profits on patterns and cottonseed. The ginner may get some concesson in price on patterns purchased in large lots; he may get a somewhat higher price from the oil mill for a large volume of cottonseed. But these differences are of minor importance in the net profit per pattern and per ton of cottonseed. If the profits of the gin business were com- puted from the gross incomes from tolls, patterns and cottonseed, then cost deductions would be the totals of the ginning cost and the costs of patterns and cottonseed. This approach is cumbersome. To avoid un- necessary complications, total gin income as defined in this discussion is the sum of the gin toll and the net profits on patterns and cottonseed. The equation above may be reduced to workable form by applying it to a specific case as a Diesel gin with an investment of $20,000 in the Blackland Area. The average gin income per bale in that area over a period of years was $5.20. If V represents the volume of ginning, then $5.20V expresses the gin income. This may be substituted for Gin Income in the equation. The estimating equation for Diesel gins in the Blackland Area may be substituted for Cost of Ginning in the equation. Through these substitutions, the equation becomes: $5.20V = $2,198 + (qfiiaoss/r >< 20,000) + $1.3m‘ i Profit The equation in th‘s form may be simplified to read: smov = $3,972 + $1.37V i- Profit By subtracting $1.37V from both sides, the equation becomes: sassv = $c,972. i Profit In dividing both sides of the equation by $3.83, the equation takes this form: $39721- Profit V = i-i- $3.83 Since the $3,972 is the fixed cost of a Diesel gin with an investment of $20,000 in the Blackland Area, and since the $3.83 is the gin income per bale less the variable cost of Diesel gins in the area, the equation in its final form above may be stated thus: Fixed Cost i Profit Volume of Ginning I Gin Income Per Bale — Variable Cost Per Balc That net profits have their origin in the part of the gin income re- maining after the variable cost has been deducted is illustrated on a per bale basis in Figure 6. This figure is based on a steam gin with an investment of $25,000 in the High and Low Plains Area. The marked .......... - _......._a ........._ ...._._. .. .. _ _ . .. _. a A-..“ . ._a.............._.._-...,I ..... ..- _ _........_..,..A.._.... -.....s_-.. _..__.»_ muushntnnummmmaamaamianmmmnmammmmmmi. . COST AND PROFIT OF GINNING COTTON IN TEXAS 49 Fmeo Coat Loss IBIEAK Evnf Voruml I059 Rib b Qmumq Coat Am: Imam: (Datum: Pen 55ml Pnom i“ Gm |N¢OM Pu: bu! S l0 l L rig. 6.—Cost and profit per bale. Curve A, cost of ginning. Line B, gin income. Line G, variable cost measured from O-Cost In- come Axis. Area. between Curve A and Line C measures fixed cost of ginning. Areas between Curve A and Line B measure loss at volume less than 1,059 bales, and net profit at volume greater than 1,059 bales. —Vuu\u.r. Coat Voum: Or Q-numq (o0 Bares) ‘.5 . "P . H’ ‘P . E’ decrease in fixed costs per bale through small increases in volume of ginning in the lower volume range is strikingly illustrated in this figure. It should be apparent from Figure 6 that profits occur only as the volume of ginning becomes great enough to reduce the fixed cost per bale to less than the remafinder of the gin income per bale after the variable cost has been deducted. The point was made earlier in this discussion that fixed costs were an aid in explaining the relation between volume and cost of ginning. The division of costs of ginning into fixed and variable is indispensable in explaining the relations among ginning cost, gin income, and net profit. USES OF VOLUME EQUATION The equation for determining volume of ginning given above is useful in solving many problems involving relations among cost, gin income, and profit. The more important of these problems are: 50' BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION the volume required to attain a specified cost of ginning per bale; the volume needed to yield a specified profit, a. a lump sum. b. a given return on the investment, c. a given profit per bale; 3. the effect of changes in the gin income per bale upon profits, a. changes in the gin toll, b. changes in the margin of profits on patterns and cottonseed, c. ginner buying of patrons’ cotton at a price above the market; 4. the volume required to Warrant a specified investment in the gin plant; 5 the investment a given volume of ginning justifies; and . the “break even” volume according to gin income per bale and investment in the gin plant. Volume Required to Attain a Specified Cost Per Bale .l\DI—* A ginner of average operating efficiency must have a volume above a. certain minimum if a favorable profit situation is to be attained. In other words, a ginner of average efficiency runs into difficulties at a low volume of ginning; furthermore, efforts to reduce costs of operation help but little as a substitute for adequate volume. This situation suggests the need of “specifying a minimum volume according to investment in the gin plant. The same end may be accomplished by specifying a standard cost per bale as the means of designating the minimum volume of ginning. In a problem of volume in this form, no question of profit is involved. The gin income per bale is the cost of ginning assumed. Hence the equa- tion may be stated thus: Fixed Cost Volume of Ginning = Assumed Oost Per Bale —- Variable Cost Per Bale The volume needed by an electric gin with an investment of $27,500 in the High and Low Plains Area to realize a cost of $4.25 per bale may be found in this manner: $4,619 Volume oi Ginning = -—-- $4.25 — $2.42 Volume of Ginning=2,52*l Bales Check Type of Cost Cost Fixed ($27,000) $4,557 Investment ($5001) 56 Total $ 4,613 Variable 2,500 Bales $6,050 21 Bales Total $ 6,101 Total $10,714 $10,714 + 2,521 = $4.25 It seems reasonable to assume that costs are satisfactory if the in- fluences of volume of ginning and operating efficiency are such that costs per bale are $3.75, or less, in the Blackland Area; $4.25, or less, in the lFixed costs according to investments in gin plants may be found in Tables 37, 38, 39, and 40. Variable costs listed for 100 bales in these same tables may be reduced to variable costs per bale by pointing off two places. COST AND PROFTI‘ OF‘ GINNING COTTON IN TEXAS 51 High and Low Plains Area; and$4.00, or less, in the Gulf Coast Area. With the equation for volume of ginning, tables may be constructed to show the number of bales required at given costs per bale according to investments in the gin plants. Volume Needed to Yield a Specified Profit A ginner in the Gulf Coast Area with a Diesel gin involving an invest- ment of $26,000 may wish to determine the volume needed at a gin income of $6.25 per bale to yield a net profit of $3,000. His problem may be solved thus: $4,199 + $3,000 Volume of Ginning = —-—~——-—>— $6.25 —- $1.99‘ Volume of Ginning = 1,690‘ Bales This ginner may wish to find the volume needed to yield a return of 15 per cent on his investment of $26,000. This requires a profit of $3,900. The volume needed may be determined thus: $4,199 + $3,900 Volume of Ginning = —--—--——— $6.25 —— $199 Volume of Ginning = 1,901 Bales Private ginners are interested in profits as a yield on the investment in the gin plant. Cooperative ginners are also interested in this view of profits while paying for their gin plant out of profits. This same ginner may wish to determine the volume needed to yield a net profit of $2.00 per bale. It should be evident that to earn a net profit of $2.00 per bale on a gin income of $6.25 per bale, the cost of ginning must be $4.25 per bale. This problem may be solved in this manner: _ _ $4,199 Volume of Ginning = —————-———i—-—— $6.25 -— ($1.99 + $2.00) Volume of Ginning = 1,858 Bales Cooperative ginners may be particularly interested in profits on a per bale basis when profits are available for distribution as patronage dividends. Effect of Changes in Gin Income Per Bale The gin income per bale may vary as a result of changes in the gin toll and changes in the net profits on patterns and cottonseed. A change of five cents per cwt. of seed cotton means a difference of about 76 cents per bale in the Blackland Area; about 95 cents in the High and Low Plains Area; and about 73 cents in the Gulf Coast Area. If ginners were to pay oil mill prices for cottonseed purchased from members and if they were to sell patterns at cost, the gin income per bale would be reduced as much as 50 cents to more than one dollar per bale. 52 BULLETIN NO. 60-6, TEXAS‘ AGRICULTURAL EXPERIMENT‘ STATION The results of a reduction in the gin income per bale may be considered from two angles; (1) the effect on net profits with volume remaining the same; and (2) the increase in volume of ginning needed to maintain the same profits. If the ginner who earned a profit of $3,716 on 1,858 bales had reduced his gin income by $1.00 per bale, his net profit would have dropped to $1,858. The second phase of the problem, the volume needed to earn the same profit, may be solved in this manner: $4,199 + $3,716 Volume of Ginning = ———————— $6.25 — ($1.99 + $1.00) Volume of Ginning = 2,428 Bales Thus in reducing the gin income by $1.00 per bale, to earn the same net profit, this ginner would have to increase his volume of ginning from 1,858 to 2,428 bales, an increase of 31 per cent. Ginner Buying of Cotton Ginner buying of cotton has become so prevalent in many sections of Texas as to merit special attention. It seems that ginner buying was started as a means of increasing the volume of ginning by paying a price for the cotton above the market. The inducement bidding for greater patronage is the reduction in the ginning charge equivalent to the amount of the overpayment. The ginner thus surrenders a part of his gin income per bale. His reason for doing this is on the theory that the resulting increase in volume reduces the cost of ginning per bale suf- ficiently so as to afford, in the end, an increased profit. If only one ginner in a community buys cotton above the market, he could, no doubt, increase his volume of ginning. His competitors would suffer a shrinkage in their volume of ginning. It can scarcely be expected that they would remain indifferent. In reality, these ginners would be faced with the alternative of either refusing to overpay for cotton or to overpay for cotton by about the same amount as the ginner who started the practice. These ginners would be called upon to weigh the effects of the probable drop in volume against the losses suffered in the attempt to maintain the normal volume. A ginner in the High and Low Plains Area has a Diesel gin with an investment of $30,000. He has a normal volume of 2,000 bales which with a gin income of $6.75 pe-r bale earns him a net profit of $4,646. He wishes to increase his volume by paying $1.50 per bale above the market for his patrons’ cotton. The question is, How much must he raise his volume in order to increase his profits? The solution to his problem may be found thus: $5,asa+$4,o46 Volume of Ginning = ———-———r—— $6».75- ($1.76 + $1.50) Volume of Ginning : 2,859 Bales AAA _..._.u -d4M< 1 a... . COST AND PROFIT OF GINNING COTTON IN TEXAS 53 The volume of 2,859 bales is greater by 43 per cent than a volume of 2,000 bales. If this ginner overpays by $1.50 per bale in order to increase his volume so as to reduce the cost of ginning per bale, he suffers financial loss provided he does not increase his volume by 43 per cent or more. A The problem as to the necessary increase in volume to gain the same profit is shown graphically in Figure 7. In this case the overpayment of $1.50 per bale is considered as an out-of-pocket. cost added to the total , cost of ginning. The overpayment has two results: (1) The “break even” volume is increased by 459 bales (1,528—1,069). (2) The net profit on the “profit” volume is reduced by $1.50 per bale. Hence the number of “profit” bales must be increased by 400 bales (1,331 — 931) to yield the same net profit. These added bales, 459 and 400, account for the increase in volume from 2,000 to 2,859 bales. Attention may now be given to the ginner who overpays by $1.50 per bale in order to maintain his volume at 2,000 bales. The question may be raised, what reduction in volume could this ginner take and still earn the same profit as at a volume of 2,000 bales maintained through overpaying by $1.50 per bale? At a volume of 2,000 bales, an over- payment of $1.50 a bale reduces the net profit by $3,000. Thus the net profit of $4,646 shrinks to $1,646. The number of bales required to earn this profit at the regular gin income and with no losses on cotton buying may be determined thus: $5,333 + $1,646 Volume of Ginning = —l—-—-— $6.75 — $1.76 Volume of Ginning = 1,399 Bales In refusing to overpay by $1.50 per bale, this ginner would earn greater profits provided he could maintain his ginning at a volume greater than 1,399 bales. The effect on the gin industry in the community of overpayng for cotton remains to be discussed. For the sake of simplicity, let it be supposed that a gin point has two ginners, each with a Diesel plant with the same investment, $30,000, and each ginner with a normal volume of 2,000 bales. The gin income per bale assumed is $6.75. The one ginner in overpaying by $1.50 a bale attains a volume of 2,859 bales. His net profit would be $4,646. The other ginner would be restricted to a volume of 1,141 bales. At a gin income of $6.75 his net profit on this volume would be $361. If the ginner who did not overpay attained a volume of 1,399 bales, his net profit would be $1,646. The volume of the other ginner would be restricted to 2,601 bales. At this volume with a gin income of $6.75 per bale and an overpayment of $1.50 per bale this ginner would earn a net profit of $3,744. In either case, a most unstable situation would obtain. Under actual conditions, the chances are that both ginners would overpay by $1.50, thereby maintaining their 54 BULLETIN NO. 6'06, TEXAS AGRICULTURAL EXPERIMENT STATION volumes at 2,000 bales. The net result to each ginner would be a reduc- tion in net profit from $4,646 to $1,646. Cotton growers would get ginning service at $5.25 per bale instead of $6.75. saiésfiséééééfill Cost Auo Income Or Q-Inulue (ooo Donuts) O 4‘ eDoLuIas) § .3 ' Baum Even‘ Vocum s l5 2 8 BALE: 2‘. é <1» I I <1 Q 0 w) l I ‘Bums Even‘ - 6 VoLuMs 5 I069 ' Bane Cos? Ann Income 0F Gmum ‘f ? Y‘ '.‘ 7‘ I N N I I >- | VOLUME OF Qmmnr. (oo bares‘) 5 IO I5 29 3° 35 J l l , , , , l I 1 I I I Pig. 7.—Efi‘ect of ginner buying of cotton at a price of $1.50 per bale above the market. Line A, total gin income at $6.75 per bale- I-ine B, total cost of ginning of a $30,000 Diesel gin in the High and Low Plains Area. Area within limits of Lines A and B, total net profit at volume greater than 1,069 bales, and total net loss at volume less than 1,069 bales. '.I.'he “profit” volume of 2,000 bales is 2,000—1,069, or 931 bales. '1'he profit per bale on the “profit" volume is $6.75-$l.76, or $4.99. Thus the net profit DE is 931 >< $4.99, or $4,646. Area within limits of Lines 2B and C, the total loss on cotton buying to the ginner who buys all the cotton ginned at a price of $1.50 per bale above the market. Hence any point on Line C measures the total of ginning cost and cotton loss at that specific volume of ginning. Area within the limits of Lines A and C, total net profit at a volume greater than 1,528 bales, and the total net loss at a volume less than 1,528 bales. '.I.'he profit per bale oi’ the “proflt" volume oi’ the ginner who overpays by $1.50 per bale is $6.75— ($1.76 + $1.50), or $3.49. The number of bales needed to yield a net profit of $4,646 is 4,646 + 3.49, or 1,331. Hence the volume needed by the ginner who overpays by $1.50 per bale to earn the net profit GI‘ of $4,646 is 1,528 + 1,331, or 2,859. The additional bales are accounted for by an additional 459 bales (1,528-1,069) in the “break even” volume and an additional 400 bales (1331-9231) in the “profit” volume. COST AND PROFIT OF‘ GINNING COTTON IN TEXAS 55 If the gin income of $6.75 per bale is too high, would it not be better for the ginners to make the necessary adjustments through a lowering of the gin toll or a narrowing of the margins on patterns and cottonseed rather than through overpaying for cotton? At a gin income of $6.75 per bale, these ginners would realize a return of 15.5 per cent on their investment; at a gin income of $5.25 per bale, they would realize a return of 5.5 per cent on their investments. Ginners condemn the practice of buying cotton at a price above the market. According to the above analysis, the ginner’s attitude is well founded. Ginner buying has an undesirable aspect from the standpoint of the cotton growers. It tends to accentuate the evils of “hog round” buying. Certainly, if a ginner buys cotton to increase, or to maintain, his volume of ginning, he is going to avoid losing patrons by paying a lower price for the poorer quality of cotton. Volume Required to “lax-rant a Specified Investment, A ginner entering the ginning business in Texas today may have the choice of constructing a new plant or of buying a secondhand one. An almost chronic over-expansion of ginning facilities in Texas coupled with the reduction in cotton production of recent years has jeopardized the profits of the ginning business. Consequently, many ginners are discouraged and wish to quit the business. One about to enter the ginning business is likely to ‘find many opportunities of buying second- hand plants. This point may be illustrated from the experiences of co- operative gin associations. Data on this phase of the cooperatives have been obtained from 246 associations. The numbers of new and second- hand plants, by periods, are shown in Table 30. Table aim-Numbers of Texas Cooperative G-in Associations Constructing New Plants or Buying Secondhand Plants New Secondhand Total Percentage Period Plants Plants Plants Secondhand —l9’27 14 13 27 48 1928-1933 16 29 45 6A 1934—1939 5 169 174 97 All 35 211 246 86 It is to be noted that cooperative gin associations have turned more and more to the purchase of secondhand plants as the means of providing themselves with ginning facilities. While data are not available as to the extent to which private ginners, independent and line, build new or purchase secondhand, the assumption seems safe that they too enter the ginning business largely through the purchase of secondhand plants. Interest in Secondhand Plant As a rule, ginners require financing 0n entering the business. In the case of the secondhand plant, at least three parties are directly con- 56 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION cerned in the value forming the basis of sale and purchase: the seller; the buyer; and the financing agency furnishing the buyer with funds. Naturally, the seller desires the highest price possible. He measures the price he can obtain against the probable profits if he continues in the business. The prospective buyer of a specific secondhand plant has a. number of choices: he may choose not to enter the business unless he can purchase the plant below a certain maximum price; he may have the opportunity of purchasing some other secondhand plant; he may build a new plant. The concern of the leading agency is in the profit prospect of the buyer as the measure of his ability to pay interest and principal according to schedule. Seller, buyer, and banker should all be interested in any means which would aid in guaging more accurately the value of the secondhand plant. The buyer of the secondhand plant is confronted with a situation re- quiring careful study and analysis. An appraisal by a disinterested third party may be made of the secondhand plant to arrive at its replacement value. This focuses attention on a choice between building a new plant or purchasing the secondhand plant in question. But an exceedingly important factor enters into the choice. If a new plant be built, one more competing gin unit is established bidding for the patronage at a point in which too many gins may already be operating. The net efiect of an added new plant would be to lower the value of all gin plants in the vicinity in that a further division of the available volume of ginning would impair the earning power of all plants. Value of Secondhand Plant It does not follow that the appraised value of the secondhand plant is what the plant may be worth to the buyer. The profit possibilities of the ginning business in the specific locality should not be overlooked. To arrive at the valuation of a secondhand plant, several factors are involved. The probable volume of ginning together with the cost of ginning at that volume is significant. The total gin income in terms of the probable gin income per bale and the volume of ginning is basic in any estimate of net profit. These same factors are basic to the ginner building a new plant in that they serve in judging the soundness of the investment made. The purchase of the secondhand plant involves capitalization both by seller and buyer. The seller has his past ginning experience to guide his estimates of value. The buyer may acquire a part or all the patron- age of the seller. The buyer may have in prospect a larger volume of business than that of the seller; this may be particularly true in case the buyer is a cooperative gin association. Under the latter circumstance, the buyer would be most reluctant to capitalize to the full this anticipated volume of business. With the investment and gin income per bale known, one more matter is needed before the desired volume may be computed. A decision must COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 57 be made as to the profit expected, whether considered as a return on the investment or as the profit needed to pay for the gin plant in a specified number of years. An electric plant in the Blackland Area may be pur- chased for $10,000. A return of 12 per cent on the investment may be considered reasonable. Thus the needed profit is $1,200. The gin income per bale is $5.20. The solution as to the number of bales re- quired is as follows: $2,681 + $1,200 $5.20 — $2.05 Volume of Ginning = h232 Bales Volume of Ginning = To facilitate the determination of the volume needed with investment and gin income per bale given, a series of tables have been prepared. In Table 50, the gin incomes per bale less variable costs per bale are listed for gins according to section of the state and type of power. Gin incomes per bale are shown by 25-cent intervals from $4.00 to $8.00. With the gin income per bale, type of power, and section of the state known, the gin income per bale less the variable cost may be read directly in Table 50. Adjustments for gin incomes between the 25-cent intervals should occasion no difficulty, Table 31 shows the profits needed to pay for gin plants according to investments in periods from five to ten years. Interest on the indebted- ness was computed at the rate of 6 per cent. These payments, or needed profits, were not calculated on an amortization plan. To do so would be straining for accuracy in a situation which at best is based on esti- mates with possibilities of rather wide variations. The interest was computed in this manner. It was assumed that the loan has run for six months by the end of the first ginning season. It was further assumed that at the end of each season, including the first, proportionate pay- ments are made on the principal sum. If interest rates be other than 6 per cent, adjustments may be made from the figures listed under “Interest at 1%” to the right in Table 31. If the interest be 8 per cent, ‘the rate is 2 per cent higher than that used in the table. If the invest- ment be $30,000, the additional sum, or profit, needed is 2 x $150, or $800. Table 32 shows the rate of return needed on the investment to pay for the gin plant out of profits of operation from 3 to 15 years with interest on the indebtedness from 4 to 8 per cent. Tables 37, 38, 39, and 40 give fixed costs according to section of the state, type of power, and investments in the gin plants. These fixed costs include both the investment and the residual costs. The adjustment costs given at the foot of the tables are investment costs only. Hence they may be added to or subtracted from the fixed costs listed in the table. ' The use of these tables may be illustrated in this manner. A ginner may purchase a Diesel gin in the Blackland Area for $14,500. He applies 58 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION ‘Table 31.—Profits Needed to Pay Principal and Interet According to Investment and Number of Yearsw-Interest on Indebtedness at Bate of 6 Per Cent Number oi Years to Pay Out Inter- Invest- est at ment 5 6 7 8 9 10 1 Per Cent $ 250 $ 58 $ 49 $ 43 $ 39 $ 35 $ 33 ---- 500 115 98 86 78 71 65 ---- 750 173 148 130 116 106 98 ---- 1 , 000 230 197 173 155 141 130 2,000 460 393 346 310 282 260 10 3,000 690 590 519 465 423 390 15 4,000 920 787 692 620 564 520 20 5,000 1,150 983 864 775 706 650 25 6,000 1,380 1,180 1,037 930 847 780 30 7,000 1,610 1,377 1,210 1,085 988 910 35 8,000 1,840 1,573 1,383 1,240 1,129 1,040 40 9,000 2,070 1,770 1,556 1,395 1,270 1,170 45 10,000 2,300 1,967 1,728 1,550 1,411 1,300 50 11,000 2,530 2,163 1,901 1,705 1,552 1,430 55 12,000 2,760 2,360 2,074 1,860 1,693 1,560 60 13,000 2,990 2,557 2,247 2,015 1,834 1,690 65 14,000 3,220 2,753 2,420 2,170 1,976 1,820 70 15,000 3,450 2,950 2,593 2,325 2,117 1,950 75 16,000 ‘ 680 3,147 2,766 2,480 2,258 2,080 80 17,000 3,910 3,343 2,939 2,635 2,399 2,210 85 18,000 4,140 3,540 3,111 2,790 2,540 2,340 90 19,000 4,370 3,737 3,284 2,945 2,681 2,470 95 20,000 4,600 3,933 3,457 3,100 2,822 2,600 100 21,000 4,830 4,130 3,630 3,255 2,963 2,730 105 22,000 5,060 4,327 3,803 3,410 3,104 2,860 110 23,000 5,290 4,523 3,976 3,565 3,246 2,990 115 24,000 5,520 4,720 4,149 3,720 3,387 3,120 120 25,000 5,750 4,917 4,322 3,875 3,528 3,250 125 26,000 5,980 5,113 4,494 4,030 3,669 3,380 130 27,000 6,210 5,310 4,667 4,185 3,810 3,510 135 28,000 6,440 5,507 4,840 4,340 3,951 3,640 140 29 000 6,670 5,703 5,013 4,490 4,092 3,770 145 30,000 6,900 5,900 5,186 4,650 4,233 3,900 150 31,000 7,130 6,057 5,359 4,805 4,374 4,030 155 32,000 7,360 6,293 5,532 4,960 4,516 4,160 160 33,000 7,590 6,490 5,705 5,115 4,657 4,290 165 34,000 7,820 6,687 5,877 5,270 4,798 4,420 170 35,000 8,050 6,883 6,050 5,425 4,939 4,550 175 36,000 8,280 7,080 6,223 5,580 5,080 4,680 180 37,000 8,510 7,277 6,396 5,735 5,221 4,810 185 38,000 8,740 7,473 6,569 5,890 5,362 4,940 190 39,000 8,970 7,670 6,472 6,045 5,503 5,070 195 40,000 9,200 7,867 6,915 6,200 5,644 5,200 200 50,000 11,500 9,834 8,642 7,750 7,056 6,500 250 60,000 13,800 11,800 10,371 9,300 8,469 7,800 300 70,000 16,100 13,767 12,100 10,850 9,882 9,100 350 80,000 18,400 15,733 13,818 12,400 11,294 10,400 400 90,000 20,700 17,700 15,557 13,950 12,707 11,700 450 100,000 23,000 19,667 17,284 15,500 14,112 13,000 500 for a loan. The banker wishes to know his Profit prospects. The gin income per bale is $5.25 in the area. The banker proposes to charge 8 per cent on the loan. In order to determine the needed volume, three factors must be ascertained: the fixed cost; the profit needed; and the gin income less the variable cost per bale. The fixed cost may be found in Table 37. The fixed cost on $14,000 is $3,440; the investment cost on $500 is $44; thus the total fixed cost is $3,484. COST‘ AND PROFIT‘ OF GINNING COTTON IN TEXAS 59 Table 32.—Ra.te of Returns on Investment in Gin Plant as Related to Number of Years 1n Paying Out Investment and Rate of Interest on Indebtedness Rate of Interest Number oi Years 4 5 6 7 8 3 35.3% 35.8% 36.3% 36.3% 37.3% 4 27.0 27.5 28.0 28.5 29.0 5 22.0 22.5 23.0 2315 24.0 6 18.7 19.2 19.7 20.2 20.7 7 16.3 16.8 17.3 17.8 18.3 8 14 .5 15.0 15.5 16.0 16.5 9 13.1 13.6 14.1 14.6 15.1 10 12.0 12.5 13.0 13.5 14.0 11 11.1 11.6 12.1 12.6 13.1 12 10.3 10.8 11.3 11.8 12.3 13 9.7 10.2 10.7 11.2 11.7 14 9.1 '9.6 10.1 10.6 11.1 15 8.7 9.2 9.7 10.2 10.7 The profit needed to pay out in eight years may be found in Table 31. The profit may be tabulated thus: Investment Profit $14 , 000 $2, 170 500 78 2% Interest $14,000 140 500 5 Total Profit $2,393 The gin income per bale less the variable cost is found in Table 50. This item it $3.88. The volume needed is computed thus: $3,484 + $2,393 Volume of Ginning = i $3.88 Volume of Ginning = 1,515 Bales If this ginner is conservative as to the outlook of the future, he may wish to examine the effects of a drop in the gin income per bale. A drop of 50 cents a bale would have this efiect on the volume of ginning needed: $3,494 + $2.393 Volume of Ginning = —————————— $3.38 Volume of Ginning = 1,739" Bales Investment a Given Volume of Ginning Justifies A ginner in the Blackland Area has the assurance of 1,800 bales. He wishes to know what he can afford to pay for a steam plant. The gin income per bale is $5.20. According to Table 50, this income less the variable cost\is $3.42. The equation for volume of ginning gives this result: Fixed Cost + Profit 1,800 = ---——-—— $3.42 $6,156 = Fixed 00st + Profit 60 BULLETIN NO. 606, TEXAS‘ AGRICULTURAL EXPERIMENT STATION As a means of disentangling this combination of fixed cost and profit, Table 33 has been prepared. In this table the fixed cost of a $6,000 Table 33.—'1‘ota1s of Profits According to the Number of Years to Pay Out with Interest at 6 Per Cent and Fixed. Costs According to Investments Steam Power—IB1a.ck1and Area, 1930-1938 Number of Years to Pay Out Invest- Invest- ment 5 6 7 8 9 10 ment $ 6,000 $ 3,668 $ 3,468 $3,325 $3,218 $3,135 $3,068 $6,000 7,000 3,991 3,758 3,591 3,466 3,369 3,291 7,000 8,000 4,314 4,047 3,857 3,714 3,603 3,514 8,000 9,000 4,637 4,387 4,123 3,962 3,837 3,737 9,000 10,000 4,960 4,627 4,389 . 4,210 4,071 3,960’ 10,000 11,000 5,283 4,916 4,654 4,458 4,305 4,183 11,000 12,000 5,605 5,206 4,920 4,706 4,539 4,406 12,000 13,000 5,929 5,496 5,186 4,954 4,774 4,629 13,000 14,000 6,252 5,785 5,452 5,202 5,008 4,852 14,000 15,000 6,575 6,075 5,718 5,450 5,242 5,075 15,000 16,000 6,898 6,365 5,984 5,698 5,476 5,298 16,000 17,000 7,221 6,654 6,250 5,946 5,710 5,521 17,000 18,000 7,544 6,944 6,516 6,194 5,944 5,744 18,000 19,000 7,837 7,234 6,781 6,442 6,178 5,967 19,000 210,000 8,190 7,523 7,047 6,690 6,412 6,190 20,000 21,000 8,513 7,813 7,313 6,938 6,646 6,413 21,000 22,00) 8,836 8,103 7,579 7,186 6,880 6,636 22,000 23,000 9,159 8,392 7,845 7,434 7,114 6,859 23,000 24,000 9,482 8,682 8,111 7,682 7,348 7,082 24,000 25,000 9,805 8,972 8,377 7,930 7,583 7,305 25,000 26,000 10,1218 9,261 8,643 8,178 7,817 7,528 26,000 , 10,451 9,551 8,908 8,426 8,051 7,751 27,00‘) 28,000 10,774 9,841 9,174 8,674 8,285 7,974 28,000 29,000 11,097 10,130 9,440 8,922 8,519 8,197 29,000 30,000 11,420 10,420 9,706 9,170 8,753 8,420 30,000 100 32 29 2'7 25 23 22 100 200 65 58 53 50 47 45 200 300 97 87 80 74 70 67 s00 400 129 116 106 99 94 89 400 500 162 145 1% 124 117 112 500 600 194 174 160 149 140 134 600 700 226 203 186 174 164 156 700 800 258 232 213 198 187 178 800 900 291 261 239' W3 211 201 900 1,000 323 2.90 266 248 2M 223 1,000 steam gin in the Blackland Area was added to the annual profits needed to pay out $6,000 in 5 to 1O years, with interest on the indebtedness at the rate of 6 per cent. This was also done for investments greater than $6,000 by $1,000 intervals up to $30,000. At the bottom of the table are given the totals of profits and fixed costs for investments by $100 intervals from $100 to $1,000. These totals facilitate adjustments for investments between the $1,000 intervals. Attention may now be directed to the equation above. According to Table 33, a total of fixed cost and profit of $6,156 indicates an invest- ment somewhat greater than $13,000 if to be paid out in 5 years. The difierence between $6,156 and $5,929, the total of fixed cost and profit at $13,000, is $227. According to the adjustment values at the bottom of the table, this indicates an added investment of about-$700. Thus the total investment indicated is about $13,700. If the investment is to COST AND PROFIT OF GINNING COTTON IN TEXAS 611 be paid out in six years, an investment somewhat greater than $15,000 is indicated. The difference between $6,156 and $6,075 is $81. This indicates an added investment of about $300. Thus the total investment to be paid out in 6 years is about $15,300. If the investment is to be paid out in ten years, an investment greater than $19,000 is indicated. The difference between $6,156 and $5,967 is $189. This indicates an added investment of about $800. Thus the total investment to be paid out in ten years is about $19,800. Net profits of steam gins in the Blackland Area with a volume of 1,800 bales, a gin income of $5.20 per bale, and investments of $13,700, $15,300, and $19,800 are $3,152, $3,003 and $2,585. According to Table 31, the profit needed to pay out an investment of $13,700 in five years is $3,151; to pay out $15,300 in six years, $3,009; and to pay out $19,800 in ten years, $2,574. Bankers and ginners interested in this aspect of ginning profits can . construct tables similar to Table 33 for the other groups of gins accord- WYTP: -~ < ~ ing to type of power and section of the state. “Break Even” Volume According t0 Gin Income and Investment At the “break even” volume, gin income and cost of ginning are identical. Hence in determining this volume, the gin income per bale and the cost of ginning are involved. There is no question of profit. The volume needed to break even by an electric gin with an investment of $12,000 in the Blackland Area and a gin income of $5.20 per bale may be ascertained thus: $2,799 Volume of Ginning =- $5.20 ——$2.05 Volume of Ginning = 889 Bales The example above illustrates the manner in which Tables 51 to 59 were compiled. In each instance, the fixed cost according to section of the state, type of power, and investment was divided by the gin income per bale less the appropriate variable cost per bale. “Break Even” and “Profit” Volumes The volume of a gin operatng at a profit may be divided into two —units——the “break even” volume and the “profit” volume. The “break even” volume takes care of all the fixed cost of ginning and of all the variable cost on this volume. Consequently, the gin income on the “profit” volume is divided two ways between the variable cost and profit. The behavior of the “break even” and “profit” volumes on a per bale basis is illustrated in Figure 8. A study of Figure 8 may raise the question: Might it not be expedient for a ginner, from the profit standpoint, to lower his ginning charge after 62 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION 3 , 3 .0 I d3. ~10 2 5 t 5' .n s c: ° _ v U A g fi -8 9 E z I ’- I t‘ a BREAK Even Z VOLUME: W59 “7 4 Pb/xtis E) 5 [ o u ..6 ‘y Z PKOFIT g $4.60 -5 G Pen BALE l! N 1 y\ -— BREAK Ever; VoLuMz--—- VOLUME ' Paosn VOLUME .5 _ GREATER THAN ‘i 4 r059 Q BALES a’ IL! -s l 2 o o ‘Y C Z _2 i; I z o U" u o ,. -| i’ 8 Q u 2 Votume Oflinmuuq (oo BALES) t 5 Io l5 2o 25 so s5 I I I l l I I I I l l l {I Pig. 8.—Graphical Representation of “Break Even" and “Profit” Volume on a Per Bale Basis. Curve A, cost of ginning- per bale on the “break even" volume. Line B, gin income of $6.85 per bale. Line C, variable cost of $2.25 per bale. At the “break even" volume of 1,059 bales, the fixed cost per bale is $685-$225, or $4.60. Thus the total fixed cost is 1,059 >< $4.60, or $4,871. This is the fixed cost of a $25,000 steam gin in the High and Low Plains Area. At the “break even” volume, the total variable cost 1S 1,059 $2.25, or $2,383. The total of the fixed and variable costs is $7,254. This is the total cost of ginning 1,059 bales of a $25,000 steam gin in the High and I-ow Plains Area. Thus if the “break even” volume be considered as a unit of ginning and the “profit" volume as a second unit, the added cost on the “profit" unit is the variable cost. Thus it should be clear on the “profit” unit that the gin income per bale is divided between the variable cost per bale and net profit per bale. the “break even” volume had been ginned in order to attract a larger volume of “profit” bales? Suppose there are two steam plants at a gin point in the High and Low Plains Area. Each gin represents an invest- ment of $25,000 and each ginner has a volume of 1,500 bales. The gin income per bale is $6.85. Assuming that these gins operate at average efficiency, this volume would yield each ginner a net profit of $2,028. One of the ginners, after he had a volume of 1,000 bales, is convinced that he can increase his volume to 1,750 bales by reducing the gin charge COST AND PROFIT‘ OF‘ GINNING COTTON IN TEXAS 63 by one dollar per bale. Three questions present themselves. What volume must this ginner attain to make the same profit in reducing the gin charge by $1.00 per bale at a volume above 1,000 bales as on 1,500 bales without a reduction in the gin charge? How much would he gain if he attained a volume of 1,750 bales? How would the profits of the second ginner be affected? A volume of 1,000 bales leaves a loss of $272. The profit per bale of the “profit” volume, with the reduction of $1.00 per bale, would be $3.60. The volume above 1,000 bales would have to earn a profit of $2,028 +$272, or $2,300, to yield the same profit as the 1,500 bales without a reduction in the gin charge per bale. The added bales needed may be found thus: 2,30o+3.c01=6a9 Thus the necessary volume is 1,000 + 639, or 1,639 bales. Check Type of Cost Cost Gin Income Fixed (Investment, $25,000) ........... "$4,872 1,000 Bales @ $6.85 ____________________ --$ 6.850 Variable (Volume, 1,639 Bales) ....... -_ 3,688 639 Bales @ $5.85 ____________________ -- 3,738 Total -- $8,560 Total Gin Income _______________ “$10,588 The net profit is $10,588 less $8,560, or $2,028. If this ginner attained a volume of 1,639 bales, his profit would remain the same. The second ginner, however, would have lost 139 “profit” bales, or a loss of $639. Thus his net profit would shrink from $2,028 to $1,389. If the first ginner attained a volume of 1,750 bales, the volume beyond 1,639 bales would earn an added profit of $3.60 >< 111, or $400. His total net profit would be $2,028 + $400, or $2,428. Under such circumstances, the normal “profit” volume of 441 bales of the second ginner would shrink by 250 bales to 191 bales. His net profit would be $4.60 >< 191, or $879. Under circumstances obtaining at the local gin points, there is not the slightest likelihood that a ginner may use the “two price” system while his competitor maintains regular charges. The gin patrons are many in numbers. Usually no one patron has a large volume in terms of the volume requirements of a successful gin. The first ginner in approaching the patrons of the second ginner with the proposal of a dollar cut in gin charges as the inducement to win their patronage could not possibly prevent the other ginner from learning about the price cutting.. The chances are that the second ginner would retaliate with a similar price cut. Then the two ginners would dissipate the profits of their' “profit” volumes. PROFIT STATUS OF GIN INDUSTRY IN TEXAS An analysis of costs and profits of ginning in Texas should make possible an evaluation of the present profit status of the industry. To reduce cost and profit of ginning to the basis of an average gin for the 64 BULLETIN NO. 610-6, TEXAS AGRICULTURAL. EXPERIMENT STATION state is a case of over-simplification. But such an average viewed as an index on general conditions may serve useful purposes. From the equations for estimating average total costs of ginning according to section of the state and type of power, a weighted equation was derived for the state as a whole. This equation is: Average State O'ost=$2,035+$0. 08791 +$1.91V The average gin income for the state for the period 1930-31 to 1938-39 was about $5.95 per bale. The average investment of gin plants in ma- chinery, buildings, office equipment, and other fixed assets, excepting land, is about $18,848. Cotton production in Texas was 2,858,525 bales in 1939 and the number of gins was 3,332. Hence the average volume per gin that year was 858 bales. If the liberty be taken of speaking of the average gin in Texas, this was the way it fared in 1939: Gin Income $5.95><858 ........................ __ Cost Fixed . Residual ............................. “$2,035 Investment $o.0879><1s,84& .......... _- 1,657 $5,105 Total _________________________________ -- Variable $1.91 X858 _______________________ -- Total _____________________________________ __ 5.331 Net Loss _________________________________ _ _ $ 226 It seems safe to assume that no industry can continue, without con- siderable adjustment, with more than one-half the business concerns operating at a loss. The general profit status of the industry is of great significance in any policy which may be adopted for the purpose of improving the ginning business. It may be of interest to consider the effects on the Texas gin industry of an average crop of 3,000,000 bales per season and of an average crop of 4,500,000 bales. For the number of gins in 1939, these crops would give average volumes of 900 and 1,350 bales. For the average gin, the costs of ginning, gin incomes, and net profits would be as follows: 3,000,000 Bale Crop 4,500,000 Bale Crop Gin Incomes ___________________ -_$5.95><900 $5,355 $5.95-><1,350 $8,033 Costs Fixed ___________________________ "$3,692 $3,692 Variable ________________________ -- 1,719 2,579 Total ___________________________ _- 5,411 6,271 Net _____________________________ _- Loss $ 56 Profit $1,762 On the larger crop, an average return of 9.3 per cent would be earned 0n the gin investment. It seems clear that the Texas gin capacity has been adjusted to a crop considerably larger than 3,000,000 bales. If it be granted that 10 per cent is a fair return on gin investments, this return would yield an average profit of $1,885. The gin income per bale required to earn this profit on a volume of 900 bales may be determined thus: COST AND PROFIT OF GINNING COTTON IN TEXAS 65 $3,692 + $1,885 z Gin Income Per Bale —-. $1.91 900 (Gin Income Per Bale —~ $1.91) = $5,577 Gin Income Per Bale -— $1.91 = $6.20 900 Gin Income‘ Per Bale = $6.20 + $1.91, or $8.11 This would mean an increase in the cost of ginning service to cotton growers of more than 36 per cent over the present cost. This would not be pleasing to the cotton growers. The volume needed to earn 10 per cent on the investment at the present gin income per bale may be found in this manner: $3,692 + $1,985 $5.95 — $1.91 Volume of Ginning = 1,380 Bales Volume of Ginning = This average volume for a 3,000,000 bale crop would require about 2,174 gins in Texas. This would mean a reduction of about one-third in the number of Texas gins as of 1939. Another approach to this problem of volume of ginning is from the standpoint of that needed to break even by a gin of bulk cost. At this volume only about one-fourth the gins would be operated at a loss. This should be a much more satisfactory condition than that in which one-half the gins be operated at a loss. The weighted bulk cost for the state as a whole is: Bulk State U081: = $2,211 + $0.09'l21I + $QLIUV The fixed cost of a gin with bulk cost and with average investment is: Residual ____________________________________________________________ __ $2,111 Investment $00912 >< 18,848 ________________________________________ __ 1,719 Total ______________________________________________________________ __ $3,930 The volume needed by a bulk cost gin to break even is found from the following equation: sane/so Volume of Ginning = ————-—~~— $5.95 - $2.10 Volume of Ginning = 1,021 Bales‘ At a volume of 1,021 bales, the gin of average cost would earn a net return of about 2.3 per cent on its investment. At this volume per gin, a crop of 3,000,000 bales would require about 2,940 gins. If it be granted that 10 per cent is a fair return on the gin investment of the bulk cost gin, the volume needed to earn this return may be determined thus: $3,930+$1,885 $5.95_$2.10 Volume of Ginning = Volume of Ginning = 1,510 Bales 66 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT‘ STATION At a volume of 1,510 bales per gin, a crop of 3,000,000 bales would require slightly under 2,000 gins. At this volume and a gin income of $5.95 per bale, a gin of average cost would earn about 12.8 per cent on its investment. It should be added that average costs include a cost of depreciation of about $1,200 and a cost of management slightly over $1,200. The ginner operating his own plant would not have an out-of-pocket cost of management. The fact that many ginners do not include costs of deprecia- tion and management in their calculations of total costs may help explain the reason the number of gins in Texas continues at such a relatively high level in terms of the available volume of ginning. The reduction in cotton production in Texas during recent years has by no means been evenly distributed. In certain sections of the state, a retreat in cotton production was on before the government program got under way. Eight counties of low production in 1939 were selected and analyzed for production in terms of ginning capacity as shown in Table 34. As may be surmised through a careful study of this table, Table 34.—Adjustments in Numbers of Gins in Eight Texas Counties of Low and Decreasing Cotton Production 1 Average Annual Percentage of Average Number of C Volume Per Gin Gins Active Gins in County Relative ountY Size ‘ 19215-29 1930-34 1935-39‘ 1925-29 1930-334 1935>-39 19215-29 1930-34 1935-39 Ginsl t l A 252 201 7o e1 97 72 5 7.0 7.0 6.4 s4 B 736 537 211 i 90' 84 85 12.2 9.8 9.4 93 C 291 238 64 95 78 77 17.4 14.8 10.0 810 D 585- 491 315 j 94 90 100 7.0 5.8 5.4 85 E 623 245 174 1 93 70 90 6.0 6.0 4.0 T5 F 71a 69s 286 i 100 97 100 7.6 6.2 5.8 75 G 113 207 133 56 82 94 6.4 4.4 3.2 "2 H 634 506 323 100 96 9'2 7 .0 4 .8 5.0 90- All 462 377 182 91 85- 86 8.8 7 . 4 6.4 81 lRelative to 337 saws, the average size of Texas gins» in 1935. ZData on size not available. a contraction of ginning capacity is a. painful matter. The cotton growers in these counties have interests at stake. At the present rate of ex- tremely low volumes, these ginners cannot keep their gins in proper repair. This means poor ginning service. Eventually, a large per- centage of these gins will cease to operate if the present low production be continued. As the number of gins are further reduced, the distance that some of the growers will have to haul their seed cotton will be greatly increased. In the field of agricultural machinery, tractors, combines, and other equipment have been adjusted in size to meet the requirements of the small farmer. The question may be raised, whether or not there may be possibilities in developing a small gin of two or three stands for the more or less isolated areas of cotton production. . . .1__ 1.11am ._.._....._. ...l...l.._.....umx,_ ._...._._._1 _ 1.. . l..- m.A-._._.._..___ . COST AND PROFITI OF‘ GINNING COTTON IN TEXAS 67 Another possibility from the standpoint of the growers is that of using large trucks carrying three to five bales of seed cotton to be transported to a distant gin. This would reduce the cost of the local haul as against single bale loads. A ginner with an uneconomic volume of ginning cannot extricate himself from his difficulties merely through the lowering of his ginning costs. For instance, a ginner in the Blackland Area with a $15,000 steam gin and a gin income of $5.20 per bale has a volume of 400 bales. At this volume to break even he would have to reduce his ginning cost to 54 per cent of the average cost. Under ordinary circumstances this would be a feat most difficult to perform. If this ginner succeeded in this reduction of his ginning costs, he still would have no returns on his investment. The needed improvement in the profit status of the Texas gin industry can be accomplished, in the main, only through a material increase in the volume of ginning per gin. The adjustment cannot be made “on an average” but must be made in specific cases. A considerable number of ginners under present circumstances have an economic volume of ginning. The degree of overcapacity of ginning facilities differs from gin point to gin point. In formulating a program to rehabilitate the Texas gin industry, attention may be called to three specific questions that must be taken into account. 1. What is a fair gin change to be paid by the grower? This involves the gin toll, and the margins the ginner realizes on patterns sold to the patron and on the cottonseed purchased from the patron. 2. What is an economic volume of ginning? This question may be ap- proached from the standpoint of the cost of ginning per bale. Table 35 shows the volume needed according to investment in the gin plant to attain costs of $3.75, $4.00, and $4.25 per bale for steam plants in the Blackland Area. 3. What is a fair return on the gin investment? Should the ginner earn 5 per cent, 10 per cent, or 25 per cent on his investment? All three questions are intimately related to each other. The volume of ginning determines the cost and the net profit at a given gin income. The difference between the gin income per bale and the cost per bale determines the net profit or loss. A given return on the investment calls for definite combinations of gin income per bale and volume of ginning. Table 36 brings to focus the interrelations of costs per bale, gin incomes per bale, and return on the investment for steam gins in the Blackland Area. The percentage returns indicated were ascertained in this manner. The net profit per bale at a gin income of $4.75 and a cost of $3.75 is $1.00. The volume of a $6,000 gin at a cost of $3.75 (Table 35) is 1,161 bales. Thus the net profit is $1,161. This is a return of 19.4 per cent on $6,000. The volume of a $30,000 gin at a cost of $3.75 per bale is 2,294 bales. Thus the net profit is $2,294. This is a return of 7.6 per cent on $30,000. Whatever choice is made as to the ideal gin income per bale, cost per bale, and return on the investment, a table of the type of Table 36 I 68 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Table 35.-—Vo1ume Required According to Cost of Ginning Per Bale-Steam Power-—B1a.ck1a.nd Area l 1 Cost Per Bale Investment $3.75 . 1 $4.00 1 $4.25 $ 6,000 1,161 1,031 926 7,000 1,209 1,073 964 8,000 1,256 1,114 1,002 9,000 1,303 1,156 1, 10,000 1,350 1,198 1,077 11,000 1,397 1,240 1,115 12,000 1,445 1,282. 1,153 13,000 1,492 1,324 1,190 14,000 1,539 1,366 1,228 15,000 1,586 1,408 1,265 16,000 1,634 1,450 1.303 17,000 1,681 1,491 1.310 18,000 1,728 1,533 1,378 19,000 1,775 1,575 1,416 20,000 1,822 1,617 1.453 21,000 1,870 1,659 1.491 22,000 1,917 1,701 1,529 23,000 1,964 1,743 1,566 24,000 2,011 1,785 1,604 25,0110 2,058 1,827 1,642 26,000 2,106 1,868 1,679 27,000 2,153 1,910 1,717 28,000 2,200 1,952 1,755 29.0001 2.2/17 1.994 1.792 30,000 2,294 2,036 1,830 Table 36.—Percentag'e Return on the Investment According to Gin Income Per Bale and Cost of Ginning Per IBa1e—Stea.m Power-Blackland Area. Gin Income Per Bale Invest- $4.75 $5.00 $5.25 ment —-- Cost Per Bale 00st Per Bale Cost Per Bale $3.75 1 $4.00 1 $4.25 $3.75 1 $4.00 1 $4.25 $3.75 1 $4.00 1 $4.25 $ 6,000 19.4 12.9 7.7 24.2 17.2 11.6 2.9.0 21.5 15.4 7,000 17.3 11.5 6.9 21.6 15.3 10.3 25.9 19.2 13.8 8,000 15.7 10.5 6.3 19.6 13.9 9.4 23.6 17.4 12.5 9,000 14.5 9.6 5.8 18.1 12.8 8.7 21.7 16.1 11.5 10,000 13.5 9.0 5.4 16.9 12.0 8.1 20.3 15.0 10.8 11,000 12.7 8.5 5.1 15.9 11.3 7.6 19.1 14.1 10.1 12,000 12.0 8.0 4.8 15.1 10.7 7.2 18.1 13.4 9.6 13,000 11.5 7.6 4.6 14.3 10.2 6.9 17.2 12.7 9.2 14,000 11.0 7.3 4.4 13.7 9.8 6.6 16.5 12.2 8.8 15,000 10.6 7.0 4.2 13.2 9.4 6.3 15.9 11.7 8.4 16,000 10.2 6.8 4.1 12.8 9.1 6.1 15.3 11.3 8.1 17,000 9.9 6.6 3.9 12.4 8.8 5.9 14.8 11.0 7.9 18,000 9.6 6.4 3.8 12.0- 8.5 5.7 14.4 10.6 7.7 19,000 9.2 6.2 3.7 11.5 8.3 5.6 13.9 10.4 7.5 20,000 9.1 6.1 3.6 11.4 8.1 5.5 13.7 10.1 7.3 21.000 8.9 5.9 3.6 11.1 7.9 5.3 13.4 9.9 7.1 221,000 8.7 5.8 3.5 10.9 7.7 5.2 13.1 9.7 7.0 23,000 8.5 5.7 3.4 10.7 7.6 5.1 12.8 9.5 6.8 24,000 8.4 5.6 3.3 10.5 7.4 5.0 12.6 9.3 6.7 25,000 8.2 5.5 3.3 10.3 7.3 4.9 12.3 9.1 6.6 26,000 8.1 5.4 3.2 10.1 7.2 4.8 12.2 9.0 6.5 27,000 8.0 5.3 3.2 10.1 7.1 4.8 12.0 8.8 6.4 28,000 7.9 5.2 3.1 9.8 7.0 4.7 11.8 8.7 6.3 29,000 7.7 5.2 3.1 9.7 6.9 4.6 11.6 8.6 6.2 30,000 7.6 5.1 3.1 9.6 6.8 4.6 11.5 8.5- 6.1 COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 69 should be of great assistance in formulating the details of a working program. Table 36 is merely suggestive of other combinations of gin incomes, costs, and returns on the investment which may be considered. Such tables, too, may be compiled for all types of power in all sections of Texas. SUMJWARY Appendix A of this bulletin, (Tables for computing Costs and Profits of Ginning), was prepared for the individual who may be interested in the practical application of the results of this study but who may have no special concern about the manner in which the cost and profit analysis was made, The main part of this bulletin was prepared for the individual who may be interested in the broader aspects of the economics o-f the ginning industry. The cotton grower requires first class ginning service at a reasonable cost. In order to keep his gin plant in proper repair so as to be in position to ofier first class service, the ginner must earn a fair return on his investment. During the past 20 years the income per bale of ginners has been declining. The decreased cotton production of recent years has resulted in a sharp decline in volume of ginning. Reductions both in the income per bale and the volume per gin have affected adversely the net income of ginners. Between 1906 and 1935 the number of gins in Texas was reduced by 21 per cent; the size of gins as measured in average number of saws was increased by 65 per cent; and ginning capacity was increased by 30 per cent. An analysis of ginning costs and profits should serve the gin industry in establishing standards of ginning costs; should guide an individual about to enter the ginning business; should aid a ginner in making a decision as to the best type of power under given circumstances; and should assist the gin industry in appraising its general profit status. To facilitate the greatest possible uniformity of conditions under which gins are operated, the state has been divided into three sections. For the sake of convenience, these sections are designated as: the Black- land Area; the High and Low Plains Area; and the Gulf Coast Area. More than 1,200 cost records have been collected, edited, and analyzed. In the main, cost records were secured on the seasons 1930-31 to 1938-39. The plants studied ginned a total of 1,840,000 bales. During. the period 1933-34 to 1937-38, the counties in which these gins are located produced 71 per cent of the total Texas crop. The total investment in the gin industry in Texas today is about 66 millions of dollars. The average investment per gin is about $19,946 of which $18,848 is in gin machinery and buildings and $1,098 in the gin site. 70 BUL-LETIN NO. 606, TEXAS‘ AGRICULTURAL EXPERIMENT‘ STATION Investments in gin plants vary widely. Single battery Diesel plants, for instance, have investments varying from $5,526 to $31,055 in the Blackland Area; from $14,114 to $53,530 in the High and Low Plains Area; and from $5,521 to $53,257 in the Gulf Coast Area. The main factors in explaining these variations are: the size of gin as a single battery plants vary from three to five stands in the Blackland Area and from four t0 six stands in the other areas; the number and types of buildings; the completeness of the machinery installed; the price level at the time the gin plant was built; and whe-ther present operators built their plants new or bought secondhand. According to the 12-hour capacity of gin plants as reported by the Census Bureau in 1935, the average numbers of 12-hour days required to gin the crop of the seasons for the ten-year period, 1928-29 to 1937-38 were as follows: the Blackland Area, 22.0; the High and Low Plains- Area, 31.5; the Gulf Coast Area, 20.9; all Texas, 26.3; and California, 72.6. The relative overcapacity of ginning facilities in Texas is; evident. Two-thirds of the Diesel gins in the Blackland Area have volumes ranging from 657 to 1,833 bales; two-thirds of the Diesel gins in the High and Low Plains Area have volumes ranging from 624 to 2,748 bales. Thus fluctuations in volume are more violent in the High and Low Plains Area than in the Blackland Area. In establishing standards of cost, volumes and investments were cor-e related with total costs of ginning. In this manner, estimating equa- tions were derived for each group or gins. These equations contain three distinct parts: the part unrelated to either volume or investment; the part showing the effect‘ of the investment; and the part showing the effect of the volume of ginning. A ginner by selecting the estimating equations according to his section of the state and type of power may estimate his own costs. The opera- tions needed in each case are: (1) to multiply the investment cost per dollar by his own investment; (2) to multiply the variable cost per bale by his own volume of ginning; and (3) to find the sum of these two costs and the residual cost. Of all gins analyzed, regardless of section of state and type of power, 66 per cent, 84 per cent, and 93 per cent have costs as high as 5 per cent above the estimated cost, or less; as high as 15 per cent above the estimated cost, or less; and as high as 25 per cent above the estimated cost, or less. Fixed costs explain, in a large me-asure, the influence that volume of ginning has upon the cost of ginning. For instance, the fixed cost per bale at a volume of 500 bales for a Diesel plant of average investment in the Blackland Area is $7.27; the fixed cost per bale at a volume of 3,000 bales is $1.22. The fixed cost per bale varies inversely with the volume of ginning. A ginner may be quite as much interested in estimates of his items of cost as of total cost. Hence, equations have been derived for items of cost according to section of the state and type of power. COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 71 As the volume of ginning increases, the percentage of total costs going to gin labor increases. These percentages range from a 10w of 11.8 for electric gins with a volume of 500 bales in the High and Low Plains Area to a high of 35.8 for Diesel gins with a volume of 3,000 bales in the Blackland Area. The volume of ginning per day during the progress of the ginning season has an important bearing on the cost of gin labor. If the gin manager assembles a gin crew on too many days of no ginning and too large a crew in ‘terms of the volume on days of ginning, labor costs become relatively high. Hour costs of gin labor are very high on days when 10 bales or less are ginned. After avolume of about 40 bales per day has been reached, increases in volume of ginning per day result in but moderate reductions in hour costs per bale. At average investments in the gin plants, electric gins in the Blackland Area have lower costs than Diesel plants at volumes less than about 1,041 bales; at volumes greater than this, Diesel gins have the lower costs. In the High and Low Plains Area, electric gins have lower costs than Diesel gins at volumes less than about 1,073 bales; at volumes greater than this, Diesel gins have the lower costs. In the low volume range and in the high volume range, costs of steam gins are between those of electric and Diesel gins. The transition from costs to profits may be made through the equation: Gin Income = Cost of Ginning i Profit Through proper substitutions, this equation may be transformed into the following equation for volume: Fixed 00st i Profit Volume of Ginning = Gin Income Per Bale — Variable Cost Per Bale This equation for calculating the volume of ginning may be used to determine: the volume required to attain a specified cost of ginning per bale; the volume needed to yield a specified profit; the effect of changes in the gin income per bale upon profit; the volume required to warrant a specified investment in the gin plant; the investment a given volume of ginning justifies; . the “break even” volume according to gin income per bale and investment in the gin plant. It seems reasonable to assume that costs are satisfactory if the influ- ences of volume of ginning and operating efficiency are such that costs per bale are $3.75 or less in the Blackland Area; $4.25 or less in the High and Low Plains Area; and $4.00 or less in the Gulf Coast Area. Since Texas has too many gins, one about to enter the ginning business should consider carefully the possibilities of buying a secondhand plant rather than building a new plant. Cooperative associations entering the ginning business are turning more and more to the purchasing of secondhand plants. Of 27, 45, and 174 72 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION associations organized during the periods, prior to and including 1927, 1928-1933, and 1934-1939, 48, 64, and 97 per cent purchased secondhand gin plants. Usually, three parties are interested in the sales price of a secondhand gin: the seller; the buyer; and the banker financing the buyer. The sales price of a secondhand plant may be based on an appraisal of the replacement value. But the buyer also needs to take into consideration the profit possibilities of the ginning business he is entering. With the present number of gins in Texas and an average crop of 3,000,000 bales, about one-half the gins operate with a profit and the other half with a loss. A reduction of about one-third of the present number of gins would place the Texas gin industry in a relatively favor- able position. ' Any program for adjusting the Texas gin industry must be based on the answers to the following questions: What is a fair gin charge to be paid by cotton growers? What is an economic volume of ginning? What is a fair return on the investment in the gin plant? COPOF‘ APPENDIX A-—TABLES FOR COMPUTING COSTS AND PROFITS OF GINNING To insure the highest attainable uniformity of investment in the gin plant, of gin income per bale, of harvesting methods, and of length of the ginning season, the state has been divided into three sections. These sections, for the sake of convenience, have been designated as: the Black- land Area; the High and Low Plains Area; and the Gulf Coast Area. El Paso County is included with the Gulf Coast Area. The boundaries of the sections are shown in Figure 9. The locations, by counties, of the gins from which cost records were obtained are also shown in Figure 9. The gins were segregated on the basis of type of power into three groups—steam, Diesel, and electric. With the Diesel group were included all other internal combustion engines such as natural gas, oil, and gas- oline. The gins were divided into two groups as to size. The one group includes the gins with a single battery; most of these gins have four or five gin stands; a very few have three stands; and a somewhat greater number have six stands. Most of the stands have 70 or 80 saws. The other group includes the gins with two or more batteries, or the multiple battery plants. Two factors were found of paramount importance in explaining dif- ferences in costs of ginning among the gins. They are the volume of ginning and the investment in the gin plant. Items of Cost The total cost of ginning is the sum of the various items of cost in- volved in operating a gin plant. A ginner bent on reducing his total COST‘ AND PROFIJT‘ OF‘ GINNING C'O'l"l‘()-N IN TEXAS 7a Pig. 9.-Sections of the State. 1. Blackland Area. 2. I-Iigh and Low Plains Area. 3. Gulf Coast Area. Each dot represents a gin within the county from which cost records were obtained. cost of ginning can do so only through control of the various items of cost. The ginner who classifies his costs under the fewest items deter- mine-s the breakdown which may be made of total costs. The classifica- tion of items made in this study needs a brief explanation. Several of the items are self-explanatory: Labor cost includes Wages of gin labor, and compensation insurance and social security paid on gin labor. ‘ Power cost is composed of the costs of fuel, light and water, lubricating oil, grease, and packing. Repair cost includes wages of repair labor, compensation insurance and social security paid on repair labor, and repair parts and materials. Depreciation cost is charged, annually, according to the following rate schedule: Gin machinery, including power unit ______________________ -- 6 2/3 per cent Office furniture and fixtures 10 Automobiles and trucks 25 Buildings All-steel 3 1/3 Frame, iron-clad 4 All-wood . 5 74 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Management cost is primarily the salary of the manager together with such commissions as he may receive. If such costs are incurred as compensation insur- ance and social security on the manager, travel allowance for the manager, and fees for members of the board of directors, these are included with the manage- ment cost. If the line gins have an expense at the central office for management service to the units, this cost is prorated to the gins and charged to management cost. Miscellaneous cost includes the cost listed under that heading. In addition, it includes such costs as: telephone and telegraph; office supplies; auditing and legal; and advertising and donations. Labor and office salaries are combined in the Blackland and Gulf Coast Areas. Insurance and taxes are combined in the Blackland Area. Cost of ginning as used in this discussion refers to the cost of operating the gin plant; it does not include the cost of bagging and ties. Computing Total Costs o-f Ginning Total costs of ginning computed in terms of the influence of volume and investment indicated in the cost analysis may be considered as stand- ard costs. These costs are standard in that they were established by the cost experience of the whole group of gins analyzed. An individual ginner computing total costs according to his particular volume and in- vestment thereby establishes a standard with which he may compare his own actual costs. In this manner, the ginner may determine his own relative efficiency of operation. As a means of furnishing the ginner with the tools needed to compute average costs, Tables 37, 38, 39, and 40 have been prepared. In explain- ing these tables, attention may be called specifically to Table 37 applying to the Blackland Area. The table is divided into two main parts: fixed costs; and variable costs. As may be noted, fixed costs are listed for investments by $1,000 intervals from $6,000 to $30,000 for steam and Diesel gins and from $6,000 to $26,000 for electric gins. These "fixed costs are the totals of the investment costs according to the investments in the gin plants and the portion of total costs unrelated to volume and investment. The investment costs listed at the bottom of the fixed cost section may serve two purposes. They may be used in determining fixed costs for gins with investments lower or higher than those listed. For instance, the fixed costof a $5,000 steam gin is $2,288, the fixed cost of a $6,000 gin, less $93, the investment cost on $1,000, or $2,195. The fixed cost of a $35,000 steam gin is $4,520, the fixed cost of a $30,000 gin, plus $465, the investment cost on $5,000, or $4,985. These investment costs may also be used in making adjustments for investments falling within the $1,000 intervals. Investment costs for hundreds of dollars from $100 to $900, may readily be ascertained from investment costs for thousands of dollars from $1,000 to $9,000 by pointing off one place and rounding to the nearest dollar. The investment cost on $1,000 in a Diesel gin is $89; the investment cost on $100 is $8.90 which rounded to the nearest dollar is $9, ' COST AXD PROFIT OF GINNING COTTON IN TEXAS 75 A ginner in computing his investment cost may attain sufficient ac- curacy by rounding his investment t0 the nearest $100. That is, an in- vestment of $15,447 may be rounded to $15,400; an investment of $15,453 may be rounded to $15,500. It is to be noted that variable costs are listed by 100 bale intervals from 100 to 3,000 bales. Variable costs for tens of bales from 10 t0 90 may readily be ascertained from variable costs for hundreds of bales from 100 to 900 by pointing off one place and rounding to the nearest dollar. The variable cost on 100 bales of an electric gin is $205; the variable cost on 10 bales is $20.50 which rounded to the nearest dollar is $21. The variable cost on 500 bales is $1,025; the variable cost on 50 bales is $102.50 which rounded to the nearest dollar is $103. A ginner in computing his variable cost may attain sufficient accuracy by rounding his volume of ginning to the nearest 10 bales. That is, a volume of 1,234 may be rounded to 1,230 bales; a volume of 1,236 may be rounded to 1,240 bales. How to Use Tables of Computed Total Costs The steps to be taken by a ginner in using Tables 37 to 40 in computing his total average cost of ginning are listed below. 1. Select the table according to his section of the state (See Figure 9) and size of gin. 2. Use the part of the table applying to his particular type of power. 3. Round out his investment to the nearest $100; round out his volume of ginning to the nearest 10 bales. 4. Tabulate costs as follows: a. Fixed Cost According to investment to full $1,000 interval. Adjust for added hundreds of dollars of investment. b. Variable Cost According to full 100 bale interval. Adjust for added tens of bales. c. Find the total of the fixed and variable costs. Divide his actual total cost of ginning by the computed total cost of ginning. a. If the result is a percentage less than 100, subtract from 100. The re- mainder gives the percentage of efficiency greater than average ef- ficiency. ' b. If the result is a percentage greater than 100, subtract 100 from it. The remainder gives the percentage of efficiency less than average efficiency. 6. Divide total computed cost by the number of bales ginned to reduce the cost to a per bale basis. U! A ginner with an investment of $17,475 in a Diesel plant in the Black- land Area has a volume of 1,477. His total actual cost of ginning is $5,525. He wishes to determine his own relative efficiency. The investment of $17,475 may be rounded to $17,500. The volume of 1,477 bales may be rounded to 1,480 bales. The fixed cost according to investment and the variable cost according to volume of ginning of this ginner may be read in Table 37. His total computed costs may be tabulated thus: 76 BULLETIN NO. 606, TEXAS AGRICULTURAL, EXPERIMENT STATION Type of Cost Cost Fixed Cost $17,000 $3,706 500 44 $17,500 Variable Cost 1 ,400 Bales 80 $3,750 $1,918 110 1,480 Bales ‘Total Computed Cost ___________________ -- 2‘ , 028 i $5,788 In that the computed cost is accepted as the standard cost, the computed cost logically represents 100 per cent. The relative efficiency of this ginner may be determined by dividing his actual cost, $5,525, by his computed cost, $5,778, which gives 95.6 per cent. Thus this ginner is more efficient than the average ginner by 4.4 per cent. The tables of computed costs for the Blackland and Gulf Coast Areas do not include large, or multiple battery, gins. If a ginner with a double battery plant in the Blackland Area, or Gulf Coast Area, will divide his investment by two and his volume of ginning by two, he may proceed to compute his costs as though he had a single battery plant. The table of computed costs for the Gulf Coast Area does not include steam power. It is suggested that a ginner with steam power in that area compute his cost according to steam power in the Blackland Area as given in Table 37. Table 37.—0omputed Total Costs of GinnIng-ABIackIand Area, 1930-1938 Fixed Costs Variable Costs Investment Steam Diesel Electric Bales Ginned Steam Diesel Electric $ 6,000 $2,288 $2,730 $2,444 100 3 178 $ 137' $ 205 7,000 2,381 2,819 2,503 200 35,6 274 410 8,000 2,474 2,908 2,563 300 534 411 615 9,000 2,567 2,996 2,622 400 712 548 820 10,000 2,660 3,085 2,681 ' 500 890 685 1,025 11,000 2,753 3,174 2,740 600 1,068 822 1,230 12,000 2,846 3,262 2,799 700 1,246 959 1,435 13,000 2,939 3,351 2,859 800 1,424 1,096 1,640 14,000 3,032 3,440 2,918 900 1,602 1,233 1,845 15,000 3,125 3,529 2,977 1,000 1,780 1,370 2,050 16,000 3,218 3,617 3,036 1,100 1,958 1,507 2,255 17,000 3,311 3,706 3,095 1,200 2,136 1,644 2,460 18,000 3,404 3,795 3,155 1,300 2,314 1,781 2,665 19,000 3,497 3,883 3,214 1,400 2,492 1,918 2,870 20,000 3,590 3,972 3,273 1,500 2,670 2,055 3,075 21,000 3,683 4,061 3,332 1,600 2,848 2,192 3,280 22,000 3,776 4,149 3,391 1,700 3,026 2,329 3,485 23,000 3,869 4,238 3,451 1,800 3,204 2,466 3,690 24,000 3,962 4,327 3,510 1,900 3,382 2,603 3,895 25,000 4,055 4,416 3,569 2,000 3,560 2,740 4,100 26,000 4,148 4,504 36% 2,100 3,738 2,877 4,305 27,000 4,241 4,593 ____ -- 2,200 3,916 3,014 4,510 28,000 4,334 4,682 .... -- 2,300 4,094 3,151 4,715 29,000 4,427 4,770 .... -_ 2,400 4,272 3,288 4,920 30,000 4,520 4,859 ____ -- 2,500 4,450 3,425 5,125 2,600 4,628 3,562 5,330 Investment Costs 2,700 4,806 3,699 5,535 $ 1,000 93 89 59 2,800 4,984 3,836 5,740 2,000 186 177 118 2,900 5,162 3,973 5,945 3,000 279 266 178 3,000 5,340 4,110 6,150 4,000 372 355 237 5,000 465 444 ‘296 6,000 558 532 355 7,000 651 621 414 8,000 744 710 474 9,000 837 798 533 10,000 930 88W 592 h-nr..~Amn¢Au....n..¢u..~_,_4u_.,._....M4.1_n_‘.,-A -1.‘ _ ._ 1 _.,_-__.....__.r.1.,. ..-_.4. 1.21.112 1.,- .,...,.,._...,.~...=.‘ _ 1. 1.11.1.5. .,_., _ .1 E4 n, ,. .._ .1 2521M.“ ..__._..___1_1.._.,.. mun-u‘ 8.42.4211- _.._..,4..,..1,.- ~41,“ COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 77 Table 38.—Computed Total Costs of Ginning—ltig'h and Low Plains Area, 1930-1938 Fixed Costs Variable Costs Investment Steam Diesel Electric Bales Ginned Steam Diesel Electric $15,000 $4,280 $3,653 $3,211 100 $ 225 $ 17s $ 242 16,000 4,339 3,765 3,323 200 450 352 484 17,000 4,398 3,877 3,435 300 675 528 726 18,000 4,458 3,989 3,548 , 400 900 704 9'68 19,000 4,517 4,101 3,660 500 1,125 880 1,210 20,000 4,576 4,213 3,772 600 1,350 1,056 1,452 21,000 4,635 4,325 3,884 700 1,575 1,232 1,694 22,000 4,694 4,437 3,996 800 1,800 1,408 1,936 23,000 4,754 4,549 4,109 900 2,025 1,584 2,178 24,000 4,813 4,661 4,221 1,000 2,250 1,760 2,420 25,000 4,872 4,773 4,333 1,100 2,475 1,936 2,662 26,000 4,931 4,885 4,445 1,200 2,700 2,112 2,904 27,000 4,990 4,997 4,557 1,300 2,925 2,288 3,146 28,000 5,050 5,109 4,670 1,400 3,150 2,464 3,388 29,000 5,109 5,221 4,782 1,510 3,375 2,640 8,630 30,000 5,168 5,333 4,894 1,600 3,600 2,816 3,872 31,000 5,227 5,445 5,006 1,700 3,825 2,992 4,114 32,000 5,286 5,557 5,118 1,800 4,050 3,168 4,356 33,000 5,346 5,669 5,231 1,900 4,275 3,344 4,598 34,000 5,405 5,781 5,343 2,000 4,500 3,520 4,840 35,000 5,464 5,893 5,455 2,100 4,725 3,696 5,082 30,000 5,523 6,005 5,567 2,200 4,950 3,872 5,324 37,000 5,582 6,117 5,679 2,300 V 5,175 4,048 5,5616 38,000 5,642 6,229 5,792 2,400 5,400 4,224 5,808 39,000 5,701 6,341 5,904 2,500 5,625 4,400 6,050 40,000 5,760 6,453 6,016 2,600 5,850 4,576 6,292 41,000 5,819 6,565 6,128 2,700 6,075 4,752 6,534 42,000 5,878 6,677 6,240 2,800 6,300 4,928 6,776 43,000 5,968 6,789 6% 2,900 6,525 5,104 7,018 44,900 5,997 6,901 6,405 3,000 6,750 5,28) 7,260 45,000‘ 6,056 7,013 6,577 3,100 6,975 5,456 7,502 3,200 7,200 5,6312 7,744 35% 7,425 5,808 7,986 3,400 7,650 5,984 8,228 Investment Costs 3,500 7,875 6,160 8,470 1,000 59 112 112 3,600 8,100 6,336 8,712 2,000 11s 224 224 3,700 8,325 6,512 8,954 3,000 178 336 337 3,800 8,550 6,688 9,196 4,000 237 448 449‘ 3,900 8,775 6,864 9,438 5,000 216 560 561 4,000 9,000 7,040 9,680 6,000 355 672 673 4,100 9,225 7,216 ----- 7,000 414 784 785 4,200 9,450 7,392 __..-_ 8,000 474 896 898 4,300‘ 9,675 7,568 ----- 99m 533 1am 4,400 9,900 _-___ 10,000 592 1,120 1,122 4,500 10,125 7,920 _'____ 78 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Table 39.—Computed Total Costs of Ginning'—Larg‘e G-ins—Ei-g'h and Low Plains Area, 1930-1938 ' Fixed Costs Variable Costs Investment Costs Investment Costs Bales Ginned Costs Bales Ginned Costs $20,(X)0 $ 7,184 $60,000 $11,392 1(1) $ 175 2,900 $ 5,075 22,000 7,394 62,000 11,002 200 350 3,000 5,250 24,000 7,605 64,000 11,813 300 525 3,100 5,425 20,000 7,815 66,000 12,023 400 7 3,200 5,600 28,000 8,026 68,000 12,234 500 875 3,300 5,775 30,000 8,236 70,000 12,444 600 1,050 3,400 5,950 32,000 8,446 72,000 12,654 700 1,225 3,500 6,125 34,000 8,657 74,000 12,805 800 1,400 3,8!) 6,300 36,000 8,867 76,000 13,075 900 1,575 3,700 6,475 38,000 9,078 78,000 13,286 1,000 1,750 3,800 6,650 40,000 9,288 80,000 13,496 1,100 1,925 3,900 6,825 42,000 9,498 82,000 13,706 1,200 2,100 4,000 7,000 44,000 9,709 84,000 13,917 1,300 2,275 4,100 7,175 46,000 9,919 86,000 14,127 1,400 2,450 4,200 Lfi 48,000 10,130 88,000 14,338 1,500 2,625 4,300 7,525 50,000 10,340 90,000 14,548 1,600 2,800 4,400 7,700 52,000 10,550 _ _ - - - - - - - - -- 1,700 2,975 4,500 7,875 54,000 10,761 - - - - - - - - - - -- 1,800 3,150 4,600 8,050 56,000 10,971 - - _ - _ - - - - - -- 1,900 3,325 4,700 8.225 58,000 11,182 . _ _ _ _ _ _ _ . _ __ 2,000 3,500 4,800 8,400 2,100 31,675 4,900 8,575 Investment Costs 2,200 3,850 5,000 8,750 1,000 _ . . . . . . . . _ _- 2,300 4,025 6,000 10,500 2,000 210 _ _ - - - - - - - - -- 2,400 4.200 7,000 12,250 3,000 316 _ _ _ _ - - - - - - -- 2,500 4,375 8,000 14,000 4,000 421 . . . . . . . _ . . -- 2,600 4,550 000 15,750 5,000 526 - - _ - - - . . . . -- 2,700 4,725 10,000 17,500 6,000 631 _ _ _ . _ _ . . _ . _ _. 2,800 4,900 _ . _ _ _ . _ _ _ . -- 7,000 736 . . _ . . . _ _ . . __ 8,000 842 .... ..- 9,000 947 ____ __ 10,000 1,052 ____ __ COST AND PROFIT’ OF GINNING COTTON IN TEXAS 79 Table 40.—-Computed Total Costs of G-inn1ng—G*u1f Coast Area, 1930-1938 Fixed Costs Variable Costs Investment Diesel Electric Bales Ginned Diesel Electric $10,000 $2,608 $1,891 100 $ 199 s 250 11,000 2,764 1,986 200 398 518 12,000 2,859 2,082 300 777 13,000 2,955 2,177 400 796 1,0136 14,000 3,051 2,272 500 990 1,295 15,000 3,147 2,368 600 1,194 1,554, 16,000 3,242 2,463 700 1,393 1,813 17,000 3,338 2,558 800 592 2,072 18,000 9,434 2,050 900 1,791 2,031 19,000 3,529 2,749 1,000 1,990 2,590‘ 20,000 3,625 2,844 1,100 2,189 2,849 21,000 3,721 2,939 1,200 2,388 3,108 22,000 3,816 3,035 1,300 2,587 3,367 23,000 3,912 __--- 1,400 2,7861 3,626 24,000 4,008 ----- 1,500 2,985 3,885 25,000 4,104 - ----_ 1,600 3,184 4,144 26,000 4,199 _-_-_ 1,700 3,383 4,403 27,000 4,295 __--- 1,800 3,582 4,662 20,000 4,001 _---- 1,900 3,781 4,921 29,000 4,486 -_--- 2,000 3,980 5,180 30,000 4,582 __--- 2,100 4,179 5,439 31,000 4,678 ---__ 2,200 4,378 5,698 32,000 4,773 ___-- 2,3110 4,577 5,957 33,000 4,869 _-___ 2,400 4,776 6,216 34,000 4,965 _---- 2,500 4,975 6,475 35,000 5,061 _____ 2,600 5,174 6,734 36,000- 5,156 _-_-_ 2,700 5,373 6,993 37,000 5,252 _____ 2,800 5,572 7,252 38,000 5,348 _-_-- 2,900 5,771 7,511 39,000 5,443 __-__ 3,000 5,970 7,770 40,000 5,539 _---_ 3,100 6,169 ____.. 3,200 6,368 _____ Investment Costs 3,300 6,567 _____ 1,000 95 3,400 6,766 _____ 2,000 191 191 3,500 6,965 _____ 3,000 2'87 286 4,000 383 381 5,000 479 477 6,000 574 572 7,000 670 667 8,000 766 762 9,000 861 858 10,000 957 953 Computing Items of Cost A ginner may be quite as interested in comparing his: costs of specific items with their standards for his area as in comparing his total cost with its standard. The explanation for total cost which may be higher or lower than the standard is to be found in the behavior of the various items of cost. ' The influence of volume of ginning, investment in the gin plant, and size of gin was tested for each item of cost. Only as a variable had a significant influence was it considered in computing standard costs. In a few instances, none of the three variables was significant. In these cases, the arithmetic average was accepted as the standard cost. How to Use Tables of Computed Items of Cost The steps to be taken by a ginner in using Tables 41 to 49 in com- puting his items of cost are listed as follows: 80 BULLETIN NO. 606. TEXAS AGRICULTURAL EXPERIMENT STATION 1. Select the table according to his section of the State (See Figure 9) and type of power. _ 2. If investment is involved, round to the nearest $100; if volume of ginning is involved, round to the nearest 10 bales. 3. Tabulate costs as follows: a. Fixed Cost whether related to—— Investment, Size of Gin, or Unrelated to Investment and Size. b. Variable Cost According to full 100 bale interval. Adjust for added tens of bales. c. Find total cost of each item. 4. Divide each actual item of cost by its computed cost. a. If the result is a percentage less than 100, subtract from 100. The re- mainder gives the percentage of efficiency greater than average ef- ficiency. b. If the result is a percentage greater than 100, subtract 100 from it. The remainder gives the percentage of efficiency less than average efficiency. 5. Divide each computed item of cost by the number of bales ginned to reduce costs to a per bale basis. A ginner with an electric plant in the Blackland Area has an investment of $14,600 and a volume of 1,650 bales. His items of cost are as follows: labor, $1,425; power, $1,250; repairs, $425; insurance and taxes, $725; management, $1,200; and miscellaneous, $290. This ginner wishes to determine his relative efficiency with respect to his items of cost. Table 43 is the one to be used in solving this ginner’s problem. It is to be noted that only three items are influenced by the volume of ginning. The computed cost of these items may be tabulated thus: Labor Power Repairs Fixed Cost --_ $ 133 $ 120 $230 Variable Cost 1,600 Bales ................................. -- 1,200 1,168 240 50 Bales _________________________________ __ 38 37 8 Total Computed Cost ........................ -- $1,371 $1,325 $478 Total Actual Cost ____________________________ -_ $1,425 $1,250 $425 Relative cost 106.9‘ 94.3 88.9 Thus this ginner has a labor cost 3.9 per cent higher, a power cost 5.7 per cent lower, and a repair cost 11.1 per cent lower than those of a gin of. average efficiency. The variable affecting the cost of insurance and taxes is the investment in the gin plant. These costs may be computed thus: Cost of Investment Ins. &Taxes $14,000 (Fixed) .......... _- $635 _ 600 (Investment) ____ _- 24 Total Computed 00st ....... -_ $659 \ Total Actual Cost __________ _- $725 Relative Cost ................ -.. 110.0 This ginner has a cost of insurance and taxes that is 10.0 per cent higher than that of a gin of average efficiency. In the case of management and miscellaneous costs, the arithmetic ...¢......1-. ._ .. .. A. A...‘ M..|¢|‘..._.. . numdmm a... . m... _a>.AY.4AA&-A;J.h...a4 .....‘.. .2“. AQAL ._ A...‘ . . . 2.. .. .._.. 4.4.)- |.X-\L._A .1 _. In A. =.'...n._n......» 1. COST AND PROFIT OF GINNING COTTON IN TEXAS 81 averages are accepted as the standard costs. Relative efficiency as to thesetwo costs may be determined thus: Management Miscel. Standard Cost (Arithmetic Average) ___________________ -- $1,125 $329 Actual Cost $1,200 $290 Relative Cost 106.6 88.1 This ginner has a cost of management 6.6 per cent higher, and a mis- cellaneous cost 11.9 per cent lower than those of a gin of average efficiency, In computing standard costs for the various items, cost of depreciation may be ignored. In each instance, depreciation was calculated at a standard rate. The only difference in the rate per dollar invested arises from a difference in the proportionate investment in the various types of fixed assets. The difference between the average rate of depreciation of an area and the rate of a given gin is not significant. Table 41-—0omputed Items of Cost—Stea.m Power-Blackland Area. 1930-1938 Fixed Costs Variable Costs N0. of Manage Bales Ins. & Manage- Saws ment Ginned Labor Power Repairs Taxes Misc. ment 240 _________ -6363 100 $ 62 6 36 $ 20 $ 8 $ 19 $ 33 280 _________ __ 449 200 124 72 40 16 38 66 320 _________ __ 535 300 186 108 60 24 57 99 350 _________ __ 600 400 2A8‘ 144 80 32 76 132 400 _________ -_ 707 500 310 180 100 4O 9'5 165 —-————l—-- 600 372 216 120 48 114 198 Size Costs 700 434 252 140 56 133 231 l _________ -_ 800 496 288 160 64 152 264 _________ __ 172 900 558 324 180 72 171 297 ——-— 1,000 620 360 200 80 190 380 1,100 682 396 220 88 209' 363 Labor _________ __$42q 1,200 744 432 240 96 228 396 1,300 806 468 260 104 247 429 POWEI‘ ......... __ 272 1,400 868 504 2'80 112 266 462 1, 980 540 300 120 285 495 Repairs _______ __ 307 1,600 992 576 320 128 304 528 1,700 1,054 612 340 136 323 5'61 Ins. &Taxes_-__ 288 1,800 1,116 648 360 144 342 594 1,900 ' 1,178 684 380 152 361 627 Misc ........... -- 130 2,000 1,240 720 400 160 380 660 2,100 1,21% 756 420 168 399 696 2,200 1,364 792 440 176 418 726 2,300 1,426 828 460 184 437 759 2,400 1,488 864 480 192 456 792 2,500 1,550 900 500 200 475 825 2,600 1 ,612 936 520 208 494 858 2,700 1,674 972 540 216 513 891 2,800 1,736 1,008 560 224 532 924 2,900 1,798 1,044 580 232 551 957 3,000 1,860 1,080 600 240 570 990 82 BULLETIN NO. 606, TEXAS AGRICULTURAL. EXPERIMENT‘ STATION In the example given above, the size of gin did not appear as one of the factors influencing costs. C-osts of insurance and taxes and of man- agement on Diesel gins in the Blackland Area are influenced by the size of gin. The cost of insurance and taxes (Table 42) of a 6/70 gin may be determined thus: Fixed Cost (350 Saws) ..................................... -- $667 Size Cost (70 Saws)- _-_ ........ -- 85 Total Computed 00st $752 The management cost of a 6/80 gin may be determined thus: Fixed Obs-t (400 Saws)--- $1,305 Size Cost (80 Saws)-___ 248 Total Computed Cost _____ _- $1,553 Table 42.—Computed Items of Cosh-Diesel Power—IB1ack1a.nd Area. 1930-1938 Fixed Oosts Variable Costs No. of Ins. & Manage- Bales Saws Taxes ment Ginned Labor Power Repairs Misc. 240 $533 $ 809 100 $ 8'3 $ 25 $ 14 $ 13 280 582 933 200 166 50 28 26 320 630 1,057 300 249 75 42 39 35-0 667 1,150 400 332 100 56 52 400 7 27 1 , 305 500 , 415 125 70 65 600 498 150 84 78 Size Costs 700 581 175 98 91 70 $ 85 $ 217 800 664 200 112 104 80 97 248 900 747 225 126 117 1,000 830 250 140 130 1,100 913 275 154 143 Labor ______ "$210 1 ,200 300 168 156 1,300 1,079 325 182 169 Power ...... -- 105 1,400 1,162 350 196 182 1 , 500 1 , 245 375 210 195 Repairs ..... __ 320 1,600 1,328 400 224 208 1,700 1,411 425 238 221 Misc _______ -_ 156 1,800 1,494 450 252 234 1,900 1,577 475 266 247 2,000 1,660 500 28) 260 2,100 1,743 525 294 273 2,200 1,826 550 308 286 - 2,300 1,909 575 322 299 2,400 1,992 600 336 312 2,500 2,075 625 350 325 2,600 2,158 650 364 338 2,700 2,241 675 378 351 2,800 2,324 700 392 364 2,900 2,407 725 406 377 3,000 2,490 750 420 390 COST AND PROFIT‘ OF‘ GINNING COTTON IN TEXAS as Table 43.—Gomputed Items of Cosh-Electric Power-Blachland Area, 1930-1938 Fixed Costs Variable Costs Invest- Ins. & Bales menu Taxes Ginned Labor Power Repairs $ 6,000 $ 315 100 $ 75 $ 73 $ 15 7,000 355 200 150 146 30 8,000 395 300 225 219 45 9,000 435 Labor--_-_$133 400 300 292 60 10,000 475 500 375 365 75 11,000 515 Power---" 120 600 450 438 90 12,000 555 700 525 511 105 13,000 595 Repairs_-__ 230 8-00 000 584 120 14,000 6B5 900 675 657 135 15,000 675 1,000 750 730 150 16,000 714 1,100 825 806 165 17,000 754 1,200 900 876 180 18 ,000 794 1 , 300 975 949 195 19,000 3.34, 1,400 1,050 1,022 210 20,000 874 1,500 1,125 1,095 225 21,000 914 1,600 1,2100 1,168 240 22,000 954 1,700 1,275 1,241 255 23,000 904 1,800 1,350 1,314 270 24,000 1,034 1,900 1,425 1,387 285 25,000 1,074 2:000 1,500 1,460 300 %,000 1,113 2,100 1,575 1,533 3'15 iii- 2,200 1,650 1,606 330 Investment Costs 2 1309 1-725 L679 3'45 200 $ g 2,400 1,800 1,752‘ 360 400 10 2,500 1,875 1,852 s75 000 24 2,600 1,950 1,898 390 300 32 2,700 2,025 1,971 405 1,001) 4Q 2,800 2,100 2,044 420 2,900 2,175 2,117 435 Arithmetic Average 3mm) 2300 2'19‘) 450 Management ______________________ "$1,125 Miscellaheous ...................... __ 329 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT’ STATION Table 44.—Computed Items of Gost—Stea.m Power-High and Low Plains Area 1930-1938 Fixed Costs‘ Variable Costs Invest- Manage Bales Re- Manage- Of. ment Taxes ment Ginned Labor Power pairs Ins. ment. S a1. Misc. $15,000 $288 8 856 100 $ 86 $ 16 $ 49 $ 8 $ 15 $ 10 8 35 16,000 292 867 200 172 32 98 16 30 20 70 17 , 000 297 8f? 8 300 258 48 147 24 45 30 105 18,000 302 889 400 344 64 196 32 60 40 140 19,000 306 901 500 430 80 245 40 75 50 175 20,001 311 912 600 516 96 294 48 90 60 210 21 ,000 316 923 700 602 112 343 56 105 70 245 22,000 320 935 800 688 128 392 64 120 80 280 23,000 325 946 900 774 144 441 72 135 90 315 24 , 000 330 9'57 1 , 0'00 860 160 490 80 150 100 350 25, 000 335 969 1 , 100 946 176 539 88 165 110 385 26,000 339 980 1,200 1,032 192: 5818 96 180 120 420 27 ,O00 344 9911 1 ,300 1, 118 208 637 104 195 130 455 281,000 349' 1,002 1,400 1,204 224 686 112 210 140 490 29,000 353 1,014 1,500 1,290 240 735 120 225 150 525 30,000 358 1,025 1,600 1,376 256 784 1:28 240 160 560 31,000 363 1,036 1,700 1,462 272 833 136 255 170 595 32,000 367 1,048 » 1,800 1,548 288 882 144 270 180 630 33, 000 372 1 , 059 1 , 900 1 , 634 304 931 152 285 190 665 34,000 377 1,070- 2,000 1,720 320 980 160 300 200 700 35, 000 382 1 , O82 21, 100 1 , 806 336 1 , 029 168 315 210 735 36,000 386 1,096 2,200 1,892 352 1,078 176 330 220 770 37 ,00O 391 1 ,104 21,300 1 ,9‘78 368 1 ,127 184 345 230 S05 38,000‘ 396 1 ,115 2,400 2,064 384 1 ,176 192 360 240 840 39,000 400 1,127 2,500 2,150 400 1,225 200 375 250 875 40,000 405 1,138 2,600 2,236 416 1,274 208 390 260 910 41,000 410 1,149 2,700 2,322 432 1,323 216 405 270 945 42,000 414 1,161 2,800 2,408 448 1,372 224 42:0 280 980 43,000 419 1,172 2,900 2,494 464 1,421 232 435 290 1,015 44,000 424 1,183 3,000 2,580 480 1,470 240 460 300 1,050 45,000 429' 1,195 3,100 2,666 496 1,519 248 465 310 1,085 3,200 2,752 512 1,568 256 480 320 1,120 3,300 2,838 528 1,617 264 495 330 1,155 Labor _____________ "$503 3,400 2,924 544 1,666 272 510 340 1,190 Power _____________ __ 374 3,500 3,010 560 1,715 280 525 350 1,225 Repairs ____________ _- 470 3,600 096 576 1,764 288 540 360 1,260 ’ Insurance .......... -- 386 3,700 3,182 592 1,813 296' 556 370 1,295 Of. Salaries ....... _- 204 3,800 3,268 608 1,862 304 570 380 1,330 Miscellaneous ______ _- 188 3,900 3,354 824 1,911 312 585 390 1,365 4,000 3,440 640 1,960 320 600' 400 1,400 cosq‘ AND PROFIT OF GINNING COTTON IN TEXAS 8m QHH 8. H oHH 8H5 88H HHH .................................... i HHHQESHHHHHHHHH 3m HHH m8 8H mHmd 088 HHH ...................................... ImHHHHHHw Ho Hmm HHH 8.... H8 3H6 28$ H8 ........................................ ||woHHHrHHHmHHH HHm HHH mHH 8m mH H .H 8H5 88- ...... -- i- --- - JmbmQomm H8 mHH H8 HHm 85 8.» 8H 2H mHH 8m mHQH 88H mH m H HH 8H mHH HHHH 8H HHm 8H 8H.m m H H H H H H H 8m H 8H HHH m8 H8. 88H 8H6 EH00 HHHHHHHHHHEHH HHH HHH 8H mHm ¢HH.H 8H8 HmH 8H mHH Hmm mmmHH 81m HHH. H 8H HHH HmH 28.5. 8H 8H 8H oHm 8m .H H8 H. mmH . H 8H. mHH... HHH 8Q. HH 8H HHH mHH HHm mmHH 88H 81H Hmm H8 mHH 8.2 8H 8H 8H H8 88H 8H.H HHHH.H Hwm 8H 8H 8.HH HHH HmH mHm 8H mHHH 8H.H HHH; HHH HHH H8 o8.HH HmH... mmH 8m 8H ¢HH.H 88H mHH.H H8 8H m8 86H 8H. 8H m8 8H mHH .H 8m.H 8H. H H8 mHH Hmm 88.8 8m HHH 8m HHH 28H 8H.H 8H mmH H8 H8 8H8 HHH... HHH mHm HHH mmH. H H8 .H H8. H mHm HmH m8 8Q . H» H8 mmH omm 8m HHH; 8H.H m8; HHH HmH 8 8.8 HHH wHH mHm m5 mHH.H 81H H54 Hmm HHH 8m o8.mm QHH oHH 8m 8H 8H.H 8H H8; 8m mmH Em 88.8 8H HHH mHH HHH mHm.H 8H HHQH HHm HHH 8m 8.8 HmH 8H 8H Hwm 8m. H c8. H HS . H mHm HHH wHm 8.8 HHH 8H mHH 8m mHH.H 8H.H H8.H HHH HHH HHm 88.8 HHH 8 8H 8H H8; 8H. H HHH m8 8H 2m 8.8 2H 8 mHm EH mHHH 8m; HHH 8H mHH HHH 8.8 8H Hm 8H HmH 81H 8H.H H8 8H HHH HHH 88H 8H HH HHHH HmH 8H. H H8. H H8 8H mHH HmH 8Q. HH 8H HH 8H mHH Q8. H 8H; HHH 8H HHH HHH 8.8 HmH 8 mHH 8H m8 8H.H wHm HHH 8H mHH. 8.mH oHH 8 8H 8H emH . 8H..H HHH 5H mmH HHH 8€HH wHH Hm mHH 8H mmH 8H H8 Haw HHH m8 8.8 HHH mH 8H HHH 8m 8H HHH mmH 8H wHm 8.8 8 HH mHH mHH 8m 8H mHH wHH HHH H8 8. HH HH mm 8H 8H 2m 8m m8 HHH mmH mHm 85H E. 8 mHH 8 . mHH 8m 8H 8H mHH HHH 85H mm HH 8H HH ¢Hm 8H H8 HHH HbH N5 08.2 HH wH mH Hm mmH 8m mHH HHH 8 8H H . 8.2 HH HH 8 8 PHH 8H H m5 HHH HH HHH 86H HH H m H mH H HH H mm H 8H 8H H HHHw Hm H 88 8m; . uwg . wHHH mbfiflwm MQBON HODQQ UHHHHEHU afloa WQNHHE MoBOAH HOQQH aflws mfiwm bwfiimz $835 EH00 EDQHHGHW H300 UQNTH 589M‘ uflHsH-H BO-H did uFMwHHIHUBON HOMOMQ\BMOU HO MEOPH UOQnpnHEO°||-D$ 386B . ., HKY|HKIFK t. 86 BULLETIN NO. 606, TEXAS AGRICULTURAL. EXPERIMENT‘ STATION Table 46.—Computed Items of Cost—2E1ect1-1c Power—E1gh and Low Plains Area 1930-1938 Fixed Costs Variable Costs * Invest- Manage Bales Re- Of. ment T axesl ment Ginned Labor Power pairs Ins. S a1. Misc. $15,000 $141 $1,132 100 $ s3 $ 64 $ 33 $ 9 $ 17 $ 28 16,000 156 1,150 200 166 128 66 18 34 56 17,0011 171 1,168 2,00 249 192 99 27 51 s4 18,000 186 1,186 400 332 256 132 36 68 112 19,000 202 1,205 500 415 320 165 45 85 140 20,000 217 1 , 223 600 498 384 198 54 102 168 21,000 232 1,241 700 581 448 231 63 119 196 22,000 248 1,260 800 664 512 264 72 136 224 23, 000 263 1 , 278 900 747 576 297 81 153 252 24,000 278 1,290 1,000 830 640 330 90 170 280 25,000 294 1,315 1,100 913 704 363 99 187 308 26,000 309 1,333 1,200 996 768 396 108 204 336 27 ,000 324 1 ,351 1,300 1 ,079 832 429 117 221 364 28,000' 339 1,369 1,400 1,162 896 462 126 238 392 29,000 355 1,388 1,500 1,245 960 495 135 255 420 30,000 370 1,406 1,600 1,328 1,024 528 144 272 448 31,000 385 1,424 1,700 1,411 1,088 561 153 289 476 32,000 401 1,443 1,800 1,494 1,152 594 162 306 504 33,000 416 1,461 1,900 1,577 1,216 627 171 323 532 34,000 431 1,479 2,000 1,660 1,280 660 180 340 560 35,000 447 1,498 2,100 1,743 1,344 693 189 357 588 36,000 462 1,516 2,200 1,826 1,408 726 198 374 616 37,000 477 1,534 2,300 1 ,909 1, 472! 759 207 391 644 38,000 492 1,552 2,400 1,992 1,536 792 2'16 408 672 39,000 508 1,571 2,500 2,075 1,600 825 225 425 700 40,000 523 1,589 2,600 2,158 1,664 858 234 442 728 2,700 2, 241 1 ,728 891 243 459 756 Investment Cos-ts 2,800 2,324 1,792 924 252 476 784 200 $ 3 $ 4 2,900 2,407 1,856 957 261 493 812 400 6 7' 3,000 2,490 1,920 990 270 510 840 600 9 11 3,100 2,573 1,984 1,023 279 527 868 8'00 12 15 3,200 2,656 2,048 1,056 288 544 $76 1 ,000 15 18 3,300 2,739 2,112 1,089 297 561 9Z4 3,400 2,822 2,176 1,122 306 578 952 Labor ............... "$288 3,500 2,905 2,240 1,155 315 595 980 Power ............... _- 600 2,988 2,304 1,188 324 612 1,008 Repaxrs ............. -_ 79 3,700 3,071 2,368 1,221 $33 629 1.036 Insurance ........... -_ 395 3,800 3,154 2,432 1,254 342 646 1,064 Of. Salaries _________ _- 131 3,900 3,237 2,496 1,287 351 663 1,092 Miscellaneous _______ -_ 102 4,000 3,320 2,560 1,320 w 680 1,120 COST AND PROFIT‘ OF‘ GINNING COTTON IN TEXAS 87 fable 47.—Oomputed Item of Cosh-Large Gins—Eigh and I-ow Plains Area 1930-1938 Fixed Costs Variable Costs No. 0f. Invest- Manage- Bales Re- Saws Ins. Taxes Sal. ment ment Ginned Labor Power pairs Misc. 700 $ 996 $ 740 $ 590 $20,000 $1,276 100 $ 95 $ 26 $1 27 $ 16 750 1 ,063 844 795 22, 000 1 , 316 200 190 52 54 32 fil) 1,133 947 1,000 24,000 1,3556 300 2'85 78 81 48 1,050 1,483 1,465 2,025 26,000 1,397 400 380 104 108 64 1,200 1,693 1,775 2,640 28,000 1,437 500 475 130 135 80 30,000 1,477 600 570 156 162 96 Size Costs 32,000 1,517 700 665 182 189 112 70 $ 98 $ 145 $ 287 34,000 1,557 800 760 208 2'16 128 80 112 166 328 36,000 1,598 900 855 234 243 144 38,000 1,638 1,000 950 260 270 160 40,000 1,678 1,100 1,045 286 297 176 Labor __________________ -_$ 992 42,000 1,718 1,200 1,140 312 324 192 44,000 1,758 1,300 1,235 338 351 208 Power __________________ -- 569 46,000 1,799 1,400 Lfi 364 378 224 48,000 1,839 1,500 1,425 390 405 240 Repairs_ _______________ -- 1,689 50,000 1,879 1,600 1,520 416 432 256 52,000 1,919 1,700 1,615 442 459 272 Miscellaneous __________ -- 839 54,000 1,959 1,800 1,710 468 486 288 56,000 2,000 1,900 1,805 494 513 304 58,000 2,040 2,000 1,900 520 540 320 60,000 2,080 2,100 1,995 546 567 336 E 02,000 2,120 2,200 2,090 572 s04 352 * 64,000 2,160 2,300 2,185 598 621 368 66,000 2,201 2,400 2,280 624 648 384 68000 2,241 2,500 2,375 650 675 400 70,000 2,281 2,600 21,470 676 702 416 72,000 2,321 2,700 2,565 702 7%‘ 432 74,000 2,361 2,800 2,660 728 756 448 76,000 2,402 2,900 2,755 754 783 464 78,000 2,442 3,000 2,850 780 810 480 80,000 2,482 3,100 2,945 806 837 496 82,000 2,522 3,200 3,040 832 864 512 84,000 2,562 3,300 3,135 858 891 528 86,000 2% 3,400 3,230 884 918 544 88,000 2,643 3,500 3,325 9'10 945 560 I 90,000 2,683 3,600 3,420 936 972 576 » 3,700 3,515 962 999 592 Inv Oosts 3,800 3,610 988 1,026 608 $ 500 10 3,900 3,705 1,014 1,053 624 1,000 4,000 3,810 1,040 1,080 640 5,000 4,750 1,300 1,350 800 i 6,000 5,700 1,560 1,620 960 ‘ 7.000 0,650 1,820 1,800 1,120 E 8,000 7,600 2,080 2,160 1,280 .,..,_,,,._, .,. M V 88 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Table 48.—-Oomputed Items of Costl-Diesel Power-Gulf Coast Area 1930-1938 ' Fixed Costs Variable Costs‘ Invest- Re- Manage- Bales Re- Manage- ment pairs ment Ginned L ab or Power pairs Ins . ment Misc $10,000 $146 $ 004 100 $ 87 $ 22 $ 36 $ 7 $ 22 $ 25 11,000 158 626 200 174 44 72 14 44 50 12,000 169 648 300 261 66 108 21 66 75 13,000 181 670 400 348 88 144 28 8'8 100 14,000 192 692 500 435 110 180 35 110 125 15,000 204 714 600 522 132 216 42 132 150 16,000 215 736 700 609 1,54 25-2 49 154 175 17,000 227 758 800 696 176 288 56 176 200 18,000 238 7'80 900 783 198 324 63 198 225 19,000 250 802 1 ,000 870 220 360 70 220 250 20, 000 261 824 1 , 100 957 242 396 77 242 275 21,000 273 846 1,200 1,044 264 432 84 264 300 22, 000 284- 8681 1 , 300 1 , 131 286 468 91 286 325 23 ,000 296 890 1 , 400 1 , 218 308 504 98 308 350 ,000 307 912 1 , 500 1 ,305 330 540 105 330 375 25,000 3'19 934 1,600 1,392 352 576 112 352 400 26,000 330 956 1,700 1,479 374 612 119 374 425 , 000 342 978 1 , 800 1 , 566 396 648 1261 396 450 28,000 353 1,000 1,900 1,053 418 684 133 418 475 29,000 365 1,022 2,000 1,740 440 720 140 440 500 30,000 376 1,044 2,100 1,827 462 756 147 462 525 31,000 388 1,066 2,200 1,914 484 792 154 484 550 32,0001 399 1,088 2,300 2,001 506 8% 161 506 575 33,000 411 1,110 2,400 2,088 528 864 168 528 600 34,000 422 1,132 2,500 2,175 550 900 175 550 625 35,000 434 1,154 2,600 2,262 572 936 182 572 650 36,000 445 1,176 2,700 2,349 594 972 189 594 675 37,000 457 1,198 2,800 2,436 616 1,008 196 616 700 38,000 468 1,2210 2,900 2,523 638 1,044 203 638 725 39,000 480 1,242 31,000 2,610 660 1,080 210 660 750 40,000 491 1,264 3,100 2,697 682 1,116 217 682 775 3,200 2,784 704 1,152 224 704 800 Investment Costs 3,300 2,871 726 1,188 231 726 825 $ 500 $ 6 11 3,400 2,958 748 1,224 238 748 850 1,000 12 22 3,500 3,045 770 1,260 245 770 875 Labor ________________ __$425 Power ________________ -- 86 Insurance- ........... -- 294 Miscellaneous- _______ _- 275 Arithmetic Average TaXes-_ __________ __ ,1 n _.,.___.. ..... _ “.11” . ...,._,__<.-....1 -.,..._r.u..4.mm.n..m..lu~_\=mn COST AND PROFIT OF GINNING (TOTTON IN TEXAS S9 Table ‘la-Computed Item of Oost—111ectr1c Power—G-u1f Coast Area 1930-1938 Fixed Costs Variable Costs Bales Re- Ginned Labor Power pairs Ins. Taxes Misc. 100 $1 102 $ 58 $ 48 $ 11 $ 10 $ 34 Labor _________ __$235 200 204 116 96 22 20 68 300 306 174 144 33 3O 102 Power _________ _- 9'0 400 408 262 192 44 40 . 136 500 510 290 240 55 50 170 Repairs ________ __ —36 600 612 348 268 66 60 204 700 714 406 336 77 7O 238 Insurance _____ -- 190 800 8-16 464 384 88 90 2'72 900 918 52,2 432 99 90 306 Taxes _________ __ 102 1,000 1,020 580 480 110 100 340 1,100 1,122 638 528 121 110 374 Miscellaneous--- -4 1,200 1,224 696 576 132 120 408 1,300 1,326 754 624 143 130 442 1,400 1,428 812 672 154 140 476 1 , 500 1 , 530 870 720 165 150 510 Arithmetic Average 1,600 1,032 928 708 176 160 544 1 , 700 1 , 7'34 986 816 18f? 170 578 Management----$838 1,800» 1,%6 1,044 864 198 180 612 1,900 1,938 1,102 912 209 190 646 2,000 2,040 1,160 960 220 200 680 2,100 2,142 1,2118 1,008 231 210 714 2,200 2,244 1,276 1,056 242 220 748 2,300 2,346 1,334 1,104 253 230 782 2,400 2,448 1,392 1,152 2'64 240 816 2,500 21,550 1,450 1,200 275 250 850 2,600 2,652 1,508 1,248 286 260 884 2,700 2,754 1,566 1,296 297 270 918 2,800 2,8456 1,624 1,344 308 280 952 2,900 2,958 1,682 1,392 319 290 986 3,000 3,060 1,740 1,440 330 300 1,020 Profits of Ginning In a competitive economy, a business to survive, must earn at least a reasonable profit. One of the most important features of cost to the ginner is that it represents a deduction from his gin income. While the ginner may be interested in means for computing ginning cost he is likewise interested in means for computing profit. In computing the profit of the gin business, an additional factor must be considered, the gin income per bale. This income per bale times the number of bales ginned gives the total gin income. The relationship between the gin income and the cost of ginning determineswhether the ginner suffers a loss, breaks even, or makes a profit. > . Gin income as used in this discussion is the gin toll added to the net profits on bagging and ties and cottonseed. The gin income per bale is the total gin income divided by the number of bales ginned.‘ Tables of “Break Even” Volume Net profits of the gin business may be approached from the standpoint of the “break even” volume. At this volume, cost and gin income are lProfit, or loss, on lint cotton which may be bought by the ginner and on_a sideline business may be reduced to a per bale profit, or loss, and the gin income per bale adjusted accordingly. 90 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION identical. If the “break even” volume be considered as a unit of ginning, the volume beyond this point may be considered as the “profit” volume. Two facts stand out in bold relief from this division of the total volume of ginning. (a) The gin income on the “break even” volume pays all the fixed cost of ginning and all the variable cost of this volume. (b) The only cost deduction from the “profit” volume is the variable cost of this volume. Thus the profit per bale on the “profit” volume is the gin income per bale less the variable cost per bale. The approach to net profits of ginning from the standpoint of the “break even” volume is facilitated by two types of tables. The one shows net profits per bale on the “profit” volume according to section of the state, type of power, and gin income per bale. To serve this purpose, Table 50 was compiled. For example, Table 50 indicates that at a gin income of $5.25 per bale in the Blackland Area the profits per bale on the “profit” volume are $3.47, $3.88, and $3.20 for steam, Diesel, and electric gins. The total net profit in each instance is the product of this profit per bale and the number of “profit” bales. The other type of table shows the “break even” volume for gins according to various investments in the gin plant and various gin incomes per bale by section of the state and type of power. To serve this purpose Tables 51 to 59 were compiled. For example, Table 51 shows that a steam plant in the Blackland Area with an investment of $20,000 has “break even” volumes of 1,617, 1,115, and 851 bales at gin incomes of $4.00, $5.00, and $6.00 per bale. How to Use Tables of “Break Even” Volumes ' Several definite types of questions may be answered by the use of the tables of “break even” volumes. A ginner operating a $26,000 Diesel plant of average efficiency in the Gulf Coast Area may wish to know: 1. The net profit on a volume of 1,500 bales at a gin income of $6.25 per bale. According to Table 58, the “break even” volume is 986 bales; thus the “profit” volume is 1,500— 986, or 514 bales. According to Table 50, the net profit per bale on the “profit” volume is $4.26. Thus the total net profit is $4.26 x 514. or $2,190. 2. The volume needed at a gin income of $6.25 per bale to earn: p a. A net profit of $2,000. Since the net profit per» bale on the “profit" volume is $4.26, the number of “profit" bales needed is 2,000 -3— 4.26, or 469. The needed volume is 469 + 986, or 1,455 bales. b. A return of 10 per cent on the investment. On an investment of $26000 this means a net profit of $2,600. The number of “profit" bales needed is 2,600 —2- 4.26, or 610. Thus the needed volume is 610 + 986, or 1,596 bales. 3. The effect of a reduction of five cents in the gin rate per cwt. of seed cotton on a“ volume of 1,500 bales. "This means a reduction in the gin income per bale of about 75 cents. According to the example in Point 1. above, the net profit at a volume of 1,500 bales and a gin income of $6.25 per bale is $2,190. At a reduction of 75 cents per bale, the gin income drops to $5.50 per bale. According to Table 58, the “break even" volume of a $26,000 Diesel gin in the Golf Coast Area with a gin income of $5.50 per bale is 1,196 bales. The “profit" volume is 1,500—1,196, or 304 bales. According to Table 50 the net profit per bale on the “profit” volume is $3.51. Thus the net pr-ofit is $3.51 >< 304, or $1,067. The higher gin income per bale yields a net return on the investment of 8.4 per. cent; the lower a net return of 4.1 per cent. 4. The effect on net profits of buying the cotton of his patrons at a price above the market. Ginners buy their patrons cotton at a. price above the market with the expectation, rather generally, of increasing their volume of . .. 1............_.-..-__<.....»~_‘..... 2..-... mmfimn‘ COST AND PROFIT OF GINNING GOTTON IN TEXAS 91 ginning. Increased volume decreases the cost of ginning per bale. The ginner in question makes a. profit of $2,190 on a volume of 1,500 bales at a gin income of $6.25 per bale. Suppose this ginner. decides to overpay for cotton at the rate of $1.25 per bale. The question arises, What volume must this ginner attain to improve his profit position? This overpayment for the cotton pur- chased has the effect of reducing the gin income per bale to $5.00. At this gin income, according to Table 58, the “break even” volume is 1,395 bales. The net profit per bale on the “profit” volume, according to Table 50, is $3.01. Thus the number of “profit” bales needed is 2,190 + 3.01, or. 728. The volume needed ‘to earn a net profit of $2,190 is 728 + 1,395, or 2,123 bales. This ginner would find it necessary to increase his volume by more than 42 per cent to improve his profit status through overpaying for cotton at the rate of $1.25 per bale. The figures given at the bottom of the tables of “break even" volume facilitate adjustments for investments falling within the even $1,000. For. instance, the problem is to find the “break even” volume of a steam gin in the Blackland Area with an investment of $16,800 and a. gin income of $5.25 per bale. According to Table 51, the “break even” volume at an investment of $16,000 is 927. The additional investment of $800 requires 21 bales more. Thus the “break even” volume for an investment of $16,800 is 927 + 21, or 948 bales. Table 50.—G-in Income‘ Per Bale I-ess Variable Cost of Glnnlng (Dollars) 1930-1938 Blackland Area High and Low Plains Area Gulf Coast Area Income Income Per Elec- Elec- . Elec- Per Bale Steam Diesel tric Steam Diesel tric Large Diesel tric Bale 4.00 2.22 2.63 1.95 1.75 2.24 1.58 2.25 2.01 1.41 4.00 4.25 2.47 2.88 2.20 2.00 2.49‘ 1.83 2.50 2.26 1.66 4.25 4.50 2.72 3.13 2.45 2.25 2.74 2.68 2.75 2.51 1.91 4.50 4.75 2.97 3.38 2.70 2.50 2.99 2.33 3.00 2.76 2.16 4.75 5.00 3.22 3.63 2.95 2.75 3.24 2.58 3.25 3.01 2.41 5.00 5.25 3.47 3.88 3.20 3.00 3.49 2.83 3.50 3.26 2.66 5.25 5.50 3.72‘ 4.13 3.45 3.25 3.74 3.08 3.75 3.51 2.91 5.50 5.75 3.97 4.38 3.70 3.50 3.99 3.33 4.00 3.76 3.16 5.75 6.00 4.22 4.63 3.95 3.75 4.24 3.58 4.25 4.01 3.41 6.00 6.25 4.47 4.88 4.20 4.00 4.49 3.83 4.50 4.26 3.66 6.25 6.50 4.72 5.13 4.45 4.25 4.74 4.08 4.75 4.51 3.91 6.50 6.75 4.97 5.38 4.70 4.50 4.99 4.33 5.00 4.76 4.16 6.75 7.00 5.22 5.63 4.95 4.75 5.24 4.58 5.25 5.01 4.41 7.00 7.2‘ 5.47 5.88 5.20 5.00 5.49 4.83 5.50 5.26 4.66 7.25 7.50 5.72 6.13 5.45 5.25 5.74 5.08 5.75 5.51 4.91 7.50 7.75 5.97 6.38 5.70 5.50 5.99 5.33 6.00 5.76 5.16 7.75 8.00 6.22 6.63 5.95 5.75 6.24 5.58 6.25 6.01 5.41 8.00 lGin income per bale as used in this connection is composed of the gin toll and the net profits per bale on bagging and ties and cottonseed. 92 _ BULLETIN NO. 6016, TEXAS AGRICULTURAL EXPERIMENT STATION Table 51.-—“Brea.k Even” Volume According to Investment 1n the Gin Plant and Gin Income Per IBale—Stea,m Powelh-Blackland Area, 1930-1938 Gin Income Per Bale Invest- ment $4.00 $4.25 $4.50 $4.75 $5.00 $5.25 $5.50 $5.75 $6.00 $ 6,000 1,031 926 841 770 711 659 615 576 542 7 ,000 1 , 073 964 875 801 7'40 686 640» 599 564 8,000 1,115 1,001 909 833 769 713 665 623 586 9,000 1,157 1,039 944 864 798 739 690 646 608 10,000 1 ,199 1 ,077 978 895 827 766 715 670 630 11,000 1,240 1,114 1,012‘ 927 855 793 740 693 652 12,000 1,282 1 ,152 1 ,04-6 9'58 884 820 765 717 674 13,000 1,324 1,190 1,080 989 913 847 790 740 696 14,000 1,366 1,227 1,115 1,021 942 874 815 764 718 15,000 1,4018 1,265 1,149 1.052 971 900 840 787 740 16,000 1,450 1,303 1,183 1,083 1,000 927 865 811 762 17,000 1,492 1,340 1,217 1,115 1,029‘ 954 890 834 784 18,000 1 ,534 1 ,378 1, 251 1 ,146 1 ,058 9'81 915 857 807 19,000 1,575 1 ,416 1,286 1,177 1 ,086 1 ,008 940 881 829 20,000 1,617 1,453 1,320 1,209 1,115 1,035 965 904 851 21,000 1,659 ' 1,491 1,354 1,240 1,144 1,061 990 928 873 22,000 1,701 1,529 1,388 1,271 1,173 1,088 1,015 951 895 23,000 1,743 1,566 1,423 1,303 1,202 1,115 1,040 975 917 24,000 1,785 1,604 1,457 1,334 ' 1,231 1,142 1,065 998 939 25,000 1,827 1,642 1,491 1,365 1,260 1,169 1,090 1,022 961 26,000 1,869 1,679 1,525 1,397 1,289 1,196 1,115 1,045 983 27,000 1,910 1,717 1,559 1,42'8 1,317 1,222 1,140 1,039 1,005 28,000 1,952 1,755 1,594 1,459 1,346 1,249 1,165 1,092 1,027 29,000 1,994- 1,792 1,628 1,491 1,375 1,276 1,190 1,116 1,049 30,000 2,036 1,830 1,662 1,522 1,404 1,303 1,215 1,139 1,071 200 8 8 7 6 6 5 5 5 4 400 17 15 14 13 12 11 10 9 9 600 25 2'3 21 19 17" 16 15 14 13 800 34 30 27 2'5 2'3 21 20 19 18 1,000 42 38 34 31 29 27 25 23 22 Table 52-—“Brea.1n Even” Volume According to Investment 1n the Gln Plant and Gin Income Per Bale-Diese1 Power—B1a.ckland Area, 1930-1938 Gin Income Per Bale Invest- ment $4.00 $4.25 $4.50 $4.75 $5.00 $5.25 $5.50 $5.75 $6.00 $ 6,060 1,038 94-8 872 808 75-2 704 661 624 590 7 , 000 1 , 072 979 900 834 776 727 683 644 609 8,000 1 , 106 1 ,010 929 861 801 750 704 664 628 9,000 1 , 139 1 ,040 957 887 82.5 772 726 685 647 10,000 1 ,173 1 ,071 985 913' 850 795 747 705 667 11 ,000 1 ,207 1 ,102 1 ,014 939 874 818 769 7251 686 121,000 1,241 1 ,133 1 ,042 966 899 841 790 7'45 705 13,000 1 ,274 1 ,164 1 ,070 992 923 864 812 765 724 14,000 1,308 1,194 1,099 1,018 948 887 833 786 743 15, 000 1 , 342 1 ,2'25 1 , 127 1 ,044 972 9'09 855 806 762 16,000 1 ,376 1, 256 1 , 155 1 ,071 997 932 876 826 781 17,000 1,409 1,287 1,184 1,0477 1,021 955 898 846 800 18,000 I 1,443 1,3118 1,212 1,123 1,045 978 919 866 820 19,000 1,477 1,348 1,240 1,149 1,070 1,001 941 887 839 20,000 1,511 1,379 1,269 1,176 1,09'4 1,024 96-2 907 858 21,000 1,544 1,410 1,297 1,202 1,119 1,046 984 927 877 22,000 1,578 1,441 1,325 1,228 1,143 1,069 1,005 947 896 23,000 1,612 1,471 1,354 1,254 1,168 1,092 1,027 968 915 24,000 1,646 1,502 1,382 1,281 1,192 1,115 1,048 988 934 25,000 1,679 1,533 1,410 1,307 1,217 1,138 1,070 1,008 953 26,000 1,713 1,564 1,439 1,333 1,241 1,161 1,091 1,028 973 27,000 1,747 1,595 1,467 1,359 1,2166 1,183 1,113 1,048 992 28,000 1,781 1,625 1,495 1,386 1,290 1,206 1,134 1,069 1,011 29,000 1,814 1,656 1,524 1,412 1,315 1,229 1,156 1,089 1,030 30,000 1,848 1,687 1,552 1,438 1,339 1,252 1,177 1,109 1,049 200 7 6 6 5 5 5 4 4 4 400 14 12 11 11 10 9 9 8 8 600 20 18 17 16 15 14 13 12 11 800 27 25 23 2'1 20 18 17 16 15 1,000 34 31 28 26 24 23 22 20 19 wvwwww 1 COST AND PROFIT OF GINNING COTTON IN TEXAS 93 Table 53.—“Break Even” Volume According to Investment in the Gin Plant and Gin Income Per Ba.1e—E1ectric Power—B1ack1a,nd Area, 1930-1938 Gin Income Per Bale Invest- msnt $4.00 $4.25 $4.50 $4.75 $5.00 $5.25 $5.50 $5.75 $0.00 s 0,000 1,253 1,111 ' 998 905 828 704 708 001 019 7,000 1,283 1,138 1,022 927 848 7'83 725 677 634 8,000 1 ,314 1 , 105 1,040 949 808 s01 742 093 049 9,000 1,344 1,192 1,070 971 88s 820 700 709 004 10,000 1,375 1,219 1,095 993 908 838 777 725 079 11 ,000 1 ,405 1 ,240 1 ,119 1 ,015 929 857 794 741 694 12,000 1,435 1,272 1,143 1,037 949 875 811 757 709 13,000 1,400 1 ,299 1,107 1 .059 909 894 828 773 724 14,000 1 ,490 1 ,320 1,191 1 ,081 989 912 s40 789 739 15,000 1,527 1,353 1,215 1,103 1,009 931 s03 805 754 10,000 1,557 1,380 1,240 1,125 1,029 949 880 821 709 17,000 1,587 1,407 1,204 1,140 1,049 908 897 837 783 18,000 1,018 1,434 1,288 1,108 1,069 980 914 853 798 19,000 1,048 1,401 1,312 1,190 1,089 1,005 932 s09 813 20,000 1,079 1,488 1,330 1,212 1,109 1,023 949 s85 828 21,000 1 ,709 1,515 1,300 1,234 1,130 1,042 900 901 s43 22,000 1,739 1,541 1,384 1,250 1,150 1,000 983 917 s58 23,000 1,770 1,508 1,409 1,278 1,170 1,079 1,000 933 873 24,000 1,800 1,595 1,433 1,300 1,190 1,097 1,013 949 888 25,000 1,831 1,022 1,457 1,322 1,210 1,110 1,035 905 903 20,000 1,801 1,049 1,481 1,344 1,230 1,134 1,052 981 918 200 0 5 5 4 4 4 3 3 3 400 12 11 10 9 8 7 7 0 0 000 18 10 14 13 12 11 10 10 9 800 1 24 2:2 19 18 10 15 14 13 12 1,000 30 27 24 22 20 19 17 10 15 Table 54.—-“Brea.k Even” Volume According to Investment in the Gin Plant and Gin Income Per Ba.1e—Steam Power—IIig'h and. I-ow Plains Area, 1930-1938 Gin Income Per Bale Invest- ment $5.00 $5.25 $5.50 $5.75 $0.00 80.25 80.50 $0.75 37.00 $7.25 $15,000 1,550 1,427 1,317 1,223 1,141 1,070 1,007 951 901 s50 10,000 1,578 1,447 1,335 1,240 1,157 1,085 1,021 904 913 s08 17,000 1,599 1,400 1,353 1,257 1,173 1,100 1,035 977 920 we 18,000 1,021 1,480 1,372 1,274 1,188 1,114 1,049 991 938 s91 19,030 1,042 1,500 1,390 1,291 1,204 1,129 1,003 1,004 951 903 20,000 1,004 1,520 1,408 1,308 1x0 1,144 1,077 1,017 903 915 21,000 1 ,085 1,545 1,420 1,324 1,230 1,159 1,091 1,030 970 927 22,000 1,707 1,505 1,444 1,341 1 ,252 1,174 1,105 1,043 988 939 23,000 1,728 1,585 1,403 1.35s 1,207 1,188 1,118 1,050 1,001 951 24,000 1,750 1,005 1,481 1,375 1,283 1,203 1,132 1,070 1,013 902 25,000 1,771 1,024 1,499 1,392 1,299 1,218 1,140 1,083 1,020 974 20,000 1,793 1,044 1,517 1,409 1,315 1,233 1,100 1,090 1,038 980 27,000 1,814 1,004 1,535 1,420 1,331 1,248 1,174 1,109 1,051 998 28,000 1,830 1,084 1,554 1,443 1,340 1,202 1,188 1,122 1,003 1,010 29,000 1,857 1,703 1,572 1,400 1,302 1,277 1,202 1,135 1,070 1,022 30,000 1,879 1,723 1,590 1,477 1,378 1x2 1,210 1,149 1,088 1,033 31,000 1,901 1,743 1,008 1,493 1,394 1,307 1,230 1,102: 1,100 1,045 @000 1,922- 1,702 1,020 1,510 1,410 1,322 1,244 1,175 1,113 1,057 33,000 1,944 1,782 1,045 1,527 1,425 1,330 1,258 1,188 1,125 1,009 34,000 1,905 1,802 1,003 1,544 1,441 1,351 1,272 1,201 1,138 1,081 1,987 1,822 1,081 1,501 1,457 1,300 1,280 1,214 1,150 1,093 30,000 2,008 1,841 1,099 1,578 1,473 1,381 1,300 1,228 1,103 1,104 37,000 2,030 1,801 1,717 1,595 1,489 1,396 1,314 1,241 1,175 1,116 38,00 2,051 1,881 1 ,730 1,012 1,504 1,410 1,327 1,254 1,188 1.12s 39,000 2,073 1,901 1,754 1,029 1,520 1,425 1,341 1,207 1,200 1,140 40,000 2,094 1,920 1,772 1,040 1,530 1,440 1,355 1,280 1,213 1,152 41,000 2,110 1,940 1,790 1,002 1,552 1,455 1,309 1,293 1,225 1.104 42,000 2,137 1,900 1,808 1,079 1,508 1,470 1,383 1,307 1,238 1,175 43, 2,159 1,980 1,827 1,090 1,583 1,484 1,397 1,320 1,250 1,187 44,000 2,180 1,999 1,845 1,713 1,599 1,499 1,411 1,333 1,203 1,199 45,000 2,202 2,019 1,803 1,730 1,015 1,514 1,425 1,340 1,275 1,211 200 4 4 4 3 3 3 3 3 2 2 400 9 8 7 7 0 0 0 5 5 5 000 13 12 11 10 9 9 8 8 7 7 800 17 10 15 14 13 12 11 11 10 9 1.000 22 20 18 17 10 15 14 13 12 12 94 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION '.I.'a.b1e 55.—“Brea.k Even" Volume According to Investment 1n the Gin Plant and Gin Income Per Bale-éliliesel Power-High and Low Plains Area, 1930-1938 Gin Income Per Bale Invest- ment $5.00 $5.25 $5.50 $5.75 $6.00 $6.25 $6.50 $6.75 $7.00 $7.25 $15,000 1,127 1,047 9'77‘ 916 $2 814 771 732 697 665 16,000 1,162 1,079 1,007 944 888 839 795 754 718 685 17,000 1,196 1,111 1,037 972 915 864 818 777 740 706 18,000 1,231 1,143 1,067 1,000 941 889 842 799 761 726 19,000 1,265 1,175 1,097 1,028 968 914 866 822 782 747 20,000 1,300 1,207 1,127 1,056 994 939 889 844 804 767 21,000 1,335 1,239 1,157 1,084- 1,020 964 913 867 825 787 22,000 1,369 1,271 1,187 1,112 1,047 989 936 889 847 808 23,000 1,404 1,% 1,216 1,141 1,073 1,013 960 911 868 828 24,000 1,438 1,336 1,246 1,169 1,100 1,038 984 934 889 849 25,000 1,473 1 ,368 1,276 1,197 1,126 1,063 1,007 956 911 869 26,000 1,508 1,400 1,306 1,225 1,152 1,088 1,031 979 932 889 27,000 1,543 432 1,3316 1,253 1,179 1,113 1,055 1,001 953 910 28,000 1,577 1,464 1,366 1,281 1,205 1,138 1,078 1,024 975 930 29,000 1,611 1,496 1,396 1,309 1,232 1,163 1,102 1,046 996 951 30,000 1,646 1,528 1,426 1,337‘ 1,258 1,188 1,125 1,068 1,018 971 31,000 1,681 1,560 1,456 1,365 1,284 1,213 1,149 1,091 1,039 991 32,000 1,715 1,592 1,486 1,393 1,311 1,238 1,173 1,113 1,060 1,012 33,000 1,750 1,624 1,516 ‘ 1,421 1,337 1,263 1,196 1,136 1,082 1,032 34,000 1,784 1,656 1,546 1,449 1,364 1,288 1,220 1,158 1,103 1,053 35,000 1,819 1,688 1,576 1,477 1,390 1,313 1,244 1,181 1,124 1.073 36,000‘ 1,854 1,720 1,606 1,505 1,416 1,338 1,267 1,203 1,146 1,033 37,000 1,888 1,752 1,636 1,533 1,443 1,362 1,291 1,226 1,167 1,114 38,000 1,923 1,785 1,665 1,562 1,469 1,387 1,315 1,248 1,188 1,134 39,000 1,907 1,817 1,695 1,590 1,496 1,412 1,338 1,270 1,210 1,155 40,000 1,992 1,849 1,725 1,618 1,522 1,437 1,362 1,293 1,231 1,175 41,000 2,027 1,881 1,755 1,646 1,548 1,462 Lfi 1,315 1,253 1,195 42,000 2,061 1,913 1,785 1,674 1,575 1,487 1,409 1,338 1,274 1,216 43,000 2,096 1,945 1,815 1,702 1,601 1,512 1,433 1,360 1,295 1,236 44,000 2,130 1,977 1,845 1,730 1,628 1,537 1,456 1,% 1,317 1,257 45,000 2,165 2,009 1,870 1,758 1,654 1,562 1,480 1,405 1,338 1,277 200 7 6 6 6 5 5 5 4 4 4 400 14 13 12 11 11 1O 9 9 9 8 600 21 19 18 17 16 15 14 13 13 12 8C0 28 26 24 22 21 20 19 18 17 1b 1 ,000 35 32 30 28 26 25 24 22 21 20 COST AND PROFIT’ OF GINNING COTTON IN TEXAS 95 Table 56-—“Brea.k Even” Volume According to Investment in the Gin Plant and Gin Income Per IBa.1e—E1ectr1c Power-High and I-ow Plains Area, 1930-1938 Gin Income Per Bale Invest- ment $5.00 $5.50 $5.75 $0.00 $0.25 $0.50 $0.75 $7.00 $7.25 $12,000 1,114 1,010 933 s03 s03 750 704 004 02s 595 13,000 1,153 1,050 909 s97 s34 779 732 090 053 01s 14.000 1,201 1,095 1,000 930 s00 s09 759 710 077 042 15,000 1,245 1,135 1,042 904 s97 s33 737 , 742 702 005 10,000 1,233 1,175 1,079 99s 92s 307 314 703 720 033 17,000 1,332 1,214 1,115 1,032 900 s97 s42 793 7'51 711 13,000 1,375 1,254 1,152 1,005 991 920 s09 s19 775 7 ' 19,000 1,419 1,294 1,133 1,099 1,022 955 s97 s45 s00 75s 20,000 1,402 1,333 1,224 1,133 1,054 935 924 s71 s24 731 21,000 1,500 1,373 1,201 1,100 1,035 1,014 952 s97 s49 s04 22,000 1,549 1,412 1,297 1,200 1,110 1,043 979 923 s73 s23 23,000 1,593 1,452 1,334 1,234 1,143 1,073 1,007 949 s93 s51 24,000 1,030 1,492 1,370 1.20s 1,179 1,102 1,034 975 922 s74 13000 1,030 1,531 1,407 1,301 1,210 1,131 1,002 1,001 947 s97 20,000 1,723 1,571 1,443 1,335 1,241 1,100 1,090 1,027 971 921 27,000 1,707 1,011 1,479 1,309 1,273 1,190 1,117 1,052 990 944 23,000 1,310 1,050 1,510 1,402 , 1,304 1,219 1,145 1,073 1,020 907 29,000 1,354 1,090 1,552 1,430 1,335 1,243 1,172 1,104 1,045 990 , 30,000 1,397 1,730 1,539 1,470 1,307 1,273 1,200 1,130 1,009 1,014 31,000 1,941 1,709 1,025 1,504 1,393 1,307 1,227 1,150 1,094 1,037 321,000 1,934 1,309 1,002 1,537 1,429 1,330 1,255 1,132 1,113 1,000 33,000 2,023 1,349 1,093 1,571 1,401 1,300 1,232 1,203 1,143 033 34,000 2,071 1,339 1,734 1,005 1,492 1,395 1,310 1,234 1,107 1,107 2,115 1,923 1,771 1,033 1,523 1,424 1,337 1,200 1,192 1,130 30,000 2,153 1,907 1,307 1,072 1,555 1,454 1,305 1,2s5 1,210 1,153 37,000 2,202 2,007 1,344 1,700 1,530 1,433 1,392 1,311 1,241 1,170 33,000 2,245 2,047 1,330 1,740 1,017 1,512 1,420 1,337 1,265 1,200 39,00 2,239 2,030 1,917 1,773 1,049 1,542 1,447 1,303 1,290 1,223 40,000 2,332 2,120 1,953 1,307 1,030 1,571 1,475 1,339 1,314 1,240 200 9 s 7 7 0 0 0 5 5 5 400 17 10 15 13 1s 12 11 10 10 9 000 20 24 22 20 19 1s 17 10 15 14 s00 35 32 29 27 25 23 22 21 20 19 1,000 44 40 30 34 31 29 2s 20 25 23 96 BULLETIN NO. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Tlable 57.—¢“Brea.k Even” Volume According to Investment 1n the Gin Plant and Gin Income Per IBa,1e—I-arge*G-1ns—IE1gh and Low Plains’ Area, 1930-1938 Gin Income Per Bale Invest- ment $5.00 $5.25 85.50 85.75 $6.00 $6.25 $6.50 $6.75 $7.00 $7.25 $20,000 2,210 2,053 1,916 1,796 1,690 1,596 1,512 1,437 1,368 1,306 22,000 2,275 2,113 1,972. 1,849 1,740 1,643 1,556 1,479 1,408 1,344 24,000 2,339 2,173 2,028 1,901 1,789 1,690 1,601 1,521 1,448 1,383 26,000 2,404 2,233 2,084 1,954 1,839 1,736 1,645 1,563 1,488 1,421 28,000 2,469 2,293 2,140 2,006 1,888 1,783 1,689 1,605 1,528 1,459 30,000 2,534 2,354 2,197 2,059 1,938 1,830 1,734 1,647 1,568 1,497 32,000 2,598 2,414 2,253 2,112 1,987 1,877 1,778 1,689 1,608 1,536 34,000 2,663 2,474 2,309 2,164 2,037 19% 1,822 1,732 1,649 1,574 36,000 2,728 2,534 2,365 2,217 2,086 1,970 1,867 1,774 1,689 1,612 38,000 2,793 2,594 2,421 2,269 2,136 2,017 1,911 1,816 1,729 1,650 40,000 2,857 2,654 2,477 2,322 2,185 2,064 1,955 1,858 1,769 1,689 42,000 2,922 2,714 2,533 2,375 2,235 2,110 1,999 1,900 1,809 1,727 44,000 2,987 2,774 2,589 2,427 284 2,157 2,044 1,942 1,849 1,765 ,000 3,052 2,834 2,645 2,480 2,334 2,204 2,088 1,984 1,889 1,802 48,000 3,116 894 2,701 2,532 2,383 2,251 2,132 2,026 1,929 1,842 50,000 3,181 2,955 2,758 2,585 2,433 2,297 2,177 2,068 1,969 1,880 52,000 3,246 3,015 2,814 2,638 2,482 2,344 2,221 2,110 2,009 1,918 54,000 3,311 3,075 2,870 2,690 2,532 2,391 2,265 2,152 2,049 1,956 56,000 3,375 3,135 2,926 2,743 2,581 2,438 2,310 2,194 2,089 1,995 58,000 3,440 3,195 2,9812 2,795 2,631 2,484 2,354 2,237 2,130 2,033 60,000 3,505 3,255 3,038 2,818 2,681 2,531 2,398 2,279 2,170 2,071 3,569 3,315 3,094 2,901 2,730 2,578 2,443 2,321 2,210 2,110 64,000 3,634 3,375 3,150 2,953 2,780 2,625 2,487 2,363 2,250 2,148 66,000 3,699 3,435 3,206 3,006 2,829 2,672 2,531 2,405 2,290 2,186 68,000 3,764 3,496 3,263 3,059 2,879 2,719 2,576 2,447 2,330 2,224 70,000 3,828 3,555 3,319 3,111 2,928 2,765 2,620 2,489 2,370 2,263 72,000 3,893 3,616 3,375 3,164 2,978 2,812 2,664 2,531 2,410 2,301 74,000 3,958 3,676 3,431 3,216 3,027 2,859 2,709 2,573 2,450 2,339 76,000 4,023 3,736 3,487 3,269 3,077 905 2,753 2,615 2,490 2,377 78,000 4,087 3,796 3,543 3,322 3,126 2,952 2,797 2,657 2,530 2,416 80,000 4,152 3,856 3,599 3,374 3,176 2,999 2,841 2,699 2,570 2,454 82,000 4,217 3,916 3,655 3,427 3,225 3,046 2,886 2,741 2,610 2,492 84,000 4,282 3,976 3,711 3,479 3,275 3,092 2,930 2,784 2,651 2,530 86,000 4,346 4,036 3,767 3,532 3,324 3,139 2,974 2,826 2,691 2,569 88,000 4,411 4,097 3,824 . 3,585 3,374 3,186 3,019 2,868 2,731 2,607 90,000 4,476 4,157 3,880 3,637 3,423 3,233 3,068 2,910 2.771 2.645 200 6 6 6 5 5 5 4 4 4 4 400 13 12 11 11 10 9 9 8 8 8 600 19 18 17 16 15 14 13 13 12 11 800 26 24 22 21 20 19 18 17 16 15 1,000 32 30 28 26 25 23 22 21 20 19 COST AND PROFIT OF GINNING COTTON IN TEXAS‘ 97 Table 58.—-“Break Even" Volume According to Investment 1n the Gin Plant and Gin Income Per IBa.1e—D1ese1 Power-Gulf Coast Area, 1930-1938 Gin Income Per Bale Invest- ment $5.00 $5.25 $5.50 $5.75 $0.00 $0.25 30.50 $0.75 $7.00 $7.25 $10,000 000 010 700 710 005 020 502 501 533 507 11,000 01s 047 707 735 000 040 013 501 552 525 12,000 050 077 s15 701 713 071 034 001 571 543 13,000 000 042 700 737 003 050 021 500 502 14,000 1,013 030 000 012 701 710 077 041 000 500 15,000 1,045 005 000 037 704 730 000 001 020 500 10,000 1,077 004 023 003 000 701 710 002 040 010 17 ,000 1,100 1,024 051 000 032 7s3 740 702 007 034 10,000 1,140 1,053 070 014 050 000 702 722 000 053 10,0110 1,172 1,002 1,005 030 s00 s20 703 742 705 071 20,000 1,204 1,112 1,033 004 004 351 s04 702 724 000 21,000 1,230 1,141 1,000’ 000 020 073 025 702 743 707 22,000 1,200 1,171 1,007 1,015 052 s00 040 002 702 725 23,000 1,200 1,200 1,114 1,041 075 01s s00 022 701 744 24,000 1,331 1,220 1,142 1,000 000 041 000 042 000 702 25,000 1,303 1,250 1,100 1,002 1,023 003 010 002 010 700 20,000 1,305 1,200 1,100 1,117 1,047 000 031 002 03s 70s 27,000 1,420 1,317 1,224 1,142 1,071 1,000 053 002 057 017 28,010 1,450 1,347 1,251 1,100 1,005 1,030 074 023 077 035 20,000 1,400 1,370 1,270 1,103 1,110 1,053 005 043 000 s53 30,000 1,522 1,400 1,305 1,210 1,143 1,075 1,010 003 015 s71 31,000 1,554 1,435 1,333 1,244 1,107 1,003 1,037 003 034 000 32,000 1,505 1,404 1,300 1,270 1,100 1,120 1,050 1,003 053 000 33,000 1,017 1,404 1,307 1,205 1,214 1,143 1,000 1,023 072 020 34,000 1,040 1,523 1,414 1,321 1,230 1,105 1,101 1,043 001 044 35,000 1,001 1,553 1,442 1,340 1,202 1,100 1,122 1,003 1,010 002 30,000 1,713 1,502 1,400 1,371 1,200 1,210 1,143 1,003 1,020 000 37,000 1,744 1,011 1,400 1,307 1,310 1,233 1,105 1,103 1,040 090 30,000 1,770 1,041 1,523 1,422 1,334 1,255 1,100 1,123 1,007 1,017 30,000 1,000 1,070 1,551 1,440 1,350 ' 1,270 1,207 1,144 1,007 1,035 40,000 1,040 1,000 1,570 1,473 1,301 1,300 1,220 1,104 1,100 1,053 41,000 1,072 1,720 1,005 1,400 1,405 1,323 1,240 1,104 1,125 1,071 42,000 1,003 1,750 1,032 1,524 1,420 1,345 1,271 1,204 1,144 1,000 43,000 1,035 1,700 1,000 1,550 1,453 1,300 1,202 1,224 1,103 1,100 44,000 1,007 1,017 1,007 1,575 1,477 1,300 1,313 1,244 1,132 1,120 200 0 0 5 5 5 4 4 4 4 4 400 13 12 11 10 10 0 0 0 0 7 000 10 10 10 15 14 13 13 12 11 11 000 25 24 22 20 10 10 17 10 15 15 1,000 32 20 27 25 24 22 21 20 10 1s Table 59.—“Brea.k Even” Volume According to Investment 1n the Gin Plant and Gin Income Per Ba.1e—I-I1ectr1c Power-Gulf Coast Area, 1930-1938 Gin Income Per Bale Invest- ment $5.00 $5.25 $5.50 $5.75 $6.00 $6.25 $6.50 $6.75 $7.00 $7.25 $ 8 ,000 705 639 584 538 499 464 435- 409 385 365 9, 0W 7 45 675 617 568 5216 491 459 432 407 385 10,000 7&6 711 650 598 554 517 484 454 429 406 11,000 824 747 682 629' 582 ' 543 508 477 450 426 12A!” 864 7 82‘ 715 659 610 569 582 500 472 447 13,(IX) 903 818 748 689 638 595 557 5-23 494 4677 14 ,000 948 854 781 719 _ 666 621 581% 546 515 488 1511K) 982 890 8'14 749 694 647 665 569 537 508 16,010 1 D22 926 846 779 7 22 673' 630 592 558 529 17,000 1 ,061 962 879 810 750 699 654 615 580' 549' 18,000 1 , 101 998 912 840 778 725 679 638 602 569 19,000 1,141 1,033 945 870 806 751 703 661 623 590 20,00) 1,180 1,069 977 900 834 777 727 684 645 610 21,000 1,220 1,105 1,010 930 862 803‘ 752 707 667 631 22,000 11,259 1,141 1,043 960 890 829 776 730' 688 651 21X) 8 7 7 6 6 5 5 5 4 41 4(1) 16 14 13 12 11 10 10 9 9 8 600' 24 22 20 18 17 16 15 14 13 12 800 32 29 26 24 22 21 19 18 17‘ 16 1 ,000 40 36 33 30 28 26 24 23 22 20 98 BULLETIN NO. 606, TEXAS AGRICULTURAL» EXPERIMENT STATION Controlling Costs A ginner in comparing his actual costs with computed costs at the end of the season is approaching his problem of costs historically. Nothing can be done about the costs of the season just closed. A careful exam- ination of items of high cost may yield suggestions for lowering such costs the coming season. But the time to control costs is while they are being experienced. Each item of cost is not subject to the same degree of control. The cost of depreciation, for instance, depends upon the investment and the rate charged. The tax cost is based on the assessed valuation and the tax rate. The insurance cost is determined by the value insured and the insurance rate. Before the opening of the ginning season, the manager should be in possession of certain basic information regarding the year ahead. He should be able to estimate his probable volume of ginning. He should know rather definitely the costs for the season of such items as deprecia- tion, insurance, taxes, repairs, and management. With the estimated volume of ginning he should be enabled to: (a) compute his items of cost and total cost; this would set up the standard for the year; by dividing these costs by the estimated volume, standard costs per bale would be determined; (b) calculate the actual costs per bale of such items as depreciation, insurance, taxes, repairs, and management. The costs of various items thrown into miscellaneous cost such as tele- phone and telegraph, advertising and donations, and auditing and legal should be subject to estimate at the opening of the season. Such costs too could be reduced to actual costs per bale on the basis of the estimated volume of ginning. During the progress of the ginning season, costs largely variable such as labor, power, office salaries, and portions of miscellaneous could be accumulated. At the end of stated periods, 15 or 30 days, these costs could be calculated as per bale costs on the basis of the volume ginned to date. In this manner actual costs could be compared with the standard costs. Periodical comparisons of actual costs with standard costs should show the manager any weak spots in his cost program, A ginner following his costs as suggested above should become more conscious of the details of his costs. The chances are that he would take steps to effect savings, in the various items of cost. rwvrvm" COST AND PROFIT’ OF GINNING COTTON IN TEXAS APPENDIX B-EQUATIONS FOR ESTIMATING TOTAL COSTS OF GINNING AVERAGE’ COST Steam Po-wer Diesel Power Electric Power High Steam Power Diesel Power Electric Power Large Gins Diesel Power Electric Power Average Cost Blackland Area. = $1,730 + $009601 + $1.78V — 2,198 + 0.08871 + 137V 206V Gulf Coast Area = $1,711 + $009571 + $1.99'V = 9-38 + 0.09531 + 2.59‘V All Texas = $2,035 + 310118791 + $1.911’ Steam Power Diesel Power Electric Power Electric Power BULK OOST Blackland Area = $2,362 + $008011 + $1.95V = 2,743 + 0.08l6lI + 1.49V = 1,743 + 0.00901 + 2.40V High and Low Plains Area Steam Power Diesel Power Large Gins Diesel Power Electric Power Bulk Oost $4,021 + $0.059‘5I + $2.52V 2,098 + 0.11381 + 1.89IV 1,121 + 0.15251 + 261V 4,438+ 0.13531 + 1.82V Gulf Coast Area $2,230 + $009701 + $2.281’ 1,071 + 0.11061 + 2.8217 All Texas $2,211 + $009121 + $2.10V II II II II II II I-Investment in gin plant in dollars; V—Vo1ume of ginning in bales. APPENDIX C—EQUATION S FOR ESTIMATING ITEMS OF COST Average Cost Labor Power Repairs Ins. 8a Taxes Management Depreciation Miscellaneous Labor Power Repairs Ins. & Taxes Management Depreciation Miscellaneous Labor Power Repairs Ins. & Taxes Management Depreciation Miscellaneous II ll II II II II II II ll ll II II II II II lI ll II II II II BLAOKLAND ARJEA Steam Power-Single Battery Bulk (Jo-st 421 + $0.62'V $ 596 -I- $0.55V 272 + 036V 42A + 026V 307 + 0.20-V 421 + 0.27'V 288 + 0.08V 430 + 0.10V —153 + 033V + $2.158 110 + 0 52V + $001471 0.06641 0.06641 130 + 019V 147 + 025V Diesel Power-Single Battery 2'10 + $0.831’ $ 28x1 + $0.86V 105 + 025V 160 + 0.26V 320 + 0.14V 420 + 0.16lV 2143 + 1.21s 054 ‘+ 0.00601 65 + 3.108 1,229 + 0.09V 0.06471 0.06471 156 + 013V 123 + 020V Electric Power—Single Battery ' 133 + $0.75V $ .70 + $0.94V 120 + 073V 200 + 0.69V 230 + 0.15V 205- + 0.30V 76 + 0.03991 200 + 042V 1,125 1,139‘ + 005V 0.06431 0.06431 329 206 + 0.17V 100 BULLETIN NO‘. 606, TEXAS AGRICULTURAL EXPERIMENT STATION Labor Power Repairs Insurance Taxes Management Ofiice Sal. Depreciation Miscellaneous II II II II II II II ll II Labor Power Repairs Insurance Taxes Management Office Sal. Depreciation Miscellaneous II II II II II ll II ll ll Labor Power Repairs Insurance Taxes M ana gement Office- S al . Depreciation Miscellaneous II II ll ll II II II II ll. Labor Power Repairs Insurance Taxes Management Office Sal. Depreciation Miscellaneous ll II || II II II II II II Labor Power Repairs Insurance Tax-es Management Depreciation Miscellaneous II II ll II II ll |l || Labor Power Repairs Insurance Taxes Management Depreciation Miscellaneous = ll II II II II II || HIGH AND LOW PLAINS AREA $503+ $288+ —-4+ Steam Power-Single Battery $0.80V $ 074 + $0.86'V 016V 414 + 0.18V 0 49V 670 + 0.61V OLOSV 434 + 0.09‘V 0.00471 235 + 0.00501 0.01131 + $0.15V 775 + 0.01231 + $0.16V 0.10V 255 + 0.11V 0.06131 0.06131 005V 97 + 0.49'V Diesel Pow-er-Single Battery $001651 + $0.85V $624 + $0.9'2V 0.00801 + 018V -68 + 0.00981 + $0.20V 025V 700 + 0.32-‘V 0.06V 361 + 0.1 V 0.00631 78 + 0.00811 0.01261 + 0.14V 689 + 0.01891 + 0 09V 0.14V 118 + 0.17V 0.06271 0.06271 0.13V 538 + 013V Electric Power-Single Battery $0.83V $407 + $0.91V 004V 524 + 0.54V 033V " 122 + 039V 009V 448 + 0.00911 0.01581 238 + 0.00291 0.01831 920 + 0.00811 + $0.21V 0.17'V 128 + 025V 0.06141 0.06141 028V 188 + 0.25V Large Grins-Multiple Battery $0.95V $1,384 + $0.94V 026V 859 + 022V 027V 4-58 + 0.37V 1.405 1,153 + 005V 2.078 156 + 0.01411 0.02011 652 + 0.02171 4.108 51 + 0.02071 0.05901 0.05901 016V 1,318 + 013V GULF‘ COASII‘ AREA Diesel Power-Single Battery .87V 68 + $0.98V 022V 67 + O.2‘7V 0.01151 + $0.36V 449' + 0.40V 007V 269 + 0.00551 293 0.02201 + 022V 815 + 0.01001 + $0‘.19V 0.06121 0.06121 025V 277 + 035V Electric Power-Single Battery $1.020’ $589 + $0.83V 058V 105 + 060V 048V 11 + 0.60V 0.11V 140 + 0.20'V 0.10V 121 + 0.11V 324 + 0.01391 + $O.29V 0.06461 0.06461 034V 148 + 031V I -— Investment in gin plant in dollars. V—-Volume of ginning in running bales. S— Size of gin plant in number of saws. n. 1.1- . 1 _._.. ....__..__ .._ “m..- _r..__._»l_. a“... .11 ._ .1. . _., ...._. ..__ 1.1 __ -4... .~. MWWWW... . UOST AND PROFIT OF‘ GINNING COTTON IN TEXAS APPENDIX D—CORRELATIONS OF VOLUMES OF GIN NING WITH INVESTMENTS, ITEMS OF COST, AND TOTAL COSTS. COR- RELATIONS OF INVESTMENTS WITH ITEMS OF COST AND TOTAL COSTS Correlations With Volume of Ginnjng Average Cost Type Invest- Re- Of. Area Power rnent Labor Power pairs Ins. Taxes Dep. Mgt. Sal. Misc. Total Black- Steam .44 .73 .60 .25 .31 ___ .45 .44 ___ .43 .75 land Diesel .51 .86 .62‘ .27 .23 ___ .47 .14 ___ .46 .80 Electric .53 .77 .88 .25 .46 ___ .54 .12 ___ .21 .85 High Steam .26 = .88 .55 .58 .41 .14 .30 .47 .50 .53 .86 and Diesel .11 .83 .65 .42 .27 .21 .11 .37 .50 .32 .73 LOW Electric .14 .87 .94 .76 .37 .18 .13 .29 .56 .81 .88 Plains Large .17 .87 .63 .65 .24 .26 .09 .31 .19 .39 .84 Gulf Diesel .12 .52 .64 .52 .27 .03 .12‘ .29 ___ .50 .71 Coast Electric .60 8 .90 .65 .49 .58 .60 .30 ___ .65 .93 Correlations With Investment in Gin Plant Average Cost Type Vol- Re- 0f. Area Power ume Labor Power pairs Ins. Taxes Dep. Mgt. Sal. Misc. Total Black- Steam .44 .35 .26 .23 .37 ___ .99 .27 ___ .21 .68 land Diesel .51 .51 .38 .25 .19 ___ .99 .03 ___ .34 .71 Electric .53 .38 .52 .02 .56 ___ .96 —.O1 ___ —.14 .59 High Steam .26 .29 .07 .11 .22 .28 .98 .31 .19 ——.03 .35 and Diesel .11 .24 .33 .00 .13 .53 .97 .32 .34 .09 .50 Low Electric .14 .05 .28 .27 .15 .77 .99 .38 .09 .23 .44 Plains Large .12 .15 .09 .10 .16 .58 v.89 .55 .22 .15 .40 Gulf Diesel .12 —.O1 .11 .29 .24 .18 .99 .40 ___ .18 .54 Coast Electric .60 .49 .43. .49 .46 .66 .93 .50 ___ .37 .68 Correlations With Volume of Ginning Bulk Cost Type Invest- e- Of. Area Power ment Labor Power pairs Ins. Taxes Dep. Mgt. Sal. Misc. Total Black- Steam .23 .63 .40 .24 .15 ___ .26 .46 ___ .41 .74 land Di-esel .53 .84 .58 .27 .17 ___ .49 .13 ___ .59 .87 Electric .57 .86 .92 .53 .60 ___ .50 .09 ___ .53 .95 High Steam .12 .% .52 .62 .41 .02 .15 .46 .50 .59 .93 and Diesel .22 .79 .65 .46 .36 .19 .20 .28 .52 .27 .80 Low Electric .10 .91 .92 .82 .28 .18 .13 .52 .66 .67 .86 Plains Large .15 .86 .62 .82 .34 .43 .11 .20 .44 .30 .90 Gulf Diesel —.08 .83 .64 .45 .18 .03 -—.08 .18 ___ .57 .71 p Coast Electric .56 .84 .90 .68 .79 .06 .57 .84 ___ .66 .95 102 BULLETIN NO. 606, TEXAS» AGRICULTURAL EXPERIMENT STATION Correlations With Investment in Gin Plant Bulk Cost Type Vol- Re- 0f. Area Power ume Labor Power pairs Ins. Taxes Dep. Mgt. Sal. Misc. Total Black- Steam .23 .210 —.08 .06 .22 ___ .99 .31 “- .18 .66 land Diesel .53 .55 .40 .17 .04 ___ .99 —.00 ___ .53 .76 Electric .57 .52 .62 .13 .74 ___ .93 —.09 ___ .21 .68 High Steam .12 .23 .02‘ —.05 .16 .29 .98 .25 .19 —.13 .24 and Diesel .22 .35 .44 —.07 .26 .64 .95 .49 .49 -.07 .63 Low Electric .10 .20 .31 .216 .48 .83 .99 .28 .39 .29 .54 Plains" Large .15 .19 .22 .01 .10 .69 .92 .68 .46 .31 .49 Gulf Diesel —.08 —.18 .01 .24 .29 .15 .99 .34 ___ .08 .50 Coast Electric .56 .51 .60 .32 .35 .72 .97 .62 ___ .49 .67 APPENDIX E—STANDARD ERRORS AND COEFFICIENTS OF DETERMINATION OF THE VARIOUS ESTIMATING EQUATIONS OF AVERAGE COSTS BLAOKLAND AR-EA Steam Power (N=189) Volume Investment Size Type of Resid- Regres. Stan. Regres. Stan. Regres. Stan. Expense ual Coet. Error Coat. Error Ooet. Error R“ TotaL ______ __ $1,730 $1.78IV _ . __________________ -- 71.1 Labor _______ __ 421 0.62V . 4V __________________________________________ _- 53.2 Power _______ “ 272 086V . ___________________________ -- 36.1 Repairs _____ __ 34w 0.20V . __________________________________________ _- 6.3 Ins. 8r Taxes“ 288 008V __________________ -- 16.2 Management“ ~15?» 033V . $2 15S i$0 58S 24.3 Miscellaneous _ 130 0. 19V . .......................................... “ 18.1 Total- ______ __ $2,198 $1.37V _ _________________ “ 76.4 Labor _______ __ 210 083V . __________________________________________ -- 73.8 Power__“.,““ 105 025V . __________________________________________ -- 38.3 Repairs- ____ __ 320 0.14V . __________________________________________ “ 7.1 Ins. & Taxes“ 243 ____________________________________________ __ $1.218 i$O.41S 5.2 Management“ 65 ____________________________________________ __ 3.108 i 0.648 12.9 Miscellaneous_ 156 013V i 002V __________________________________________ _- 21.4 Electric Power (N=68) Total _______ __ $2,080 $2.06V i$0.2'4V 90.06921 i$00231I .................. __ 75.2 Labor _______ “ 133 0.75V i 008V __________________________________________ “ 59.0 Power _______ “ 120 073V i 0.05-V __________________________________________ __ 77.8 Repairs _____ “ 230 0.15V i 007V __________________________________________ _- 6.1 Ins. & Taxes“ 76 ____________________ __ 0.03991 i 0.00731 __________________ “ 31.1 Management“ 1,125 _____________________________________________________________________ _- Miscellaneous- 329 _____________________________________________________________________ __ HIGH AND LOW PLAINS AREA Steam Power (N =208) Total- ______ __ $3,392 $2.25V i$0.10V $0.0592I i$0.0150I - _________________ “ 76.4 Labor _______ -_' 503 080V i 003V __________________________________________ -- 77.3 Power _______ “ 374. 0.16V i 0.02.V __________________________________________ __ 30.2 Repairs‘- ____ __ 470 0.49V i 0.0517 __________________________________________ __ 33.9 Insurance___-_ 386 008V i 0.01V __________________________________________ __ 17.0 Taxes _______ -_ 217 .................... -- 0.00471 i 0.00111 _ ___- _____________ __ 7.8 Management“ 686 0.15V i 0 02V 0 01131 i 0.00341 __________________ __ 26.0 Ofliee Sial ____ “ 204 0.10V i 001V __________________________________________ __ 25.0 Miscellaneous- 183 035V i 004V __________________________________________ __ 27.6 *R2 indicates the percentage of the variations in cost accounted for by the independent vari- ables listed in each instance. . .. “In ___. __.A_.1.x..__qa¢hu_.._~‘_.._“._..-_.._... .. “.1. 1 Lmnmrnanmlmgmxmduimninnfiflnufifl M. .-..._....._“._»_.e“..n“_“_.,_ .n 1.... . ~ -v "w-"IQW COST AND PROFIT‘ OF GINNING COTTON IN TEXAS 103 Volume Investment Size Type of Resid- Regres. Stan. Regres. Stan. Regres. Stan. Expense ual Ooef. Error Coef. Error Ooef. Error R” Diesel Power (N=140) Total ....... __ $1,973 $1.7ev iwmv $011201 i$0.01221 __________________ __ 71.5 Labor _______ __ 15 0.86V i 005V 0.016511 i 0.00511 _ _________________ __ 70.5 Power ....... -_ —37 0.18V i 0.02‘V 0.00801 i 0.00181 __________________ __ 49.2 Repairs- ____ _- 550 0.2.5»V i 005V __________________________________________ -- 17.8 Insurance---“ 3192' 0.06V i 002V __________________________________________ _- 7.3 Taxes ....... _- 110 .................... -_ 0.00631 i 0.0010I __________________ _- 27.8 Managemenn- 611 0.14V i 003V 0.01261 i 0.00291 _ _________________ -_ 21.4 Office Sal .... __ 118 0.14V i 002V __________________________________________ __ 24.7 Miscellaneous- 413 0.13V i 0.03V ____ __ _ _ 10.5 Electric Power (N=45) Total ....... -_ $1,528 $2.425’ i$0.15V $011221 i$0.0179I _ _________________ __ 88.7 Labor _______ -- 288 083V i 007V __________________________________________ -- 76.3 Power ....... -- 383 064V i 003V __________________________________________ -_ 88.9 Repairs _____ -- 79 033V i 004V __________________________________________ __ 57.7 Insurance---“ 395 0.09V i 004V _____________________________________ _____-_ 13.6 Taxes _______ -- ~81‘ ____________________ _- 0 01531 i 0.00281 _ _________________ __ 58.5 Management" 857 ____________________ _- 0 01831 i 0.00691 __________________ __ 14.3 Oifice Sal .... _- 131 0.17V i 0.04V __________________________________________ __ 31.2 Miscellaneous- 102 028V i 003V __________________________________________ __ 65.5 Large Gins (N =81) Total- ______ -- $5,080 $1.75V i$0.12.V $0 10521 i$0.02'19I 77.1 Labor _______ _- 992 0.95V i 0. V _________________________________________ __ 75-8 Power ....... -- 569 026V i 004V __________________________________________ __ 30.3 Repairs _____ -- 1,689 027V i 0.04V __________________________________________ -_ 41.9 Insurance____- 13 ____________________________________________ __ . 14.9 Taxes _______ _- —700 ____________________________________________ __ 2.07S i 0.27s 43.5 Management“ 874 ____________________ __ 0.02011 + 0.00351 __________________ __ 29.9 Ofiice Sal .... __ -2,2s0 ____________________________________________ __ 4.10s i 0.68s 31.4 Miscellaneous- s39 010V + 0.04V __________________________________________ -- 15.0 GULF COAST AREA Diesel Power (N=173) Total _______ _- $1,711 $1.99V i$0.13V $0 00571 +$0 00851 _______________ _____-_ 71.2 Labor _______ __ 42.5 087V i 006V ____________________________________________ __ 67.2 Power ....... -_ 86 022V i 0.02V ____________________________________________ __ 41.0 Repairsu-m- 31 036V i 005V 0 01151 i 0 00311 ____________________ __ 32.5 Insurance---“ 294 0.07V i 002V ____________________________________________ __ 7.5 Taxes _______ __ 251 _______________________________________________________________________ -_ Management" 384 0. 22V i 006V 0 02201 i 0 00401 ____________________ -_ 221.0 Miscellaneous- 275 025V i 003V ____________________________________________ __ 25.4 Electric Power (N =32) Total ....... -- 0 938 $2.50V i$0.25V $010531 i$0.04021 ____________________ __ 88.2 Labor ....... -- 235 1.02V i 010V ____________________________________________ __ 77.2 Power _______ -- 90 058V i 006V _ 80.6 Repairs- -_-__- —3‘6 048V i 010V ____________________________________________ __ 42.0 Insurance“--- 190 0.11V i 004V _________ __ __ _ 24.0 Taxes ....... -- 102 0.10V i 003V ____________________________________________ -_ 33.8 Management" 8318 _____________ __ _ __ _ _____ _____ Miscellaneous- —4 034V i 007V ____________________________________________ __ 421.6 *R2 indicates the pereenta ables listed in each instance. ge of the variations in cost accounted for by the independent vari-