, o“ gaw ME Ballelfta 9b} ‘JBRAgY Mme/z I955 2c: IEIIO xxco STA“ S E P uumli-Bfi!“ ' I acome and Cost A na lytis ° Cooperative Cotton CT/im" and Cooperative fupply ' Associations of T exax, Season 1949-50 in cooperation with the UNITED STATES DEPARTMENT OF AGRICULTURE TEXAS AGRICULTURAL EXIPERIMENT STATION R. D. LEWIS. DIRECTOR. COLLEGE STATION, TEXAS DIGEST There were significant changes in ginning incomes and ginning costs from the period 1932-38 t the season 1949-50. For like volumes of ginning, costs increased by 300 percent; ginning income in creased by 220 percent. The greater increase in costs than in income explains the advance in break~even volume from 90 to 1,530 bales. Assuming ginning income to remain unchanged for a considerable period, break-even volume w' soon advance to something like 1,800 bales as the older low investment. gins either pass out of the bu iness or reequip at current high prices of replacements. Rising ginning costs have been caused by greatly increased investments in the ginning plant an by higher prices for the principal cost inputs. The derivation of cost estimating equations enables the gin manager to evaluate his own tot cost and items of cost in terms of average performance of the whole industry. The gin manager who compares his own costs with standard costs over a period of years can ev uate more fully his cost behavior in terms of average behavior as well as gain a picture of the trend of his own actual cost behavior. A gin manager in knowing his own volume and per bale income and costs and in knowing stan ard income and costs can evaluate his own net margin situation as to additions or deductions as mcom is higher or lower than standard and as costs are lower or higher than standard. CONTENTS Page P8 Digest * _____________ _, 2 Profit Chart -------- -- “Break-even” Volume-A Concept of Long Spreading of Nonvolume Cost _________________________ U 10 Standing with Texas Ginners ...................... s 3 Estimating Costs of Supply Associations ..... s. 10 Upward Trend ill Gillllillg‘ COStS ..................... -- 3 Break-even Volume as a Tool for Demon- Income and Cost Data from Audits _______________ __ 4 strating Income and Cost Behavifil‘ ............ -- 11 Total Unit Costs and Cost Items as Relation of Income and Costs at Related to Cost Analysis ______________________________ __ 4 Break-even Volume 4 11 Overhead and Operating Costs Relation of Income and Costs at in Cost Analysis _ 4 Volume less than Break-even ...................... »- 12 Overhead Costs not Influenced by Least Loss Volume ____________________________________________ ~ 13 1701111119 01' C0mm0n Costs ___________________________ -_ 5 Graphics of Break-even and Least Depreciation ................................................ -- 5 Loss Volumes 13 gfiiifise “Expense i‘ I I I W _ _ _ I A I g Comparisons of Ginning Incomes and Costs 13 Good Will .... _______________________________________________ i- 5 I"fl“°“°° °“ N“ Margms "f I“°°‘“°S a“ 15 Supplies . __ 6 Costs Varylpg f r01,“ Stimiar“ """"""""""""" " 16 Overhead Costs Influenced by Volume ___________ __ 6 C0515 of M““§'f“,""“°“ Busmess """""""""""" '- Management _______________________________________________ __ 6 Changes m Gmmng Inmmes and Costs -------- " 1 Office Salaries ...... -- _ 6 Cost Variations as Revealed in Insurance 6 Break-even VOIIIIHQS 13s Overhead Costs Influenced by Volume __________ __ 6 Variations from Standard Ginning Costs ...... ~ 1 Lab0l‘ __________________________________________________________ n 6 Variations in Items of Cost at Repairs __________________________________________________________ s 6 Standard Volume 21 POWer ____________________________________________________________ a 6 Cost Factors Other than Volume .............. __ _- 2 Trlwkillg ______________________________________________________ __ 7 Assumptions of Homogeneous Cost Miscellaneous . _____________________________________________ __ 7 Inputs Questioned - - 2 N onvolume Costs ________________________________________________ of 7 Conclusions ______________________________________________________ o- 2 Estimating Standard Cost ______________________________ ,_ 7 Acknowledgments Income and Cost Analysis Cooperative Cotton Gins and Cooperative Supply Associations of Texas, HE CURRENT ECONOMIC STATUS OF AN industry g: be ascertained through an analysis of its in- ‘me and cost. The economic status of an indi- l-‘Aual firm may be established through a com- ‘risen of its income and cost situation with the é ndard, or average, performance of the indus- M of which it is a part. An economic appraisal j the Texas ginning industry and farm supply , siness calls for consideration of their incomes r hd costs. “BREAK-EVEN" VOLUME—A CONCEPT OF LONG STANDING WITH TEXAS GINNERS 1 For many years the term “break-even” volume been current coin with Texas ginners. There A: been general agreement that about 1,000 bales ' presented break-even volume. Evidence from fveral sources has shown that break-even volume ;: been a controlling factor in fitting ginning “pacity to cotton production. For at least 40 ears ginning capacity in Texas has been such I y t, on an average, the annual crop could have en ginned in 26 days of a full 12-hour run. One nnot assume this relationship to be coinciden- A study of the income and cost of the Texas pinning industry during 1932-38 revealed the av- ‘rage break-even volume to be 900 bales. This prresponded with the average volume of Texas ‘ns other than the farmer cooperatives during hat period. Governmental control of cotton acre- lges showed that break-even volume fits ginning ‘pacity to the size of the crop. An annual aver- ge Texas production of 4.49 million bales during he 10-year period 1923-32 subsided to an average jf 2.89 million bales during the 15-year period > 933-47, a decline of 36 percent; the number of gins in Texas as reported by the Census Bureau propped from 3,695 in 1933 to 2,430 in 1947, a ecrease of 35 percent. a I The expansion of ginning capacity during the ears of upward trends in cotton production can explained by the optimism of ginners as to iprofit possibilities of the industry and by the rela- five ease of entering the ginning business. Fi- ancing of gin plants has been greatly facilitated s» favorable credit terms offered by manufac- rers of gin machinery. The contraction of gin- ‘ng capacity with the advent of governmental ontrol was hesitating and painful. During 1933- the number of gins declined by an average of Season 1949-50 W. E. PAULSON, Professor Department of Agricultural Economics and Sociology 69 per year. It would seem that ginners in gen- eral were optimistic as to the ending of controls. During 1941-47, however, the decrease in the num- ber of gins was accelerated to an average of 113 per year. Many of the ginners ‘going out of bus- iness in the latter stages of their operations coun- ted only their out-of-pocket expense. Their in- vestments were salvaged, in part, by “wearing out” their plants. Some ginners went out of bus- iness because cotton production ceased in their area. Texas had 2,041 gins in 1953, a decrease of 45 percent from the number in 1933. Does this greater decline in ginning capacity than the de- crease in the cotton crop since the institution of acreage controls presage an adjustment of gin- ning capacity to a higher break-even volume than the 900 bales obtaining during the period 1932- 38? UPWARD TREND IN GINNING COSTS Over the years ginning costs in Texas have been on an upswing. This has been caused large- ly by the growing complexity of the gin plant. Hand snapping or pulling called for seed cotton cleaners and burr extractors; a demand for bet- ter ginning, especially of the longer staple cot- tons, encouraged the addition of drying equip- ment; and finally mechanical harvesting focused attention on the need of equipment to clean the lint which has resulted in the installation of lint- cleaning machinery. This additional cleaning and drying equipment has greatly increased the in- vestment in the gin plant. A pronounced rise in the general price level has been a contributing factor of increasing dollar costs, especially in more recent years. Increasing ginning income has largely paral- leled rising ginning cost. This has meant higher gin tolls and wider margins on cotton seed and on baggingand ties. In 1949-50 the correlation be- tween income and cost for the 130 cooperative gins was .34. The correlation between income and cost over the 10-year period 1941-50 undoubtedlv was much higher as this was the time in which a transition was made to much higher levels both of incomes and costs. The rise in break-even volume from 900 bales as of 1932-38 to 1,530 bales as of 1949-50 may in- dicate either a l.ag in income or a- stabilization of 3 break-even at a higher volume. The present num- ber of gins in Texas means an average volume of 1,500 bales for a 3 million bale crop. On an aver- age, ginning costs per bale in 1949-50 were 23 percent higher at a volume of 900 bales than at a volume of 1,530 bales. Both ginners and cotton growers have much at stake in the volume of gin- ning at which break-even approaches stability. INCOME AND COST DATA FROM AUDITS The income and cost data analyzed in this study were obtained from annual audits of Texas cooperative associations. These associations in- cluded 130 one-function gins, 20 one-function sup- ply cooperatives and 25 two-function gin-supply firms. The audits were greatly lacking in stand- ardization. In many instances costs were enter- ed in the wrong audit category as: interest paid in the operating expense section; and deprecia- tion in the nonoperating expense section. Mis- placed costs as well as other audit items were moved to the proper audit category. Some audi- tors prorated parts of the operating expense as a charge against items in the revenue section. Such procedure misrepresents both operating expense and gross margins. All prorated expenses were eliminated. In one section of the State, trucking income was consistently entered as a negative item in the expense section. Such entries were moved to the revenue section as service income. Through editing and regrouping of items each audit insofar as possible and practicable was re- shaped to comply with an adopted standard audit for all the associations. TOTAL UNIT COSTS AND COST ITEMS AS RELATED TO COST ANALYSIS Cost analysis may be approached from the standpoint of total costs or total unit cost. Total cost and total unit cost are not given. Costs are an accumulation of the numerous expenditures and charges from day to day. An important task of the bookkeeper is that of classifying these cost fragments into consistent cost items. Managers cannot control or influence total costs as such. Whatever controls are exercised take form with respect to items of cost. The possibil- ities of managerial control vary greatly among the various items of cost. This situation is most important in gaining an understanding of cost be- havior. In this presentation items of cost play a significant role. The theory of cost as discussed in the eco- nomic textbooks embraces much too completely the total unit cost approach. Such consideration as is given to items of cost finds expression in the mental exercise of holding several cost inputs constant while a single cost input is varied as the means of measuring its contribution to output. So long as such procedures remain in the realm of speculation rather than in the field of actual- ities the conclusions drawn are not convincing. 4 One of the main problems of the cost analyst is that of isolating variables and measuring their influence. Cost theory assumes volume to be the one and only significant cost variable. Every- thing else is assumed to remain equal. The class- ification of costs into fixed and variable is pre- dicated on the assumption that volume is the only variable. If volume be the only variable then arithmetic _ average costs whether overall or by volume group- ings should be entirely satisfactory. The average cost per bale of the 130 gins in 1949-50 was $7.88; the average cost per sale of $130 of the 20 supply associations was $14.21. perience in cost analysis realizes that arithmetic average costs are not satisfactory; such costs cover and conceal quite as much as they reveal. Volume influence may be measured through a . correlation of volume with cost. In such proced- ure an estimating equation results with two main features: a variable cost per unit -of volume and a residual cost. The estimating equation for gin ning cost according to the cost pattern of 1949 5O was: Total ginning cost = $4,784 + $7.14 per bale ginned. The estimating equation for the supply busines was: Total supply cost = $3,277 + $1.0.03 per unit of sales ($130). The assumption that the residual cost represent _ fixed cost is erroneous. The residual cost to a lim.ited extent indicates a misfit between volum and cost. Such misfit may in large part be ex plained by variable costs other than those due t volume. Volume and investment in depreciable fixe assets may be correlated with cost. This is .- recognition that investment which largely reflect scale of operation is also a factor in explainin cost. Such analysis results in an estimating equa j tion with three features: a variable cost per uni of volume, a variable cost per unit of investmen and a residual cost. The estimating equation for ginning and supply costs of 1949-50 were: Total ginning cost = $3,922 + $0.0368 per dollar invest + $6.85 per bale ginned. Total supply cost = $1,074 + $0.3832 per dollar investe + $8.14 per unit sales. OVERHEAD AND OPERATING COSTS~IN COST ANALYSIS Finally cost analysis may be approached fro l the standpoint of the overhead and operatin a costs of the accountant. In such instance eac item of cost may be tested for volume influenc A four-way classification of costs may result A overhead costs influenced by volume, overhea . costs not influenced by volume, operating cos influenced by volume and operating costs not i é . fluenced by volume. In the main, however, tw classes of costs emerge": those reflecting volum , influence and those not reflecting volume infl” ence. The latter costs are called “common” cos Anyone with any ex- I Llthis presentation. Such cost items are taken ‘ffull from actual costs into estimated costs. ‘us these costs are common both to actual costs ‘ to estimated costs. The only part that com- f; cost plays in the derivation of relative cost ithat of being a constant addition to the numer- fr and denominator of the cost fraction from f» relative cost is discovered. The result of a cost analysis in terms of over- and operating cost items tested for volume " uence is an estimating equation with three ‘tures: a variable cost per unit of volume for f h item influenced by volume, a residual cost i‘ each item influenced by volume and common 7.}; including all items not influenced by vol- "in The term “fixed” cost is avoided in this cussion since a truly fixed cost is one entirely ‘ e from variable costs of all kinds. The combi- tion of residual and common costs is called onvolume” cost because this combination re- ins constant in the total through the normal enge of volume. Eight items of cost reflected volume influence. _ e estimating equations for these items are giv- in Table 1. The item with the highest corre- ftion between volume and cost was labor with 9; the item with the lowest correlation was mis- llaneous with .32. The correlation between vol- ‘.1 e and the total cost of the eight items influ- ced by volume was .92; the correlation between lume and total cost was also .92. The differ- ces among the correlation of volume to total f; and of volume to the various items of cost , ay have several explanations. Inconsistencies d errors in the classification of items of cost ay have disturbing consequences; in the total “st such disturbances are totally absent. The » ' ferent items of cost vary greatly as to relative eight in total cost. Inter-correlations may ex- 1: among some items of cost Which could influ- ce correlations in the total; to the extent that , ch inter-correlation may exist, the ratio obtain- y... by correlating volume with total cost would be 2| lated and would fail to reflect true relations tween volume and total cost. OVERHEAD COSTS NOT INFLUENCED BY VOLUME OR COMMON COSTS , Common costs from the overhead category in- luded the following items: depreciation, taxes, gffice expense, good will and supplies. ‘ABLE 1. ESTIMATING EQUATIONS FOR ITEMS OF COSTS i OF COTTON GINS 10m of cost Residual cost Volume cost cmagement $1.357 + $U.36V‘ 3 ‘ce salaries - —— 367 + 0.44V - or 1.007 + 156V I Qpqifg y‘ 452 + 1-03‘, owe: 1.190 + 0.4lV uzance 631 + 0.42V cling 558 + 0.691! f cellaneous l0 + l].l9lV olal items $3.934 + $6.l0V l‘ Volumes in bales. Depreciation Depreciation is related to the investments in buildings, machinery and equipment. The amount of the depreciation is governed by the investment and the rate of charge. Several factors determine the amount of investment: the completeness of installation of machinery and equipment, the type of power, the price level at the time the plant was acquired, the price level at the time major replacements were made and Whether the plant was built new or purchased secondhand as a temporary factor. The amount of the deprecia- tion charge differed greatly among the various gin plants. Nine of the 130 gin associations con- sidered in this analysis made no depreciation charge; this included the cooperative gin with the highest investment of the 130 associations. An expedient in making depreciation charges comparable is the adoption of standard rates for the various kinds of fixed assets and substituting the charges thus obtained for the actual as re- ported in the audit. This introduces complica- tions as between the operating statement and the balance sheet of the audit. If no adjustments are made and if investment is taken as a variable, the gins with low investments, or low depreciation rates, or with no depreciation charge appear rela- tively more efficient cost-wise.than is warranted. The advantage of viewing depreciation as a com- mon cost is that the investment and the rate of charge have minor bearing on computations meas- uring relative cost efficiency. Furthermore the depreciation charge is beyond managerial control. Taxes The amount of property taxes depends on the appraised valuations for tax purposes and the rate of the tax. Appraisals in terms of invest- ments in fixed assets and the tax rate vary great- ly among political divisions. Taxes also vary as to the location of the firm, Whether within or out- side city limits. The tax cost presumably cannot be influenced by management. Disturbances in relative cost efficiency as a result of variability in tax costs can be minimized by classifying taxes as common cost. Office Expense Office expense included items such as: office supplies, postage, telephone and telegraph and auditing service. This cost exhibited no trace of volume influence, and was classified as a com- mon cost. Good Will Expenditures classified as good will usually would be included in miscellaneous cost. Outlays incurred for maintaining the good will of the as- sociation members and of the general public also were included. Advertising, donations and the cost of annual meetings are examples of good-will cost. As this cost was in no way influenced by volume it was classified as a common cost. Supplies Supplies represented a nondescript item of cost. This item included costs from office sup- plies to repair parts. This item was not influen- ced by volume, and was classified as a common cost. OVERHEAD COSTS INFLUENCED BY VOLUME The overhead cost items influenced by volume included management, office salaries and insur- ance. Management Cost of management included the manager's salary, bonuses and commissions, car and travel allowances and directors’ fees and travel allow- ances. Cost of management is an overhead cost l influenced by volume. One of the variable costs contained in the residual after the volume influ- ence has been removed is that of investment. The correlation between management cost and invest- ment in the gin plants of the 130 gin associations in 1949-50 was .43. This relationship suggests that directors in employing managers consider in- creasing investment as adding to managerial re- sponsibility. Office Salaries Office salaries were influenced by volume to a greater degree than management costs. The necessary paper work of the office personnel in- creases as the volume of business increases, par- ticularly in the ginning business in which the identity of the processed unit—the bale—is main- tained. The service of weighing the loads of seed cotton is performed by the office personnel. If the daily volume of ginning runs low the book- keeper can perform this service with minor in- terruptions from his main assignment. With full- run ginning, however, weighing becomes a full- time job. If the gin operates on a 24-hour basis a second member is added. A 24-hour run does not necessitate the employment of a second man- ager. It would be more consistent perhaps to classify the full-time weighers as members of the gin crew. But the standard practice in Texas is to attach the weighers to the office staff. Insurance Cost of insurance depends on such factors as: the investment in buildings, machinery and equip- ment; ‘the replacement value of these assets; the degree of coverage and the rate. An important feature as to rate is whether the plant is located within the city limits with adequate fire protec- tion or outside the city limits without adequate fire protection. The accepted practice in Texas in the ginning business is to include workmen’s compensation and social security as insurance costs. As a rule, audits report insurance as a single item in the operating expense statement. Workmen’s compensation and social security are aspects of payroll cost and should be so handled. The inclusion of the latter two items gives the volume influence to insurance cost. OPERATING COSTS INFLUENCED BY VOLUME Items in operating costs influenced by volume were: labor, repairs, power, trucking and mis- cellaneous. Labor Labor cost as of 1949-50 was the most im- portant item. Labor cost on an average account- ed for 34 percent of total costs and 41 percent of the total of the eight items influenced by volume. Analysis of labor cost in terms of dollar costs alone is unsatisfactory. The hours or man-days of labor are essential ingredients of an adequate treatment of this cost. Residual labor cost, in dollars or hours, encompasses at least three situ- ations: The cost of the gin crew on days of no gin- ning. By well-established custom if members of. the gin crew report for work in the morning they are entitled to a day’s wage whether there is any ginning or not. An early morning rain or an ear- ly morning breakdown may prevent any ginning for the day. On days of low-volume ginning the gin re- mains idle a considerable part of the day. Mem- bers of the gin crew are not docked for the idle time. On such days a smaller crew and slower ginning would result in better utilization of la- bor. The gin manager, however, is keenly aware of the possibility of losing a customer waiting in line, even briefly, if he sees a chance of immed- iate service at a nearby competing gin. A cus- tomer lost today may mean a customer lost for the remainder of the season. Hence the urgency of prompt service even on days of low-volume ginning. Even on days of full-run ginning, misfits oc-. cur between the size of the gin crew and the vol- ume of ginning. If the volume influence is taken out, this misfit appears in the residual cost. Ef- ficient=use of labor is largely a managerial prob- lem. Repairs Many factors other than volume play a part“ in repair costs. In the ginning business repair costs are usually a charge against the following year. A heavy volume the preceding season may. force extensive repairs even though the prospects are for a short crop. An anticipated short crop may call for a small repair job. Extensive re- pairs may be made at regular intervals of 4 or 5 years with much lighter repairs during the years between. In years of heavy volume and high net margins like 1949-50, replacements may be charg- ed off as repair expense in the operating state- ment rather than as additions to fixed assets in the balance sheet. Power _ Power costs as entered in the expense sectio of Texas gins may be classified under three head ings: ~ 3 TABLE 2. RELATIONS OF NONVOLUME AND COMMON COSTS TO DEPRECIATION AND TAXES Percentages of Percentages of Av. Rate NO- Aveffiqe total total invest- oi Pf 3°? nonvolume cost common cost ment depf, gms ( ° ') Depr. I Taxes I Depr. I Taxes I Total (dol.) (%) I“ - 75 25 6,437 27.9 6.4 71.8 16.5 88.3 35,777 5.0 500-119 15 10.901 42.2 4.3 66.1 6.7 72.8 70,124 6.6 '50- 15 18,403 50.0 4.8 63.6 6.2 69.8 115,349 8.0 5, ’Power fuel such as natural gas, butane, dis- i:te, number of kilowatts of electric current or f 1'8. of: Lubricants and grease. liUtilities such aselectricity for lighting build- f‘; s, gas or coal for heating and Water. In the of steam power a large part of water cost is lpower cost for the Water used in the boilers; internal combustion engines considerable ’ter is used in the cooling system. Actual power costs not included are: depreci- ‘on of the investment in the power plant; re- [H = of the power plant; labor used in operating power plant, especially with steam power; i: such items as taxes and insurance on the in- itment represented in the power plant. cling Trucking costs include the cost of operating i cks if the association has its own trucks, the of trucking service if commercial trucks are fployed and such miscellaneous items as freight ‘d express costs. With the associations owning ' cks, no consistent practice is followed in ob- ming full trucking costs by including such items depreciation, repairs, insurance and wages of e truck operators. cellaneous Miscellaneous cost is a catchall item. This i should be reasonably small in amount as a atively high miscellaneous cost indicates care- ‘ness in record keeping. On an average the 0 gin associations for the season 1949-50 had miscellaneous cost accounting for 2.3 percent total costs and for 2.7 percent of the total costs l} the items influenced by volume. NONVOLUME COST Costs included under the category of nonvol- ume cost have two sources: the total of all com- mon costs and the total residual costs of the items influenced by volume. Nonvolume costs ranged from $4,200 to $27,360. Table 2 shows, in part, the components of nonvolume cost. The nonvol- ume cost increased as the relative importance of depreciation increased. Depreciation reflects in- vestments which ranged from an average of $35,- 777 for the low nonvolume cost group to an aver- age of $115,349 for the high cost group. Com- mon costs accounted for the variations in nonvol- ume costs as the residual costs remained constant in all groups. Of total common costs, deprecia- tion and taxes accounted for 88 percent in the low nonvolume cost group and for 70 percent in the high cost group. There is considerable difference in rates of de- preciation of the various groups. With a full de- preciation reserve at the end of 20 years, gin as- sociations in the low nonvolume cost group will not be able to replace machinery and equipment at a cost of $35,000. Present day costs of replace- ment approach the $100,000 mark. This group of gins will have reserve funds which cover only one-third the cost of replacement. Especially sig- nificant is the depreciation rate of 8 percent by the high investment group. Many of these gin associations have made replacements at the pres- ent high price level. Is this high rate an after- math of painful experience with depreciation re- serves covering only a fraction of replacement costs? ' ESTIMATING STANDARD COST One of the purposes of this analysis is to de- velop procedures enabling the individual gin man- ager to rate his own costs in terms of standards for the Whole industry. Table 3 is a guide for TABLE a. DATA FOR ESTIMATING TOTAL COSTS OF ITEMs INFLUENCED BY VOLUME OF GINNING Bales Manage- Oflice . Insur- . . Total cost ginned ment saL Labor Repairs Power ance Trucking MISC. 8 items ‘ 100 $ 36 $ 44 $ 256 $ 103 $ 41 $ 42 $ 69 $ 19 $ 610 200 72 88 512 206 82 84 138 38 1,220 i 300 108 132 768 309 123 126 207 57 1.830 400 144 176 1,024 412 164 168 276 76 2,440 500 180 220 1,280 515 205 210 345 95 3,050 g 600 216 264 1,536 618 246 252 414 114 3,660 ;_ 700 252 308 1,792 721 287 294 483 133 4,270 _ 800 288 352 2,048 824 328 336 552 152 4.880 i» 900 324 396 2,304 927 369 378 621 171 5,490 1000 360 440 2,560 1,030 410 420 690 190 6,100 1 981C1- ' uals $1,357 $—367 $1,007 $——452 $1,190 $631 $558 $ 10 $3,934 is d j wait. 36¢ 44¢ $ 2.56 $ 1.03 41¢ 42¢ 69¢ 19¢ $ 6.10 TABLE 4. CLASSIFICATION OF COSTS OF A SPECIFIC GIN Costs Common Cost item Lilfglrcflltllttifig costs Management $ 4,980 Office salaries 1.790 Labor 15,818 Repairs 2.971 Depreciation $3,565 Office expense 339 Power 4.866 Supplies 1.150 Insurance 2,951 Taxes 350 Trucking 5.573 Good will 55 Miscellaneous 367 Total‘ $39,296 $5.459 Total‘ The total cost of the gin was the sum of the volume and common costs or $44,755. estimating cost. The estimated volume cost of a specific volumeis a matter of manipulating deci- The total volume cost of 100 bales is $610; of 10 bales $61; of 1 bale $6.10; of 1,000 bales $6,100 and of 10,000 bales $61,000. The es- timated item cost is the total of its volume and residual costs; the estimated total cost is the sum of the estimated volume costs, the residual costs and the common costs. mal points. As a means of illustrating the use of Table 3 in estimating costs, Table 4 was derived. The in- formation in Table 4 was taken from the cost sec- tion of the audit of one of the gin associations. The essential separation of cost items into those influenced by volume and those not influenced is indicated in the table. 6,459 bales. rounding volume to the nearest 10 bales. This gin had a volume of Sufficient accuracy is attained by Thus volume costs in Table 3 are read in terms of 6,000, 400 and 60 bales. costs are recorded in Table 5. The estimated volume The final steps in completing the estimating job and in determining relative cost efficiencies TABLE 5. ESTIMATION OF VOLUME COSTS are shown in Table 6. As to relative efficiency the actual cost in all cases is taken as the denom- inator. Thus relative costs below 100 percent in- dicate gins with actual costs higher than stand- ard; relative costs above 100 percent indicate gins with actual costs lower=than standard. The var- iability in cost efficiencies of the different items of cost is pronounced, ranging from 78.2 percent for cost of management to 337.1 percent for mis- cellaneous cost. PROFIT CHART As a means of estimating standard costs and of picturing actual and estimated costs and actual and standard incomes Figure 1 was developed. This chart consists of three parts: the perpen- dicular axes to right and left scaled for total costs' and incomes, the horizontal axes upper and lower scaled for bales ginned and the arc scaled for reading costs and incomes per bale. Cost information of a specific gin was taken as recorded in Table 7 to illustrate the use of the chart. This gin had a total common cost of $6,637 (Table 7) ; the total residual cost was $3,934 (Table 1). The total nonvolume cost is the sum of these two, or $10,573. This nonvolume cost- was plotted in the cost axes to right and left. The connecting line represents nonvolume costs for. this specific gin according to the cost pattern current in 1949-50. Total volume cost at 8,000 bales was $48,800 (Table 3). The total estimated» cost at 8,000 bales was the sum of the volume and, nonvolume costs, or $59,373. This estimated cost was plotted in the cost axis to the right and con- nected with total nonvolume cost in the cost axis to the left. This connecting line represents total standard or estimated costs from lowest volume. to 8,000 bales for this specific gin according to' I the cost pattern of the ginning industry in 1949 50. The estimated cost at actual volume of 6,150 bales is found with a straight edge determined by this volume in the estimated cost line in such R_/B Items oi cost 331i “?.‘L°I3°' ".52? I Pm»- I ‘:22: T213“ £535.23; 6,000 $2,160 $2,640 $15,360 $6,180 $2.460 $2.520 $4,140 $1.140 $36,600 400 144 176 1.024 412 164 168 276 76 2,440 60 22 26 154 62 25 25 41 11 * 366 Total 6,460 $2.326 $2,842 $16,538 $6.654 $2,649 $2,713 $4.457 $1.227 $39,406 TABLE 6. ESTIMATION OF ITEMS OF COSTS AND TOTAL COSTS Est. Resid- Total Total . Cost Common . Relative 22.1.; Management $2.326 $1.357 $3.683 $ 4,960 78.2% Office salaries 2,842 — 367 2.475 1,790 138.2 Labor 16.538 1.007 17,545 15.818 110.9 Repairs 6.654 — 452 6,202 2.971 208.8 Power 2.649 1,190 3,839 4.866 78.9 Insurance 2.713 631 3.344 2.951 113.3 Trucking 4.457 558 5.015 5.573 90.0 Miscellaneous 1.227 10 f 1.237 367 337.1 Total $39,406 $3.934 $5,459 48.799 $44,755 109.0 Figure 1. Income and cost chart—t0tals and per bale. y F Z i z" i i i i 9 ? TABLE 7. CLASSIFICATION OF COSTS OF A SPECIFIC GIN Costs Cost item influenced Common by volume costs Management $ 6.913 Office salaries 3,008 Labor . 20.883 Repairs 5,013 Depreciation $3,798 Office expense 1.409 Power 3.461 Insurance 3,119 Taxes 704 Trucking 1.514 Good will 728 Miscellaneous 120 Total $44,031 $$6.639 a way as to obtain the same reading in the two cost axes. The estimated cost is about $48,100. A straight edge with direction determined by the point of origin and estimated cost at 6,150 bales gives a reading of about $7.80 in the arc as the estimated cost per bale. The actual total cost of $50,700 for 1949-50 was plotted at actual volume of 6,150 bales. Total non- volume cost in the cost axis to the left and this cost point determined the total cost line accord- ing to the cost pattern of this gin for that season. The actual total cost of this gin in 1948-49 at a volume of 2,640 bales was $27,250. As plotted in the chart, this cost was slightly lower than the actual and slightly higher than the estimated costs as determined by the cost patterns of 1949- 50. The standard gross income of $13.50 per bale was the average income of the 130 cooperative gins for 1949-50. This income included items such as: gin tolls; gross margins on bagging and ties, cotton seed for planting and lint cotton; and service income such as trucking charges and cot- ton seed sterilization. The standard total income line in the chart was determined by the points of origin (0 bales and 0 income and cost) and the reading of $13.50 in the arc; the total actual in- come line was determined by the point of origin and the total income, that is, of 6,000 bales at a rate of $13.82 a bale. The lines for total actual income and standard income and for total actual cost and standard cost indicate four break-even volumes. At actual in- come the break-even volume at actual cost is about 1,450 bales and at standard cost about 1,375 bales; at standard income the break-even volume at actual cost is about 1,525 bales and at standard cost about 1,425 bales. SPREADING OF NONVOLUME COST The effects of increasing volume on the non- volume cost per bale are shown in the profit chart. A straight edge anchored at the point of origin with direction determined by the 500-bale point in the nonvolume cost line shows a reading of about $21.15 a bale. As the straight edge is moved through the points of increasing volume the costs l0 per bale drop significantly, reaching a low of about $1.30 at a volume of 8,000 bales. Total income and cost readings for any vol- ume point on the cost and income lines can be made with a straight edge with position deter- mined by this point and equal readings on the cost and income axes to right and left. For in- stance, at a volume of 4,000 bales the estimated cost is about $35,000; actual total cost about $36,- 700; total standard income about $54,000; and total actual income about $55,400. Readings in the chart for costs per bale show the relations between volume and net margins (Table 8). The behavior of net margins is the result of an increasing net per bale with an in- creasing volume beyond break-even. For instance, with a 4-fold increase in volume from 2,000 bales to 8,000 bales there would be a 12-fold increase in net margins from $4,140 to $48,160 for the par- ticular gin used in illustrating the profit chart. One of the advantageous uses of a profit chart is that of plotting total costs at actual volumes over a period of years. This would indicate cost behavior in terms of standard costs as well as pic- ture trends in the actual costs of the gin under consideration. A strong feature of the profit chart, as shown in Figure 1, is that it becomes. individualized to the gin in question. The stand- ard cost pattern determined by the industry can be tailored to fit the specific gin. The profit chart can be used most advantage- ously as a cost chart for estimating and picturing cost behavior of the various items of cost. For instance, with labor costs the first step is the plotting of the residual cost of $1,000 in the cost axes and connecting these points with a straight line. According to Table 3 total volume cost of labor at 8,000 bales is $20,480. Hence total estimated labor cost at 8,000 bales is $21,480. This total cost plotted in the cost axis to the right and con- nected with the residual cost point in the axis to the left yield estimated labor costs according to the cost pattern of 1949-50. A year-to-year plot- ting of total labor costs in the chart would picture labor cost behavior in terms of standard labor costs. The plotted actual labor costs would also picture the behavior of actual labor costs over the years. ESTIMATING COSTS OF SUPPLY‘ ASSOCIATIONS Every effort was made to deal with costs of operating supply associations in a manner simi, I TABLE 8. RELATION OF VOLUME OF GINNING TO COS l AND MABGINS _ d Cost Net margins Gmne per bale Per bale‘ I Total 1,000 $17.25 $~3.43 $—3,430 2.000 11.75 2.07 4.140 4.000 9.20 < 4.62 18.480 6.000 8.50 5.32 31,920 i 8.000 7.80 6.02 48.160 ‘Gross income per bale less cost per bale. _ 9. ESTIMATING EQUATIONS FOR ITEMS OF COST l OF SUPPLY ASSOCIATIONS f Residual Volume got cost cost cost - ement $1,240 + $l,34V‘ salaries — 61 + I.72V s91 + 4.21v ' 18s + .19v ; 78 + .27V _ce 30 + .43V i- g‘ s22 + .2sv I lluneous 28:3 + .42V 0 items $2,968 + $8.84V 1 unit of sales is equivalent to $130. ,3: that of the gins. As a means of increasing yparability with ginning income and cost, sales p e supply associations were divided by 130 to j ce sales to units with a value equal to about ple of cotton in 1949-50. iThe average volume of business of the 20 sup- ‘associations for the season 1949-50 was 783 , or sales of $101,800; this average volume, - for unit, was equivalent to 14 percent of the q ge volume of the gins. This difference in f me of business is important in making com- 's0ns between ginning and supply business . - lThe segregation of items of cost in those in- qnced by volume and those not influenced by A me was identical with that for the gins. The 1 ating equations of the eight items influ- 1' by volume are given in Table 9. To facili- the estimating of volume costs Table 10 was jloped. The necessary steps in proceeding from al costs to estimated costs are identical with explained for the gins. BREAK-EVEN VOLUME AS A TOOL FOB DEMONSTBATING INCOME AND COST BEHAVIOR ‘Jndustrial engineers for many years have been >‘ gbreak-even volume in their analyses. Writers onomic textbooks are adopting the concept in asing numbers. The concept has been handl- riin terms of totals—total gross income and to- "cost. Break-even volume is determined at the Y: t of crossing of the two curves. The main 3' ificance attached to break-even is picturing l relations of income, cost and volume of bus- to net profits. Any influence that may in- crease the slope of the total gross income curve affects profits in two ways: the break-even vol- ume is pushed into lower volume thereby increas- ing the number of profit units and the steeper slope increases the profit per unit as compared with the original situation. Any influence that may lower the nonvolume cost or lower the slope of the cost curve, or both, increases profits through adding to the number of profit units as well as increasing the profits per unit. There seems to be a general feeling that break-even has application only if variable, or vol- ume, costs are linear. The break-even concept is applicable to curvilinear costs as well as to linear costs. With curvilinear costs diagrammatic dem- onstrations are somewhat awkward in contrast with those for linear costs. Progressive mechanization adds to the signifi- cance of the break-even concept as overhead or nonvolume costs represent proportionately larger shares of total costs. Break-even volume is a more potent tool for picturing economic relations than has been assumed thus far. Break-even in terms of unit gross income and unit cost can be most revealing. Break-even demonstrations can be made only of total costs and total incomes or of total unit costs and unit incomes but not as items of costs whether total or unit. The appli- cations of break-even made in this presentation are in terms of linear volume costs. RELATION OF INCOME AND COSTS AT BREAK-EVEN VOLUME Various aspects of break-even are illustrated in Figure 2. At break-even as pictures in Dia-- gram I, three rectangles are shown: gross mar- gins (bales ginned times gross margin per bale), volume cost (bales ginned times volume cost per bale) and nonvolume cost (bales ginned times [gross income per bale minus volume cost per bale] ). ' Diagram II pictures operations of this same gin at its actual volume of ginning. Four rec- tangles are involved: gross margins, volume costs, nonvolume cost and net margins. The rectangle for nonvolume cost in Diagram II is identical with that in Diagram I. At break-even volume the nonvolume cost is written off; from this point of ‘TABLE 10. DATA FOR ESTIMATING TOTAL COSTS OF ITEMS AS AFFECTED BY VOLUME OF SUPPLY BUSINESS Mcmage- Office . Insur- . . ‘TE-fl cost, ment salary Labor Repairs Power ance Trucking Misc. 8 items $ 134 $ 172 $ 421 $ 19 $ 27 $ 43 $ 26 $ 42 $ 884 268 3'44 842 38 54 86 52 84 1,768 402 516 1,263 57 81 129 78 126 2,652 536 688 1,684 76 108 172 104 168 3,536 670 860 2,105 95 135 215 130 210 4,420 804 1,032 2,526 114 162 258 156 252 5,304 938 1,204 2,947 133 189 301 182 294 6,188 1,072 1,376 3,368 152 216 344 208 336 7,072 1,206 1,548 3,789 171 243 387 234 378 7,956 1,340 1,720 4,210 190 270 430 260 420 8,840 $1,240 $— 61 $ 391 $ 185 $ 78 $ 30 $ 822 $ 283 $2,968 $ .27 .43 $l .26 $ .42 $8.84 W variable $1.34 $1.72 $4.21 $ .19 11 Gross Income 0nd Cost Per Bole (Dollars) r7: 3 ...|....1.nl 1 1 ‘r NM NM c _: c I § C 4f v I v i v N lllllllllll “h... | l I l I . . .4 l 2 3 4 5 O "up n _ IIIIIuvIIHH‘ | v | | 1 v | n] | v | » | | | u] I O ' I 2 3 4 5 o . Boles Ginned (000) Break-even concept in terms of unit gross O Figure 2. income, unit cost and unit net margin. TUC, total unit cost; C, nonvolume cost; NM, net margin; V, volume cos-t. III 22-; i -\ 20-; ‘g’; I é I81 A 13-; /~ —i c é "BIG; o 5g’) 2 : ‘SzS 6 "z m "z 9M? 8 |4—§ _ J " 52 —: i o z i mlzg "z IE Q/olzz “ —U —_ __\; q) I ' I 3 Q-lo-I é |0—f 17> E E (3 z O _: "E '“ Q a-i -E e13 '2 :1 : g 1 -_ ~31 o s; z z ,5 z '2 6? c» —: -: -z 5 4E z 43 2 z V z V zV 3 z z z O 2? _- 21 L _ : g <9 "Z i “Z o-lll I ‘TIIIIITII l o:llll O .5 0 .5 |.0 0 .5 Boles Gmned £000) Figure 3. Relation of cost and income at volume less than break-even and volume of least loss. TUC, total unit cost; C, nonvolume cost; NM, net margin; V, volume cost. 12 view with volume increasing beyond break-event the only added cost is the volume cost. In Diagram III all four rectangles have a com- mon bale dimension. It shows what happens to the part of the gross income rectangle remaining with the volume cost rectangle subtracted. From break-even volume to full volume the unit cost curve effects divisions between unit net margins and unit nonvolume costs. The declining unit nonvolume cost dimensions per bale with increas- ing volume are ‘exactly complemented by increas- ing unit net income dimensions. Diagram III illustrates how increasing volume spreads the nonvolume cost thinner. At volume greater than break-even as in Dia- gram II of Figure 2 the rectangle other than vol ume cost is divided vertically between nonvol ume cost and net margin; each has the same pe. bale dimension but differs in volume dimensions In Diagram III of Figure 2 the rectangle othe than volume cost is divided horizontally betwee i nonvolume cost and the net margin; each has th same volume dimension but differs in per bale di mensions. z Diagram III may be used as a model to dem onstrate the effects of increasing cost efficiency Reductions in unit volume costs, or in unit non volume costs, or both, are transformed into in creases in unit net margins. ' " Figure 2 was made in terms of actual cost an income for the gin under consideration. Actua volume cost (variable) was determined as follows Actual unit volume cost = » total actual cost -— total nonvolume cos number of-bales ginned Break-even volume for given unit gross in come and unit volume cost can be solved algebr ically. For actual volume cost and actual gros income the solution is: Break-even volume = total nonvolume cost actual unit gross income -— actual unit volume co For standard volume cost and standard gros income the solution is: Break-even volume =- total nonvolume cost standard unit gross income — standard unit volume u: “ . RELATION OF INCOME AND COSTS AT VOLUME LESS THAN BREAK-EVEN The relation of income and costs at volu l less than break-even is shown in Figure 3. Di gram I represents an actual gin with a volume o z 400 bales. Four rectangles with common bale o mensions are shown; the gross income rectang which represents the part of costs covered r gross income, the volume cost rectangle, the r‘ tangle representing the part of the nonvolu i cost in addition to the volume cost covered by i come and the part of the nonvolume cost recta gle lying outside income and hence representi“ In other words, ie loss. Diagram II shows the same gin at break- volume under the assumption that the cost fttern at 400 bales continued to break-even vol- Eu: f A significant question facing many Texas gin- ‘f rs during seasons of abnormally low cotton pro- uction is the least loss volume. According to g5: Census Reports on Texas ginning during 1932- , on an average, 7.4 percent of the gins remain- idle. The situation for 1949-50 showed that fth the largest cotton crop on record and with lowest number of gins since census reporting j; inaugurated, 11.2 percent of the gins did not "aw" However, crop failures or bumper crops e never evenly distributed over the whole cot- in producing area of Texas. Many of the 250 Ale gins had undoubtedly been idle for several ars and had deteriorated to a point making im- ractical the repair expense required to put the lants in operating condition. Reports on idle gins gave no clue as to the ‘fr: volume which induces a ginner to operate. 5i some 2,000 gin cost records examined since v32, volumes below 300 bales appeared in only or three instances. This seems to indicate t Texas ginners act on the principle that there a least volume below which losses of no opera- on are less than those of operation. LEAST LOSS VOLUME ,4 An important factor in the matter of the least n: volume is the relationship between gross unit come and unit volume cost. Three relationships ii: be assumed: unit volume cost greater than ' oss unit income, unit volume cost equal to gross ffnit income and unit volume cost less than gross nit income. . Under the first assumption nonvolume cost, ough whatever volume, would constitute a con- tant loss while volume loss would mount propor- ionately with increasing volume; this situation impossible. Under the second assumption the Aonvolume cost would continue as a constant loss regardless of volume while volume cost and in- ‘come would cancel each other; this situation also isimpossible. Thus the assumption that the least oss volume is that at which income offsets vol- yume or operating or variable costs is impossible. FFThe only possible relationship is that of unit vol- ijume cost less than unit gross income. '_ Another factor in the determination of the gleast loss volume is that with a shrinking volume, gof a gin for instance, the gin as a business unit begins to disintegrate. That is, with very low volume no repair expense would be incurred, a ibookkeeper might not be employed, a choice might be made between the manager and the ginner to operate the business and the gin plant and the ljfarmer customer might be required to handle the suction. Thus the gin crew might be reduced to the ginner or manager and" the farmer and the fnning job might be completed before any at- itention would be given to the press job. Under such circumstances every effort would be made to reduce out-of-pocket expense to a minimum. The only sound basis on which to predicate the least loss volume is to assume the gin is a normally operating business unit. The departure is taken as a reasonable assumption that the least loss volume is that at which the total loss is equal to the gross income. This calls for a cost per unit twice that of the gross income ‘per unit. The so- lution of this volume can be made with the fol- lowing equation: Least loss volume _=__ total nonvolumqcost 2 (unit gross income) - unit volume cost The solution for least loss volume is shown graphically by Diagram III in Figure 3. The least loss volume is 274 bales. Increasing volume from this point would result in decreasing losses until the break-even point was reached. GRAPHICS OF BREAK-EVEN AND LEAST LOSS VOLUMES The bearing that nonvolume cost and the dif- ference between unit gross income and unit vol- ume cost have on break-even volume are shown in Figure 4. Nonvolume costs included range from $5,000 to $19,000 and differences between gross unit income and unit volume cost range from $5 to $20. In illustrating the use of the break-even chart a reading may be made for the gin used in ex- plaining the profit chart (Figure 1, Table 7). This gin had a nonvolume cost of $10,600; the unit gross income was $13.82 and the unit volume cost was $6.52. The difference between income and volume cost per bale was $7.30. A reading for $10,600 nonvolume cost and volume about mid- way between the $7.00 and $7.50 differences per bale indicates a break-even volume of about 1,450 bales. The chart shows that the amount of the nonvolume cost is a significant factor in break- even volume. As the differences between unit gross income and unit volume cost decrease, in- creasing total nonvolume costs take on added im- portance. Solutions for least loss volumes are facilitated by Figure 5. In explaining the use of this chart the same gin may be taken as in the preceding ex- ample. Twice the gross income per unit is $27.64; this total less the unit cost of $6.52 leaves a dif- ference of $21.12. A reading for a nonvolume cost of $10,600 and a per bale difference of $21.12 indicates a least loss volume of about 500 bales. COMPARISONS OF GINNING INCOMES AND COSTS Ginners are concerned with comparisons of in- come and of cost. Break-even analysis in unit in- come and cost is a means of making comparisons. Four situations are involved in actual and stand- ard incomes and costs: income higher than stand- ard with cost higher than standard and with cost lower than standard; and income lower than l3 standard with cost higher than standard and with cost lower than standard. A gin was selected for each of the four situations as shown in Figures 6, 7, 8 and 9. In each instance Diagram I to the left represents the gin at actual income, cost and volume; Diagram II to the right represents the gin at standard income and cost and actual vol- ume. Through the use of properly constructed break-even diagrams, the ginner "can compare his actual situation as to income, cost and volume with what it would be if his income and cost were standard. An explanation of the method of com- putation suggested for preparing these break- even charts also explains the manner in which Figures 6, 7, 8 and 9 were derived. These are the essential ingredients: tual unit volume cost, actual unit gross income, standard unit volume cost and standard unit gross income. The items of actual cost should be sep- arated into two groups: the eight items influ- enced by volume and the items not influenced by volume. The total of the latter group added to the total residual cost of $3,934 gives total non- volume cost. Total actual cost less total nonvol- ume cost divided by the number of bales ginned yields the actual unit volume cost. Actual break- even volume is found by dividing total nonvolume cost by actual unit income less actual unit vol- ume cost; standard break-even volume is deter-r mined by dividing total nonvolume cost by stand- ard unit income less standard unit volume cost. 1-1 l -1 li iii jjnH Figure bale. These factors may be gin tolls, trucking and sterilization incomes and Nonvolume Cost—Total all cost items other than cost. Volume Co1st Per Bale~——From total actual co1st subtract total nonvolume cost; _ even volume is the intersection of nonvolume cost and the per ba cost per bale as read in the chart. bal-es ginne1d; this gives volume cost per bale. Break- gross income less volume 14 111111111111lllllp:_.i_i__1Li-.1l_.-I.‘ LL.'*L1_I_L.1_'_‘11111 111 111 11 _1 111;__1 1,11 111 111 1 111 _ _I Ll_:_".,'I1_14.1_1_I!1_ LLLILLLLL: {ILIJIL . 1 1 1-1111-4 - - 1-- - 1-1» —1—1.—i»1~'* 1 11 1 1111 1 : 1 1 1 11 nlfi 1 11 1 1111114111: 1i~1alz~filllkllir 1~:-¢11~1s1 a g1 1 11 11 1111111 Lg __ _ f__ "_v__'v_v_:v_L‘_'_ ‘l 1 T11 1 1 1_ ___ _ _ ulna 1 11 1 11111 111 1_I“1II7_7'I IIITI I "Tl- IIII. IIIIIIIL l IJI IIII I 1 -1‘ “_!IL 1' I1, _._._ : 1 ILI ' ' 1 1 I I 4 ~14‘ ‘ - *---1~- - - --— ~~ ~~ - —1:I—+1 v ‘ ---f—+—1— 13v" vvlvv - v ;v v v'v—~-* vvrv ~'—vv1 v "I I r ' 1 “v ““’—"‘IJ _‘—*‘ L“ ‘V-l-“l-F‘ l “I “I T v 11 =1 1l-1 1- v; vv 11 1 v vv 1- - v v vvv v vv v: 1 v? I- II 11v; - :::;v ;_i:1::: _ _ vvv v v '_ j 1T1: 11 v vv-—' v 1v-1v 11 1 1 11 1 1 1 =vlvv1 vv‘ I _ ‘ 1 I IIIIII‘ III II llIlI I II Ig I I I I I 1-11-1 _ g a ' ' , g ___g__g'g L ‘g g__ _g '1 ‘ygly l“ w“ IIT g7 i ' I._1IIII1 I _gH~~h_;: r—4—4 II 1"‘ 1v‘ v‘ 1 v v "‘1_" 1v‘ v v v- ~ v "‘ fl“ 1 :_1_'vi_1_1g_fi;_';,;_--1~1 --1--1+- g ‘ l ‘l _ _ 1 v v ‘ vvvv 1-1 -1-‘ -I>-—--- » -<—1»—1-< 1 —1--v v I I l4 1 ILLII- '1 I _ -- — — flnl _:j£:::v v"; ; 1:_ - —4 III v I- ‘ ' I :51‘ ~—~——~—— if 1 11L; i ~1v1~1 v- g} 7 vvvv-vvv : __ _ ____ ,__ 1 _ ,_. .I gI g I I..I __II_ 4 m: :1- *. _____:;:v;fvFp_Ej;T1g-; ‘ 11 r11 1 1 1 vv vvv vvv ’ 1 1 ___ ___ _ v i: » III-Ii: Ijgiiitlo"? l mI v vv vlvv - Eh}? III -* 1 "- IL" v - vvvv‘ v vlvv TI- I I I II v: v. Iv? v P1151 ° 1 1 1w 11111 v- i; L-Wve 1 vili vvv v L - v v , v v" -- - - -_--- -------+- , - 1 l, ' ' -- - -- —-~ —~— —-~~ —-~ ~ -- ~~— -> ~——~-——~— — ~————~~— ~ ~ 1 11-1-1,1,r-m - »1 1 1 - - 1-1-11 - ~ 1-111-4- 1 11- - - -- — ~ —~— ~————~~‘ +l~j ' ~— 1 — vl 1 v 1 l 1 lv v vv l l vvvv- (v vvvv vvvvv vv ' vvvvv v H: ::f::~:"‘_ ~- ~ —~—— vv- jFf v 1 v vv 1_ - 1 g A _1__ g ,_;1w__ _g vvv I vvvvvv:::vv v vvvv::::;:vv I I:__ I I_ vvv__:____ vvv; _ ,1 _ v ii II I1 L II LIZliI 1 T“ I ' 1..-. I. 1 I v I I _IIIII_III III IIIIIIIIIIIII ZI II IIII I IIlIII IIII I IJIT. 1 1 j _ I+1II7 I» mil-I Ygzli L Zzfi-a-li- 71- --_ ~---------- +12 -~-—-- - --»~~-- " l’ IIIIIIIIIIIII I 1 _ , 1 IIIZIIIIZ II III _Z II lI ZIII. II IIIIIIIIII II IIIIIIIIIII IIIIIIIIIIII III" IIIIIIIIIIIIIIIIIIIIII-DII I _ ___W __ ____ _ 1g _ g ___ __ I I I , , I, g IIII __,._I_I_I_ III II I ._ IIIIIIIIII ' g II . IIII IIII IIIIII-I__ 4T l 1 qll ~v~ 1 '7 ~ l-vz j iv v-vv ff- vvvvvvvvvvvv v vvvvvv vvvvvvvvvvvvvvvv “““‘“““““"““”*' “ "' ' 1 1 1 _1_ _ _ _ __ __ _ ___ _H _ I _ _ III I IIII I v v:;;:::::q;iv1.iii 3 i1 q I “ -.1 I i. 1 it I f- III LIII I I IIIIIIIII II II I __I----_---------------- -- II. I-IIIIII 1 1 I III! III III I 1 IIIC TI- l/II-I II 1- --_------ Z»- - - - ----- ------------- __ “IIIIII :1; I . I III I I .I-II I . III II I . III. I I II- IIIII IIIII - — —— ——v~— ' , H l 7 1F v jvg viii W _ Zv; v_____ m“ vvvvv _;;:_:II;:vI::; I:::vv _I:::::v_ 1 ‘ 1i; III ItifI I I ::::vv"vv,v'" vZIIIIvI I I III; :22; II IIIIIIL? ‘viiiiii i "v l __ _ >___ _ _ _ _ __ ______ _,____ ,__,_____,____I _,_ v 4:71 v If :: I I7 I If“ vvvv {v ‘ ‘vtlv 2 vvv vvvvvv:vvvE:“:v_:::_v:;I v:::_ . ZIIIIIC I i vv vv 1v "vvvv_;l_:;v vvvvvv:::_::Iv_:_ II IIIIIIIIII II IIIIIII I I I q ~~~——1~~—— ~1~~~~-~——~—~~~ l- vv;;:v_;vvjv vv vvv _ IIFIZIFIE Ivzflvvggvliiv _II_I____::vi:::::: vvv 1 1L . I- ‘IIIIII _I_:::v:;_____, u vljvv :v:Iv I ;::vi:'lv;:II:::vIIIIIIIIZTLIIIII II- jgggjgggvv-vvvv vvvvv v I vv vz_vI;:;I:vviL_::i;Ivv:vi.v:::i ::. III ‘ IIIII. IIIIIIIIIII _IIIII 1 _ 1 >—'-—‘ ->- l-_-~-- -~~---~ -- -- ~ ~—— - ~ i _ g ___:jj;:_v::::j:::j_jrjvjjj J1“ 7 _ , _ 4 r’ T I“ I- IIIIIII-ILITILI“ LI I I‘ IIIIIIIIIIII“ 1 _:_ g_,_g_____ __i_1___ g g1 1 1_ _I .II II II I IIII IIIIIII Iv l'“"jfj;jljjlljl_lj g _ _ _ _ _ 1 .._i'_,;';1fZjII'§ Iii IIII. . ' IIIIII IIIIIIIII I —J 1 11' I 1 1 -- -1 1 - ---- -» -- ----»-- _._1 III I . 1 _ 1 .1 I II I1 .IIII IIII-Is I. _-I II II ‘* ‘v vCY :::_:_:g::vv _ 1'1 f g ' I JIIII II I’ IIIIIIIlIIIIIII-II IIII IIIII __1_ _ vvvv: jvj v v v L IIIIII III II IIIIIIIII 111 vj::i::_iv I . ‘ l1 l1 1% i 1 _ vvvvv:i:l:::_vvvvvvvvv:::v L 111 j_,___ I_ , q 1 HI I I I I _ 1 IIIIIII-I- ----------- ----- -1 ~1-—1-—-<-— — ‘— 1 ,7. —"“*—’—“‘_“‘ '_“' H H“ _"“_’_"* F "w-M‘ _""_ l! a III_:i::::___I_ v l’ l _ f f ‘ 1 ::::_::::Iv:_ Iv III v 1 1 t 1' vv vv ‘ _I_:v. :_ I:::I__I_I__-_ __ _ I 1 1 V A I IIIIII II I__I_I I _ I] r II I IIIIII g_ a —~- — 1 1 r v v I::::::I III vvvv v1 1 l I I IIIIIIIIIIII 1 11 _ Y“ -----~- 1 , v “I ' | 1 F‘ l I __ I. 1 l 1 r V IIIIIIIIII !F l‘ ][ L n»- " v If: '11? v I l1 III i 3 7 1 I.-. I ' 1 _ W __H l ll-‘IT. l“ | " i I L v iZW 1 — 1 4-1 I l : I I - ' ' — ‘ I I‘ gi_ I I l ,' g 1 l l ....,_.,_.._ -1" I {iii 1, g- 1 I LI II I1 g l H 1g _:-~— _ ' I " 7"” I I II .I III- " ' “ "- 1' ' I l l :'I l1‘. . zilI I L 1” 1 ‘ __ 111' -- - — I ->-4 I 1n #1" 7 1 l I - _.I_._.~_I:i :::;. >—4_ .1 :1: v 1 ' 1 » 1 ~ 1-1-1- f 1 __‘ g_g_g_____g ____ -____ III; I _ 1 11 ‘LIII ' I _1I1'IIIII L —— v1 v --- 1 '1 1: ’ _ 1 v vv:__I_ A 7 1 1 1g _ _I_ II__ ~ ‘ >v__:_J:- v 11 1 1 1 - 1 - v ' 7 vv 1 4v v 1 vvvvvv 1 “I I“ “II 1 __ _ II IIIIIII II _-_1-1-_~-~-1 L " "7 " I 1 1 z vI:;:::::_ vvv:.v.vvv"vvvvv “" “ 1 11'" vvv vvcv vv:vv::vv —» 1~'— 1 - I:::vvv vvvvvv- v :: l: V I l - 1 I l E g - -B ————<-—~ ——- P-v -v"—' >— '- :“I'-“ ll ' I pg [v1 1 “ 1 “ ' 1 I ___::— ~ 1 1 1 , 1 [1,]; 1 1; ‘J-Ll 1 " 111 1: 11 i‘ g1 1 1 1 T‘ “W F 1 l _1 l l 1 1 "l IItI I" l F — :1; 1 _ 11 11v, 1 .- ~~- 1 - ‘- 1 v 1 1 1 '1 '”“ w‘ ' "" " _ II III II UJ 51-; ~1—— ~~~——— l‘ l 11 1 I g _ I1_1I g II I I ,4__1 IIIIL-fifi " 1 1 1 l e» ~~ ~ 111* -1- ~— 1 ' T--'—+.~1—1 ‘ I 1 1 1 - 1 1 1 vv vvvvv v 11%;’ : ;vv::tl:l1 III i I vvvv. 1 1 1 1 1 1i 1*“ ““ " "“" l I ,_._1 _.._._1_Il_._ ,_1 —- ' 1 1 III II- — 111 “LL” L11 - 1- I 174L111 l '1‘ 1'-l 11 DIITIIILIF 11 I I II L1. el-INITF :1 ‘II I 11 111 l 11111 1 11 1 1 *"1"' 7f; ‘*1 _TI.T. 1 1 F" *4. 1 H1111 l‘ vr "1 - r1 111 111 111111111111111-1111 11+ ‘ v T 1 111111111 1111 1 1 1 111 11 11 1111 111 111l1111'11L111111'111111111111 1 - 11 '1 l1! 1111 1111 1H ll 4. Solutions for break-even volumes in terms of gross income per bale, nonvolume cos-t and volume cost determined in the following manner: gross margins on from patrons and cotton planting seed; divide total income by the number of those influenced by vo1lume; add residual cost of $3,934; total, nonvolu Gross Income Per Bale-Add such service income é bagging and ties, cotton seed, lint cotton purchas bales ginned; result, gros-s income per bal divide the remainder by the number total nonvolume cost, ac- The total unit cost curves are developed as : the total nonvolume cost is divided by of 100 or 200 bale intervals from break- to total volume ginned ; the actual total unit curve is derived by adding the actual unit cost to the unit nonvolume costs; the total unit cost curve is developed by the standard unit volume cost to the unit costs. pertinent data used in constructing Fig- 1, 2, 3, 6, 7, 8 and 9 are listed in Table 11. gin with a standard volume cost of $5.91 per did not register a miscellaneous cost; the one a standard volume cost of $5.66 per bale did report office salaries. Additions to net mar- or deductions from net margins accordingly incomes and costs deviate from stand- incomes and costs are summarized in Table .-|_»‘. - ~- ._. .,_#. -.q- __._4 INFLUENCE ON NET MARGINS OF INCOMES AND CQSTS VARYING FRGM STANDARD Total net margins are influenced by incomes higher and lower than standard and by costs high- er and lower than standard. The gin shown in Figure 3 with a volume of 400 bales sustained an actual loss of $2,568; this loss was 240 percent of the loss of $1,072 which would have resulted if income and cost had been standard. Gross unit income below standard added $900 to loss, and unit volume cost higher than standard added $596 to loss. From the standpoint of net margins, income above standard and cost below standard are most favorable (Figure 7). Of the total actual net margin of $36,745 for this gin, net margins at standard income and cost furnished 69.0 percent of the actual total net; income above standard ac- Figure 5. Solutions for least loss volumes in terms 0-f gross income per bale, nonvolume cost and_volume cost per Determination of three factors same as given under "Figure 4. Least loss volume IS the intersection of nonvolume and twice the gross income per bale less volume cost per bale as read in the chart. 15 I counted for 10.8 percent and cost below standard l II g g a for 20.2 percent of actual total net margins. The =|4- -§ \ most unfavorable situation is that of income be-a ,5; —; NM low standard and cost above standard as shown 9'2" rue E NM by the gin in Figure 8. At standard income and 5°‘ j cost this gin would have had a total net margin i? : c _ of $28,759. Income below standard deducted $15,- g8; E 351 from total net standard margin, and cost 2 E C higher than standard deducted an additional $2,- cs-E 866. 5.; V V Break-even analysis applies to the supply bus- § é iliaessbas is does to the ginning business. Figure ME is ase on a supp y association with gross uni é "5 "I H _'__|_ income higher than standard and unit volume °o ' ; ""§"""'§ ' A "fr, ""2 o" "' i )' i ' i 4 s s cost higheg ‘H1318 standlardl Etach ugilit of sales BolesGinned(ooo represente $13 ; tota sa es or 1 9-50 were Figure 6. Diagram I, income higher than standard; $156000’ Acfcual total net margln was $9540‘ ‘cost higher than standard; Diagram 11, standard income The net margln under Standard Income and cost and standard cost. TUC, total unit cost; C, nonvolume would have been $3,360; income above standar cost; NM, net margin; V, Volume cost. increased net margin by $7,740; cost higher tha standard reduced net margin by $1,560. g" _ I \ 11 COSTS OF MULTI-FUNCTION BUSINESS '3" N M 3 NM Texas had 576 local cooperatives in 1952 Whic viz-j could be classified as performing functions o 2 -§ » “a '74: marketing s ' d ' Of th 1 a _ , processing an service. ese oc “f”? ° I. associations 251, or 44 percent of the total, wer é’ E multi-function. That is, associations combinin g a; _§ C ginning and elevator business, ginning and su .0 6 C ply business and the like. As for specific kind. 8 é ~§ of cooperatives 156, or 49 percent of the 321 gins 1g, 4% were multi-function; 70, or 76 percent of the 9 g v V elevators, and 227, or 80 percent of the 284 su gi-E E ply associations, were multi-function. 0: I""I""l""l""l""I""|‘"'I""I""I"" I No attempt is made to compare the advantage ° ' 2 3 ‘ 5 _ ° 0c‘) 2 3 4 5 and disadvantages of multi-function business wit Bmes 6mm (O those of one-function business. Rather this qu Figure 7. Diagram I, income higher than standard; tion is asked: Is there economy in multi-functio cost lower than standard; Diagram II, standard income Qperationg? For example, are the teta] cQgtS () and standard cost. TUC, total unit cost; C, nonvolume cost; NM’ net margin; V, volume cost a gin-supply operation with a given volume o ginning and a given volume of supply busines more or less than the combined costs of one-unit gin and a one-unit supply firm wit E I 11 like volumes of business? This assumptio 3'42 a \ 2 ~ E E Q 1T2"; 1 gm I __ \ Ii ,5 -2 \ _ NM a -; do? 7- r 1'2‘: a _; UC _E Uc E X é )_ - a; _~ mIO-i _= 11¢ RIM 8 5 e *- g , NM i o -: -" C I? a o .. 4-85 C ‘g 5.5 _ 8 E _= Q § O - C E _ C 5 9'42 V “= v 8 -5 g - "er; - V m 2‘; I g V _ 3 e2"; - 6 0 :|lllllll|l|||||l|IlllllllIIIIIIIIII|III‘IIIIIIII|| :IITIIIIIIIIIIIIIIIIIlllllllllllllllllll‘VIII!!! ll —:I o a 2 a 4 s o | 2 s 4 our: I é v-"g-w A |-~-g---|~E o""l"":""l"“é""I""g"‘l"'x"'l""g"'l"' BGIGS Ginned (O00) Bobs sinned (O00) Figure 8. Diagram I, income lower than standard; Figure 9. Diagram I, income lower than standar cost higher than standard; Diagram II, standard income cost lower than standard; Diagram II, standard inco and standard cost. TUC, total umt cost; C, nonvolume and standard cost, TUC, total unit cost; C, nonvolum cost; NM, net margin; V, volume cost. cost; NM, net margin; V, volume cost. - l6 TABLE 11. ACTUAL AND STANDARD INCOMES AND COSTS. TOTAL AND PER BALE. 1949-50 v- am number I 1 I 2 I 3 I 6 I 7 I 8 I 9 Total per bale s ginned 6.149 5.485 400 5,506 5.509 4.858 5.863 volume cost $10,579 $ 8,506 $ 4.206 $10,488 $15,421 $ 7,174 $11,703 j_ a1 cost 50,670 48.094 7.067 55.930 41.589 39.706 38,642 cost i 48,088 40,922 6.470 44,075 49,026 36,808 47,467 Average per bale t‘ cl volume cost $ 5.52 $ 7.22 $ 7.15 $ 0.25 $ 4.75 $ 6.70 $ 4.59 7--- volume cost 6.10 5.91 5.66 6.10 6.10 6.10 6.10 ‘ual income 13.82 13.38 11.25 15.05 14.22 10.34 10.83 dard income 13.50 13.50 13.50 13.50 13.50 13.50 13.50 7' al average cost 8.24 8.77 17.67 10.15 7.55 8.17 6.59 7.82 7.46 16.18 8.00 8.90 7.58 8.10 I d. average cost j actual cost. 13.07111 1949-50. 1H6. ,s made: if average actual cost is lower than erage standard cost, the cost advantage lies »- the diversified business. These comparisons made of the costs of 25 gin-supply associa- ns for their business of 1949-50. Common costs re segregated from total costs; to these com- ~~ costs were added total residual costs of one- nction gins and one-function supply associa- ns. Total actual costs less total nonvolume cost lded total volume costs. V: were derived by adding average common l»: of one-function gins and of one-function 'pply firms; these common costs added to total Tidual costs gave estimated nonvolume costs; ' imated volume costs were secured by multi- ying average bales ginned by standard unit vol- .0 cost and average units of supply business by ndard unit volume supply cost. These compu- tions are recorded in Table 13. Since the aver- l: estimated cost per unit was $9.27 and the erage actual cost per unit was $8.44, it appears n; for 1949-50 the gin-supply business had a "t advantage of 83 cents a unit over the one- nction gin and one-function supply associations. g is 83 cents advantage represented 9.9 percent Estimated common ‘CHANGES IN GINNING INCOMES AND COSTS _ Comparisons of ginning incomes and costs for 32-38 with those of 1949-50 are shown in Fig- K - 11. Diagram I pictures the average gin for 932-38; Diagram II represents the average co- rative gin for 1932-38; Diagram III shows the ‘iverage gin of 1949-50 ; and Diagram IV pictures 4 average cooperative gin of 1949-50. Average , oss income per bale was $6.00 for 1932-38 and I (The average gross income per _~:le for the 275 cooperative gins for which income T»: were obtained was $13.07; the average for i. 130 cooperatives included in this income and ‘w analysis was $13.50). llume advanced from 900 bales for 1932-38 to ,530 bales in 1949-50. At like volume, ginning sts in 1949-50 Were 300 percent higher than E ose of the period 1932-38; ginning income the rtter season was 220 percent higher than that of 932-38. This explains the rise in break-even vol- Figure 11 reflects the perishability of f osts” in an economy of advancing technology d rising price levels. Average break-even Cooperative gins show a considerably higher volume than the competing gins. That is, the co- operatives are not held to break-even on an aver- age. A break-even volume of 1,530 bales is a norm or index. The break-even volume of most gins varies from this average. From year to year one-half of the gins other than the cooperatives operate at a profit; the other half at a loss. Differences in ginning incomes and costs be- tween 1932-38 and 1949-50 are not the only vari- ations. At several points in this analysis there have been considerable variations in both incomes and costs for 1949-50. As a means of showing variations, the 130 cooperative gins were grouped into four quarters on the basis of cost differences from highest to lowest. Average incomes and costs for the four groups are shown in Figure 12. In this instance the average volume of 5,621 bales was applied to each group. Average income declined as average cost declined. The differen- ces between the highest and lowest cost quarters were $2.45 a bale income and $3.50 a bale cost. \ ,_22 32o V“ — - )- fi 2 §I8- NM '39 n0.- fiw SGM ‘Q Q 16' O4 g NM *0, “I4 |4 & 2 49' l2 g I C (; EIO- |°_ (I) (D 9 8- 8 O 2 6 GI U 8 “ V ‘- v O 2- 2 O . . . . . . , . . . O . . . . . , . . . . . Units of Soles (oo) Figure 10. Supply association with income higher than standard_and_cost higher than standard; left dia- gram, actual situation and right diagram, standard situa- tron. TUC, total unit cost; C, nonvolume cost; NM, net margin; V, volume cost. 17 |4i m uz-E _ NM no- a_ C _ I 6- Q. _ _:n:§% _ r~‘_ c ‘_ 5 _ v 3: z- €< V - = I | c I I ' l I I | £0510 osnonszozsso l M-E m 3 g no-j NM r" .5 -' e. 6-. g - 11 C g5: 51 ‘u - 7‘ " 0* NM 4_ " i V z- z-g c_ I I | I o: I |' | | | I "'I l | ‘I osnons 05101520253035404550 BolesGinnedloo) Figure 11. Average ginning incomes and costs for 1932-38 and 1949-50. Diagram I, average Texas gin, 1932- 38; Diagram II, average Texas cooperative gin, 1932-38; Diagram III, average Texas gin, 1949-50 and Diagram IV, average Texas cooperative gin, 1949-50. TUC, total unit cost; C, nonvolume cost; NM, net margin; V, volume cost. The total average net margin of the lowest cost quarter was $5,900 greater than that of the high- est cost quarter. The per bale costs of all items of cost at aver- age volume of 5,621 bales for the four cost quar- ters and for all gins are shown in Table 14. Ac- tual net margins at actual average volume for each cost quarter are recorded in Table 15. Dif- . ferences between actual average net margins and standard average net margins also are accounted for in terms of differences between actual and standard income and actual and standard cost. COST VARIATIONS AS REVEALED IN BREAK-EVEN VOLUMES Cost variations can be analyzed in terms of a break-even volumes at actual unit gross income for actual unit costs and standard unit costs (Fig- ure 13). Diagram I shows the gins with actual cost higher than standard. relatively inefficient as to costs. The break-even volumes to the left are at standard costs and to the right at actual costs. Diagram II shows the gins with actual costs lower than standard. These gins were relatively efficient as to costs. The break-even volumes to the right are at standard costs and to the left at actual costs. TABLE 12. NET MARGINS AS RELATED TO ACTUAL AND STANDARD INCOMES AND ACTUAL AND STANDARD COSTS 1949-50 Margins Diagmml Bales Ratio actual to standard P b 1 Total number gmned Irmome | Cast er a e Standard and other I Actual 1 5,149 $ 5.58(1)2 $34.31} 5.68(2) $34.926(5) 3 High .32(3) 1.968(6) High —- .42( 4) — 2.583(7) 34.311 2 5,485 4.61 (1) 325.286 6.04(2) 33,129'(5) Low — .l2(3) — 658(6) High —1.3l(4) -—- 7.185(7) 25.286 3 400 —6.42(l) —2.568 -2.68(2) — 1.072(5) Low —2.25(3) — 900(6) High —1.49(4) — 596(7) -—2.568 6 5.506 4.89( 1) 26.924 5.50(2) 30.283(5) High 1.55(3) 8.534(6) High —2.16(4) —1l.893(7) 26.924 7 5.509 6.67( l) 36.745 4.60(2) 25,34l(5) High .72(3) 3.967(6) Low 1 35(4) 7.437(7) 36.745 8 4.858 2.17(1) 10.542 5.92(2) 28.759(5) Low -—3.16(3) —l5.35l(6) High — 59(4) — 2.866(7) 10.542 9 5.863 4.24(1) 24,859 5.40(2) 31.660(5) Low —2.67(3) —15.654(6) Low 1.5l(4) 8.853(7) 24.859 1 Diagram number—number oi diagram in this bulletin. 2 (1) Actual income less actual cost, per bale. (2) Standard income less standard cost. per bale. (3) Actual income less standard income. per bale. (4) Standard cost less actual cost. per bale. 3 (5) Total net margin at standard income and standard cost. (6) Net margin as related to actual and standard income; positive total. actual income greater than standard." negati, total. actual income less than standard. (7) Net margin as related to actual and standard cost: post cost greater than standard. 18 tive total. actual cost less than standard: negative total. actu These gins were 13. AVERAGE ACTUAL AND ESTIMATED COSTS 8' OF 25 GIN-SUPPLY ASSOCIATIONS, 1949-501 TABLE 14. COST OF GINNING PER BALE AT STANDARD VOLUME OF 5.621 BALES, 1949-50 {we of Total costs Total unit costs If‘ cost Actual I Estimated Actual I Estimated nvolume $12,774 $13,945 $2.68 $2.93 - ume 27,369 30,150 5.76 6.34 j d1 $40,143 $44,095 $8.44 $9.27 verage volume oi business: ginnings, 4.060 bales; sup- y, 696 units (sales $90,480). 3 Break-even volumes for actual ginning costs actual incomes and standard incomes are indi- ’ ted in Figure 14. In each case the total cost rve connecting the two break-even volumes was ‘rived by adding the actual unit volume cost to p. unit nonvolume costs. Break-evens tend to- rd lower volumes at standard income for the ns with incomes below standard in contrast to w gins with incomes above standard. This con- o, s the tendency of lower incomes to be associa- w with lower costs. \ Break-even volumes for actual costs at actual ‘d standard incomes of a group of supply asso- tions are shown in Figure 15. The cost curve nnecting each pair of break-even volumes rep- actual total unit cost. As shown in Fig- f es 14 and 15 cost behaviors of cotton gins and Apply associations have much in common as to I iability. ' ATIONS FROM STANDARD GINNING COSTS i Costs vary significantly among the various _ associations. The manner in which actual 1: behave in terms of standard costs is sum- rized in Table 16. Twenty-eight gins, or 22 grcent of the total, varied from standard costs . 5 percent or less; 60 gins, or 46 percent of the '. l, varied by 10 percent or less; 82 gins, or 63 ‘ cent of the total, varied by 15 percent or less; d 48 gins, or 37 percent of the total, varied 4 standard costs by more than 15 percent. . Why do ginning costs vary so widely? Cost ferences are difficult to handle as long as they v- stated in terms of varying volumes. An im- rtant step in procedures for comparing cost dif- L nces is the reduction of costs to standard, or erage, volume. This adjustment was made as ; lows: nonvolume cost was subtracted from to- ‘ actual cost; the remainder, or total volume .1: was divided by the number of bales ginned, Sich yielded actual volume cost per bale. This it volume cost multiplied by 5.621 gave total j_ ume cost at standard volume; this volume cost _ed to nonvolume cost gave total actual cost at ndard volume. This total cost divided by ndard volume yielded the cost per bale at ndard volume. : The method followed for adjusting actual cost actual volume to actual cost at standard vol- k may be questioned. Adjustment in residual f; for relative efficiency was made in this man- : the residual cost in each case was divided {the relative efficiezncy: thus the residual costs {the high cost gins were increased and of the C Cost quarters “*5 lst | 2nd | 3rd | 4m Management $0.58 $0.70 $0.60 $0.50 $0.59 Office salaries 0.43 0.43 0.39 0.36 0.40 Average Labor 3.33 2.74 2.51 2.15 2.68 Repairs 1.30 0.95 0.89 0.60 0.93 Power 0.73 0.65 0.61 0.49 0.62 Insurance 0.62 0.58 0.51 0.37 0.52 Trucking 1.11 0.85 0.61 0.46 0.76 Miscellaneous 0.23 0.19 0.11 0.15 0.17 Depreciation 0.77 0.70 0.92 0.68 0.77 Ottice expense 0.21 0.21 0.21 0.14 0.19 Taxes 0.12 0.08 0.10 0.08 0.09 Good will 0.10 0.08 0.08 0.05 0.08 Other common 0.08 0.04 0.12 0.08 0.08 Total cost $9.61 $8.20 $7.66 $6.11 $7.88 low cost gins decreased; the adjusted residual costs were added to the total common costs to give the adjusted nonvolume costs; the adjusted nonvolume costs were subtracted from total costs and the differences were divided by numbers of bales ginned; these unit volume costs were mul- tiplied by 5,621 and added to the adjusted non- volume costs; these total costs were divided by standard volume and. thus the unit costs were obtained for adjusted residual costs at standard volume. In most instances the differences in average costs derived by computing costs according to the |5.: \ /8-E m0. ~ \ \\\\ lngomg, lg Q, QIQJj lncom 2M0. I180 Income, 3rd O. $5.09 I31 / - \\\ \ a a - .. 15*’: 2'59 no 2 o lncomoAth o. u .29 |2-i ‘Q’ 3' B-E 4on0. c g‘ 5 u-i i 5 if § é '- g“ .0. w: a ‘ \‘ T , i AvmOost $9.6! 9% \ QI§§ T iuaveconsago L Uc L 8 Avc.Golt$7.6€ \ rd ' \ N lnnlnl- ($|4.14-$9.s|)5s2|- $2a,e36 Not Margin m o. AvmGostSGJI O1 111111441 llllilll l$l3.flO-$8.20)562ll$3l,478 Net Margin 2nd O. nlnrullruluu (Sl3.09-$7.66)562l=$30,522 Nit Margin 5rd O. gin ond Cost Per Bole (Dollars) U! Ul ...|....l....|....l. LL ($|2.29-$e.||)ss2|- $34,131; m: Margin 4m o. N Gross Mor unlnr-fi O . . l I —1 Boles Ginned (oo) Figure 12. Average incomes and costs of 130 coop- erative gins grouped by cost quarters, 1949-50. To facili- tate comparisons average volume was used. 19 TABLE 15. NET MARGlNS OF COST GROUPS AS RELATED TO ACTUAL AND STANDARD INCOMES AND ACTUAL AND STANDARD COSTS. 1949-50 ' 1 First quarter—highest cost in terms of standard cost; fourth quarter—lowest cost in terms of standard cost. Margins C°5l Average Ratio actual to standard Hick-I] b l ' d ‘ quarter a es gmne Income I Cost Per bale Standard and othil Actual lstl 5.635 $ 5.13(l)2 $28808 5.42(2) $30.542(5) 3 High l.24(3) 6.987(6) High —l.53(4) —- 8.621(7) 28.908 2nd 5.445 5.60( 1) 30.492 5.53(2) 30.ll1(5) High .30(3) 1.633(6) High — .23(4) — 1.252(7) 30.492 3rd 6.508 5.43(1) 35.338 5.56(2) 36.184(5) Low — .4l(3) — 2.668(6) Low .28(4) 1.822(7) 35.338 4th 4.923 6.l8( 1) 30.424 5.42(2) 26.683(5) Low -l.2l(3) — 5.957(6) Low 1.97(4) 9.698(7) 30.424 2 (1) Actual income less actual cost. per bale. (2) Standard income less standard cost. per bale. (3) Actual income less standard income, per bale. (4) Standard cost less actual cost. per bale. 3 (5) Total net margin at standard income and standard cost. (6) Net margin as related to actual and standard income: positive total. actual income greater than standard; negative total. actual income less than standard. (7') Net margin as related to actual and standard cost: positive total. actual cost less than standard; negative total. actual cost greater than standard. 22— _ 22¢ 20- _ I 2Q_ 11 IB- _ l8- ll E “ f‘? i " -_-__ -_ ; %'4"_A_\LQ_GM "";=—--—— '4"A\LQ§M - Q - l: i - i-fii__l w nz- __ - |2- "I -— —— g ~ — — - - _ ";___ Q_ - _ _ 8 a- a- Q) - _ '2 s- s- * D .5 - l Q 4- 4- O II u 2 2 $ 2‘ ' 9 .. - L9 Q Q_ nonszozssosso s no 152025303540 Boles Ginned (oo) Figure 13. Break-even volumes; actual cost and standard cost at actual income per bale; (right) Diagram I, break even volume at actual cost; (left) standard cost; gins with actual costs higher than standard; (left) Diagram II, brea even volume at actual cost; (right) standard cost; gins with actual costs lower than standard. ’ 20 o I OI methods at standard volume were too slight any significance. The 12 gins with rel- I costs of 79.9 percent or less and the 14 gins y. relative costs of 125.0 percent 0r more were 1 ted for special treatment. Of these 26 gins or 81 percent, had differences of 12 cents or , per bale. The volume and investment of the .- 5 gins are summarized in Table 17. Vol- ‘f; ranged from 31 to 48 percent of the aver- volume of the 130 gins; investments in de- ‘ iable fixed assets ranged from 34 t0 71 per- i of average investments of the 130 gins. Low stment and low volume seemed to cause no- ble differences in costs computed by the two ods. Cost differences per bale ranged from 29 cents j“ cents for the 5 gins. Methodology and re- 'of the two methods of computing costs for dard volume are shown in Table 18. For in- p, ce, actual costs for gin A may be restored ,4; 2,180 bales (Table 17) times $9.57 (volume ‘l per bale) plus $4.752 (nonvolume cost) ; cost tandard volume with unadjusted residual costs ,621 bales times $9.57 plus $4,752; cost for dard volume with adjusted residual costs is 3 times $8.52 plus $7,042. In the high cost gins relative costs were 61.6, I.» and 76.0 percent and in the low cost gins .4 and 154.3 percent. The relatives of costs at dard volume with residual costs adjusted .cost efficiencies and costs at standard vol- unadjusted were 93.8. 96.1 and 96.8 percent if the high cost gins and 107.3 and 109.9 percent - the low cost gins. The relative significance he differences between the costs according to two methods of computation may be measured ‘dividing the percentage divergence from 100 he cost differences by the percentage diver- - from 100 of the relative costs. These divis- gave the following percentages: 12.1. 16.1 16.3 percent for the high cost gins and 13.4 24.5 percent for the low cost gins. 1 Permitting cost efficiencies to be reflected in me costs alone is quite satisfactory. The arities between costs at standard volume by j~ two methods of computation for the 5 gins 16. DISTRIBUTION OF GINS ACCORDING TO RELATIVE COSTS, 1949-50 " 've costs Number of Percentages ‘ entages) gins of total gins i 74.9 5 3.8 I 79.9 7 5.4 84.9 7 5.4 89.9 l3 10.0 94.9 19 14.6 - 99.9 14 10.8 104.9 14 10.8 a -109.9 13 10.0 ' -114.9 9 6.9 A 119.9 7 5.4 -124.9 8 6.2 ‘ - . 5 3.8 - . 2 1.5 2 1.5 5 3.8 130 99.9 D I ...'g .3; i \; - \\\\s\‘\ \o * a 1% \\\\\ gs i.% m? ‘I'I I I'I I I-I I I I'I I I'I I I'I I'I*I'|'I'I >240aIonaI4Iswzozzazszasoszsosssowozuasnqo BulesGinnediool Figure 14. Break-even volume, actual cost at actual and standard income per bale. lose significance with the realization that these low investment gins are a carryover from the 1930’s. VARIATIONS IN ITEMS OF COST AT STANDARD VOLUME Total costs as well as all items of cost were adjusted to standard, or average volume of 5,621 bales. All these totals were reduced to per bale costs and sorted from highest to lowest and list- ed; each cost was identified by the identity num- ber of the gin from which it came. Highest and lowest costs are recorded in Table 19. These cost variations are shown graphically in Figure 16. Since all costs were adjusted to the same volume, the influence of volume on cost was eliminated. The cost variations remaining reflected the influ- ences of factors other than volume. The items of cost in Figure 16 were kept sep- arate. If they had been joined the vertical from a given gin would have passed through the items of cost for that gin. This was not the actual sit- uation. In the listing of the arrays of cost as indicated, the costs of each item as well as total unit costs appeared from highest to lowest for the 130 gins. Gin in position 1, highest cost, po- N b ldfsglgg (Dollars) - a .8 .2‘. $6M firUni 3o .\ \\$ Cos! and Gross Margin o n a n o 3 5 I a |.0 ll! zo 2:5 1'0 ab 4:0 4.: alo is 0:0 as 1.0 1.0 0.0 0:0 0.0 do :0 Unilsof Sules(00) Figure 15. Break-even volume of supply associations, actual cost at actual and standard income per unit (sales of $130). t 21 TABLE 17. VOLUME OF GINNING AND INVESTMENT IN GIN PLANT IN RELATION TO AVERAGE VOL- UME AND AVERAGE INVESTMENT l Gins Items l A l B l C I ' D l E Bales 2180 2313 1938 1755 2711 Volumel Percent of av. 38.8 41.1 34.5 31.2 48.2 Invest- Dollars 23,072 39,741 48,132 30,385 21,775 ment2 Percent of av. 34.1 58.7 71.1 44.9 32.2 Volumel Average volume of 5 gins, 2179 bales, or 38.8 per- cent of average volume of the 130 gins. Investments? Average investment of 5 gins, $32,621, or 48.2 percent of average investment of the 130 gins. sitions 65 and 66, standard cost, and position 130, lowest cost of total unit costs were selected and _the positions of each traced through the various items of cost as pictured in Figure 17. Gin 1 with highest total unit cost did not reg- ister highest in a single item. Its best showing was in miscellaneous cost with position 99; its worst experience was with insurance forging ahead to position 4. Gins 65 and 66 operated at standard total unit cost; they were far from standard in any of the items. They were standard in the total because the item costs “averaged” standard. Each gin had 6 items with position below midpoint and hence in the high cost area and 3 items with positions above midpoint and hence in the low cost area. Gin 65 with position 112 in labor, an advance of 47 positions beyond that of its total unit cost position, made a remark- able showing considering the relative importance of labor cost. This performance in labor was largely cancelled by poor cost experiences in other items, particularly power and insurance. Gin 66 also made a good showing in labor, finding itself in place 80, an advance of 14 positions and made a better record than gin 65 in costs of manage- ment, insurance, trucking and miscellaneous. Gin 66, however, showed a severe setback in power cost, receding to position 2, a loss of 64 positions. Gin 130 with lowest total unit cost did not attain lowest cost in any of the items. This gin had its best cost experiences with labor, repairs, insur- ance, trucking and common costs. slump in position was in miscellaneous cost re- treating to place 30; but more significant was the setback in power cost to place 42 since power rep- resents a much higher percentage of total cost? than miscellaneous. - COST FACTORS OTHER THAN VOLUME Figures 16 and 17 blueprint problems in cos analysis and in managerial control of inputs whic are completely overlooked or neglected in a proaches from the standpoint of volume as th only variable of significance. In the field sche dules taken for 1949-50 from the cooperativ gins, special attention was given to the composi tion of the typical gin crew. The number of me in the crew divided into the total labor cost re duced this item to man-days. The man-days mul tiplied by 12 gave total man-hours of labor. Tot man-hours divided into total costs gave the aver age Wage rate per hour. Hour costs and wag rates were computed for the four cost quarter (Figure 12). tended to positions 1 and 130, gave these dolla costs: $3.49 as highest cost per bale and $1.9 as lowest cost per bale. Differences in hours 0 labor and in wage rates per hour accounted f0 the range of labor cost shown in Figure 16. The range in hour costs was from 4.4 hou = to 2.2 hours. These wide differences indicate very real problem in labor cost. An approach t a solution would involve an intensive study of gin representing these hour-cost differences fro highest to lowest. Such factors as organizatio of the gin crew, the plant layout, the services per’ formed and local situations and peculiarities ar significant. TABLE 18. RELATIONS OF COSTS AT STANDARD VOLUME WITH EFFICIENCIES AND INEFFICIENCIES REFLECTED I» VOLUME COSTS AND IN RESIDUAL COSTS Gins Items A l B l C l D l E Relative costl 61.6 73.6 76.0 140.4 154.3 Relative costs standard volume? 93.8 96.8 96.1 109.9 107.3 Nonvolume Dollars 4752 9162 7391 5851 6432 cost?’ Percent of av. 44.3 85.3 48.2 54.5 59.9 Nonvolume Dollars 7042 10573 8633 4719 4918 cost adj4 Percent of av. 65.6 98.5 80.4 44.0 45.8 Volume cost5 Unadjusted 9.57 9.70 9.23 3.39’ 2.83 Adiusted 8.52 9.09 8.59 4.03 3.39 Average cost‘; Unadiusted 10.42 11.33 10.54 4.43 3.97 Adjusted ‘e71 10.97 10.13 4.27 4.2a Cost difference .65 .36 .41 .44 .291 1 Relative cost: standard cost divided by actual cost. 2 Relative cost standard volume: cost adiusted for efficiencies in residual costs divided by costs with efficiencies reflected volume costs. 3 Nonvolume cost: actual constant costs unadiusted. 4 Nonvolume cost adiusted: constant cost with residual component adiusted to efficiencies.‘ 5 Volume cost: unadiusted efficiencies reflected in volume costs: adiusted with efficiencies reflected in residual costs. ‘i Average cost: unadjusted efficiencies reflected in volume costs,- adiusted with efficiencies reflected in residual costs. 22 The greatest- These quarterly average costs, ex a l} 19. COST BEHAVIOR AT AVERAGE VOLUME OF 5.621 BALES. 130 COOPERATIVE GIN ASSO- CIATIONS, 1949-50 Cost per bale Ratio High cost high cost High Low less to . low cost low cost $3.51 $1.85 $1.66 1.9 _ 1.52 .10 1.42 15.2 r .98 .24 .74 4.1 , -. . 1.25 .61 .64 2.0 I qement .74 .44 .30 1.7 f» ance .64 .40 .24 1.6 ' ollaneous .29 .07 .22 4.1 ~ 0 salaries .46 .32 .14 1.4 ~01: costs 2.17 .19 1.98 11.4 ‘A Trucking costs varied from $1.52 a bale to r cents a bale. This wide difference can be ex- fned in part by the inclusion of "freight and 5: ess charges in trucking costs. In the lower ge of costs no trucking was involved. From '- standpoint of cost analysis it would be pref- ble not to mingle freight and express charges h trucking costs. An adequate analysis of ~ cking costs calls for further details than mere ' es ginned. How many bales and how many is’ of cotton seed were trucked, or what percent- of the totals? How many times were these ucts handled in the trucking service? How ‘was the lint and the cotton seed transported? th such information, many of the differences ftrucking costs could be accounted for. 1. Power costs ranged from 98 cents a bale to 24 1» The gins were not segregated by type of "er in the process of cost analysis. With a con- erably larger sample than 130 cost records and h the main focus on the results rather than the thodology of cost analysis, consideration should doubt be given to type of power. This would = ount for some of the differences in power costs. ormation on quantities of fuel used with sep- te analysis by type of power, or without, would lpto explain cost differences. {A minimum breakdown to afford a better un- standing of the repair item is a classification lder repair labor and repair parts. Some gins Ake this distinction. The identity of the more fportant repair parts would help to distinguish h ween repair parts and replacements. Type of er plays a part in repair costs. Repair costs of electric power unit are of minor importance; f». costs of the steam power unit are a sig- ‘wicant factor, especially if burrs are used as If the influence of investment were taken out cost of management some of the cost differen- _‘.. would be eliminated. If insurance on build- is, machinery and equipment were separated 5m workmen’s compensation and social security, urance would most likely become a common t. Office salaries exhibited the least cost var- 'on of all the items of cost. I Variations in common costs were the second _hest of all the items. Depreciation was the most significant single cost in this group. Dif- ferences in investments and rates of depreciation were factors in common cost variations. As the low investment gins pass out, either through abandonment of the ginning business or through replacements of completely modernized machinery at current price levels, the lower common costs will end. It would be most hazardous to predict that all gin plants will ever be equipped to the same degree or have a like investment. Innova- tions in gin machinery may continue for many years to come. Cost inputs of the 20 supply associations and of the 25 gin-supply associations were found to follow the same general pattern as that of the one-function gins. ASSUMPTIONS OF HOMOGENEOUS COST INPUTS QUESTIONED Differences in ginning costs resulting from influences of other factors than volume as reveal- s ed in Table 19 and Figures 16 and 17 suggest doubts as to one of the fundamental assumptions in cost theory—t.hat of homogeneous cost inputs. An implication in this asumption which theorists have either overlooked or purposely suppressed is the nature of the managerial input. Much sig- nificance is attached to the exercise of propor- tioning the input factors. How can the distur- bances of this activity finally end in homogeneous composite input factors except through “manag- erial mixing?” The collapse of the homogeneous costs input assumption undermines the assumption that vol- ume is the only variable factor. . g= . COMMON COSTS O O F a orr-‘ucs SALARIES lo ° E o ° a 0g unsunmcz i0 f ~ i 15 9 a uanneeusur fio 9 2 0 . 3 g | l 9 z REPAIRS ‘o g E 9* | 1g Q l s. 3 a rowan 8 m o 0 .. (D ‘_ O 3 o u | I r TRUCKING o s a 2 LABOR | I o ........................................................................ ' -| 0g |||||| .115 lll ‘"23 ---- ugs-n-‘o 51° 61° 71° a0 91° '60 "lo ‘[20 ‘so Array of Gins Figure 16. Cost differences in ginning cost items re- sulting from factors other than volume. 23 I0 2o 3o 4o so so 7o so so Ioo IIo I20 I30 IlllllllllllllllllllllllllllllllllllllllIlllllllllIlIlllllllllllllllllIlllllllllIlllllllI[IlllllllllIlllllllLlIlLLL Cost ((\ l» hflsceh Ioneous' I ' T - ‘ "#23 F‘ I I I I I I I I IIPIIIIIIIITI1IIITTIIIIIIIIIIIIIIIIIII ' ITIIIIIIIIIIIIIPIIIIIII!‘IHII1IYTIIIIIIIIIIIIIIIIP’ once ' a / I I \‘ ;‘¥i:’ 4 I. I ~" x £_ ‘b {I I I I I I I I I I L) d Renoir-s I I I I NI, \\",- ‘I i0’ //| IIIIIIIHIIIIIIIIIIIIIIIIIIIIITIIIIIIIIIIITHIIIIIIIIIH "a it! o 3o 4o so so - so HO o I30 Skggggg ‘ ' I I I I I I I I I Mufluos- k I “ °~uv' I I I I I I I I men! F I Total Cost IIWIIIIYYIYTIIIIYYIIIIIIIIIIIIIIIIIIIIIIIIIIIIIYIIIIIIIIUTTTYIIIIIIIWIIIIIIIIIIIUIIIIII‘IIIIlIlilllIlllllllllillllll ARRAYOFMNS Figure 17. All average costs at average volume of 5,6-21 bales. Costs as positions from highest to lowest. G'i with average costs in positions 1, 65, 66 and 130 traced as to their positions in each of the item costs influenced by Y’ ume and in common costs. ' I 2o so 4o - so 1o so so e- o I20 I30 o Io 2o so 4o so so 1o so so I00 IIO I2o reak-even volume is a concept of long stand- ‘with the Texas ginning industry. Break-even ‘me has been a factor in fitting ginning capac- to volume of cotton production. As ginning 5 have increased, ginning incomes have in- ‘ed; this complementary movement of cost jiincome has stabilized break-even volume. iOver the years the volume of ginning of the rative gins has averaged slightly more than _I - that of the other type of gins. The resour- f expended in performing ginning service have _" utilized to better advantage than has been f,case with the other type of gins. Freedom of entry into the ginning business ‘led with optimism as to profit possibilities in 'ng and the ease of financing the business been factors in pushing ginning capacity to »= -even volume on an average. jThe prewar break-even volume of -900 bales qanced to 1,530 bales in 1949-50. This shift been occasioned by a 300 percent increase in l; and a 220 percent increase in income. Pro- id income remains at about the level of 1949- break-even volume will advance to more than 1| bales as the low investment gins either pass i of business or make replacements at current prices. ‘Cost analysis may be implemented in terms of or total unit costs or in terms of items of i; either total or unit. The advantages of the f. approach are many. The behavior of items u is of consequence. Such behavior is large- Qfdden or averaged away in totals. Possibilities controlling or influencing items of cost vary iderably. Cost analysis is usable to manage- I‘ only as effected in terms of items of cost. ‘KFor purposes of investigations of cost behavior advantageous to separate items of costs into ‘e influenced by volume and those not influ- --v by volume. Estimating cost equations re- j ing the volume influence can be derived for former group of items; the latter group is 'ed over intact from actual to estimated costs; j that reason these costs are called “common” _ is discussion. .=The advantage of handling the items uninflu- 1» by volume as common costs is that the ef- ‘ s of wide variations in investments and de- iation rates, irregularities in appraisals for purposes and in tax rates and the like are re- i d to a minimum. ‘The break-even approach offers means of com- ing net margins or losses resulting from actual “nie and cost situations as against what they CONCLUSIQNS would have been if income and costs had been standard or average for the industry. Much would be gained in economic theory in substituting the break-even concept for the vis- ionary least cost concept with its attendant mar- ginal curves. Break-even is real; it emphasizes the survival volume of business; a continued volume less than break-even means certain failure; a con- tinued volume greater than break-even means as- sured business success. Break-even demonstra- tions can be made entirely with actual cost and income data. Tailored data so characteristic of least cost analysis which assumes at the beginning what it proposes to demonstrate are unnecessary in break-even analysis. A reduction of ginning costs, totals and items, to standard or average volume eliminates volume as a variable. With volume eliminated total and items of cost exhibited wide variations. Gin la- bor, for instance, varied from a high of $3.51 a bale to a low of $1.85. These differences can be accounted for in full by the introduction of hours of labor per bale and wage rates per hour. A search for answers for cost variations due to factors other than volume calls attention to a somewhat neglected phase of cost analysis. Con- tributions of cost analysis to increasing manager- ial efficiency with respect to costs flow in large part from this second aspect of costs. Variations in costs are in part traceable to management. Some managers are particularly successful in handling labor, others in attaining high efficiency with respect to powers and others in maintaining the plant at a high state of pro- ductivity through proper attention to repairs. Some managers are more keenly aware of costs in general and exert their influence on a number of costs rather than on single costs, or a few. The assumption of homogeneous costs inputs is dubious in that the managerial imput is by the same token also assumed to be homogeneous. The failure of the homogeneous cost input spells the failure of the assumption that volume is the only variable. The classification of costs into fixed and var- iable is questionable. Variable cost and volume cost are not synonymous as the term variable is a blanket word rather than a specific word. There are numerous kinds of variable costs. Fixed cost on the basis of selected items of cost cannot avoid elements of volume cost with most items. The addition of residual costs remaining after the volume influence has been removed to fixed cost is to introduce variable costs due to other factors than volume. 25 ACKNOWLEDGMENTS Much credit is due Robert L. Smith, Jr., and his staff of the Statistical Laboratory for assist- ance in the preparation of the data and the plan- ning of the punch cards which facilitated the use of the IBM equipment in the analysis essential to this study. W. F. Farrar, Department of Business Admin- istration, was most helpful in developing a work- able standard audit and in facilitating the neces- sary editing in shaping the many unstandardized audits according to the standard mold. Warren LeBourveau, a former staff member of the Department of Agricultural Economics and Sociology, was instrumental in collecting many of the audits used in this study; he implemented the 26 first steps in transferring the audit data to punc cards. I The Texas Federation of Cooperatives and th various regional cooperatives of Texas played a important role in the collection of the audits basi to this study. The kindness of the many lo cooperatives in making their audits available i appreciated. The cartoons in Figure 17 are a contribution 0 Robert H. Cullen of the Texas A&M Press. This bulletin is the last in a series publish under TAES Project No. 728 supported in. pa by Title II funds furnished by the Office of t g Experiment Stations, United States Departme of Agriculture.