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GREENHOUSE COST MANAGEMENT

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

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GREENHOUSE COST MANAGEMENT

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  1. GREENHOUSE COST MANAGEMENT Dr. Robin G. Brumfield RCE Specialist in Farm Management

  2. Sponsors • Risk Education CSREES/USDA Northeast Risk Management Center • Rutgers Cooperative Extension • Office of Continuing Professional Education

  3. Green Industry • One of the fastest growing ag sectors • 2nd largest sector after crops • Most important sector in 5 states including NJ • Consists of floriculture and nursery • Nursery gross receipts were down in 2001, but floriculture still increased

  4. Challenges to the Industry • Public concern about chemicals & water pollution • Stalled economy • Shift to a mature market • New regulations • Labor • Market segmentation • Rising costs, but flat prices • Changing technology

  5. Financial Management is Critical to Success in: • Budgeting • Managing Cash Flow • Controlling Credit • Pricing • Obtaining Capital • Profitability • Planning

  6. OBJECTIVES • Identify items with low cost = Comparative Advantage • Identify items with high cost - Reduce them!

  7. Costs Vary From Grower to Grower Because of: • Size of operation • Location • Managerial practices • Time of year • Market channel • Volume of production

  8. Costs Vary From Grower to Grower Because • Other options for greenhouse space • Size of permanent crew • Availability of part-time labor • Type of heating system • Greenhouse layout • How quickly you pay suppliers

  9. Everyone’s Costs are Different! Calculate Your Costs for Your Firm!

  10. Tools for Cost Accounting • Income Statement • Spreadsheet

  11. Overhead Costs • Also called Fixed Costs • Total overhead costs remain constant as production increases • Costs per unit decrease as more units are produced

  12. Salaries Depreciation Interest Repairs Taxes Insurance Land Rental Contributions Heat Advertising Dues & Subscriptions Travel & Ent. Office Expenses Professional Fees Bad Debt Overhead Costs

  13. Items from Income Statement(20,000 square foot double poly) • Sales $182,610

  14. Income Statement (20,000 square foot double poly) • Directs costs • Seeds, cutting, or plant $ 19,092 • Pots or containers $ 9,490 • Growing medium $ 9,150 • Fertilizer and chemicals $ 1,130 • Tags $ 3,788

  15. Salaries and Wages • Overhead salaries (including benefits) $ 37,384 • General wages (including benefits) $ 12,111

  16. Utilities • Heating fuel $ 20,000 • Electricity $ 3,350 • Telephone $ 1,480

  17. Overhead • Depreciation $ 16,750 • Interest $ 16,800 • Repairs $ 3,725 • Taxes $ 550 • Insurance $ 3,240 • Advertising $ 485 • Dues and subscriptions $ 100

  18. Overhead (continued) • Travel and entertainment $ 345 • Office expense $ 314 • Professional fees $ 550 • Truck expense & eq. rental $ 7,150 • Land rental $ 2,000 • Contributions $ 18 • Bad debts $ 925 • Miscellaneous $ 550

  19. Space Utilization • Greenhouse area 20,000 (ft²) • Space used for production 75% • Weeks in operation 29 weeks

  20. Variable Costs • Variable Costs • Also called Direct Costs • Total variable costs increase as production increases • Cost per unit is constant

  21. Variable Costs • Material costs • Flats • Inserts • Seedlings • Media • Labels • Chemicals • Production labor

  22. Petunia Production Number of units started 5,000 Square feet per unit 1.64 Weeks to grow 8 Percent sold 98% Sales price $6.50

  23. Variable Costs of Petunia Production Cost Crop Flat Labor $3,385 $0.68 Seeds 1,320 0.41 Containers 2,900 0.68 Growing media 2,750 0.25 Fertilizer & Chemicals 155 0.03 Tags 823 0.16

  24. Steps to determine costs per unit • Enter Direct Costs • Program will allocate these to each crop • Other costs will be treated as Overhead Costs • Overhead cost is $0.267 per sq. ft.-wk.

  25. Firm XYZ Production Schedule Item Petunia Marigold Geranium Geranium Pointsettias Flats Flats Flats 4-inch 6-inch No. of units 5,000 3,000 5000 10,000 15,000 Sq. ft./unit 1.64 1.64 1.64 0.11 1.00 Weeks 8 6 13 6 15 % sold 98% 98% 98% 95% 95% Price $6.50 $6.50 $10.00 $1.20 $5.00

  26. Firm XYZ Costs Item Petunia Marigold Geranium Geranium Pointsettias Flats Flats Flats 4-inch 6-inch Sales $31,850 $19,110 $49,000 $11,400 $71,250 Profit/crop $2,998 $4,430 $2,519 $4,790 ($2,605) Profit/unit $0.61 $1.51 $0.51 $0.50 ($0.18) Profit/sq.ft. $0.05 $0.15 $0.02 $0.73 ($0.01) Sq.ft.-wk Price $6.50 $6.50 $10.00 $1.20 $5.00

  27. Greenhouse Cost Accounting Program • Requires Microsoft Excel • Contact :Dr. Robin Brumfield Brumfield@aesop.rutgers.edu

  28. Costs : • Are grower specific. • Vary with production and marketing decisions. • Vary with • Market conditions • Labor supply • Age & condition of greenhouse • Managerial skill. • Should be calculated for your firm!

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