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 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

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

Financial Management is Critical to Success in:

Budgeting Managing Cash Flow Controlling Credit Pricing Obtaining Capital Profitability Planning

OBJECTIVES

Identify items with low cost = Comparative Advantage Identify items with high cost - Reduce them!

Costs Vary From Grower to Grower Because of:

Size of operation Location Managerial practices Time of year Market channel Volume of production

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

Everyones Costs are Different!

Calculate Your Costs for Your Firm!

Tools for Cost Accounting

Income Statement Spreadsheet

Overhead Costs

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

Overhead Costs

Salaries Depreciation Interest Repairs Taxes Insurance Land Rental Contributions

Heat Advertising Dues & Subscriptions Travel & Ent. Office Expenses Professional Fees Bad Debt

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

Sales

$182,610

Income Statement (20,000 square foot double poly)

Directs costs
Seeds, cutting, or plant Pots or containers Growing medium Fertilizer and chemicals Tags

$ $ $ $ $

19,092 9,490 9,150 1,130 3,788

Salaries and Wages

Overhead salaries (including benefits) General wages (including benefits)

$ 37,384 $ 12,111

Utilities

Heating fuel Electricity Telephone

$ 20,000 $ 3,350 $ 1,480

Overhead

Depreciation Interest Repairs Taxes Insurance Advertising Dues and subscriptions

$ $ $ $ $ $ $

16,750 16,800 3,725 550 3,240 485 100

Overhead (continued)

Travel and entertainment Office expense Professional fees Truck expense & eq. rental Land rental Contributions Bad debts Miscellaneous

$ 345 $ 314 $ 550 $ 7,150 $ 2,000 $ 18 $ 925 $ 550

Space Utilization

Greenhouse area 20,000 (ft) Space used for production 75% Weeks in operation 29 weeks

INPUT SECTION 1
Values from Income Statement

Sales: Sales Direct Costs: Seeds, cuttings, or plants Pots or containers Growing Media Fertilizer and chemicals Tags Others Salaries: Overhead salaries FICA Unemployment insurance Workmen's compensation Wages: General wages FICA Unemployment insurance Workmen's compensation Utilities: Heating fuel Electricity Telephone Water Overhead: Depreciation Interest Repairs Taxes Insurance Advertising Dues and subscriptions Travel and entertainment Office expense Professional fees Truck expense and equip. rental Land rental Contributions Bad debts Miscellaneous Greenhouse Area (in square feet) Greenhouse Space Used for Production (%) (Example: Enter 75% as 75, 125% as 125) Weeks in Operation (52 if a full year)

Variable Costs

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

Variable Costs

Material costs Flats Inserts Seedlings Media Labels Chemicals Production labor

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

Variable Costs of Petunia Production

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

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.

INPUT SECTION (2)

Crop Name Petunia flats Marigold flats Geranium flats Geraniums 4-inch pots

Labor $
$3, 385. 00 $2, 031. 00 $3, 385. 00 $1, 240. 00

Seedstock $
$1, 320. 00 $792. 00 $7, 920. 00 $660. 00

Containers $
$2, 900. 00 $1, 740. 00 $2, 900. 00 $600. 00

Media $
$2, 750. 00 $1, 650. 00 $2, 750. 00 $500. 00

Firm XYZ Production Schedule

Item Petunia Marigold Geranium Geranium Pointsettias Flats Flats Flats 4-inch 6-inch

No. of units 5,000 Sq. ft./unit 1.64 Weeks 8 % sold 98% Price $6.50

3,000 1.64 6 98% $6.50

5000 1.64 13 98% $10.00

10,000 0.11 6 95% $1.20

15,000 1.00 15 95% $5.00

Firm XYZ Costs

Item Petunia Flats Marigold Geranium Geranium Pointsettias Flats Flats 4-inch 6-inch

Sales

$31,850

$19,110

$49,000

$11,400

$71,250

Profit/crop $2,998 Profit/unit $0.61 Profit/sq.ft. $0.05 Sq.ft.-wk Price $6.50

$4,430 $1.51 $0.15 $6.50

$2,519 $0.51 $0.02 $10.00

$4,790 $0.50 $0.73 $1.20

($2,605) ($0.18) ($0.01) $5.00

Greenhouse Cost Accounting Program

Requires Microsoft Excel Contact :Dr. Robin Brumfield Brumfield@aesop.rutgers.edu

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!