Wisconsin Cheese Makers' Association / Proceedings of the Wisconsin Cheese Makers' Association forty-second annual convention November 15, 16, 1933 assembled in the Eagles Auditorium Sheboygan, Wisconsin
Price, Walter V.
Cost of making cheese at four different cheese factories, pp. 46-51 PDF (1.3 MB)
FORTY-SECOND ANNUAL CONVENTION 49 peones of taxes, telephone, insurance, light and power, trucking, fuel, washing powder, repairs, miscellaneous and depreciation. Net income is calculated by subtracting the total cost of manufacture from sales. Net income, therefore, represents the money which must be used for paying for milk, interest, notes, mortgages, dividends, and finally profits, if any. Like most certified accountants, those involved in this study did not include interest on the investment as a cost of production. Interest which is paid for the use of money is an expense to the business and as such must be deducted from the net income before a profit or loss can be declared. But interest payments for the use of capital should be regarded as an expense of organization or financing rather than a cost of manufacturing. The net income in table 2 has been reduced to show the net income per pound of cheese and for 100 pounds of 3.5 per cent milk. The results are widely different for the four plants. Obviously these dif- *ferences must be caused by excellent returns from sales or by low making costs. Examination of figure 2 and table 4 may throw some light on this point. Figure 2 shows the costs of making a pound of cheese at the four different plants. Factories B and C have identical costs of making. Plant A has a slightly lower cost, but plant D is distinctly lower than all the rest. This figure is shown especially, however, to illustrate the differences in the costs of labor, supplies and burden at these four factories. Factory A divides the costs about equally between the three items,-1/3 to labor, 1/3 to supplies and 1/3 to burden. Fac- tory B spends about the same as A for burden, reduces labor costs, but then throws away this advantage by spending almost as much for supplies as for the other two items put together. Factory C spends about the same as A for labor and sharply reduces his supply cost, but then finds that his large burden cost practically equals the total he spends for labor and supplies. Factory D spends more for labor than any of the other plants and then makes it up by reducing supply and burden costs to less than the amounts paid by any of the other plants. Each plant excels in some phase of production and then dis- sipates the advantage with a slump in some other phase. What would this picture have been if each operator had known his costs month by month and had been able to compare them with those of the others? We venture a guess that factory B, for example, would have watched his supplies more closely, and that factory C would have looked very critically into the item of burden. But there are still some discrepancies because factory C with a high cost of making shows, according to table 2, a greater net income per 100 pounds 9f 3.5 per cent milk than any of the other plants, while factory D with the lowest making cost shows the lowest net income. This emphasizes the advantage which the C factory had in sales over factory D. Factory D made twins, perhaps because twins were the custom, so to speak, but the advantage in reduced costs because of
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