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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
(1934)

Price, Walter V.
Cost of making cheese at four different cheese factories,   pp. 46-51 PDF (1.3 MB)


Page 49


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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