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

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

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

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

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

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

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

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

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

11. Tools for Cost Accounting Income Statement Income Statement Spreadsheet Spreadsheet

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

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

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

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

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

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

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

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

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

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

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

24. 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

25. Variable Costs of Petunia Production CostCropFlat 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

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

28. Firm XYZ Production Schedule ItemPetuniaMarigoldGeraniumGeraniumPointsettias FlatsFlatsFlats4-inch6-inch No. of units 5,0003,000500010,00015,000 Sq. ft./unit 1.64 1.641.64 0.111.00 Weeks 8613615 % sold 98%98%98%95%95% Price$6.50$6.50$10.00$1.20$5.00

29. Firm XYZ Costs ItemPetuniaMarigoldGeraniumGeraniumPointsettias FlatsFlatsFlats4-inch6-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

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

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