text: UFDC Home | Help | RSS TABLE OF CONTENTS HIDE Historic note Title Page Main Group Title: Circular - University of Florida Institute of Food and Agricultural Sciences ; 436 Title: A guide for estimating foliage plant costs CITATION THUMBNAILS PAGE IMAGE ZOOMABLE Full Citation STANDARD VIEW MARC VIEW Permanent Link: Material Information Title: A guide for estimating foliage plant costs Series Title: Circular Physical Description: 15, 1 p. : form ; 23 cm. Language: English Creator: Gunter, Dan LOtte, John AFlorida Cooperative Extension Service Publisher: Florida Cooperative Extension Service Place of Publication: Gainesville Fla Publication Date: 197- Subjects Subject: Foliage plants -- Costs ( lcsh )Foliage plant industry ( lcsh ) Genre: government publication (state, provincial, terriorial, dependent) ( marcgt )non-fiction ( marcgt ) Notes Statement of Responsibility: Dan L. Gunter and John A. Otte. General Note: Cover title. General Note: "4-2.5M-78"--p. 16 Funding: Circular (Florida Cooperative Extension Service) ; Record Information Bibliographic ID: UF00067096 Volume ID: VID00001 Source Institution: University of Florida Rights Management: All rights reserved by the source institution and holding location. Resource Identifier: oclc - 20536070 Table of Contents Historic note Unnumbered ( 1 ) Title Page Page 1 Page 2 Main Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 436 A Guide for Estimating Foliage Plant Costs Dan L. Gunter and John A. Otte Florida Cooperative Extension Service Institute of Food and Agricultural Sciences University of Florida, Gainesville John T. Woeste, Dean for Extension A GUIDE FOR ESTIMATING FOLIAGE PLANT COSTS Dan L. Gunter and John A. Otte* Most foliage nurserymen seek maximum profits. This requires production of the most profitable foliage plant varieties, sizes and quantities. Both technical and management ability are re- quired. To determine which plants can be most profitably pro- duced, a nurseryman must: 1. determine technical ability to grow the individual plants, 2. compare expected market prices of individual plants with production costs, and 3. compare expected net returns among plant varieties and sizes on a common basis. Successful foliage plant production requires horticultural ex- pertise which is developed through experience, consultation with other growers, and reading current literature. However, growers cannot base production decisions solely on plant growing ability. Market price and production costs need consideration. Knowl- edge of individual plant costs allows managers to base produc- tion decisions on profits. An approach for approximating plant costs from existing records is presented in this report. Additionally, we show how to relate these costs to market prices and nursery profits. Procedure For Plant Costs Estimation Most nurserymen can allocate some of their annual pro- duction costs to individual plants. Usually, cutting and container costs can be determined for each plant size and variety. Few nurserymen allocate the other production costs to the individual plants. The remaining costs can be allocated on a "rent" basis. Plant cost is the sum of the allocated costs (cutting and con- tainer) plus the "rent." The "rent" each plant should be charged is based on the amount of growing space required and the amount *DAN L. GUNTER is an Extension Production Economist, University of Florida, Food and Resource Economics Department, Gainesville, Florida. JOHN A. OTTE is -an Area Extension Farm Management Economist, Food and Resource Economics Department, University of Florida, AREC, Braden- ton, Florida. of time required to grow the plant. Typically, the annual rental rate is in terms of cost per square foot and is calculated as: Rental rate/sq. ft.=a+b+c d where: a=unallocated annual nursery cost, b=desired return on investment, c=supply inventory changes (+decrease) (-increase), and d=square feet in propagating and finishing space. (a) Unallocated Annual Nursery Costs The total annual nursery costs can be obtained from the in- come tax report or other accounting records. Subtracting allo- cated costs such as container and cutting expenses gives total un- allocated costs. The unallocated costs should include all cost categories which cannot be directed to individual plants. (b) Desired Return on Investment The desired annual return on the investment can be included as an unallocated cost and distributed to each plant along with the other unallocated costs. One way to arrive at the annual return is to multiply the depreciated book value of all capital assets by the desired rate of return. The value of buildings and equipment can be taken from the depreciation schedule or net worth statement. Values of the plant inventory and land should be added to the investment in buildings and equipment. The de- sired rate of return depends upon the individual nurseryman's investment opportunities. A common rate is the interest rate which could be earned if the capital in the nursery were in- vested elsewhere. (c) Supply Inventory Changes Unallocated costs should also be adjusted for supply inven- tory changes of those inputs for which a cost is not allocated directly to the plant. An increase in the supply inventory value means that more supplies were purchased than were used in production. Thus, the unallocated costs should be reduced by the value of the supply inventory increase. Conversely, a decrease in the supply inventory value should be added to the unallocated nursery costs for the accounting year. (d) Square Feet in Propagating and Finishing Space The total area in the nursery usually includes propagating and finishing areas, stock plant areas, roads, assembly areas, potting and packing areas, and aisles. The non-growing artes and stock areas, although necessary, do not directly contribute to plants for sale. Additionally, the propagating space may not contribute directly to plant sales in some nurseries. If cuttings are not directly stuck but rooted in propagating beds, then the propagation space should be treated as stock areas and excluded from the square feet in the growing areas. If cuttings are di- rectly stuck into individual containers, then include these areas in the growing space. Since the costs associated with the non- productive and stock plant areas (and in some cases propagating areas) are included in the annual nursery costs, the "rent" for the productive areas will cover the costs associated with non- productive areas. Plant Cost Estimation Nurserymen may use the work sheet provided on the last page of this publication to calculate the individual plant costs. Space is provided for the necessary calculations along with in- structions for completing the work sheet. Estimating the plant costs for the Green Foliage Nursery illustrates the application of the work sheet. Mr. Green has 81,250 square feet in production. Of this amount 15,000 square feet are in stock plant production, anid 16,250 square feet are de- voted to aisles leaving 50,000 square feet from which plants can be sold. Exhibit 1 provides production information on the plants Exhibit 1. Green Foliage Nursery Production and Sales, 1976 Percent Sq. ft./ plant Weeks to Allocated Selling Plant container losses grow costs price 3" Corda- tum* .111 (4" 10 13 $ .15 $ .31 centers) 3" Peper- omia .111 (4" 10 9 $ .16 $ .21 centers 4" Zebra .444 (8" 10 24 $ .09 $1.40 centers) Philodendron scandens. that Mr. Green produces. Mr. Green can allocate the cutting and container cost directly to each plant. The three inch containers cost $.03, and the four inch containers cost $.05. Three Cordatum cuttings costing $,04 each are used in each container, while two Peperomia tips costing $.065 each are used in each container. One Zebra tip costing $.04 is used in each container. The sum of the container cost and cutting or tip cost is shown as the allocated cost for each plant. Exhibit 2 shows the nursery costs for 1976. The costs include a supply inventory decrease of $2,781. Total costs for the nursery were $256,010 during 1976. Exhibit 3 shows an investment in the nursery of $231,639. This includes Exhibit 2. Green Foliage Nursery Production Costs, 1976 Item Dollars Cash costs Operator's salary $ 22,141 Other wages & salaries 69,064 Plants & seeds to grow on 48,711* Pots, growing containers 17,762* Fuel oil for prod. heat 6,549 Peat, soil, shavings, etc. 4,118 Fertilizer and lime 1,371 Pesticides & other chemicals 5,022 Packing boxes & supplies 9,304 Repairs & maintenance 8,030 Equipment operating costs 3,606 Travel & entertainment 846 Insurance 4,225 Telephone & electricity 4,401 Taxes, licenses, bonds 3,043 Advertising 331 Rent; land and/or buildings 878 Other cash expenses 29,175 Total cash costs $238,577 Non-cash costs Depreciation machinery & equipment $ 6,607 Depreciation buildings, etc. 8,045 Inventory decreases, supplies (except containers) 2,781 Total non-cash costs $ 17,433 Total all costs $256,010 A cost Mr. Green can allocate directly. the cost of land at the original purchase price. Mr. Green desired a 10 percent return on the nursery investment. Work Sheet Instructions and Explanation Column 1. Names of the plants Mr. Green produces, listed in Exhibit 1, are entered in Column 1 of the work sheet. Column 2. The unallocated cost per square foot per week is cal- culated in the space provided. The unallocated annual cost from Exhibit 2 is calculated by subtracting the costs which can be al- located (plants-$48,711 and pots-$17,762) from the total nurs- ery costs of $256,010. Enter the unallocated cost, $189,537, on line a. The capital investment from Exhibit 3, $231,639, is en- tered on line b. The desired rate of return (10 percent) is en- tered on line c. The annual return on the investment is calculated by multiplying the amount on line b, $231,639, by the desired rate of return on the investment, 10 percent, line c. The product is entered on line d. The annual unallocated cost on line a, $189,537, is added to the annual investment cost, $23,164; and the sum, $212,701, is entered on line e. Exhibit 3. Green Foliage Nursery Investment, 1976 Item Dollars Growing plants $ 94,512 Buildings & improvements 86,768 Machinery & equipment 25,742 Land 15,949 Supplies 8,668 Total $231,639 The square feet in propagating and finishing space (50,000) is entered on line f. The annual unallocated cost per square foot in propagating and finishing space is calculated by dividing the amount on line e by the square feet on line f. The annual unal- located cost per square foot in propagating and finishing space, $4.25, is entered on line g. The number of weeks in production is then entered on line h; this should be 52 for nurseries oper- ating a full year. Finally, the unallocated cost per square foot per week including the desired return on the investment is cal- culated by dividing the amount on line g by the weeks on line h, 4.25+52. The unallocated cost per square foot per week (or weekly rental rate), .082, is entered on line i and in Column 2 for each plant for which a cost estimate is desired. Column 3. The number of weeks required to grow each plant to salable size, as provided in Exhibit 1, is entered in Column 3. For example, the Zebra requires 24 weeks to grow. The growing time used should include time that the bench is open for cleaning or repairs before a new crop is placed for growing. Column 4. The square feet required to grow the plant should be entered in Column 4. The square feet should be in decimal terms rather than fractions. For example, if 1/2 square foot is required, then enter ".5". Spaced on four inch centers, the three inch material Mr. Green grows requires .111 of a square foot (4X4+144 square inches per square foot). The Zebra plants re- quire .444 of a square foot (8X8+144 square inches per square foot). Column 5. The unallocated cost per plant is calculated by mul- tiplying the amounts in Column 2, 3, and 4 for each individual plant. The product should be entered in Column 5. Column 6. The allocated cost for each plant from Exhibit 1 should be entered in Column 6. In Mr. Green's case, the allocated costs per plant are the cuttings, tips, and containers. The allo- cated costs are $.15 for the Cordatum, $.16 for the Peperomia, and $.09 for the Zebra plants. Column 7. The tptal cost per plant is the sum of the allocated (Column 6) and unallocated (Column 5) costs. The sum of Column 5 and Column 6 should be entered in Column 7. In Mr. Green's nursery the Cordatum costs $.27, the Peperomia, $.24, and the Zebra, $.96. Column 8. Not all plants reach a salable size because of damage in handling, among other things. Thus, the cost per plant needs to be adjusted for these losses. To do this, the per- centage of the crop expected to reach a salable size should be entered in Column 8. For the Green Foliage Nursery, 90 percent of each plant crop is expected to reach a salable size. Column 9. The plant cost adjusted for plant losses is calculated by dividing the amounts in Column 7 by the respective percent- ages of salable plants in Column 8. The adjusted plant costs are entered in Column 9. After adjusting for losses, Mr. Green's Cordatum costs $.30, the Peperomia $.27, and the Zebra $1.07. Management Information Returns for each type plant can be analyzed in three im- portant ways. First, the return can be calculated by comparing the individual plant cost to the market price; secondly, the re- turns can be compared on a common space basis-a square foot; finally, the returns can be analyzed on a common space (a square foot) and a common time basis (a year). Exhibit 4 summarizes the costs and returns for the Green Foliage Nursery and illus- trates the alternative ways of comparing returns from different plants. Exhibit 4. Comparison of Costs and Returns for Green Foliage Nursery, 1976 Plant 3" 3" 4" Item Unit Cordatum Peperomia Zebra Selling price $ 0.31 0.21 1.40 Adjusted plant cost $ -0.30 -0.27 -1.07 Return over cost & return on investment per plant $ 0.01 <0.06> 0.33 Sq. ft. per plant Sq. ft. +0.111 0.111. +0.444 Return over cost & return on investment per sq. ft. per crop $ 0.09 <0.54> 0.74 Crops per year crops X4.0 X5.78 X2.17 Return over cost & return on investment per sq. ft. per year $ 0.36 <3.12> 1.61 Returns Over Cost and Return on Investment Per Plant For the Green Foliage Nursery, the Cordatum costs $.30 per plant, the Peperomia costs $.27 per plant, and the Zebra costs $1.07 per plant. Comparing the plant costs to the selling price, Mr. Green earns a return of $.01 on the Cordatum, $.33 on the Zebra, and loses $.06 on the Peperomia. Returns Over Cost and Return on Investment Per Square Foot On the basis of a square foot, Zebra has a return of $.74 ($.33+.444) a square foot per crop; the Cordatum returns $.09 per square foot per crop, and Mr. Green loses $.54 per square foot per crop on the Peperomia. Returns Over Cost and Return on Investment Per Square Foot Per Year On an annual basis, the Zebra can be expected to return $1.61 per square foot (2.17 cropsX$.74), and the Cordatum is expected to return $.36. Mr. Green will be losing $3.12 per square foot in production of the Peperomia. Clearly, there are production and marketing adjustments that Mr. Green should consider. Cautions 1. The individual plant costs calculated by this method are only approximations of actual cost. 2. The cost per square foot is an average. Using an average implies that all square feet in the nursery -are equal in value. 3. The nursery plant costs calculated from last year's records are history. When input prices are increasing, the plant costs may be underestimated and vice versa. Thus, plant cost estimates should be updated as soon as the appropri- ate information is available. When large increases in input prices are expected nurserymen may even project their annual costs. 4. The annual production costs should be adjusted for changes in supply inventories during the accounting period. 5. Production practices and costs will differ from those used in the example. Care must be used in drawing conclusions about plant costs in other nurseries based on the example. 6. Consider factors in addition to the plant cost estimates when establishing price lists. It may be necessary to grow plants providing lower returns in order to complete a prod- uct mix. Competitors' price lists might also be helpful in developing price lists. 5"Cord&tum .02- /3 11 .12. ./ .27 .90 .30 2 3" Pperoia .082 11 .Os .16 .24 .10 .27 3. ZebrA .0o2 __ .44f .27 .01 .16 0 1.07 4. 5. 6. 7. 8. 9. 10. 7. ___________---------------------------------------------___ ___------ 8. ___________ _______------------------------------------------ 9.0. --------- -----------------------------------------------------____ _____ _____ ____ Instructions: Column 1. Enter the individual plant names for which a cost will be estimated. Column 2 Calculate unallocated cost per square foot per week as follows: a. Unallocated annual costs (from nursery records) . b. Investment in nursery operation . .31 c. Desired rate of return .......... /O0 d. Investment cost (b X c) . . . . 236. e. Annual costs plus investment cost (a + d) ....... 2 270I f. Square feet of propagation and finishing ........... .'0000 g. Annual unallocated cost/sq.ft. in propagation & finishing ( e+f) 2 h. Weeks in operation (52 if a full year) ........... .. 5'2 i. Unallocated cost/sq.ft./wk., including a return on investment (g h) 82. (Y2). 2. 3. 4. 5. 6. 7. 8. 9. 10. Instructions: Column 1. Enter the individual plant names for which a cost will be estimated. Column 2 Calculate unallocated cost per square foot per week as follows: a. Unallocated annual costs (from nursery records) ......... ___ b. Investment in nursery operation ...... . c. Desired rate of return . ..... .... d. Investment cost (b X c) . . . ... e. Annual costs plus investment cost (a + d) ............ f. Square feet of propagation and finishing .. . ...... g. Annual unallocated cost/sq.ft. in propagation & finishing ( e f) . h. Weeks in operation (52 if a full year) . . .... i. Unallocated cost/sq.ft./wk., including a return on investment (g+h). fl IFAS EIL7iI I NIERIT O FORD This publication was printed at a cost of $266.20, or 10.6 cents per copy, to aid nurserymen in estimating individual plant costs.. 4-2.5M-78 COOPERATIVE EXTENSION WORK IN AGRICULTURE AND HOME ECONOMICS (Acts of May 8 and June 30, 1914) Cooperative Extension Service, IFAS, University of Florida and United States Department of Agriculture, Cooperating K. R. Tefertiller, Director 33292A Contact Us | Permissions | Preferences | Technical Aspects | Statistics | Internal | Privacy Policy © 2004 - 2010 University of Florida George A. Smathers Libraries.All rights reserved. Acceptable Use, Copyright, and Disclaimer Statement Last updated October 10, 2010 - - mvs