A guide to uniform

COST AND HNANCIAL ACCOUNTING

for poultry processors

Agriculture Handbook No. 2 1 3

Economic Research Service

Marl<eting Economics Division

UNITED STATES DEPARTMENT OF AGRICULTURE
\

A GUIDE TO UNIFORM COST

AND FINANCIAL ACCOUNTING

FOR POULTRY PROCESSORS

Part I. Cost Reporting on a Plant-Wide Dasis

page 5

Part n. Cost Reporting on a Department Basis

page 18

Part in. Cost Reporting on a Budgetary Basis

page 44

JUNE 1961 Growth Thrw|b Apcuttural Progress

UNITED STATES DEPARTMENT OF AGRICULTURE

Economic Research Service

Marketing Economics Division

For sale by the Superintendent of Documents, U.S. Government Printing Oifice, Washington 25, D.C. - Price 70 cents
DEVELOPMENT AND USE OF THIS GUIDE

By Robert M. Conlogue and Norris T. Pritchard l/

Economic Research Service

Poultry processing during the past I5 to 20 years has grown enormously.

It was formerly a comparatively small industry made up of thousands of small

companies located in hamlets, towns, and farm market areas of large cities.

Now it is a multimillion dollar industry composed, in the main, of approximately 600 highly mechanized commercial plants located mostly in major poultry

producing areas. These plants are capable of processing well over 1-g- billion

chicken broilers and many millions of turkeys and fowl per year. Some plants

specialize in one type of poultry while others process all types that are of

commercial importance. During this phenomenal growth, the type of broiler

processed has changed from cockerels and culls from laying flocks to specialized broilers slaughtered at 8 to 10 weeks of age with a live weight of 3 to 4

pounds. The type of equipment now used makes possible the mass handling of up

to 10,000 broilers per hour with the savings usually resulting from large-volume operations.

During many of the early years of this expansion period, prices were sufficiently high and margins wide enough so that errors in judgment by management

and inefficiencies from other causes often did not threaten the survival of a

firm. However, in more recent years, increasing competition among plants in

different growing areas and among plants in the same areas has forced prices

and margins down. Currently, net returns are measured in small fractions of a

cent per pound. Thus, small errors in managerial judgment and inefficiencies

in operation can be most serious, even disastrous.

To avoid such occurrences, a few owners and plant managers have insisted

on the development of detailed recordkeeping systems. In the equipment field,

highly trained engineers were responsible for the development of equipment now

in use. In the feed field, highly trained experts developed high conversion

feed mixes as well as financing programs, and in the breeder stock field, experts, through much research, developed strains of broilers capable of growing

to marketable size in 8 to 10 weeks on a minimum of feed. But recordkeeping,

with some notable exceptions, often has been in the hands of inadequately

trained in-plant personnel or left to outside local accountants who prepared

statements periodically, generally for tax purposes. In a few of the larger

and more successful firms, as noted above, highly trained accountants were

brought in to set up a system of accounts and managerial reports fully adequate to keep management advised and aware of operating efficiencies as well

as difficulties. Unfortunately, this particular area was considered by many

companies as less important than operational techniques and was permitted to

1/ The authors of this introductory section supervised the contract with

Haskins & Sells under which this Guide was developed and tested by the accounting firm. All other parts of the Guide were prepared by personnel of

Haskins & Sells.

ill
lag behind growth in other areas. It is probable that this factor has contributed to the failure of many plants.

The U. S. Department of Agriculture in its marketing research work with

poultry processors became aware of these deficiencies in recordkeeping in the

early fifties, while making detailed cost and efficiency studies of the marketing of farm products. To get comparable, standardized cost data, it was often

necessary for both Department and plant personnel to spend much time and effort

in going through voluminous files for detailed records of plant operations,

putting those records together in usable form, and preparing reports for industry, Congressional committees, and others who might be interested. These studies and reports were the responsibility of the Department under the Research

and Marketing Act approved by Congress in I9U6. These cost and efficiency

studies provide industry, the Congress, and the public with information on how

much it costs to produce and market farm products and with closely related information useful in the making of decisions affecting the marketing of farm

products.

In 1956 and 1957 Department officials discussed the design of a uniform

cost system for poultry processors with members of poultry trade associations

and processors in several producing areas. It was almost universally agreed

that a uniform cost system would be of substantial benefit to the industry and

also would enable the Department to put its cost and efficiency studies on a

more current and accurate basis. In 1957, the Department contracted with

Haskins 8c Sells, certified public accountants, to design and test a cost and financial accounting system for poultry processors. This firm assigned a group of

its specialists to study the industry, interview processors, observe plants in

operation, and determine cost centers. A cost system was designed, printed,

and reviewed by several processors. A revised draft of the Guide, incorporating recommendations made by industry, was prepared. This revision provided for

three alternative systems, one for small plants interested only in overall

plant costs, another for larger plants interested in a departmental breakdown

of costs, and a third for those plants also interested in budgetary control.

Fundamentally, all three systems are the same, but the departmental and budgetary systems go into more detail, providing management with tools enabling them

to maintain departmental control and, in the budgetary system, goals toward

which to work.

To determine further the adequacy of the system, it was tested experimentally for a year in several plants of varying sizes and plants specializing in

different types of products, located in the more important producing areas.

This trial, under the close supervision of Haskins & Sells, called for quarterly operating reports from the cooperating plants. These reports, and personal conferences with the firms using the new accounting system, provided

Haskins & Sells with the necessary knowledge of the strengths and weaknesses

of the system. Again, the Department made slight modifications before publication in this Guide.

The reports made by the several poultry processors testing the systems

permit weak points in a plant's operations to be detected. Low productivity,

low yield, high unit labor costs, and high overhead, often previously unnoticed

or undocumented are among the impi)rtant cost items to be brought to management's

attention, upon adoption of the system.

IV
Some of the participating plants, to obtain maximum benefits from the new

system, not only made changes in the composition of their records, but also

made many mechanical adjustments or bought additional equipment. These changes

included scales for weighing birds at the plant, automatic weighing of birds

channeled into the cutting department, written reports by plant foremen and

others showing duration of line stoppages and reasons therefor, and other alterations of a more minor nature. The deficiencies found in plant operations,

formerly overlooked, convinced plant managers of the necessity for adequate

record control in order to maintain efficiency.

Use of the accounting systems set forth in this Guide require no preliminary explanation. Readers who have no more than a rudimentary knowledge of

bookkeeping or accounting probably will have no difficulty with Part I, which

explains the system designed for a relatively small plant. Most readers of

Parts II and III will find their knowledge of accounting principles of conside]>-

able aid in understanding the systems and procedures designed for the larger,

departmentalized plant. However, the entire Guide has been written with as

little technical language as the subject matter permits.

Plant accounting personnel, after studying this Guide and before deciding

whether or not to adopt the recommended accounting procedures, may wish to

study a complete set of their plant records covering a week or a month, that

show the full movement of birds from pickup at the farm until arrival at consumer markets. They can go through the manual step by step, determining

whether present plant records are available or adequate to fulfill the requirements of the system. If records are not available or adequate, the accountants

should determine the changes necessary for conformity with the Guide and take

the matter up with management. If manageiiient considers the changes advisable,

the new system then can be put into actual use.

Reports, in addition to those suggested in the manual, may be prepared

for management, if desired, using data compiled from plant records. There may

be daily reports, individual producer reports, condemnation reports, and about

as many others as management deems necessary.

Voluntary Reporting

One of the important features of the uniform cost system is the possibility it affords for developing an industry-wide cost comparison program. This

would enable processors to report to the U. S. Department of Agriculture

their quarterly operational costs on forms provided by the Department. These

plant reports, in turn, would be used by the Department only for the purpose

of preparing cost analyses and cost comparison reports to and for the poultry

industry. Industry reports could be published quarterly showing averages of

per-unit costs, yields, productivity, and other pertinent information. Plants

would be grouped according to size, type of end product (turkeys, chicken

broilers, ice-pack, frozen, etc.), organizational structure, and geographic

area. Managers of the plants within each group would then be able to compare

each of their individual cost items, and other operational data, with averages

of the same items for comparable plants in their own area as well as in other

areas. In making comparisons with plants in other areas, adjustments for differences in wage rates and prices of other production inputs could be
facilitated by including information on these prices and rates. The reports

published by the Department could also carry commentaries on any unusual features which might appear on analyses of the data.

While reporting would be voluntary on the part of poultry processors, past

experience on other commodities with similar cost reporting programs indicates

that a high degree of participation can be achieved and that the results of the

programs are beneficial to all participants. All individual plant reports, of

course, would be treated as confidential and used in groups only.

VI
CONTENTS

Page

DEVELOPMENT AND USE OF THIS GUIDE iii

INTRODUCTION 1

Objectives 1

Complex Nature of Industry 1

Basic Concept of System 2

Method of Presentation 2

Reports 3

Integration with Financial Accounting k

General k

PART I. COST REPORTING ON A PLANT-WIDE BASIS 5

PART II. COST REPORTING ON A DEPARTMENT BASIS 18

PART III. COST REPORTING ON A BUDGETARY BASIS kh

APPENDIXES

1. Chart of Accounts and Account Codes 100

2. Definitions and Descriptions of Accounts Ill

3. Alternative Determination of Line-Hours

Operated, by Bird Types and Weight

Categories II7

k. Profitability Comparison II9

5. Profitability Determinations for Various

Bird Parts 121

6. Treatment of Special Accounting Problems 124

7. Marketing and Distribution Costs 135

8. Table of Recommended Bird Categories I36

vii
A guide to uniform

COST AND FINANCIAL ACCOUNTING

for poultry processors

INTRODUCTION

OBJECTIVES

The immediate purpose of this Guide is to furnish a means of measuring

plant costs and efficiencies• These ends may be attained by providing sinqple

procedures and records which will furnish poultry plant managers a continuing

flow of essential information. The systems are suitable for most commercial

poultry processing plants and are sufficiently flexible to meet specific needs

of individual plants.

Other objectives are of equal or greater importance. Operating reports

for the use of management personnel must reflect plant occurrences in a meaningful manner. For example, a report showing an increase in cost per pound is

not sufficient; the report must be accompanied by some indication of the causes

and propriety of the increase. Reports must therefore enable the reader to locate problem areas with a minimum of analysis and should, when possible, suggest corrective action. Reports must be accurate to the degree that commands

management's confidence.

ThB accounting systems and the internal reports illustrated will provide

accurate unit costs for all operations - hauling birds from farms to plants;

in-plant operations such as dressing, eviscerating, and packing; distribution

of the finished product, etc. Unit costs can be determined accurately and in

the detail desired. With adequate and uniform records of the type described,

plant managers can determine their strong and weak areas of costs and efficiencies and can, consequently, make better and more timely decisions leading to

operating improvements.

Finally, the recommended procedures provide bases for uniform industrywide information, which will facilitate research by the United States Department of Agriculture and other interested research agencies.

COMPLEX NATURE OF INDUSTRY

Poultry processing plants range in size from those employing only a few

persons to those employing hundreds; they range from single proprietorships to

large, diversified, multiplant corporations with complex managerial and capital

structures. Product lines vary from a single type of poultry in limited weight

categories to several types of poultry in a wide variety of weight categories.

- 1 -
In a few companies, poultry processing is a small segment of the business; in

others, it is the primary operation.

No longer does the processing of poultry include only the simple operations of killing, dressing, and eviscerating. Today, many companies are

engaged in additional related activities, including preparation of chicken

pies, precooked poultry, and the like. In earlier days, most of the nonedible

elements removed from the birds during processing were cast aside as waste.

Under today's competitive conditions, these nonedible items often are sold or

recovered by processing them into fertilizer, poultry feed, dog and cat food,

etc. Some companies operate facilities for processing these nonedible elements.

The variety of plant sizes and organizational structures in the industry

and the variety of conditions under which poultry and related products are

processed point up the complexities involved in designing a uniform system of

cost accounting and reporting.

BASIC CONCEPT OF SYSTEM

The underlying concept of the cost system is to produce data which wi]l

accurately reflect plant operations so that reports based upon these data viîl. be

useful to management. The reports suggested have a wide range of detail.

As a minimum, the common unit of cost measurement for any poultry processing plant is the "bird." Further segregations of costs are made in the direction of costs per pound and by type and weight categories of birds—a technique

that enables determination of optimum weights for specific end-products. Fur-

"cner separations of costs, as appropriate, are made between processing departments. This concept represents a major departure from the prevalent practice

in the industry, that is, the measurement of costs only in terms of pounds produced. A table of recommended weight categories, ready-to-cook basis, for

each kind and class of poultry is shown in Appendix 8.

To determine accurately the labor and overhead costs by type of bird and

weight category, such costs must be related to birds through a common denominator. The common denominator suggested in this Guide is time (hours):

expenditures are so many dollars each hour; a certain number of birds are

processed each hour.

An ec^ually important concept of the system (in the larger processing

plants where historical costs are inadequate) is the measurement of actual results in terms of a budget. The pattern of the budget contains the flexibility

which permits ready adaptation to changes in plant operation.

MFTHOD OF PRESENTATION

Three illustrations are used to present the suggested accounting procedures. The first two illustrate methods of accumulating cost information and

differ primarily in the amount of detail; the third presents a further expansion oí cost information and, in addition, includes a budgetary procedure.

The reports suggested in the three illustrations range from the simplest type

- 2 -
required for a small plant to the detailed cost reports, with budgetary control

features, for a large, diversified, integrated processing company.

No provision has been made for an accounting or reporting system for

plants where processing is performed manually. Methods of operations in such

plants may be as numerous as the plants involved and a considerable variety of

reports would be required. Obviously, the design and development of a uniform

accounting and reporting system to satisfy these conditions would be impractical. Furthermore, in a very small firm the need for internal accounting controls may be less because the owner-operator usually is more intimately

acquainted with day-to-day operations. The cost system outlined in this Guide

assumes that the smaller commercial plants employ some degree of mechanization

and some semblance of conveyor-line techniques.

Basically, the Guide is segregated into three sections:

^^^^ I illustrates an elementary cost reporting system which

includes a weekly and monthly measurement of each of the three basic

cost elements - material, labor, and overhead - for each category of

bird processed during the reporting period.

Part II illustrates an advanced system which measures the

three basic cost elements, as in Part I, but also carries the cost

measurement in another direction, namely, by departments.

Part III illustrates an extensively expanded cost reporting

system and adds a budgetary procedure.

The budgetary procedure which differs materially from Part I and Part II,

is based upon the concept of cost measurement known as accounting by areas of

responsibility. The budgetary procedure also incorporates the measurement of

actual results in terms of standards of performance. In addition, predetermined costs, which are part of the procedure, facilitate cost estimating of

contemplated new products.

The "f^hree parts of this Guide are designed to meet most problems of any

company. The majority of poultry processors will find that the procedures outlined in Part I or Part II can, with adaptations, be used for their purposes.

However, such companies should review Part III, as some features in the budgettary procedure may be of special significance or advantage to them. Any of the

three systems described can be integrated with the accounting requirements of

any company.

Changing conditions, such as plant expansion, diversification of process

or products, and the addition of related product lines, permit a progressive

transition from an elementary to a more advanced type of system without destroying or dropping the basic features of the system already employed.

REPORTS

The internal reports developed under Parts I, II, and III will provide

plant management with operating cost infonnation which, when used properly,

- 3 -
will aid in making sound management decisions. For example, certain poultry

products, such as chicken livers and necks, are priced primarily on the basis

of supply and demand rather than on the basis of actual costs- Nevertheless,

if costs information is not accurate and also relevant, a proper decision cannot be made between selling the product in the processed state or diverting it

for processing into an entirely different end—product.

As a further example of the use of reports developed in this Guide, some

reports show production data which include related costs and product yield

percentages. Yield, of course, is an area which demands continuous attention.

Constant review of these reports may show areas where a lighter category of

live-weight bird may produce the desired weight category of processed bird. In

plants where birds are cut up for packaged parts, selection of processed birds

within limited weight tolerances is particularly inqportant.

These two siiiQ>le examples indicate in brief some practical uses which can

be made of the information available. Critical analysis of available information developed by either type of system will reveal other uses for the data

and point to areas where efficiency can be i]q)roved. Special reports may be

prepared to analyze specific operating problems and reports may be dropped

when they no longer serve a useful purpose.

INTEGRATION WITH FINANCIAL ACCOUMTIMG

To obtain a degree of uniformity in the industry and to illustrate the

relation between the three cost accounting procedures and financial accounting,

a chart of accounts and definitions are contained in Appendixes 1 and 2. The

number and pattern of financial accounts depends on management requirements as

well as on the size or diversification of the company. The chart and definitions provide the detail required by a typical company. Except as they relate

to uniformity of cost segregations, the financial accounting procedures are

not" described in detail.

GENERAL

The systems have been designed for reporting to management weekly and

monthly. Some conqpanies may require daily reporting of some production information and of some cost information. Some companies use an accounting period

other than a month, such as a four-week period. Each system can be adapted

easily for such variations in requirements.

The Guide does not go into the detail normally found in an elementary accounting textbook. At least a general knowledge of elementary accounting is

assumed. The budgetary system assumes a fairly conqprehensive knowledge of accounting techniques.

The illustrations used contain purely hypothetical data and do not represent results of operations In any plant.

Finally, the Guide is intended as an aid for supplementing or refining

current accounting prodecures as i)erformed by company personnel or outside accountants.

- U -
PART I

COST REPORTIHG ON A PLAHT-WIDE BASIS

CONTENTS

Page

INTRODUCTION j

STATEMENT OF INCOME 7

Report Content 7

Report Preparation 8

Total Column 8

Broilers, ^etc. Column 8

Sales 8

Cost of Sales 8

Gross Profit 8

PRODUCTION AND COST REPORT 8

Report Content 8

Production 8

Processing Costs 11

Cents Per Pound 11

Report Preparation U

Production Section U

Line-Hours Operated U

Speed Per Line-Hour 11

Bird Capacity ••••• U

Birds In 11

Productivity 12

Birds Out 12

Bird Yield 12

Total Pounds In 12

Equivalent Pounds In 12

Pounds Out (Whole Birds) 12

Processing Yield 12

Average Weight 12

Processing Costs Section 12

Labor 12

Overhead 13

Materials 13

Rates 13

Cents Per Pound Section 13

- 5 -
Page

ALTERNATIVES AND EXCEPTIONS 1^

Salvaged Parts ikCondemnation Losses • • • 1^

Run-of-Farm Purchases 15

UTILIZING REPORT DATA l6

CONCLUSION 17

SPECIMEN REPORTS AND WORKSHEETS

Figure

1—Statement of Income 9

2—Production and Cost Report - Monthly« 10

3—Weekly Progress Charts 17

- 6 -
PART I

COST REPORTING ON A PLANT-WIDE BASIS

INTRODUCTION

In any industry, owners and managers of smaller plants are usually closely associated with day-to-day plant operations. As a result, they are in a

position to exercise a considerable degree of control with a minimum of formalized cost reporting. Certain basic data regarding production and costs,

however, are considered essential to the proper management of all plants. The

absence of such information places operators at a disadvantage in establishing

prices and in timely recognition of excessive costs or losses, and their

causes.

This part of the Guide outlines the minimum, but essential, elements of

production and cost reporting for a smaller plant. Provision is made for a

conventional Statement of Income to be supported by monthly and weekly production and Costs Reports summarizing material, labor, and overhead in total and

for each category of bird processed during the period.

The illustrative reports have been prepared on the assumption that a particular plant has one conveyor line usually running one shift. The plant

dresses and eviscerates broilers and hens of a limited number of weight categOrries. All production is shipped in ice-pack containers. In addition, plant

control of the source of supply of live birds has been assumed and thus live

birds are purchased within predetermined weight categories. This type of

purchasing arrangement is in contrast to the "run of farm" method which is

also discussed later in this Guide.

STATEMENT OF INCOME

Figure 1 illustrates a conventional Statement of Income in summary form.

This statement, together with a Balance Sheet, would represent the basic

financial reports of a plant or company.

REPORT CONTENT

This report summarizes sales and operating results for the period both as

to total results and as tq the gross profit contribution of each of the major

categories of birds processed and sold.

- 7 -
REPORT PREPARATION

This report is prepared using data from the following sources:

Total Column

Sales, cost of sales, expense, and net income figures for total plant

operations are taken from the plant's books of account classified according to

the chart of accounts outlined in Appendix 1 to this Guide. The degree of account classifications to be adopted depends, of course, upon the needs peculiar

to the plant concerned. Similarly, the breakdown of sales and of cost and expense data on the statement can be varied depending upon the circumstances.

Broilers, etc. Columns

Sales. Figures are taken from sales accounts in the general ledger

for each of the major categories of birds sold or from supplemental sales records which agree in total with the general ledger

sales account.

Cost of Sales. Amounts for material, labor, and overhead come

from the Production and Cost Report discussed later. Amounts

for inventories come from the general ledger or supplemental

records agreeing with the general ledger inventory account.

Plants which operate cold storage facilities as contrasted to

those which process and ship each day's receipts of live birds

that same day, will of course have inventories to account for.

Gross Profit. Figures are computed by subtraction.

PRODUCTION AND COST REPORT

Figure 2 illustrates a Production and Cost Report for a month. This report supplements the monthly Statement of Income and permits causes of fluctuations in production costs to be more readily determined in terms that indicate

the corrective action required.

REPORT CONTENT

The report provides three essential types of data;

Production

This section of the report covers the level of production activity, processing productivity, and yields. These data are reported both in total for the

plant and by categories of birds and weights processed. Bird and weight categories should be preestabilshed and continued in use from period to period for

comparison.

-8 -
FANCY POULTRY CO.

STATEMENT OF INCOME

FOR THE MONTH OF MARCH ,, , 19.

AMOUNT

.COMBINED.

jt TO

SALES AMOUNT

.BROILERS.

5è TO

SALES AMOUNT

.HENS.

jt TO

SALES

I

I

SALES - POUNDS

Amount

COST OF SALES:

Inventory - beginning

Production:

Materials

Labor

Overhead

Total cost of production

Total

Inventory - ending

Net cost of sales

GROSS PROFIT

SELLING EXPENSES

GENERAL AND ADMINISTRATION EXPENSES

Total selling and general and

administration expenses ....

NET PROFIT

237.693

$63,7^*0.07

50,616.16

3,070.37

2,926.73

-S||613'26

56,613.26

56,613.26

7,126.81

2,8i^2.30

2.182.46

5,02ii.78

100.00

88.82

7.68

3.30

90,lf63

$27,739.88

21,664.82

1,315.87

1.254.31

24,235.00

24,235.00

24,235.00

3,504.88

100.00

12.63

147.232

$36,000.19

28,951.34

1,75^^.50

1,672.42

32,378.26

32,378.26

32,378.26

3,621.93

100.00

89.94

10.06

Figure 1
Mt^u^

.T . rÍl^t

'4-

PRODUCTION:

L.INE-HOURS OPERATED

SPEED PER LINE—HOUR

BIRD CAPACITY

BIRraS IN

PROOUCTIVITV

BIROS OUT

BIRO VICLD

TOTAL POUND« IN

COUtVALENT POUNDS IN

POUNDS OUT IBNOI.K BiROSi

PROCESflIN« VIKLD

AVER ABC «SIBHT

PROCESSING COSTS:

LABOR

MATERIALS--

CENTS P ER

PO UND:

ICE

PACKINS

TOTALS

LABOR

OVERNEA

BIROS

ICE

PACKING

TOTAL

Fancy Poulciy Co.

Anywhere, U. S. A.

PRODUCTION AND COST REPORT

PLANT

TOTALS

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Figure 2

- 10 -
Processing Costs

Processing costs are reported, together with cost per line-hour operation

or per 100 pounds of poultry produced.

Cents Per Pound

Production yields and processing costs are brought together and reduced to

cents per pound.

REPORT PREPARATION

The following is an explanation of the sources of data and content of the

Production and Cost Report.

Production Section

Production information, shown in the report by type of bird and weight

category, is obtained from basic records (not illustrated) maintained at appropriate points along the processing line. Information for the "Plant Totals"

column is accumulated from the details in the classifications columns, except

that total Productivity, Bird Yield, Processing Yield, and Average Weight are

calculations based upon other data in the "Plant Totals" column. As a check,

the total "Equivalent Pounds In" may be computed by multiplying the total

"Pounds In" by the overall "Bird Yield" percentage.

Line-Hours Operated. Time elapsed in processing each classification of bird during the period. The need to make mechanical

or operating speed adjustments to the equipment when changing

from one classification of bird to another simplifies the

segregation of hours. (See Appendix 3 - Alternative Determination of Line-Hours Operated, by Bird Types and Weight

Categories.)

Speed Per Line-Hour. The number of eviscerating hangers which

should pass a given point in an hour. Because different

bird types and sizes require synchronization with manual

efforts, and for mechanical or other reasons, processors

may alter the conveyor speed. "Normal" speeds for processing each classification of bird should be established to

measure operating results between reporting periods.

Bird Capacity. The number of birds which would have been

processed if all hangers had been used and no stoppages had

occurred during the hours operated. The capacity for each

classification is determined by multiplying "Hours Operated"

by "Speed Per Line-Hour."

Birds In. The number of birds placed on the dressing hangers.

These figures should come from receiving records (not illustrated), and should include adjustments for any live bird

inventory.

- 11 -
Productivity, Determined by dividing "Birds In" by "Capacity;"

expressed as a percentage.

Birds Out. The number of salable birds taken off the end of

the eviscerating line.

Bird Yield. A measure of the number of salable birds processed from the birds placed on the dressing hangers. Bird

yield is determined by dividing "Birds Out" by "Birds In" and

is expressed as a percentage.

Total Pounds In. Total pounds of live birds placed on the

dressing hangers. "Pounds In" expresses "Birds In" in pounds

rather than in units and should come from receiving records,

adjusted for any live bird inventory.

Equivalent Pounds In. The original live veight of salable

processed birds, determined by dividing "Total Pounds In"

by "Birds In," the result of which is multiplied by

"Birds Out."

Pounds Out (Whole Birds). Actual weight of salable processed

whole birds by classification as recorded at the end of the

eviscerating line.

Processing Yield. The percentage of original weight remaining on the carcass of the salable processed whole bird.

These percentages are obtained by dividing "Pounds Out" by

"Equivalent Pounds In."

Average Weight. Determined by dividing the "Pounds Out

(Whole Birds)" by the "Birds Out."

Processing Costs Section

Labor. Obtained from the direct labor accounts in the general

ledger and entered in the "Plant Totals" column. This cost

is then allocated to bird and weight categories by, first,

determining a rate per line-hour and, second, multiplying

this rate by the number of line-hours each category was in

production.

The amount for labor should be limited to wages paid

for straight-time hours worked by production eiiQ)loyees.

Other related costs (such as overtime premiums, shift premiums, and supervisory salaries) as well as fringe benefit

costs (such as group insurance, hospitalization, pension

plans, coiiQ)ensation insurance, and the like) should be accumulated in separate accounts and included as part of

overhead. Some companies may wish to include all, or part,

of these related costs in the category of "labor." In fact,

for a number of internal decision-making purposes this method

- 12 -
nf repoiTting -these costs may be highly useful to management.

Some companies may want to report these as a separate item

either under labor or overhead. However, for the sake of

obtaining uniform information required in research and industry-wide cost studies, as contemplated in the preparation

of this guide, all costs other than wages paid for straighttime hours worked by production employees should be excluded

from the labor classification.

Overhead. The total of plant overhead accounts in the general

ledger; first entered in the "Plant Totals" column and then

allocated to bird and weight categories by, first determining a rate per line-hour and, second, multiplying this rate

by the number of line-hours each category was in production.

tfaterials. Costs for birds, ice, and packing materials come

from the applicable accounts in the general ledger for entry

in the "Plant Totals" column. Bird and packing materials

costs by type of bird and weight categories are obtained

from supplemental records to the general ledger accounts.

Ice costs are distributed to bird and weight categories on

the basis of the average cost of ice per hundred pounds of

poultry processed (Pounds Out).

Rates. Labor and overhead rates are computed for the monthly

Production and Cost Report by dividing the total labor and

overhead costs by the total line-hours operated. The labor

rate can be similarly computed for the weekly report.

Because accounting for overhead weekly is not practical,

two alternatives are suggested: (l) continue to use the

overhead rate from the previous month's report, or (2) use

an estimated overhead rate and compute total overhead cost

by multiplying either overhead rate by the total hoiirs operated. The ajnount of overhead so determined is an estimate of

the total overhead costs ^ but the. difference between the actual

overhead and the estimated overhead is likely to be small and

will be corrected on the monthly report.

The rate for ice is computed by dividing the cost of ice

by the hundreds of pounds of birds processed (Pounds Out).

Cen1;s Eer Pound ^ecfclon

Costs per pound shown on the bottom section of the report

are computed by dividing the various processing costs by Pounds

Out (Whole Birds).

- 13 -
ALTERNATIVES AND EXCEPTIONS

SALVAGED PARTS

The plant represented in the illustration is assumed to sell damaged birds

to outsiders for salvage. Proceeds from such sales should be credited to a

miscellaneous sales account.

Other plants may have a salvaging operation. In this event the Production

section of the Production and Cost Report should be expanded to provide salvage

information by amending the line items on the report as follovis:

Equivalent Pounds In. No change.

Salvage Parts (in Pounds). Net pounds of salable parts salvaged.

Pounds Out (Whole Birds)* No change.

Pounds Out (including Salvage). The total of "Pounds Out (Whole Birds)"

and "Salvaged Parts (in Pounds)."

Processing Yield. A percentage computed as "Pounds Out (Whole Birds)"

divided by "Equivalent Pounds In."

Salvage Yield. A percentage computed as "Salvage Parts (in Pounds)"

divided by "Pounds Out (Whole Birds)." Represents the return from

rejected birds or an improvement in "Bird Yield."

CONDEMNATION LOSSES

A measurement of condemnation losses, as distinct from processing losses,

may be desired. The Production and Cost Report can be expanded to provide this

information. Such an adaptation is incorporated in the Plant Report illustrated in Part II of this Guide.

Some companies purchase live birds, particularly turkeys, on a ready-tocook weight and grade basis and no payments are made for condemned birds.

Nevertheless, bird losses in processing should be measured so that the related

labor and overhead costs will not be ignored. In such instances, companies

may wish to accumulate production data by lot or flock. The measurement of

processing yield by lot or flock may be obtained by reporting and tabulating

production information for each lot or flock on a form designed to incorporate

the top section of the Production and Cost Report, figure 2. The data thus

recorded may then be summarized by bird classification when preparing the

Production and Cost Report.

- 14 -
RÜN-OF-FARM PURCHASES

In many cases, plants cannot exercise control over the selection of live

birds for processing into predetermined weight categories; rather, purchases

must be made on a "run-of-farm" basis. Under these circumstances, the eviscerated birds are usually segregated into weight categories by means of automatic

weighing devices.

In preparing the Production and Cost Report, these companies may wish to

record production information by flock or by farm, in which case the production

and cost information should be listed in columns i*or each flock or farm. This

information should" reveal bird and processing yield comparisons and" trends of

various suppliers. When this type of information is desired, the production

and cost report is prepared in the manner previously outlined, using the columns for farm or flock data, rather than type of bird and weight category.

As an alternative, a periodic segregation or summarization can be made by

bird types and by ready-to-cook weight categories within bird types. In this

case, a different procedure must be followed in preparing the Production and

Processing Costs sections of the Production and Cost Report. Total production

and expense data for each bird type - broiler, mature chickens, turkeys - are

put into one column and additional columns are allotted for the various weight

categories for each type. ''Total" information is allocated to weight categories as follows:

Birds Out and Pounds Out (Whole Birds). Obtained from information

recorded at the automatic weighing station.

Line-Hours Operated. On the basis of "Birds Out." (See Appendix 3 - Alternative Determination of Line-Hours Operated by

Bird Types and Weight Categories).

Materials - Birds. On a poundage basis. However, if purchase

records show charges by bird types, such as fryers, broilers,

and hens, the "Materials - Birds" costs should be charged to

these types before allocations are made to weight categories.

Materials - Packing. On a per bird basis unless the accounting records provide for direct charges to weight categories.

Labor and Overhead Costs. On the bases previously described.

When the above procedures are used, the only items on the report between

"Speed Per Line-Hour" and "Processing Yield" which have significance by weight

categories are "Birds Out" and "Pounds Out (Whole Birds)."

- 15 -
UTILIZING REPORT DATA

The Production and Cost Report can be a valuable aid in management ' s continuous function of controlling operations. The report summarizes periodic

operating and financial information and relates actual costs to units produced.

Areas subject to cost reduction and increased efficiency can be located easily

and the effects of control efforts can be determined.

Unsatisfactory costs seldom can be attributed to a single cause. The report separates the causes for out-of-line costs between operating deficiencies

and excessive expenditures. The report is arranged so each factor may be compared readily with related factors to suggest corrective action. Each factor

covers a separate area of activity or responsibility.

Information on the report can be used in several ways. A critical review

of the data on any one report will indicate areas requiring attention. To illustrate, in the monthly report in figure 2 under "Broilers," the productivity

and bird yield percentages indicate a need for corrective action, both in utilizing the capacity of the "line" and of reducing the number of rejected birds.

The illustration clearly emphasizes the value of accumulating data by classification of bird.

Comparison of consecutive reports will indicate trends, that is, where

progress is being made or where trouble areas are developing. The segregation

of operating data and cost information facilitates period-to-period conçarisons of the same factors with respect to each classification of bird.

Some managers find the review of single reports and the review of comparable data on consecutive reports sufficient. Other management personnel

favor presentations in graphic form such as are illustrated in figure 3. The

graphs illustrated use a "common" scale of measurement. The vertical scale

can be read as a percentage in the case of yields and as cents per hundred

pounds in the case of labor and overhead costs. Labor and overhead costs per

hundred pounds should drop progressively with, and in some proportion to, increases in bird and processing yields. Thus, by using the common scale in

plotting the information in the chart, favorable or unfavorable trends are

more clearly disclosed.

Other types of graphs and charts could be illustrated. Additional information could be presented, such as cumulative totals of labor and overhead,

overall yield figures with elements as to type, and so on. Graphs and charts

are aids in presenting production and cost information.

As experience is gained in the use of these reports, plant managers will

become increasingly aware of the significance of the data shown and will establish goals of performance either specifically and objectively or intuitively.

- 16 -
160

Fancy Poultry Co.

Anywhere, U. S. A.

EKLY PROGRESS CriART

TS - Cents per 100 pounds

D-Percent

190 h^"^r^ ~" WE

140

ISO

IZO

LABOR ■■

OVERHEAD (MONTHLY) COS

YIEL

no

100

90

•o

^y\^^

\^

BIRO YIELD

70 ,—

N. w^

PROCESS YIE LD

90

90

10

1 1 1 1 1 1 lili 1 1 1 lili 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

JAN FEB MAR APR MAY JUN JUL AUQ SEP

Figure 3

CONCLUSION

The production and cost reporting system outlined in this Part I of the

Guide illustrates a minimum system applicable primarily to operations of the

less complex plants. Only simple procedures are involved so that a minimum of

clerical effort and cost will produce results. The system is relatively flexible so that it may be adapted to the peculiarities of a particular plant and

is expandable into the more advanced systems discussed in Parts II and III,

without changes in the basic approach.

- 17 -
PART II

COST REPORTING ON A DEPARTMENT BASIS

CONTENTS

Page

INTRODUCTION 21

Flow of Production and Cost Data 22

STATEMENT OF INCOME 22

Report Content • 22

Report Preparation 22

Total Column 22

Broilers, etc • Columns 22

Sales 22

Cost of Sales 22

Gross Profit 25

PRODUCTION AND COST REPORT 25

Report Content 25

Production Section ..• 25

Processing Costs Section 25

Costs Per Pound in Cents Section 25

Report Preparation 25

Production Section 25

Line-Hours Operated 27

Bird Production - Speed Per Line-Hour 27

Bird Production - Capacity 27

Bird Production - Actual 27

Bird Production - Productivity 27

Pound Production 27

Yield - Bird 27

Yield - Pounds • 27

Average Weight 27

Processing Costs Section 27

Labor 27

Overhead 28

Direct Materials ... • 28

Rates 28

Costs Per Pound Section 28

- 18 -
Page

PLANT REPORT 28

Report Content 30

Report Preparation 30

Purchases 30

Trucking Losses 30

Live Sale s 30

Net To Dressing 30

Dressing Loss 30

Net To Eviscerating 30

Eviscerating Loss 30

Condemnation Loss 30

Net Processed 30

Equivalent Pounds In 31

Processing Yield 31

Total Yield and Average Weight 31

Poundage Detail 31

PRODUCTION WORKSHEET 31

Worksheet Content 31

Worksheet Preparation 31

Birds Section 31

Net To Dressing 31

Net Processed 33

Yield 33

Pounds Section 33

Equivalent Lbs. In 33

Net Processed 33

Yield 33

Average Weight 33

DEVELOPMENT OF PLANT DEPARTMENTAL OVEREEAD COSTS 33

Content of Worksheets and Forms 37

Plant Overhead Allocation Worksheet - Page 1 .... 37

Plant Overhead Allocation Worksheet - Page 2 .... 37

Summary of Distribution Bases for Overhead

Allocation 37

Floor Space Listing and Equipment and H.P.

Listing for Overhead Distribution 37

Preparation of Worksheets and Forms ; 37

Plant Overhead Allocation Worksheet - Page 1 .... 37

Plant Overhead Allocation Worksheet - Page 2 .... 38

Summary of Distribution Bases for Overhead

Allocation 3o

Floor Space Listing and Equipment and H.P.

Listing for Overhead Distribution ' 3°

- 19 -
Page

ALTERNATIVES AND EXCEPTIONS ^1

UTILIZING REPORT DATA

CONCLUSION

SPECIMEN REPORTS AND WORKSHEETS

Figure

In

in

In

Plant Report

Expansion or Contraction J*"^

Monthly Summaries

Birds Purchased on a Ready-to-Cook Weight and

Grade Basis

"Run-of-Farm" Purchases

In

in

Production and Cost Report ^^

I^2

k3

i^.—^Flow of Production and Cost Data 23

5—Statement of Income 24

6—Production and Cost Report - Monthly 26

7~Plant Report - Weekly. 29

8—Production Worksheet - Monthly. 32

9—Plant Overhead Allocation Worksheet -

Page 1. 3^

10—Plant Overhead Allocation Worksheet -

Page 2 36

11—Summary of Distribution Bases for Overhead

Allocations 36

12—Floor Space Listing for Overhead Distribution ... 39

13—Equipment and H.P. Listing for Overhead

Distribution ^0

1^—^Weekly Progress Chart - Productivity ^3

- ?0 -
PART II

COST REPORTING ON A DEPARTMENT BASIS

INTRODUCTION

The campany which has enjoyed a growing business — accompanied by plant

expansion and product diversification - usually will find the simple reports

described in Part I of this Guide to be inadequate for control purposes. The

reports provided in Part II are more detailed. Further, report content is

segregated to furnish information pertaining to specific areas of responsibility.

Decentralization of authority and responsibility is necessary to the

successful operation of larger plants. Decentralized control is aided by developing departmental information pertinent to processing operations for use by

both general management and department supervisors. Means for limiting the

distribution of financial information considered confidential is provided by

the arrangement of report content. The reports described herein are interdependent and provide a related series of operating and financial data.

Part I basically focused attention on the conventional Statement of Income,

supported by weekly and monthly Production and Cost Reports. Similarly, this

part of the Guide begins with a description of a conventional Statement of Income which has been expanded in detail and is acconç)anied by an expanded Production and Cost Report.

The Production section of the Production and Cost Report has been condensed and detailed data are reported on a separate Plant Report. The Processing Costs section has been expanded to provide cost data by individual departments.

The new Plant Report is limited to production data. These data are,

however, compared to established standards of performance.

The plant illustrated in this Part of the Guide is assumed to have two

conveyor lines usually operating one shift; processes a variety of birds such

as broilers, hens, and young turkeys; and ships both ice-packed and frozen

birds in the whole, half, and cut-up state. Further, this plant has control

over the source of supply of live birds. This control enables the selection

of birds within predetermined weight categories. The development of report

information to use under alternative purchasing arrangements and to provide

answers to suit different purposes is also described in this Part of the Guide.

- 21 -
FLOW OF PRODUCTION AM) COST DATA

Figure U is a diagram of the flow of accounting data from sources into

final reports and illustrates the interrelationship between the worksheets and

reports discussed in this Part of the Guide.

STATEMENT OF INCOME

Figure 5 illustrates a conventional Statement of Income. This statement

has been expanded from that shown in Part I by adding major classifications of

overhead expense. This statement and a Balance Sheet represent the basic

financial reports of the plant or company.

REPORT CONTENT

This report summarizes sales and operating results for the month both as

to total results and as to the gross profit contribution of each of the major

categories of birds processed and sold.

REPORT PREPARATION

This report is prepared using data from the following sources:

Total Cnliirnn

Sales, Cost of Sales, Selling and General and Administration, and Net

Income figures for total plant operations come from the plant's books of account classified according to the chart of accounts outlined in Appendix 1 to

this Guide. The degree of account classifications to be adopted depends upon

the needs peculiar to the plant concerned. Similarly, the breakdown of sales,

cost, and expense data on the statement can be varied depending upon the

circumstances.

Broilers, etc. Columns

Sales. Figures come from sales accounts in the general ledger

for each of the major categories of birds sold or from supplemental sales records that agree in total with the general ledger

sales account.

Cost of Sales. Amounts for material and labor come from general

ledger accounts and should agree with comparable figures on the

Production and Cost Report discussed later; overhead costs and

expenses from the general ledger; and inventory figures from

the general ledger or supplemental records agreeing with the

general ledger Inventory account. Plants which do not operate

- 22 -
FANCY POULTRY CO.

ANYWHERE, Ü. S. A.

SOURCE RECORDS FLOW OF PRODUCTION AND COST DATA

(NOT ILLUSTRATED) VORKSHEETS

5AUÉS

^CGI37CR

GeH€<At ¿ftoâ-e<'.

REPORTS

Q-S, A

r«frtf<4 sf^ATtiUAiS

|i|&U<ec

_Fifi.ü«¿C £

R^OÖi3^r\^rl /Aril»

-y

I t

r-i&UigC //>_

/^Lcoc/« r»OAl

F/6r<l€C 8

"1

r

fUxy^ /»LAWS

PI

^»6ogC /g.

LiSr#AÍG-

^icu^C "^''

J>*S'r«i«t]irio»J

1

A^U^C /M

1 tSTiá^ér

1 1

^

J

Figure 4
FANCY POULTRY CO,

STATEMENT OP INCOME

FOR THE MONTH OF MARCH. 19

COMBINED BROILERS HENS TURKEYS.

ji TO il TO jt TO

AMOUNT SALES AMOUNT SALES AMOUNT SALES AMOUNT

SALES - Pounds 1,812.128 lM0,366_ 222.i^04 99.356,

Amount ¿512.952.70 100.00 ¿1»18.1»35.71 100.00 fe8.625.90 100.00 ¿35.691.09

COST OF SALES:

Materials!

Inventory - beginning 1,080.20 1,080.20

Production - Birds 376,795.20 306,630.00 49,723.20 20,iflf2.00

Other 15.920.32 13.65^.06 1.356.00 910.26

Sub-total 393,795.72 320,28li.06 51,079.20 22,432.tó

Inventory - ending 2.335.83 2.335.83

Cost of materials in sales.... 391.459.89 76.32 320.284.06 76.54 51.079.20 67.13 20.096.63

Labor:

Inventory - beginning I65.06 I65.06

Payrolls 31.863.50 27.173.40 2,698.54 1.811.56

Sub-totals 32,048.56 27,173.40 2,898.54 1^976.62

Inventory - ending 242.15 242.15

Cost of labor in sales 31.606.4l 6.20 27.173.40 6.49 2.898.54 4.94 1.734.47

Overhead:

Inventory - beginning 104.80 104.60

Expenses:

Supervision and indirect labor 13,865.00

Other related payroll costs... 3,057.50

Supplies and faoilities 4,148.50

General expenses 415*00

Fixed charges 1,757.00

Total plant overhead 23.243.00 19.734.66 2.192.63 1.315.71

Sub-totals 23,347.80 19.734.66 2,192.63 1,420.51

Inventory - ending. 343.06 _ ^ 343.06

Cost of overhead in sales 23,004,74 4.48 19,734.66 4.72 2,192.63 4.74 1,077.45

Net cost of sales 446.271.04 87>00 367.192.12 87.75 56.170.37 93.81 22.908.55

GROSS PROFIT _ 66,661.66 13.00 $ 51,243.59 12.25 $ 2,455.53 4.19 $12,982.54

SELLING EXPENSES 22,128.30 4.31

GENERAL AND ADMINISTRATION EXPENSES.. 12.206.50 2.36

Total selling and general and NOTE: Inventory values shown above are the element

administration expenses.... 34.334.80 6.69 content - Materials, Labor, Overhead -

of processed bird inventories at both the

NET PROFIT $ 32,346.86 6.31 beginning and end of the month.

Figure 5

i TO

SALES

100.00

55.99

4.83

3.00

63.82

36.18
cold storage facilities and which process and ship each day's

receipts of live birds that same day will of course not have

inventories to account for.

Gross Profit. Arrived at by subtraction.

PRODUCTION AND COST REPORT

Figure 6 illustrates a monthly Production and Cost Report which supplements the monthly Statement of Income. This report may also be prepared on a

weekly basis, but the Plant Report (discussed later in this Part of the Guide)

will usually suffice for weekly reporting.

REPORT CONTENT

The report siimmarizes three essential types of information: (l) production data, {2) processing costs, (3) costs per pound in cents.

Production Section

This section of the report provides information on level of production

activity, processing productivity, and yields. These data are reported both in

total for the plant and by categories of birds and weights processed. Preestablished bird and wei¿it categories, when continued in use from period to

period, are intended to serve for comparative purposes.

Processing Costs Section

Dollar amounts of processing costs are reported, together with rates of

cost per line-hour of operation or per 100 pounds of poultry produced. Labor

and overhead costs are presented by individual major processing departments.

Costs Per Pound in Cents Section

Pound Production data and Processing Costs are brought together and reduced to cents per pound figures.

REPORT PREPARATION

The following is an explanation of sources of data and content of reports.

Production Section

Production information shown in the report by type of bird and weight

category are obtained from two principal sources: (l) the Plant Report - via

the Production Worksheet (both described later) and, (2) basic records (not

illustrated) maintained along processing lines. Information for the "Plant

Totals" column is accumulated from the details in the classification columns,

except for Productivity which is calculated from other data under Plant

Totals."

- 25 -
OF OTÙZ^^

-T^A^-ÁM^í^

Fancy Poultry Co.

Anywhere, U.S.A,

PRODUCTION AND COST REPORT

Figure 6
Line-Hours Operated, Time elapsed in processing each classifition of bird during the period. The need to make mechanical

or operating speed adjustments to the equipment when changing

from one classification of bird to another simplifies the segregating of hours (See Appendix 3 - Alternative Determination

of Line-Hours Operated, by Bird Types and Weight Categories).

Bird Production - Speed Per Line^Honr». The number of eviscerating hangers which should pass a given point in an hour.

Because different bird types and sizes require synchronization

with manual efforts, and for mechanical or other reasons, processors may alter the conveyor speed. "Normal" speeds for

processing each classification of bird should be established

to measure operating results between reporting periods.

Bird Production - Capacitv. The number of birds which would have

been processed if all hangers were used and no stoppages had

occurred during the hours operated. The capacity for each

classification is determined by multiplying "Hours Operated"

by "Speed Per Line-Hour."

Bird Production - Actual. The number of birds placed on the

dressing hangers. These figures are the total birds shown in

the "Net to Dressing" section of the Production Worksheet

(figure 8).

Bird Production - Productivity. The measurement of the efficient

use of hangers during the hours operated. Productivity is

determined by dividing "Actual" by "Capacity" and is expressed

as a percentage.

Pound Production. The total "Pounds - Net Processed" copied

from the Production Worksheet (figure 8).

Yield - Bird

Yield - Pounds

Average Weight - amounts which are entered on these lines by

classification of bird from the Production Worksheet (figure 8),

Processing Costs Section

Labor. Obtained from the direct labor accounts in the general

ledger, where direct labor costs are recorded separately for

each of the three major processing departments - Dressing,

Eviscerating, and Packing - in accordance with the chart of

accounts in Appendix 1 to this Guide. Labor cost is then allocated to bird and weight categories by, first, determining a

rate per line-hour-and, second, multiplying this rate by the

number of line-hours each category was in production.

Amounts for labor should be limited to wages paid for

straight-time hours worked by production employees. Other

related costs (such as overtime premiums, shift premiums and

- 27 -
supervisory salaries) as well as fringe benefit costs (such

as group insurance, hospitalization, pension plans, compensation insurance, and the like) should be accumulated in

separate accounts and included as part of overhead. Some

companies may wish to include all, or part, of these related

costs in the category of "labor." However, for the sake of

obtaining uniform information required in research and industrywide cost studies, as contemplated in the preparation of this

Guide, all costs other than wages paid for straight-time hours

worked by production enqployees are excluded from the labor

classification•

Overhead. Obtained from a worksheet for the four operating

departments - Transport In, Dressing, Eviscerating, and Packing -

as illustrated in figures 9 and 10* Department overhead figures

can be further detailed into major types of expenses, such as

repairs and maintenance, if considered desirable. Departmental

overhead is then allocated to bird and weight categories by,

first, determining a rate per line-hour and, second, multiplying this rate by the number of line-hours each category was in

production.

Direct Materials. Costs for birds, ice, and packing materials,

for entry in the "Plant Totals" column, are obtained from applicable accounts in the general ledger. Bird and i)acking

materials costs by type and weight category are obtained from

supplemental records to general ledger accounts. Ice costs

are distributed to bird and weight categories on the basis of

the average cost of ice per hundred pounds of poultry processed

(Pound Production).

Rates. Labor and overhead rates for dressing, eviscerating, and

packing are computed by dividing "Plant Total" costs by total

line-hours operated. Rates for transport-in- and for ice costs

are confuted by dividing the respective totals of these costs

by "Pound Production."

Costs Per Pound in Cents Section

Costs per pound are computed by dividing the various items of processing

costs by the Pound Production figures.

Provision has also been made in this section for entering selling, administration, or any other elements of expense that are appropriately added to

processing costs to obtain, for statistical and pricing purposes, an overall

cost per pound of poultry sold.

PLAMT REPORT

Figure 7 illustrates a weekly Plant Report that summarizes processing

activities and also serves as the source of certain data for the Production

and Cost Report.

- 28 «
WEEK

PLANT

Fancy Poultry Co.

..^ Tn^l^uJ. /^ Anywhere. U. S.A.

i^^^ytjL^ PLANT REPORT

POULTRY PROCESSED

HOURS ft TYPE BIRD

WEIGHT CATEGORY

PURCHASES

TRUCKING I.OSSES

LIVE SAL.ES

St

^^Kc/" /V¿é^

POUNDS

¿>o4i>^¿

Í7¿

¿•5 y32 :iot /¿^

L4 >a»«:¿u*/

H.O - je./

•IROS

^^f//L

3íc

POUNDS

47^ OOÛ

¿s4

BIROS

df^fo

3Ûi

/^ 1^^

ió /.

POUNDS

/^;? e/l

BIRDS

3303Í

NET TO DRESSING /320/Í 3303Í

DRESSING

LOSS

ACT. ^

iff

STDw\ ^i^ *

v^*

STD. Z

77^

ACT.A¿^ » ¥d

^

NET TO EVISCERATING ^/y ^7^ XCT:

/ÍJ3/Í 3a.é>Z€>

ACT. XCT

EVISCERATING

LOSS

¿Ü /^/Sù

"I/o

/¿I /-/y^í

if./*^

¿fí ¿ií«

'üíi.'

CONDEMNATION

LOSS

Ai.r. r. y^ /ftf

5TO. r.V////Ä

'/, rïôi A«.ir.

51>.

^

% /^/y

I ET PROCESSED

í^rp. W^

*ff<f 4/:í

/a^yst

/y4^«i 32//Lt *443fZ.

^

fai44 3o 3/¿

ACT. ,¿ tSTDw:

EQUIV. POUNDS IN ¥»4^43

PROCESSING YIELD

ACT.

22: rc^o » **'-55)Y/» STÏX

^s ^^

T. ./ wSTn^:

TOTAL

VI ELD

AVERAGE

WEIGHT 5TP. -f^öi L%5.

^T^.

ACT:

^^^ toK

L,05w

ACT. /wm

POUNDAGE DETAIL.

GRADE A

GRADE B

GRADE C

'TOTAL POUNDS

% TO

TOTAL

37^ 33L

^77«o

'43-?^

¿jo *

3.43-^

y/fy>2. fùo.toi^ l^TTH /oo.i.coX

»fo.

^•^/^ .S».

POUNDS XTO

TOTAL

i^.L« %

/ a.coi.

:!24«

f3f4^

^•¥*>

/ÛÛ.00 ^

Figure 7

- 29
REPORT CONTENT

The Report summarizes operating data, including losses and yields, for

each of the major steps from purchasing through eviscerating and grading for

each of the various categories of birds processed.

More operating information is provided than in the Report illustrated in

Part I. With this additional detail, the management of the larger and more

diversified plant can measure the efficiency of various areas of operations.

To facilitate the evaluation of the data shown on this report, provision has

been made for comparisons with standards. Normally, standards of performance

are set from historical averages tempered by judgment or from time studies

made by Industrial Engineering Personnel; however, under some circumstances,

standards must be set by considered judgment alone. Standards should be reviewed constantly and should be changed as operating methods are improved or

changed. Occasionally, revisions of standards may be delayed delihçrately until the actual effects of changes in operating methods have been determined.

REPORT PREPARATION

Data for this report come from basic records (not illustrated) of bird

counts and weights maintained as to purchases and at key points along the production line.

The following is an explanation of the content of various line items on

the report:

Purchases. Pounds and number of birds loaded on the truck prior

to transportation to the processing plant.

Trucking Losses. Pounds and number of birds lost, killed, or

damaged in transit to the processing plant.

Live Sales. Sale of live birds from those purchased by the

company.

Net to Dressing. Pounds and number of birds, by classes, placed

on the dressing hangers.

Dressing Loss

Net to Eviscerating

Eviscerating Loss

Condemnation Loss. Recorded bird counts. The actual percentages

shown are calculated by dividing each bird loss by the corresponding process input in birds. The standard percentages are

established by management and may be averages of prior periods.

The Condemnation Loss is the number of birds rejected under

Department of Agriculture standards.

Net Processed. Number and pounds of birds coming off the end of

the eviscerating line.

- 30 -
Equivalent Pounds^Jn, Determined by multiplying the number of "Net

Processed" birds by the average live weight. The average live

weight is determined by dividing the pounds by the number of birds,

both as shown on the line "Net to Dressing."

Processing Yield. A comparison of the net weight of the carcass

with the original live weight on a percentage basis. The actual

percentages of processing yield are determined by dividing the

"Net Processed" pounds by the "Equivalent Pounds In." The standard

processing yield percentages will be established by management and

may be averages from prior periods.

Total Yield and Average Weight, Total Yield represents, in terms of

percentages, the resultant salable poundage obtained from the

original poundage placed on the dressing hangers. The percentage

is determined by dividing the "Net Processed" pounds by the "Net

to Dressing" pounds. Average Weight is determined by dividing the

pounds by the number of birds, both shown on the ^^Net Processed"

line. As a check, the "Average Weight" divided by the average

live weight figure (computed for "Equivalent Pounds In") should also

give the actual "Processing Yield."

Poundage Detail. Net processed pounds of various grades of birds as

determined at the end of the eviscerating line. This information

may be used by management as a historical record of grade trends.

PRODUCTION WORKSHEET

Figure 8 illustrates a Production Worksheet which summarizes certain information from weekly Plant Reports for entry on the monthly Production and

Cost Report.

WORKSHEET CONTENT

The worksheet summarizes, from weekly Plant Reports, pounds of birds processed, by type and weight categories, to obtain yield and average weight data

for the month. When the month beginning and ending does not coincide with the

end of a week these data will need to be accumulated separately for days in

the split-weeks concerned in order to arrive at data for the month.

WORKSHEET PREPARATION

The following is an explanation of the data on this worksheet:

Birds Section

Net to Dressing. Actual number of live birds introduced into the

dressing process as taken from the weekly Plant Reports. The

total for the month is transferred to the Bird Production - Actual

line on the monthly Production and Cost Report,

- 31 -
MONTH OF ^AAjJ^

Faocy Ponltiy Co.

Anjrwhere, U. S. A.

PRODUCTION WORKSHEET

{YIELD a WEIGHT CALCULATIONS

PI.ANT

TOTAI.S

&l>miht»

2-0^2,4

//UUL

H 4*

3IRDS ^ NKT TO w.« OltKMIN«!

lUL /¿i toX- fl%**

Z/»' //5 'II ^99 f'f ff:t/%

9//f So$ lU fLi/f $llËk.

TOTAL

H^

Ml.

11 •^ i¥xt¥^

ItlU jtitl

s^iL'f

7Ü3Íñ t^fiVl ¿/igto» /fjt/»

MET PflOCeSSKDi

/^7A7

y/v i/¿xji JäM

i^ifi iê^Jo

M n4Ut '¥^zi-^ 3iL

M/U tjxf*/ iSfn» 33 (JC J^^_ 43- n*i3t iini

7^4 HL Uit^i ¿Ao/ /^/jr»

VIKI.O - •/•

POUNDS , KQUIVAI.CNT CBS. IN

f^yi M^ 9^^^ tíJL..

/V->-y 'i/it.

i/i^- /-•fM%

y^>y'

sHfit '3ii¥4'

M /:x^7xt 404f¥i /jti liC

3/U /¿///t ffeff^ z^r^

(Sdmy) ^

xC% *f^ jUastl

TOTALS t.3fiX1^ t fs» int zjLxH^ ^3fJ¥<f

IKT l»IIOCttSCO:

5¿- M- 3lf3i* sUst»

j//v Jy^rf* JJi^ ff^a

^ >///

ifryy/» »r/ii f^//^

^R ^^ifp' 3tB3li i±f/U

(^^^ ^ ^yf^?

ifixixi

'ffLyi

t¥f3iJL 2«jW ffj><y

YICI.D - %

7/-7 ft»'*' A./«

AVCRAeC WCIOMT - LBS. ;?./i^ lr.2/á. 3.4jr

jXièL

S:3^a

TT^T^^

'^€4A^V

Figure 8

- 32 -
Net Processed. Net number of birds processed through dressing and

eviscerating operations and transferred from the weekly Plant Reports. The total for the month is used to compute the bird yield

figure.

Yield. Result of dividing total Net Processed by total Net to Dressing; a percentage expression of the total birds put into process

related to the number that come out of the eviscerating process.

The yield for the month is transferred to the Yield - Birds line

on the monthly Production and Cost Report.

Pounds Section

Equivalent Lbs. In. Quantities transferred directly from the weekly

Plant Reports. The total for the month is used to compute Net

Processed Yield in pounds.

Net Processed. Quantities transferred directly from the weekly

Plant Reports. The total for the month is transferred to the

Pound Production line on the monthly Production and Cost Report.

Yield. Result of dividing the total Net Processed pounds by the

total Equivalent Lbs. In. This percentage yield is transferred to

the Yield - Pounds line on the monthly Production and Cost Report.

Average Weight. Result of dividing the total New Processed (Pounds)

by the Net Processed (Birds). This quantity is transferred to the

Average Weight line on the monthly Production and Cost Report.

DEVELOPMENT OF PLANT DEPARTMENTAL OVERHEAD COSTS

The Production and Cost Report, figure 6, includes departmental overhead

data in the Processing Costs section of the report. These overhead data are

developed on the Plant Overhead Worksheet, figures 9 and 10. The development

of the departmental overhead data involves the following essential steps:

1. Charging all expenses to the appropriate departmental expense accounts in the general ledger as part of general accounting procedure either as

direct charges or by allocation, as appropriate in the circumstances.

2. Developing bases for allocating nonproduction departmental overhead

costs to the direct production departments.

3. Allocating nonproduction departmental overhead costs to the direct

production departments so that when allocated costs are added to the direct

costs of these departments a total departmental overhead figure results for each.

The development of operating department overhead costs is illustrated

through the use of the following worksheets and forms:

Plant overhead allocation worksheets, figures 9 and 10.

- 33 -
Fancy Pouiiry ^^o.

Anywhere, U.S.A.

PLANT OVERHEAD ALLOCATION

TOTAL

ALLOCATIONS

ACCOUNT

RAVROLL FLOOR SRACB

EQUIPMENT VALUES

IN PLACE

EQUALIZED

OIRKCT CABOM (MKMOI *J,ffS./o * i

A

tummm^nmöH • iNomacr LABOR

•AI.ARIBa - aUFKRViaiON ¿ ¿/i<- /^¿^0,0 0

•AI.ARIK« - TKCH. • PROF. /«••••

•ALARICS - CI.KRICAL S JláO'»^» 700.00

INDIRKCT LABOR 3 Ji<ya.oo

TOTAL PAVROCL UaSMO>

llBLATBO>AVROLL COSTS

VACATION RAY / M4O,Oó

TAXU A INMRANCK f LI y./o /ZO^oo

SUPPLIES AND FACILITIES.

FUBLS f -^^i.»^ ê>jL.oo

ROWSR - LIOHT Á2s:cc * ur.oo

WATBR Jtf^co

• NBNAL aURRLIU SJtf.öc S2f. CO

0«RT. auRRLIK« f/c/c

LUOQICANTS /¿/:- 93.00

AUTO • TRUCK FUKLS .^^/:««

GENERAL EXPENSES

RBR. A MAINT. . OLDOB. j^/:*« 3^^oo

RS». • MAMT. . BQUIR. f/.oo fjToo

mnUO CHARBU

0BRRBCIAT10N - BLOBB. ¥7s:oo ^7^>Ca

OCRRKOATION . BQUIF. ^3ù,cù fSc.oo

TASKS - RRORKRTV ' JSlco 3/:oo

, TAXKS - OTNBR J's.oà Jk.Co

IN8URANCB . RRORBRTV ¿^.oo U.o.

INSURANCB * OTMBR ^^.Où 9s:oo

LIFB INSURANCB /o/^ùâ fOJÍ.oo

PLANT TOTALS-A ttï^r^^ >?V7^«o / jTy^.oo / S<93-oo *h ¿2¿- / V ^

ALLOCATIONS OF SERVICE DEPTS.

RBSBARCN B «.C 2 7^L^^

COBT B RAVROLL ^'öV/.o.

RBRBONNBL / 3y>. 00

TVMB STUDY <^0./o

RkAWT MAIMTatAMCB sLö.'iö

PLANT TOTALS-B S3 243.0t, ^-rfi».-r. f TSi^^o / /'f?.^« "^ Z^.#».

ALLOCATIONS TO OBRARYMBITS (RAOBB) f<f^fù.Io) [' iíá.í'ol (/ rjS.oo) f áz^.c^l\

RL ANT TOT ALS - C ^ il3 2'fi3,^o * ^*.- * -0- 5—TT^: Jk "l-o^

Figure 9

-34-
Fancy Poultry Co.

Anywhere, U. S. A.

-WORKSHEET - PAGE I March, 19

OKPARTMKNT OINKCT

PRODUCTION DEPARTMENTS |

RUKARCN A

QUAU. CONTR.

COST •

PAVROCU

TIMB «TUOV TRANSPORT IN ORKSaiN« VISCKIIATIN« RACKIN«

^LAMT

MAMTVWAMCa

*

" /y./Teo ' -eo'/vT/./o J Xi-J... U 4 % % ^

3/o.oa ^00.00 ^^0.00 3 4o. 0 0 J^t>€>.0O ^rc.o 6>e>ti.oo ^O.CO 3-7^.0^

1 ÖO.CO

ZZ/,co / JLZ^.^o ¿Bf.^o 47X'.oo

'^/o^oo /<f/,oo ^/.oo / OXi'.GO 72,J^,o^

/ Soo.oo ^ ¿^,00 ^///é.ro j ^yy.oo

Ácoo S^o.aa //¿.*« f^o.oo ¿y-o« ^û.f>'*

LLoa JL^ù. 00 ¿V^-o /Zu.CO /3^. 00 f/... /¿.CO 37,^^ y^.o.

J^/^^CO 30^.00

flö.€>o /Z*fi.o^

/iS.oo f4.oo -7^-00 Sl^.oo NO. CO 7/:- ^c.co ^^o. 7^2,^0

JCCO 3Í.OO

JÄTTOO

;? €>V*>.»o Si 4i^.oo J 3^¿.co é.^.00 Z l/i..o^ X 04I00 / 3St.00 ' iLc.ra /^/z,jr"e.

(¿jí'éc^

IXoW-c)

( f3Ù,oo)

(fUJo)

—f s—^-^

///Too ^d;(.oo 313.oc /4z.o<^ (/^/-?.-i^*)

' jif^^. JÍ *9/i»ûO 3L3^-^* - lF?.oo - d — — d — — 0 — — « — — 0 —

S^jf^ 49á3.n Á^-z.-íV / (.33.43

^ 2, ^oo, ZU ^ 7/7^.77 f^ ^/. jy. f Z 42/. 43 S « % ^ ^

- 35 -
Fancy Poulny Co.

Anywhere, U. S. A.

PLANT OVERHEAD ALLOCATION WORKSHEET - PAGE 2

March. 19

RAVROLI. OOLI-AnS IMEMOI

PERC DiTA«eS<-

FI.OOR SPACE

H. P. REQUIREMENTS

EQUIPMENT VAI_UES--INPI-ACE

EQUIPMENT V Al. U ES- EQUAL. I ZED

At.LOC ATflOHSlo

PLOOR SPACE

H. P. REQUIRED: f^NTS

EQUIPMENT VALU ES-IN PLACE

EQUIPMENT VALU ES- EQU ALI ZED

TRANSPORT IN

4 / 5«tfs.u%

DRESSINO

wrm^z

^z:

4g.*%

Ä^

¿« 7?t

f jy^.zi f ¿rUU

DEPT. TOTALS ^ j¥r.ii

%

fsa.^/

/isir

tSdL

fi'-fj

EVISCERATINa

^r7% \^l

-^ %

j:r%

1.

ttL-L^

JlUl.

TTTjj:

fij'

j¿.r%

ff *

i.t f.

-7,

4^

5A. iu

* LtùX.^4

/4o.lt

U3^

TOTAL

PLANT

wrfés.^^

/M. « ^

'ff '

Jf£^

/3 J^S.<

Figure 10

Fancy Ponkiy Co.

Anysrfwre« U. & A.

SUMMARY GF DISTRIBUTION BASES

FOR OVERHEAD ALLOCATIONS

-^ÍíAÁMJL.

—c^—

NKD

MO.

mirTs

PLOOiy IPACS H. p. REQUIREMENTS

1 .»i~-T .^.

».^«. KOUAUZKO

PATAWL % a^ FEET •» M. P. IN

PLACE

EQUALIZED X

VM.U.S « VALUES 1 ♦■

%

/?—- / /##Ä ^.L fo/ >5V /rcj^ ^•;

/ ^/// ^7 /X 11 }yf¥/ Ä.y '

/^TrT«fiV^ai/f / r-f^ zL^ L ^1 // «*> ^/

^ /

f^J^.,r- "TJ^L. aiiii foó.a /^3 /ML« W/// /•A^

^^^ -

Figure 11

- 36-
SiîMmi'y Uf Blötrlbution Bases for Overhead Allocation, figure 11.

Floor Space Listing and Equipment and H.P.Listing For Overhead Distribution, figures 12 and 13.

CONTENT OF WORKSHEETS AND FORMS

Plant Overhead Allocation Worksheet - Page 1. Illustrates final summarization of overhead data for transfer to the production and cost report.

Plant Overhead Allocation Worksheet - Page 2. Illustrates details for

computing the amount of nonproduction department expense allocable to each

direct production department.

Summary of Distribution Bases For Overhead Allocation. Illustrates results of developing bases for allocating the various nonproduction department

costs.

Floor Space Listing and Equipment and H.P. Listing For Overhead

Distribution. Illustrates accumulation of imderlying data necessary for developing overhead distribution bases.

PREPARATION OF WORKSHEETS AND FORMS

The company illustrated has a dejïartmentalized organization and has segregated a number of its nonproduction or production service activities into the

following departments: Research and Quality Control, Cost and Payroll, Time

Study, and Plant Maintenance.

Plant Overhead Allocation Worksheet - Page 1 (figure 9). Prepared by entering the totals of costs and expenses from the applicable accounts in the

general ledger. Whenever direct charging is practical, overhead accounts

should be maintained by departments, as for exanqple, the cost of departmental

supplies shown in the illustration. Whenever direct charging is impractical,

overhead accounts will require allocation to operating departments, as for example, the cost of power and light. Overhead expenses which require such

allocation should be classified on the worksheet in the allocation columns according to bases suggested on the list of overhead accounts in Appendix 1 to

this Guide.

After the overhead expenses are listed and proved, the nonproduction department totals are then reclassified. In figure 9, the costs of the Research

and Quality Control, Cost and Payroll, Time Study, and Personnel Departments

are allocated to direct production departments on the basis of total payroll.

The Plant Maintenance Department costs are allocated on the basis of man-hours

reported by that department. Thus, portions of the cost of plant maintenance

are allocated directly to some departments, and a portion, representing hours

worked on the roof of the plant, is reclassified to the allocation column

"Floor Space."

- 37 -
The amounts (on the line for Plant Totals - B) in the "Allocations" group

of columns are transferred to the Plant Overhead Allocation Worksheet - Page 2

to be allocated to departments, as explained below. The Plant Totals - B are

then readjusted and retotaled on the line, Plant Totals - C, after which they

are transferred to appropriate lines in the Processing Costs section of the

Production and Cost Report.

Plant Overhead Allocation Worksheet - Page 2 - (figure 10). Prepared as

a matter of convenience. The Plant Totals (B) of the allocation columns on

Page 1 of the worksheet (figure 9) are transferred to this supplemental worksheet. A set of percentages used in allocating the various overhead accounts

is shown in the upper section of figure 10. The percentages for square feet

of productive floor space, horsepower requirements, and equipment values are

obtained from Summary of Distribution Bases For Overhead Allocation, figure 11,

and will remain constant until the factors on which the percentages have been

determined change materially. The payroll percentages should be computed each

month using the Total Payroll (memo) information listed on the Plant Overhead

Allocation Worksheet - Page 1.

The total amounts of payroll, floor space, H.P. requirements and other

costs to be allocated are transferred from the Plant Overhead Allocation Worksheet - Page 1, (figure 9); the allocations are computed by applying the percentages for the various factors; and allocated dollar amounts are then

entered on the Plant Qverhead Allocation Worksheet - Page 1. (figure 9)

Summary of Distribution Bases For Overhead Allocation (figure 11). Prepared from underlying worksheets for each of the bases of allocation used in

the system; in this illustration the bases are floor space, horsepower of

motors in place, and equipment values. Total amounts for each of these factors,

for each department, are listed and percentages computed. These percentages

are then transferred to Plant Overhead Allocation Worksheet - Page 2, figure 10

and used for distributing overhead costs not directly assignable to specific

departments.

Floor Space Listing and Equipment and .H.P. Listing For Overhead Distribution. Records data on these factors from available sources.

Floor space, shown in figure 12, represents production floor space for

each department. Any spare storage space and areas reserved for future plant

expansion have been omitted from the computations, since the inclusion of such

floor space would distort the allocation base.

Production equipment and their values, by departments, are shown in figure

13. This schedule also includes a list of the various connected motors, with

their horsepower ratings, used in determining the percentage of H.P. requirements.

Valuations used on the equipment list may be original cost or replacement

cost. If all equipment was purchased over a short period of time or over a

period in which there was no appreciable rise or fall in processing equipment

prices, the use of original cost is recommended. If, on the other hand, equipment was purchased over a period during which values changed materially,

- 38 -
njir

JS^

Fancy Poultry Co.

Anywhere, U. S. A.

m^i

LISTING

FOR OVERHEAD DISTRIBUTION

DEPARTMENT. .4Z(¿.

PReP«eo.v= 0 JLrt. —

UNITS JÇ"c^yr PER UNIT

t/UAt^u^m*^

^^^' A //V' /o as^

^<r<«#/irr.y

A' X //^' r yS'/

^^.M.:..

. Va' - ///' .^yoo

i^^^.^ ^y^cry >?/ r>¿

Figure 12

replacement cost may be preferable. Replacement costs may be obtained from

insurance records, up-to-date price lists of processing equipment, or by the

application of price indices to original costs. These valuations are used to

allocate certain expenses and therefore do not necessarily have a direct relationship to the computation of depreciation expense used by the company for

financial reporting or tax purposes.

In the event all departments do not operate the same number of shifts

under normal conditions, horsepower requirements and equipment valuations

should be adjusted (or weighted) to obtain more equitable allocation percentages. A method for adjusting these data to meet this condition is illustrated

in Part III of this Guide.

When completed, floor space, equipment values, and horsepower totals on

these forms are transferred to the Summary of Distribution Bases For Overhead

Allocations, figure 11.

- 39 -
fe.

¿/.r

Fancy Poultry Co.

Anywhere, U. S. ALISTING

OR OVERHEAD DISTRIBUTION

DEPARTMENT - .^¿^

PREPARED BY:

:2é

JU

LOCATION — ITEM

¿i^

PER UNIT

.^^g^

/?y.yv.j.f 7i^^ /íí.

'jC^'ytr-r*'- A .^^^g¿»i^

/ foo.ot

<y A^^jfca: ^ 3pgaeg4. "jy¿roo // j^<>.< J^JQ_{_0__ _^^_Jt¿-

f^ro 3STfi0,00

^¿//Tc J^Ji 0/0^00

'»ut^ /^ /^^o. i'^^.* /^ (^ ^

Qxr^^f ^U^h'^ " Tggr^i^

^

//jr«> / 3^0.00 Ô />

'"f^j» /^^TiTo ^V/^.

-^7-^* >V3.i

/I4P.^ ^/g'<

0(^ti,U^ /f^a:a.oa

^ j'^frMP*^

ycy^f^

4^

// ^O .^a

^& -A. £.

7>i^i^ tA/*f—^ ^ê /0^

¿'/g^^

"ffi liTi ^

«^ jîL.

fjío.^^

/o fgo <sn9.0

Jt:r.^

Ço^,^o

?ö.oo

r^4i/i^^ ^/I/JTO ^>v

C(}€LJLA, yfr.o / /^d. Qg

¿? A^ JUi^^r^ sa^s:^ 0yo.tf<*

^JTM^tO^^^ ¥/i' ¿ Q /2~

^

/^a/ ^'«g«ti»fi«*« jjf^^. /Ä

w ¿¿3a^ _fVl f^Jiw.«

XOO'

CJIA4Jê/JUL. ^^OO.i

'IftiuÙi»' JtQ C- /Qr'

1k*f ^<rrÁ^^ IL.

7'.¿s/^¿^.^ f^^S jg±M

Figure 13

- 1»0 -
ALTERNATIVES MD EXCEPTTQN.S

PLANT REPORT

Expansion or Contraction, The Plant Report, (figure 7) may be made to

accomodate the particular needs of the individual company. Examples of items

which may be added to the Plant Report are:

Net Pounds To Eviscerating

Total Bird Losses (including condemnation)

Total Bird Losses Expressed as Percentages

Total Yield Exclusive of Condemnation Losses

Monthly Summaries. Monthly cut-offs are necessary when month-ends fall

on days other than week-ends.

Birds Purchased on a Readv-to-cook Weight and Grade Basis. Production

data may be accumulated on a Plant Report form by farm and flock by identifying

each column according to farm and flock number and summarizing these data

weekly on the Plant Report by classification of bird.

"Run-of-Farm" Purchases. Not in all respects susceptible to production

and yield reporting by ready-to-cook weight categories. However, since most

companies segregate eviscerated birds by automatic weighing devices, accurate

results can be determined by other means.

The Plant Report can be prepared in the manner previously outlined to

show pertinent information by bird type, such as fryers, broilers, hens, and

turkeys, without a breakdoim by weight categories. Further, data pertaining

to individual flocks or supplying farms miy be shown in separate columns to

reveal yield trends and comparisons of various supplying farms.

PRODUCTION AND COST REPORT

The Production and Cost Report, figure 6, illustrates data reported by

weight categories. Weight category data can be developed for "run-of-farm"

purchases by reporting total production and expense for each bird type -

broilers, mature chickens, turkeys - in one column and using the additional

columns for allocating total data to weight categories, in the following

manner:

Line-Hours Operated. Allocated to weight categories in proportion to

Bird Production - Actual (see below and also Appendix 3).

- If 1 -
Bird Production - Actual, and Pound Production. From records prepared by

weight categories at weighing points.

Other Production Data. In the "Production" section of the report will

have no significance by weight categories except "average weight" which

is computed as previously described.

Direct Materials - Birds. Allocated to weight categories on a poundage

basis. However, if purchase records show charges by bird types, such

as broilers, fryers, and hens, the "Direct Materials - Birds" costs

should be charged to these types before allocations are made to weight

categories.

Direct Materials - Packing. Allocated on a "per bird" basis unless accounting records provide direct charges to bird types or weight

categories.

Other Processing Costs. Allocated in the manner previously described.

Costs Per Pound. Determined as previously described.

UTILIZING REPORT DATA

Plant managers may employ the same techniques described in Part I in using

the reports described in this Part II as control devices. To illustrate, the

data presented on the Plant Report should aid in directing attention to areas

requiring corrective action. Standard percentages used in this report should

focus attention on excessive processing losses and low yield percentages. In

the illustration in figure 7? under broilers, a fairly good processing job has

been done with the possible exception of condemnation losses. However, the

Average Weight is only 3.096 pounds in the hens category, indicating that the

live birds selected for this category had not reached the proper weight for

processing.

The major differences between the reports illustrated in this Part and

those illustrated in Part I are the arrangement and amount of detail. Also,

control of processing is facilitated by comparison to standards which have

been established for some elements.

Because of the introduction of standards into the reporting system used

in this Part, a different pattern of graph charting is offered. On the graph

illustrated as figure Ik^ a productivity trend is substituted in place of yield

and cost information. Since the productivity percentage is not likely to

fluctuate widely, several classifications of bird are charted on the same graph.

- Ii2 -
Fancy Poultry Company

Anywtiar«, U.S.A.

WEEKLY PROGRESS CHART-PRODUCTIVITY

too

85

75 I I I I I I ' '

BROILERS

HENS

TURKEYS

' J—L

FEB. MAY JUNE AUG.

Figure Ik

CONCLUSION

Under this system of departmental reporting, a continuing flow of Information Is provided to meet the needs In relatively complex plant operations.

As a means of broadening the control aspects, two reports are provided; one

for plant supervisory personnel, who, in the final analysis, control the factors which determine costs per pound, and the other for management personnel.

While providing additional detail, uniformity and consistency in charging major

elements of cost have been maintained on a basis compatible with the approach

in Part I of this Guide.

- ^3 -
PART III

COST REPORTING ON A BUDGETARY BASIS

CONTENTS

Page

INTRODUCTION ^0

Principal Features of Budgetary Controls ^8

Basic Elements in the Control System ^1-9

Statement of Income ^9

Siimmary of Cost Performance ^9

Basic Control Reports ^9

Underlying System Requirements ^9

Flow of Accounting Data 50

STATEMENT OF INCOME 50

Report Content 55

Report Preparation 55

Sales 55

Cost of Sales 55

Material - Birds, and Materials - Other 55

Labor ¿ 55

Overhead 55

Gross Profit 55

Selling Expenses and General Administration Expenses 55

Net Income 55

DEVELOPING TEffi BUDGET 55

organization 58

Process Flow Chart 58

Cost Centers 58

Labor Budgets 59

Direct Labor Budget 59

Indirect Labor Budget 61

Overhead Budgets 61

Overhead Budget Worksheet 61

Department Budgets oilOverhead Budget at Planned Volume. •. : 6k

Distribution of Overhead Q\.

Labor and Overhead Cost Kates (Per Man or Machine-Hour) 70

Worksheet Content YO

Worksheet Preparation 70

Number of Machines, Number of Planned Shifts, and Base

Unit TO

Base Jobs jO

Number of Units JQ

Per Month - Labor 70

- kk -
Page

Per Month - Overhead 70

Per Unit Labor and Per Unit Overhead 70

Resiilts of Budgeting Procedures 71

DEVELOPMENT OF PROCESS AND PRODUCT COSTS 71

Standard Loss Percentages 7I

Test Data of 1,000 Selected Broilers 71

Tabulation of Test Results 72

Standard Loss Percentages 72

Bird Losses 75

Edible Yield 75

Combined Yield 75

Combined Loss 75

Packing Losses and Cutting Losses 75

Process Costs 75

Eviscerating Unit Costs 75

Production Unit 75

Productivity - Speed 75

^ Utilization 75

Net Productivity 77

Labor and Overhead Per Production Unit 77

Labor and Overhead Por Control Reporting 77

Packing Unit Costs 77

Production Unit 77

Weight Category 77

Productivity 77

Labor and Overhead Per Production Unit 77

Labor and Overhead For Control Reporting 77

Product Costs T7

Cost of Dressed and Eviscerated Birds 78

Net Quantity, ^ Loss, and Gross Quantity 78

Pricing Unit T8

Labor and Overhead 80

Cumulative Total 80

Material 80

Totals 80

1^ Differential 80

Cost of Cut-Up Broilers - 2'k/l6 80

Cost of Thighs and Drumsticks 80

PLANT REPORTING ^3

Report Content ^3

Report Preparation ^3

COST REPORTING ^3

Weekly Cost Control Report Worksheet 85

Worksheet Content ^5

Worksheet Preparation ^5

. i^5 -
Page

Type Bird^ Weight Categoir, and Production ^5

Per Unit - Labor and Overhead • ^5

Absorbed - Lahor and Overhead.. ^5

Allowed Lahor and Overhead^ Productivity

Variances and Ratio ^^

Activity •. • • ^^

Weekly Cost Control Report ^7

Report Content ^7

Report Preparation ^T

Absorbed Labor, Allowed Labor, Productivity Variance,

and Productivity Ratio 87

Actual Payroll ^7

Payroll Variance 07

Labor Ratio 87

Plant Totals - Ratios oT

Activity 87

Material Usage ^ 89

Labor and Overhead Analysis Worksheet 89

Worksheet Preparation 89

Labor Section 89

Overhead Section 89

Absorbed and Allowed. 89

Normal Budget at lOO/o. 89

Activity io. 92

Actual 92

Adjusted Budget.., 92

Variances 92

Overhead Spending Variance Report 92

Report Content 9^

Report Preparation 9^

Accounts and Overhead Budget 9^

Adjusted Budget 9*4-

Actual Expenses 9^

Spending Variances 9^

Summary of Cost Performance 9^^-

Report Content 9^

Report Preparation 9o

Utilizing Report Data 96

ALTERMTIVES AND EXCEPTIONS 96

Standard Cost Control 9^

Income Statement Arrangement 98

Selling and General and Administration Expenses 98

Plant Report 98

CONCLUSION 98

k6
SPECIMEN REPORTS AND WORKSHEETS

Î^ÎS^ Page

15—Flow Cliaarts of Budget, Cost, and Report Development 51

15--Part 2 of 3 52

15—Part 3 of 3 !!!!!!!!!!!!!!.'!! 53

l6--Statement of Income ^[^

17~Typical Flow of Operations in Poultry Processing 56

l8--Direct Labor Budget 60

19--0verhead Budget Worksheet 62

20--0verhead Budget [] 63

21--0verhead Budget at Planned Volume 65

22--Suimnary of Distribution Bases for Overhead Allocations 66

23--Overhead Budget Distribution to Cost Centers 68

2^--Labor and Overhead Rates (Per Man or Machine Hour) 69

25--Test Data of 1,000 Selected Broilers 73

26—Standard Loss Percentages 7^

27--Process Cost Calculations - Eviscerating 76

28—Process Cost Calculations - Packing 76

29~Product Specification and Cost Sheet - Eviscerated Birds.. 79

30--Product Specification and Cost Sheet - Cut-Up Broilers - .

2-V16 81

31—Product Specification and Cost Sheet - Thighs and Drumsticks 82

32--Plant Report - Weeiay \ 8^^-

33—Weekly Cost Control Report Worksheet (Without Materials).. 86

3^—Weeiay Cost Control Report 88

35--Weekly Cost Control Report Worksheet (With Materials) 90

36--Labor and Overhead Analysis Worksheet 9I

37—Overhead Spending Variance Report 93

38—SuTHTna.ry of Cost Performance 95

39—WeelLLy Ratio Chart 97

- ^7
PART III

COST REPORTING ON A BUDGETARY BASIS

INTRODUCTION

PRINCIPAL FEATURES OF BUDGETARY COIMTROLS

The large, diversified company, with its heavy investment in plant and

other assets, may find that reports limited to actual expenses are inadequate.

The heavier responsibilities associated with the large company, including the

decentralization of managerial authority and responsibility, require the establishment of more refined controls over operations and expenditures. Managerial control involves the direction of activities according to a plan, or

set of standards. The plan, or budget, must not be static; on the contrary,

it must be revised periodically to reflect changes in the factors upon which

the budget was originally based. Control over expenditures is obtained more

effectively by periodic comparison of operating results with the plan, or

budget.

The importance of using budgets to control expenditures - commonly referred to as budgetary control - is becoming increasingly evident in the

successful conduct of business affairs. Reduced to simple terms, budgets are

estimates of revenues and expenses and are based on past experience tempered

by realistic forecasts of the future. Budgets are specific business plans for

a specific future period. Budgetary control, in the main, is effected when

actual expenditures for a reporting period have been held to the limits indicated by a basic budget which has been adjusted for the volume of operations.

To be completely effective the reports emanating from the budgetary control

system must clearly disclose areas where corrective action is required and

indicate responsibility for taking such action.

The expense budget and control program for the large, diversified company, illustrated in this Part of the Guide, is designed to permit adaptation

to current needs and to permit future refinements. Need for refinement may

arise from further diversification or expansion. Unaccounted-for losses may

require additional detail in suspected areas, or correction of trouble areas

may reduce the need for continuing such detail. Such adaptations or refinements to meet changing circumstances need not disturb the basic pattern.

The basic purpose of this Guide is to provide means of measuring plant

costs and efficiencies. Accordingly, this Part - being limited to procedures

for reporting and controlling costs for the larger companies - does not discuss the preparation of a sales forecast. However, no difficulty should be

encountered in integrating a sales forecast with the expense budget outlined

in this Part.

- 1^8 -
BASIC ELEMEINTS IN THE CONTROL STSTEM

Statement of Income

The control system outlined in this Part of the Guide begins, as in

Parts I and II, with a conventional Statement of Income - figure l6. This

statement shows the overall results of operations as recorded in the company*s

general accounting records and provides year-to-date results and comparison

with the prior year.

&3TnTna.T'y of Cost Performance

A Summary of Cost Performance report, figure 38, is provided to supplement the Statement of Income. This report serves to point out performance in

controlling important elements of labor and overhead costs in relation to predetermined budgets and standards.

Basic Control Reports

Three basic control reports are prepared:

Plant Report, figure 32

Weekly Cost Control Report, figure 3^

Overhead Spending Variance Report, figure 37

The weekly Cost Control Report emphasizes control of labor costs. However,

provision has been made on the report for the inclusion of material usage

data as optional information.

These reports provide specific data on the important points of control in

such terms that the types of actions required to correct unfavorable performance are readily apparent. The basic control reports are in turn summarized

on the Summary of Cost Performance and these data relate directly to the Statement of Income. Thus, an integrated reporting system has been designed.

UNDERLYING SYSTEM REQUIRENEENTS

Achievement of the type of control reporting system outlined above requires three major steps: .

1. Development of budgets.

2. Development of process and product costs.

3. Summarization of operating and cost data and preparation of

reports.

This sequence is generally followed in this Part III of the Guide.

First, a typical Statement of Income is presented, together with general

instructions for its preparation.

- h9
Then, a procediire is outlined for developing budgets of processing costs.

Instructions are provided for determining cost centers, compiling direct and

indirect labor budgets, and departmental expense budgets, and consolidating

them into an overall plant budget. Procedures are illustrated for distributing

overhead to the primary processing cost centers and computing labor and overhead rates for measuring efficiency and for applying labor and overhead costs

to processes and products•

Budget preparation is followed by a description of a method of determining

standard unit costs for particular processes (dressing, eviscerating, packing,

etc.) and products (cut-up broilers, thighs and drumsticks, etc.) for cost

control and price and profitability determination purposes.

Finally, the preparation of the various basic control reports and Summary

of Cost Performance is outlined. The procedure consists.of bringing together

actual production and cost data and relating them to the budget and to process

and product standard costs.

This Part of the Guide concludes with suggestions for utilizing report

data and with a discussion of certain alternatives- and exceptions to the basic

pattern of accounting and reporting previously covered.

The hypothetical plant used in illustrating the budgetary procedure has

two processing conveyor lines, normally operates two shifts of eight hours

each (except the Cutting department which operates one shift) 5 days a week,

and expects to operate at 85 per cent of capacity, that is, the equivalent of

225 out of 260 available working days a year. The company hauls birds from

the farm to the plant; dresses and eviscerates all birds; has facilities for

shipping whole birds, half birds, cut-up birds, and various parts, including

giblets in various sized paclcages, in ice-pack containers and in the frozen

state. The product line includes broilers, hens, and turkey fryers or roasters. The company ships under its own label and under labels of three other

marketing firms.

FLOW OF ACCQUTCTING DATA

Figure 15 is a three-part diagram of the flow of accounting data from

sources to results in developing budgets; process and product unit costs; and

weekly and monthly reports.

STATEMEM? OF INCOME

Figure 16 illustrates a conventional Statement of Income. This statement is similar to that shown in Part II of this Guide. The additional operating cost information available under this budgetary system, however, precludes the necessity of showing financial information by bird categories.

This statement and the Balance Sheet represent the basic financial reports of

the plant or company.

- 50
FANCY POULTRY CO.

ANYV/HERE. U. S. A.

FLOW CHART

DEVELOPMEM' OF LABOR AND OVERHEAD BUDŒTS AM) HOURLY RATES

SOURCE DATA WORKSHEETS BUDŒTS

(NOT IIliUSTRATED)

HlSTluíiCA». CltCctLb^

srA-TA/iA/v-rs

(írc.

Figure 15, part 1 of 3

51
FANCY POULTRY CO.

ANYWHERE. U. S. A.

FLOW CHART

DEVELOPMENT OF PROCESS AND PRODUCT UNIT COSTS

SOURCE DATA WORKSHEETS COST SHEETS

Cosra

-^

s^

^

"^

l^iauiZC 31

l^l&üRH 3o

-rts-rrtCùtUi SLS"

1

f^t&üd.Ct 2.é

^

Ft€toiK^ Z9

t

^

f^iéoélt SL^

LAôCfi. A^^

f-t&ui^ä, ¿7

i

^fû^uie.^ 2.^

PACKIñiCr

Figure 15, part 2 of 3

- 52 -
SOURCE DATA

FANCY POULTRY CO.

AITOfflERE. U> S. A.

FLOW CHART

DEVELOPMENT OF WEEKLY AND MONTHLY REPORTS

WORKSHEETS REPORTS

riAreiZiALi,

F«oa(gg /6

fi6^o(t£, 3^

Cosr

^<frc/<d z.V FiéüCA ^6

yrf£cf4S« 33

fl^Ofte 3J

f^ùOOcXio^ j^<t^o<PS

riffg g£C<>^os

vi/£tgMr Si, I PS

/ggJéCr 5L/PÎ

t^t^úK.tL3*f

Sr4W0A£.«

LOSS

Pl&Oie. s 2.

PLANT

PLAHr

Figure 15, part 3 oí* 3

- 53 -
FANCY POULTRY CO.

ANYWHERE, U.S.A.

STATEMENT OF INCOME,

MARCH 19

CURRENT MONTH

LAST YEAR .THIS YEAR

i TO SALES AMOUNT j TO SALES AMOUNT

YEAR-TO-DATE

THIS YEAR LAST YEAR

i TO SALES AMOUNT j TO SALES AMOUNT

J $-

vn-r

100.00^ $869,^52.70

565,975.20

31,815.60

607,Ul6.28

9i^93.2l

6.'?9

82.06

17.9^

U.ifO

3.0^

68.89 598.923.07

1,368.19

56,922.75

58,290.9^

1.082.91

6.58 57,208.03

1,033.27

6,520.50

6,6irô.30

1^,081.UO

15,032.80

25,002.05

57,285.05

58,318.32

983.41

^v-^^^.^l

71^.1^66.01

15^,986.69

38,21^7.80

26,U52.90

7.1^4 6ii-,700.70

10.505^ ¿91.285.99

SALES

COST OF SALES:

Materials:

Inventory - beginning

Production - Birds

Others

Sub-total

Inventory - ending

Net materials cost

Labor:

Inventory - beginning

Payrolls

Sub-total

Inventory - ending

Net labor cost

Overhead:

Inventory - beginning

Expenses:

Supervision and indirect labor...

Other related payroll costs

Supplies and facilities

General expenses

Fixed charges

Total expenses

Sub-total

Inventory - ending

Net overhead cost

Total cost of sales

GROSS PROFIT

Selling expenses

General and administration expenses..

Total selling and G & A

expenses

INCOME BEFORE TAXES

J $-

Figiure 16
REPORT comEm

This report suininarizes sales and operating results for the month and

year-to-date for "both the ciirrent year and the preceding years. Material^

labor^ and overhead costs inciirred are adjusted for the amounts of these cost

elements in opening and closing inventories^ thus providing for comparison as

percentages of sales.

REPORT PREPARATION

The following are the sources of data used in preparing this report:

Sales. The net of invoices^ returns^ and allowances^ etc.^ as

summarized from the appropriate general ledger accounts.

Cost of Sales. Expenditures during the current month with appropriate adjustments for beginning and end-of-month inventory balances _,

if any^ as obtained from general ledger accounts.

Materials - Birds^ and

Materials - Other. Obtained from general ledger controlling accounts for birds placed on dressing hangers or for packing materials consumed.

Labor. Obtained from the applicable general ledger accounts for

direct labor. This amount should agree with the total payroll

expended as shown on the Summary of Cost Performance^ figure 38.

Overhead. Summary of amounts accumulated in the applicable general ledger expense accounts classified in accordance with the

Chart of Accounts shown in Appendix 1 to this Guide. The total

of overhead costs should agree with total overhead on the Summary of Cost Performance, figure 38.

Gross Profit. Arrived at by subtraction.

Selling; Expenses and

General and Adm.inistrati on Expenses. Summarized from the various

general ledger expense accounts classified according to the Chart

of Accounts in Appendix 1 to this Guide.

Net Income. Determined by subtraction.

DEVELOPING THE HIDGET

This section outlines a procedure for developing budgets for the labor

and overhead costs involved in processing operations. These procedures are

based on an approach of establishing a budget of a "typical month of 4-1/3

weeks. Once established, the budget structure need not be changed unless the

underlying factors change enough to render budget data unrealistic. The budget

- 55 -
TYPICAL FLOW OF OPERATIONS IN POULTRY PROCESSING

Key: #0perat¡4>n ^Transportation O Storage

V7I c^

Î

a

Î

M

4»

U

01

O.

>-:

î

DRESSING

LIVE BIRDS

Collect birds at farm

Transport to plant

Await hanging

Hang by feet on

conveyor

Kill

Bleed

Scald

1st picking

2d picking

Reversing

3d picking

Hock scald

4th picking

Pinning

Singeing

Washing

Inspecting

Cut off feet

To eviscerating

me

I

FEATHER DISPOSAL

OR BYPRODUCT PLANT

r

r

I

I

t

EVISCERATING

DRESSED BIRDS

{Hang by head

'^Remove oil sac

• Hang legs

#Slit neck

•Cut vent

• Draw viscera

eInspect (USDA)

•Trim

•Take off liver and heart

• Remove gizzard

• Remove vent and

viscera

•Remove head

• Remove crop and

gullet

•Remove lungs, etc.

•inside wash

• Outside wash

e Internal inspection

• Remove neck

^Grade

{TO icing vat

Icing

9 Inspection

CUTTING AND PACKING WHOLE BIRDS

DRESSED CARCASSES

DFrom icing vats

{To cutting line

{Hang by wing

• Cut shanks

• Disjoint shanks

•Cut off drumstick^^

• Cut off thighs*

#Cut off 1st wing

•Cut body off 2d wing *

• Remove 2d wing* î^

• Cut body into 3 parts#

{Conveyor to washer

•Tumble wash

{To packing ^

- H

•Clip

{TO icing vat

Dicing

ECKS

AND

WRAPPED

SET OF

GIBLETS

TO

PACKING

AREA

• Pack in sets of ports'

• Exchange parts to

briiig to weight

• Repack

{To storage troys,

wrapping operations, etc.

ilnPARTS CUT OFF OR REtAOVED AT

THESE POINTS ARÉ DROPPED ON

A CONVEYOR

OFFAL DISPOSAL

OR

BYPRODUCT PLANT
TYPICAL FLOW

\J1

•-3

DRESSED

CARCASSES

From icing vats

J To sorter

0 Sort by weight

J To icing vat

O Icing vat

i To cutting line

J Hang by hocks

• Score back

• Cut breast

r-# Cut neck skin

^ • Cut around bock

^ Cut off breast skin

OF OPERATIONS IN POULTRY PROCESSING (CONTlNUtUi

Key: •Operation jTransportation D Storage S Inspection

CUTTING AND PACKING BIRD PARTS

• Split breast

• Cut 1st shank

• Cut off 1st wing

• Cut off 2d wing

• Pull 2 breast sections

• Pull 1st leg and rehang

• Cut off 1st thigh

• Cut 2d shank

I^Pull off bock (discard)

I •Cut off 2d thigh

I • Drop drumsticks

I J Conveyor to washer

• Tumble wash

^ To pocking area

• Sort, pack, and weigh parts

J To storage trays

a In rocks

J To wropper

• Wrap

J To rocks

JTO freezer

OFFAL DI'SPOSAL

OR

BYPRODUCTS PLANT

ICED

GIBLETS

D From icing vats

X To packing area

• Assemble in sets

• Wrap sets

• Pock with whole,

or cut birds

ICED LIVERS

AND HEARTS

O From icing vats

{ To packing area

• Sort

• Pock in cartons

t To wrapping, etc.

• V'rqp

J To storage and

shipping

ICED

GIZZARDS

ICED

NECKS

Q Icing

^ To packing area

• Pcrtk in cartons

{ To wrapping, etc.

• Wrap

{ To storage and

shipping

Figure IT

O Icing

{ To packing area

# Pock in bulk

cases

{ To storage and

shipping

DRESSED CARCASSES

SORTED BY WEIGHT

O Icing

• Cut down center

{TO washer

• Tumble wash

{TO packing

• Wrap single halves

• Pock in bulk cases

^To storoge and

shipping
and predetermined costs based on these budgets would be subject to revision

when major changes occur in wage rates^ equipment^ processing methods^ planned

level of operating volume^ or organizational structure, or when investigation

of continuing and significant cost and yield variances indicates that original

premises have become unrealistic.

The basic steps in budget preparation discussed in the following paragraphs , include :

1. Determining cost centers through use of an organization chart

and a process flow chart•

2. Compiling direct and indirect labor budgets.

3. Developing overhead budgets for departments and the overall

plant including distribution of overhead to primary processing

cost centers.

k. Computation of labor and overhead rates.

QRGMIZATION

An organization chart of the plant or company should be prepared, together

with descriptions of the authority and responsibility assigned to key positions.

The separation of functions assigned to the several positions should be sufficiently definitive to permit departmental budgets to be prepared that are

clearly the responsibility of one position in the organization plan. Duplicate budgeting of expense items will thus be avoided and responsibility for

cost performance will be clear.

PROCESS FLOW CHAET

The next step in the budgetary procedure is preparation of a process flow

chart. A typical process flow chart is illustrated in figure 17. This process flow chart covers all steps in the operation from collecting birds at the

farm through to storage and shipping and includes such sub-processes as pertain to giblets, offal disposal, etc.

A process flow chart enables the accounting department to visualize the

various processing operations and their sequence. When considered in combination with the organization chart, the process flow chart provides the basis

for establishing cost centers for accounting purposes. The chart as well as

the related accounting and reporting procedures should be revised as changes

in operations alter the process flow. In this manner, the accounting system

will continue to reflect actual physical plant operations.

COST CEMCERS

A processing cost center is one or more related processing steps, or

groups of related processing steps. The essential criteria for determining

whether a processing step or group of steps comprise a cost center include:

Whether costs can practicably be assigned to those particular processes;

- 58 -
wlieii^ner-c-o-sxs-wnicn are assigned are applicable generally to all units processed; and whether the processes represent a group of f\mctions under the

control of one particular position in the organization. The number of cost

centers to be established depends, in addition to these criteria, on the

amount of processing costs involved and requires use of judgment.

The cost centers to be used in the illustrations in this Part of the

Guide are listed below:

Cost Center

Dressing

Eviscerating

Cutting - Parts (for

packing parts)

Cutting - Whole (for

whole birds in

cut-up state)

Cutting - Halves

Packing

Beginning

Process Step

Hang live birds

Hang by head

Sort by weight

Hang by wing

Cut down center

Transport to

packing area

Ending

Process Step

Cut off feet

Grade carcass

Clip neck

Wash giblets

Tumble wash

Tumble wash

Tumble wash

Place package on

racks; pack in

bulk, etc.

The above list by no means exhausts the possibilities of useful cost

centers. In some companies these cost centers may properly be combined and

in others expanded into additional cost centers such as giblet processing,

precooking and canning as appropriate. Occasionally some processing steps,

which in themselves could be considered cost centers, should be segregated.

In a processing plant, for example, with several dressing lines, processing

of one type of bird may be restricted to a single conveyor line. Consequently,

this particular dressing line should be set up as an individual cost center

to obtain proper costs of this type of bird and to avoid distortion of the

costs of birds processed on other lines.

LABOR BUDGETS

Direct Labor Budget

A direct labor budget is required for each processing department. A

typical direct labor budget - for the dressing department in this instance -

is illustrated in figure l8. Preparation of this budget requires the following steps:

- 59 -
PI.ANNKO UKVKL OF OPKMATION

iJF"

ar

HOUR« - SHI PTS /OAV

DAYS/ «TKCK

Jis. . HOURS/ WCCK

IC-.

%/IU$AJ^

Fancy Ponltiy Co.

Anywhere, U. S. A.

LABOR BUDGET

DK^ARTMKNT . ^

/ ^''"^

COrr CKNTKR AND OPERATION • ASK WA«K PKR NO or mPLOVKKS

T»TAI

WHtWr PRIMÛM

- PKR SHIFT

TOTAL-

»A«U

rwK

«UK

FKR HOUR

JOB TITLK HOUR WKKK

FKR

¡JOB NO.

t 2 s 2NO SRO «KK

\Â ^é4M4È # i * i * i -

/ aco fí ^tf ¥ VT / 3a» 0O .0^ ' f ••

/

O^O ¥. 0O I /

/^ ¿¥- mo fl d •«

/ü£ /

ô^o ¥x #0 / / / 39¿ mm 0 J mo

V\4^l[\jyjL. „.^-cií^ OfiO /• O0 / / fU ¿/. 0« „ /i ÖO

^^i ^^^ / ci/ f'/ oo z Z / yU •• m ¥ 00

/ '7^ f<? 0« ft // ^¿ //-// 00 .. SÙ «•

/ ,/^ /^ 00 / /

/ 33Í mm n

/ OO

*£—^ Á^A^ ^J^ju^ /

too y^ 00 . t' y / SZe mm „ i OO

0 i ——-~ ^

O Y. Sg .Ä /•/ ¥3o^ m» /*Y- 90

%¿¡Zi. -¿2^ .*.*-r.*i^^ /

,â .f. t/U. Ù. /^' -r- k

/<%. SIJ-Z/S '7 ^si> •7

Figure l8

60
1. Develop a manning table or list of jobs and number of employees required for operating the department under planned conditions.

2. Apply labor rates, hours, and shift premiums for each job classification.

3. Airive at a weekly labor cost for the department and convert to a

monthly labor cost on the basis of four and one-third weeks per month.

k. Reduce the monthly labor cost at full operation to the planned or

normal level of operation - in this instance 85^, or 225 days of oi)eration

out of the available 260 working days per year.

An extra space is provided under "Base Wages Per" caption of Figure I8

for entry of an adjustment factor if such is required, as under an incentive

pay plan»

Indirect Labor Budget (not illustrated)

An indirect labor budget is required for all indirect jobs (excluding

supervisory positions) and is prepared in the same manner as the Direct Labor

Budget. A plant-wide budget or budgets for one or more individual departments may be required. In the event an indirect labor job is found to service

more than one department the cost should be allocated between departments on

an appropriate basis.

OVEEmEAD BUDGETS

Following preparation of labor budgets, departmental overhead budgets

should be ccmpiled. These budgets should cover all expenses applicable to

departments and include indirect labor budget details prepared as described

above.

Overhead Budget Worksheet

Figure 19 is an example of an Overhead Budget Worksheet for the direct

overhead expenses of an Eviscerating Department. A monthly budget figure

has been developed for each of the various items of departmental expense.

These expenses are then adjusted to the planned level of operations - in this

instance to 85 percent, or 225 days of operation out of the available 26O

working days per year. Those expenses which are considered fixed are carried

over intact from the "Monthly" column to the "85^" column. Fixed expenses

are included in total as they are planned to be absorbed at the 85 percent

level of operation. Expenses considered variable are reduced to 85 percent.

For example, the salary of Mr. Black, the first shift supervisor, is considered to be fixed whereas the salary of Mr. Green, the second shift supervisor, is dependent upon time worked and is therefore treated as a variable

expense.

61 -
¿CeM^iirtÙt ~ fj^%

Fancy Poultry Co.

Anywhere, U. S. A.

OVERHEAD. BUDGET WORKSHEET

DEPARTMENT .

PERIOD .

g^^^^fc^-^Z^C-^t.^**«^

ACCOUN1 ^^/zx^«^

QUANTITY PER AMOUNT

EXTRAS

^. /3J^^JJ, - y^M^lh i/'o oa ¿/'c ao ir oa

1^. J).— - n^A^ J^i>a oa ¥^^ 00 ^/^ ^/.%^...U^)

/Cä4, / 074^ ao ic oa

(/^ •^

A

íLíóucc^ -^ZIA^

C?i?Mr»»< /S^U*.*^i^lit^ ,

Í3^00 2;z..J.z^~AJu/-^j^j2^'!^

" a 0

Ù0:2f^ ¿^ ao

^LäL4M Q y < fL,J% lAL^FUÊ^^m^

J

'YcitJuÊnA. /ÛO ec^ ^^ oo

^'(jL.irf^^^tJä. JÍO /« ¥- oo

^

- J^o oo

^-¡^o -

/JJ" OO

. 3^ oo ^4^ tf«

^^ 00

fl^^jy ^^.-«^ :Zö aa 7^. áJ^uJ. ^ ^^^..^J. w

"^^^^ à ^ ./.

(.^ \.

figtire 19

62
ANNED LEVEL OF OPERATION

HOURS -SHIFTS/DAY

-, DAYS/WEEK

^T '^ WEEKS/YEAR

Fancy Poultry Co.

Anywhere, U.S.A.

OVERHEAD BUDGET

DEPARTMENT

/j"

4c

- HOURS/WEEK

SUPERVISOR -

PERIOD

/f /3Á^^

ACCOUNT

P ER 7/^^^-X^

TOT AL FIXED VARIABLE

yJ^dtyCstyouLA, - ..¿^./fiu/i^n^x^ff>y OO r¿^^ oo ^f^^^ Oo /2^.t^ A^ ¿i^^

/^fr>vo^'^j^ - -^¿«Z*>ux-c/ v^. 7-^ oo - 7^' Oo

r^

S^^r^^/X-^^ey- IS'êt.A-X- UBO Z^o oe> se^«o y^T^^^X**^ ^2/ <i^;;:U;

tyyV\/yJX^^^ "^^r,«,,*.»-»-!^**^»^ ¿i OÛ J oo ao <i>6

— t-^

CA^xOzC ¿i O » 2^ OO ^o ¿>o

vÄysi/" ^¿^-jfz^/zA^ 3^ au /V/ oo Zoo . OÖ

/..n^CunJ é^^ru^'^.^^z^ :2o â« :io o a

Í'

¿¿¿/ ¿»-^'^¡Wï- 2i £)o JZo O o L ÖO

l^otïU ^ -¿2U Oo ^n,S oo %./^ oo

Figure 20

63
Department Budgets

Data developed on the Overhead Budget Worksheet, Figure 19^ are suramarized

on an Overhead Budget form as illustrated in Figure 20 for the Eviscerating

Department used in this example. All direct departmental expenses are shovm

in total and segregated hetween fixed and variable amounts. In accounts such

as water, departmental supplies, and overtime premiums, which are generally

variable, a nominal amount has been classified as a fixed expense on the premise that a certain portion of such expenses are necessary for even minimum

departmental operation. Such classifications are largely decided upon the

basis of past experience and judgment in the circumstances. Specific illustrations have not been shown for budgeting related payroll costs such as group

insurance, F.I .CA., and taxes, as such items generally follow payrolls and

can be budgeted without supporting worksheets.

In addition to budgets for each of the various departments in the plant,

a separate budget for General Plant Overhead Costs is usually desirable. Ihls

budget will cover such expenses as taxes and insurance that are applicable to

the plant as a whole rather than to specific departments. Such overhead costs

are the responsibility of the plant superintendent or manager rather than department supervisors.

Overhead Budget at Planned Volume

Once the individual overhead budgets are completed, they are entered in

appropriate columns on a summary as illustrated in figure 21. Next, the individual accounts are cross-totaled to the "Plant Budget per Month - Total"

column and the individual account fixed and variable amounts, from each budget,

are totaled and entered in their respective "Plant Budget per Month" columns.

Each set of columns - individual departments and the fixed-variable - are then

cross-footed to the "Total" column.

The amounts in the "General Plant" column are carried to appropriate

columns under "Allocation to Distribution Basis." Suggested bases are found

in Appendix 1 for the various overhead exî)ense accounts. These columns are

cross-footed to agree with the total of the "General Plant" column.

The total amounts budgeted per month for the three service departments

are transferred to the column for an appropriate basis for distribution.

Since the activities of the Cost and Payroll and Personnel departments are

closely identified with employees, the budget totals for these departments

are transferred to the "Payroll" column. The activity of the Plant Maintenance department consists largely of repairs to the plant buildings and, therefore, the total of this department is transferred to the "Floor Space" column.

The column totals are then adjusted for these transfers and cross-footed.

Distribution of Overhead

The next steps are to distribute, by allocation, the General Plant and

indirect department expenses (such as Cost and Payroll and Plant Maintenance)

to the direct processing departments of Dressing, Eviscerating, Cutting, and

Packing and then to cost centers. In this illustration only the Cutting

- 6k -
ON

FANCY POULTRY CO.

ANYWHERE. U.S.A.

OVERHEAD BUDGET AT PLANNED VOLUME

- (AND ALLOCATION TO DISTRIBUTION BASES)

PLANT BUDGET PER MONTH ALWCATIOgJO DISTRIBUTION BASES DEPARTMENT DJgECT ^^^

AT 65# ACTIVITY GENERAL FLOOR REQUIRE- EQUIPMENT VALUES DRESS- EVISCER- AND MAINTENACCOUNTS TOTAL FIXED VARIABLE PLANT PAYROLL SPACE MENTS BASIC EQUALIZED INQ ATING CUTTING PACKING PAYROLL PERSONNEL ANCE

SUPERVISION AND INDIRECT

LABOR:

Salaries - Supervision ..-$^,860 $2,200 $2,660 $ 900 $ 900 $ 680 $1,075 $ 3U0 $ 3lfO $ 500 $ 6OO $ 1*25

- Secretarial ... 25O 25O 25O 25O

" - Clerical 700 25O U50 25O 25O 250 200

Bonuses - Salaried ^ "^^^ '^^^

personnel 375 375 HO 110 50 75 05 2«; ^0 ^R .5^

Wages- Indirect labor ... 2,135 775 1,360 225 $225 35O ell âl

OTHER PAYROLL COSTS: ^ -^

Overtime premium 85 30 55 15 25 10 10 pq

Shift premium 1,708 1,708 1,698 1,698 ^ ^ f^

Vacation pay 2,lli0 2,lU0 2,115 2,115 oÍ

Group insurance 1,680 200 1,U80 1,670 1,670 fi

S. S. taxes I,6l0 282 1,328 1,600 1,600 7«

Unemployment taxes 522 522 5I7 517

SUPPLIES AND FACILITIES: ^

^»^els 1,250 350 900 450 U50 800

Light and power 195 15 18O I95 $195

Water I85 50 135 hO kO kO

General supplies 3^0 3OO kO ^hO 3^0 gc hn

Departmental supplies .... 1,2U0 210 1,030 10 3U5 U80 205 25 25 I50

^^°^^^^ 39,19527,273 11,922 35,l*5i* 11,639 1,310 $lU,085 $8,U20 590 k6 1,U63 1,111 180 176 175

"^^^^^^ 58,U70 32,185 26,285 U5,8U 21,089 2,025 1^5 U,085 8,^20 2,535 2,266 2,358 1,691 985 1,036 1,785

ALLOCATIONS OP SERVICE

DEPARTMENTS:

Cost and payroll 985 985 ^QQC ^

Personnel 1,036 1,036 ^yO"^)

Plant maintenance 1 Tfie: ' T «QC (1,036)

'^^ i¿^Í25 , . (1,785)

PLANT TOTAL $58.1^70 $32.185 $26.285 $U9.620 $23.110 $3,810 $195 $U,085 $8.1i20 $2,5^5 $2.266 $2.358 $1.691 $ - $ - $ -

Figure 21
Fancy Poultry Co.

Anywhere, U. S. A.

SUMMARY OF DISTRIBUTION BASES

FOR OVERHEAD ALLOCATIONS

/^rm—^^

PK^OO«,

PLAN»

NKO

NO.

SHIFT»

DIRKCT LABOR PLOOR SPAC^ H . P . RKQUIRBAKNTS

IN PLACB EQUAL IZBO COST CENTER

PAYROLL % SQ. FEET %

H. P. IN

PLACE

E9UALIZEO

DEMAMD « VALUS. X VALUES 1 %

* Ö 4

2- /s rs-3 X3j^ fc /3X. 3f,/o /fO jt:to Jß./« /c ^jt* ^}.3i /¿/ ^^ /4U

V •

s. Ji fp ^.u -r/^/ Jt/.é%. /-T 3^ ffà si jt/» XS-BL 7^ JÍO i/'-^¿

V

"2. Í 3fZ p3 f2^ô L^L r /o /./» j- gr» 3.1f/ /^ Ao 3./7

/*f(7f^^l^ - /jJJ^* Á ¥ sJ U4 / Loo ^'H / /o 3.^3. j^y*. i.Ci /<,<, ^'1

</

A.-JT::.^ - T¿Cz/.W..ljt- / 13Í /.éf fU J.^L 7 7 an 7 io« ^77 7 7oo -?.//

2 jOi y:« io^po 13.ex /Ä :i4 in /V toa f.yi ^/ic. r¿r

¿1 M

^A.,^ -^lÄX.

<

% Ux /po.ùù zLf3L /ÛAOi» Jot /*o.co Wc fao /PC Où xf4¥¥» /00,00

Plgiire 22
Department has been f^orther subdivided into cost centers - Cutting-Parts^

Cutting-Whole Birds, and Cutting-Half Birds.

A Summary of Distribution Bases for Overhead Allocations is illustrated

in figure 22. The development of these distribution bases is according to

procedures outlined in Part II of this Guide and hence are not repeated

here.

Figure 23, Overhead Distribution to Cost Centers, is used for distributing all budgeted plant overhead expenses to the processing cost centers.

The distribution is made in the following manner:

1. Cost centers are listed with a line provided for subtotaling the

Cutting Department centers.

2. Distribution percentages are transferred appropriately from the

Summary of Distribution Bases for Overhead Allocations (figure 22).

3. The final Plant Total dollar amounts are transferred appropriately

from the columns (except the "General Plant" colimin) of the Overhead Budget

at Planned Volume, etc., (figure 2l). Also, the final totals of processing

departments are transferred from figure 21, and are entered vertically in the

"Cost Center Direct" column of figure 23. (The amoimt for the Cutting Department is entered on the "Sub-Tot-Cutting" line.)

k. The totals - except those in the "Cost Center Direct" column - are

distributed on the basis of the corresponding percenteiges.

5. Budgeted direct labor for the three Cutting cost centers are transferred from the Summary of Distribution Bases, etc. (figure 22) to the "Amt."

sub-column of the "Cutting Dept. Distribution" section of figure 23. The

percentage relationships of these three amounts to the total Cutting^^department Direct Labor - $11,266.00 - are computed and entered in the "70" column.

6. The Cutting Department Sub-total amount - $2,358.00 - is distributed, by the three percentages computed in step 5^ to the three Cutting

Cost Centers.

7. Each line of overhead amounts is added back to the "Total Overhead

per Month" column and the entire schedule is cross-footed.

The completed Overhead Budget Distribution To Cost Centers - figure 23 -

represents the total budget covering nonnal plant operations for a month at

a planned activity of 85/0. All plant overhead has been assigned to processing departments and cost centers. These data axe then used in developing

overhead rates for assigning budgeted costs to processes and products.

- 67
Fancy Poultry Co.

Anywhere, U. S. A. T '^^^tr^r-^^^'

OVERHEAD BUDGET DISTRIBUTION TO p^,

COST CENTERS

ON

00

TOTAL

DIRECT

FLOOF\ SPACE H. P, REQUIR. EQUIPMENT VALUE cosír

.

CUTTING DEPT.

OVERHEAD

PER

MONTH

LABOR _ IN PL ACE EQUAUlZeO CENTER

DIRECT

COST CENTER % AMT. % AMT, %. AMT. % AMT. % AMT, NOTE (A)

\ -

* Î # • * » â

I2f7êi ß^ as. ¥4 /idff 3f./û /fíi'y 7/ /^./^) /42 yi ^J¡í 7/^4 «8 réis 4¿»^ «¿ ;?iS/ CO

£/ •/ *r- —r^— ' V ^^—r 1

/C**-i.*«*á:^ H/foí >7 ^iU ,xU iT ;?/// fi3 7*- f// 'i/x :iy.3C :?/;/ ;í :i/.fj ;?//? /i. 22¿í oo JLuUJu-^cJ^

¿ r

JL

UiY'Ä+**f " ff'<?-^'^ ¥/3Z yx f.33 X//1 ¿ Cji ^///•^ 3.3Í ¿ ^7 ^.4S f¿^« U 3./-J 3oo ^f /^Ä/ // y¿.oi á3,z ÙO —/

/¡t/p:^ . üjJ^ /l]^ 3 910 f^ iM '¥4^ A ^f4 sa.i 3/ 3.3Z C ^; s.a ^í^ar^ 3.éy 3cf $i /A // »7-44 /;?// O»

—^-f— 7—

^UtLLj-'Aa^uu. ^424 a.0 /^ a/j f^ 3.ïi /3S ¿4 S1.3Í 4 ^/ 4n ^7^ // ji.4^ sU H. //5 1^ Ui 7si oc

/

1J,'0:.¿Lííí:^ t3ít ce /ÚCCÚ >Í2¿¿ ce

<7

^^^.1.^ /'ftf ^/ s:xx /asiV JIJ.OÍ ^r? ^¿ 717 //yV f4^ /^;ï^// f^ //í /5 yip ce

a

r t

-~" "

f

- -' ' ""^ '

Á

t^jf^.^ '7^^:í4. 'W^-^ oo /ÔÛ.UO ¿VJ» oo

«1

/ap,oo 'sU Où /OÓ.OÍ^ ',fr OÖ /oé.o<tv4«£f^« \/oo.o2f42o Oé Ibi 0C

1

NOTE (A)* CUTTING DEPARTMENT O V ERH E AD-DI R EC T ($2p88.00) I S DI STRI BU T EQ

TO EACH COST CENTER ON THE B ASI S O F DIRECT LABOR

Pigrare 23
r^f**'^^^^^

ON

Fancy Poultry Co.

Anywhere, U. S. A,

LABOR AND OVERHEAD COST RATES

(PER MAN OR MACHINE HOUR)

NO.

MACHINES

NO.

SHIFTS BASE UNIT

BASE JOB NUMBER OF UNITS = „ "PpincU. PER UNIT

COST CENTER TITLE

NO.

EMPLOYEES

/WEEK

HOURS)

v>^nlB^ai^

LABOR 0*HEAD LABOR

@ 100'% ^8£.i.

1» » 1^ %

^ ^ /¿* ifi ^? >rU5 ^f 7of ^^.4,^31^^-1

% 2

// ^Lo ¿f. r/f 3l>ff» X/ ^a/" ¿X.^oi 3L//I

âu/r-- ^oAúí / 2

" f. '^7 ^/^ ¿31^ y^3a ^'^17 /J:3/¿

¿LW" UJLÍU, / % /' ¿o "^1 ;?f^ /;?// ^F;/ /^^f/ //.-/f?

A^iJ^-ií/rT^^x- / 7fta^.d^ ¿iuaz / 4" /73 /V7 73¿ / W jlooy f.^/7

¿

il ti fi^cÀxA^ / Uo ^77^ ;?5/^ J/>3 S'fSét /.4ff ;f./;¿

"^"¿y

^

V^í,*»^" %k^ f^/^ya'V///*»

"^

Figure 2i|.
LAEQR AKD OVERHEAD COST RATES (PER MM OR MACHINE HOUR)

The development of rates for use in control reporting and cost estimating

is illustrated in figure 2k^ Labor and Overhead Rates (Per Man or Machine Hour)

Worksheet Content

This worksheet "brings together "budgeted monthly lahor and overhead for

each direct processing cost center and relates it to a base unit - man or

machine hour - for that cost center. The result is an average budgeted cost

per unit.

Worksheet Preparation

The following sources of data have been used:

Number of Machines j

Number of Planned Shifts ^ and

Base Unit. Based upon the physical characteristics of the operation and

planned activity. Processing activities are paced by line-conveyors

except that Cutting into half-birds and Packing are paced by manual

effort. Therefore, the base unit for the first four cost centers is a

conveyor-hour, and for Cutting into half-birds and Packing the base

unit is the man-hour.

Base Jobs. In the Cutting into half-birds and Packing cost centers, the

Cutter and Packer jobs, respectively, were selected as base jobs for

cost rate determinations. There are other jobs in these Departments

and Cost Centers, but all production must go through these basic operations. The number of employees normally engaged in these selected

activities is also shown.

N-umber of Units. Quantities are extensions. The number of imits a week

is a multiplication of the number of machines or employees, times the

number of shifts, times ^0 hours a shift. The number of units per month

is the conversion of weekly units, first, to a monthly basis at ^-l/3

weeks per month and, second, to the 85^ planned volume of activity.

Per Month - Labor - is taken from the Summary of Distribution Bases for

Overhead Allocations (figure 22).

Per Month - Overhead - is taken from Overhead Budget Distribution to

Cost Centers (figure 23).

Per Unit Labor, and

Per Unit Overhead - are determined by dividing the monthly budgeted labor and overhead by the number of units per month at 85>.

As previously stated, the 85/0 level of activity requires that fixed overhead for 260 days be absorbed in 225 days. The calculations in figure 2h

effectively insure the absorption, during the active periods, of the 15/0 of

TO -
fixed obiges not alDSorlDëd dur lag idle periods. Also the calc-ulations insure

that 1570 of fixed charges are included in the product cost estimates.

RESULTS OF BUDGETING PRQCEIURES

The procedures illustrated in this section result in department^ cost

center^ and plant budgets con:5rerted to unit costs (per man or machine hour)

for each processing activity. Budgeted man or machine hour cost data are then

used to develop process and product costs per unit of processing output. These

unit budgeted costs^ vhen related to actual processing activity^ result in the

allowed costs to be used in measuring cost performance.

DEVELQFMEm OF PROCESS MD PRODUCT COSTS

This section outlines procedures for converting budgeted unit (man or

machine hour) rates to process and product costs. Normally^ budgeted costs

for each of the various processes and products expected to be active during

the period are computed in advance. Budgeted costs of additional processes

and products can^ hovever, be introduced at any time.

Product and process cost data seirve two principal purposes: (l) for use

in conjunction with production data in computations required in preparing control reports and (2) for use in making decisions regarding prices and product

profitability.

The losses considered a normal part of the production process constitute

an important factor in developing budgeted costs of processes etnd products.

This section of the Guide^ therefore^ begins with a discussion of the development of standard loss percentages. Procedures are then illustrated for computing budgeted labor and overhead costs of processes (eviscerating and packing) and of products (eviscerated birds^ cut-up birds 2-if/l6, thighs and

drumsticks ).

STATOARD LOSS PERCEMTAGES

Nonedible and other processing losses are costly and^ as with other

elements of cost, should be subjected to budgetary procedure and control.

Alternative methods of budgeting processing losses are available. Standard

loss percentages shown in figure 26, illustrate the results of one method,

based upon a testing procedure.

Test Data of 1,000 Selected Broilers

The first column of loss percentages in figure 26 is assumed to have been

obtained f^om a segregated test run, through processing operations of 1,000

selected live birds, each bird'averaging approximately 2-I4-/16 pounds. Birds

which satisfactorily completed the dressing operation were weighed and counted.

During evisceration, the number of birds rejected by Department of Agriculture

- 71 -
inspectors veré recorded. Thereafter^ glblets were segregated and the nimber

of birds removed from the line because of damages or other causes were recorded. Finally^ the net pounds of both salable birds and giblets were recorded.

Tabulation of Test Resiilts. Figure 25 shows that 25 of the 1,000 birds

entering the dressing operation were rejected or damaged for a loss of 2,5

percent. Similarly, 63 of the remaining 975 birds entering the eviscerating

operation were rejected or damaged for a loss of 6.5 percent, and an additiona

^9 birds, or 5 percent, were lost through condemnation.

In addition to losses of whole birds there are poimdage losses in the

processing operation due to nonedible elements and other factors. The computation of process and product budgeted cost requires that poundage losses be

reduced to yield per pound percentages as outlined below.

The 1,000 birds entering the dressing operation were weighed and the tota

equaled 2,750 pounds. However, 2.5 percent of these birds were rejected or

damaged and thus, theoretically, only 97.5 percent or 2,68l pounds entered the

process. Birds completed through dressing and entering the eviscerating process were weighed and totaled 2,533 pounds. Thus, the dressing poundage yield

was 9^.5 percent.

The 975 birds entering the eviscerating process weighed 2,533 pounds for

an average of 2.598 pounds per bird. Rejected birds totaled 112: 63 damaged

and k9 condemned. These 112 dressed birds weighed an average of 2.598 pounds

and a total of 291 pounds. Thus the theoretical poundage of birds entering

eviscerating was 2,533 - 29I pounds for a net of 2,2i+-2 pounds.

Approved, processed birds together with giblets were weighed at the end

of the eviscerating operation and totaled l,98l pounds. As 2,2^1-2 adjusted

pounds were put into this process the eviscerating yield was 88.1|- percent

(1,981 i 2,2if2).

The 863 approved and processed birds originally weighed an average of

2.75 pounds for a total of 2,373 pounds. Thus, the overall edible yield for

birds processed through dressing and eviscerating was 83.5 percent (l,98l

i 2,373).

The industiy customarily measures yield as the percent of ready-to-cook

poundage available from total live pounds of input. The technique illustrated

here separates yield between bird yield and processing yield. These data are

more meaningful for control purposes as actions appropriate to reduce yield

losses due to damages, rejections, and condemnations may differ from those

actions appropriate to reduce losses of edible weight in processing operations

Standard loss Percentages. Based upon these test data; illustrated in

figure 26. Data for Broilers - 2-Vl6, taiien from Test Data of 1,000 Selected

Broilers, figure 25, are used in the first column. In practice, similar tests

would be conducted for other bird types and weight categories in order to de-/

velop a table of loss percentages for all classifications processed.

72 -
FANCY POULTRY CO.

ANYWHERE, U.S.A.

TEST DATA OF 1,000 SELECTED BROILERS

CATEGORY - 2-Vl6 LB. BROILERS

BIRDS

ji LOSS

REJECTED TO

PROCESS OR PROCESS PROCESS

INPUT DAMAGED OUTPUT INPUT

.POUNDS.

PROCESS ADJUSTED WEIGHED ^ AVERAGE WEIGHT

INPUT INPUT OUTPUT YIELD IN OUT

d

DRESSING 1,000

EVISCERATING:

Damaged 975

Condemnation

Total

OVERALL 1,000

25

63

137

975

912

863

863

2.5

6.5

5.0

13.7

2.750 2.681 2,533 9h.'5 2.75O 2.598

2.533 2.2l^ 1,981 88.4 2.598 2.296

2.750 2.373 1,981 83.5 2.750 2.296

* Birds condemned when inspected by U. S. Dept. of Agriculture

Figure 25
FANCY POULTRY CO.

ANYWHERE, U.S.A.

STANDARD LOSS PERCENTAGES

:^

2-V16

BIRDS LOSSES:

Dressing 2.5^

Eviscerating 6.5

Condemnation 5*0

CUMULATIVE BIRD:

Loss ; • . 13.7

Yield 86.3

EDIBLE YIELD 83-5

COMBINEQ;

Yield 72.0

Loss 28.0

PACKING LOSS:

Parts

Giblets

GUTTING LOSS - Parts

2-8/16

2.5*

6.0

5.0

12.9

87.1

85.0

7U.O

26.0

.BROILERS

2-12/16

2.5^

6.0

5.0

87.1 .7.1

16.0

7^.9

25.1

3-0/16

2.5*

88.0

86.0

75.7

21^.3

.All Categories.

2.0^

3.0

3-0/16

2.5^

5.5

88.0

87.0

76.6

23.i^

...HENS.

A/16 3-8/16 ETC.

2.5*

5.3

88.2

88.0

77.6

22. U

2.5*

5.1

Í+.3

88.6

89.0

78.9

21.1

Figure 26
The follovlng is an explanation of the soiirce of data in the first

colinnn:

Bird Losses. Dressing, eviscerating, and condemnation are taken directly

from the Test Data, figure 25. The cimnilative bird yield of 86.3 percent comes from the test data as the computed overall loss is 13.7 percent (lOO.o/o - 13.7^ = 86.3?^).

Edible Yield. The 83.5 percent overall poundage yield computed in the

test data.

Combined Yield. Computed by dividing the actiaal weighed output at the

end of eviscerating - l,98l poimds, by the original input of li^e birds

- 2,750 pounds. The result is 72.0 percent.

Combined Loss. 28.0 percent is the complement of the combined yield of

72.0 percent.

Packing Losses and Cutting Losses - are shown in figure 26, and in practice would be determined on the basis of tests similar to that described for whole birds.

The yield and loss percentages developed in these illustrations are not

to be considered representative of any particular plant. These data have been

deliberately distorted to highlight the method by which they were obtained.

PROCESS COSTS

The development of process costs is illustrated in figures 27 and 28.

The first illustration, figure 27, shows the simple calculations for determining unit budgeted labor and overhead costs for eviscerating various type

and weight categories of birds. The second illustration, figure 28, shows

the determination of unit costs for packing thighs and drumsticks, and livers

into 8-oz. packages. Computation of budgeted labor and overhead costs for

other processes operative in a particular plant follows a similar pattern.

Bvlgoeratln^ Unit Qe^ts (figure 27)

Production Unit. 100 birds.

Productivity - Speed. Travel speed in hangers per hour established as

standard for each type of bird - 2,i|.00 per hour (2l<-.00 on a 100 bird

basis) for Broilers and Hens - 2 lbs., in this illustration.

i> Utilization. Percentage of available time to be utilized for actual

production operations ai^er allowances for breakdowns, rest periods,

empty hangers and other factors. This percentage is established by

plsmt management based upon a review of past experience or by time

study.

75
Fancy Poiiltiy Co.

Anywhere, U. S. A.

PROCESS COST CALCULATIONS

PROCESS -

PROD. UNIT.

TYPE PRODUCT OR PROQUCTIVITY PER PROD. UNIT

%

YIELD

FOR CONTROL REPORTING

I.AaOR O'HEAD 1

SPEED IN 1 » TYPE BIRD ¡UTILIZATION NET LABOR

1 CATEGORY p RQ D. UNIT. ¿^ fo, s¿ ///

O'HEAD

/Z,V/i,^ ^ ^.^^^ ;?-• ^^.oo ^y.i^o a/.oa ;^ f1»^ / J3/Í f3./o ^ /f//*, ^/"t^

II ^-^ It It X/.o' ;2 ff»A / Jjii fS.^o 3 ^f^/ / //V^

" ^ '

1 «. J?/.'» ^ 9f^ / 7sf^ fl^.: 3 >./ / /^fi

II ;?-'* :i2./o •« f^if 3 /jy^ / er¥i fV.»» 3 ^f-7/ / f/J?

f

J* It »/ y9Áf 3 'fl-^ / r/V/ f^.J-o 3 i//"/ / fLxz

J ' :ia.aa r/^,co ,i.7o 3 3/S} / \f/jtk f^.r. 3 r,u' 2 ^^4^ J „ •/-' - II //.7» 3 3^3 / fj'ii fL»> 3 /f/z -? o 33 9

II /-' Jíé.oo m /y... 3 ¿/A 2 f^yy fé-oo 3 *»V// 2 ^3-72.

Figure 27

Fancy Poultry Co.

Anywhere, U. S. A.

PROCESS COST CALCUUTIONS PROIX UNIT. /0O ^SÊ=^

TYPP »ROOUCT OR

WT.

1 PRODUCTIVITY r PER PROOb UNIT

X

YIELD

r:ft coMTnai- HCPOMTiMa L— . LABOR O-HCAD

TYPE BIRD SPEED IN 1 %

NET 1 ^*^"<>"^ Í.ROD. UNITS"^'^'^*^'»« LABOR »/ Vff, !£ ^fé O'MKAO

t2^ ^^ v..,.„.r:J. ^^ ^.A ud

=

o^^ <Pfo. r

i»7H V\ '¿97

~^ ~

• / •

^'/LrLft^ /., ^.OQ m^ / ^/^m *t7,¿o líy9 ( zf/i y V s±/^ "^7—

Figure 28

- 76-
Net Productivity> Actual number of hangers and birds expected to be processed per hour - computed by multiplying speed by percent utilization

(24 X 87,5 pejTcent eqmls 2l).

Iiabor and Ov^head per Production Unit, Prom figure 2k, (Labor and Overhead Cost Rates per Man or Machine Hour). Budget costs per eviscerating

conveyor-hour were determined to be $62.801 for labor and $36,511 for

overhead. Budgeted eviscerating labor costs per 100 birds are therefore $62,801 divided by 21 (for 2,100 birds per hour) or $2.9905; budgeted eviscerated overhead costs, similarly, are $36,511 divided by 21,

or $1.7386 per 100 birds.

Labor and Overhead for Control Reporting. Determined by adjusting these

costs per 100 birds for standard loss percentages illustrated in figure

26. Bird loss in eviscerating was determined by test to be 6.5 percent

for 2-I4./16 broilers. Bird yield was therefore determined to be 93.5

percent (the complement of 6.5 percent). Labor and overhead per production unit are divided by these yield percentages to arrive at costs

for control reporting purposes. These costs reflect standard losses

expected to be incurred in the normal coiirse of operation.

Pkc.Tdng Unit Costa (Jlgure 28)

Production Unlt> 100 packages.

Weight Category. 8-oz. packages.

Productivity. Assumed to be 24o and 200 per hoiir net for the two items

shown. In practice these productivity rates would be based on past

experience or titae study.

Labor and Overhead Per Production Unit. Prom budgeted costs per manhour (developed in figure 2h) of $lA99 for labor and $2.5l6 for overhead. These budgeted costs are divided by productivity rateg of 2.^1-0

and 2.00 (lOO packages) per hour. Budgeted labor and overhead costs

per 100 packages resiilt, as shown.

Labor and Overhead for Control Reporting. Computed by adjusting unit

costs for standard yield losses as explained under Eviscerating Unit

Costs, above.

PRODUCT COSTS

The development of product costs is illustrated in figures 29, 30, and

31. The illustrations are designed to indicate the steps in arriving at costs

per carton of ^8 eight-ounce packages of thighs and drumsticks. Cartons are

assumed to be packed for an outside customer specifying that his wrapper and

Tf
lalDel iDe used on individiial paclsages. The company has determined that 2-l/l|.

pound "broilers (ready-to-cook) are the preferable category of bird to be used.

Total processing cost is detenained in three stages: (1) cost of the

dressed and eviscerated birds^ figure 29; (2) cost of cutting up eviscerated

birds into parts, figure 30; and (3) packing of selected parts (thighs and

drumsticks) into boxes and cartons for freezing and shipment, figure 3I.

The procedure of developing costs in stages pennits the cost of other

items in the product line to be determined more readily. For example, costs

of dressed and eviscerated birds can be used also in calculating costs of halfbirds and complete sets of cut-up birds. Further, costs of cut-up birds can

be carried to cost sheets for packages of bird parts other than thigjis and

drumsticks. In the first tvro stages (figure 29 and figure 30), calculations

are computed on a per bird basis and converted to a per pound basis. In the

third stage (figure 31), the calculations are on a pound basis with the 2l|.-

pound carton (kS packages) as the cost unit.

Cost of Dressed and Eviscerated Birds

An illustrative Product Specification and Cost Sheet, figure 29, has

been prepared in the following manner, for dressing and eviscerating 100

2-lf/l6-lb. broilers:

Net Quantity^ j) Loss, and

Gross Quantity. Obtained by first entering the desired quantity - 100

birds - as the net quantity opposite the last operation, eviscerating.

The ^ Loss for the two processes, 2.5 for dressing and 11.5 for eviscerating, are obtained from the list of Standard Loss Percentages,

figure 26. These percentages represent the whole birds lost, including

condemnation losses; they do not include inedible portions removed from

birds remaining on the processing line.

Next, the gross quantity of birds normally required to obtain 100

eviscerated birds of this category is calculated. The net quantity of

100 eviscerated birds is divided by the complement of the total eviscerating and condemnation loss percentage, II.5 ^, or O.885O. The result, 113.00, is the number of birds required at the beginning of the

eviscerating line to obtain, under nonnal conditions, 100 eviscerated

birds.

Since 113.00 dressed birds are required to obtain 100 eviscerated

birds, 113.00 must be entered as the net quantity for dressing. In a

similar computation, the II3.OO for dressed birds is divided by the

complement of the loss percentage, 2.50^, or .9750. Thus, II5.9O live

birds are required, under nonrial conditions, to furnish II3.OO dressed

birds and, in turn, 100 eviscerated birds.

Pricing Unit. Per 100 birds for labor and overhead, and per pound for

material.

78 -
Fancy Poultry Co.

Anywhere, U. S. A.

PRODUCT SPECIRCATION

AND COST SHEET

PRODUCT C^^^^ ¿^(TiH é*áA^, rtAriiii'^

SHIPPINa UNIT .

MATKRIAL OR OPERATION NKT

QUANT.

%

LOSS

GROSS

QUANT.

PRICINO

UNIT

1 LABOR \ OVKRHKAO CUMU-

.ATIVC

TOTAL

PRICE AMT. 1 MRS. RATE AMI. 1 *^'***

RATE AMT.

iJlnjJtA^tAA^ il3^^o X./ö n^'^o e/l^ i — */U / <ÖW / 7^^^

,*

Á í»B/O 1* 3^"í/ J

/ÙC //./a f/3.»» ce.Ád^ X^4/ ^ iff/ / 7^^ / f¿r, i Áfé¥7

1 1

fr^//ee /írT<i>-M«/r//?fi'A Mfé 3]ff9fJ / fí^l

—

rkij/i». 2I. ri n^^ X ,¿zí / Tll'é ? fS9^

r^:f.^/) °

s</-t

*—*-T

S,..¿¿u^ / 00 JtS.»C /Sf.ff ^. r^o ^i yv-zi 2? 3^^/^

7^ ^-'^^L TOTALS ^

'f f^A ^.,Ui / 77yÁ ^7. 5//j^

"

/).

SHIPPED- JCED ^ OR FROZEN Q]

COST UMIT, - /Ôéf XZM^ 1

1

1 ^'Dl FF ER EN TI AL - $ /•

Figure 29
Labor and Overhead, Hourly rates per 100 birds are obtained from Process

Cost Calculations, figure 27 - eviscerating labor $2^991 and overhead

$1.739. Amounts for labor and overhead are extensions of gross quantities by rates. Dressing labor and overhead costs are determined in a

similar manner.

Cumulative Total. Costs are entered as $8.80^7 per 100 ^i^^^. This

cumulative cost is converted to a cost per 100 pounds ($3.9399; by

dividing by 2.25 (the dressed weight category of birds).

Material. Cost is then added; 100 net pounds are required. The combined

bird and edible yield for this category of bird is shown on Standard ,

Loss Percentages, figure 26, and is 72 percent for a loss of 2Ö percent;

100 pounds divided by 72 percent results in 138.89 pounds of live birds

to be purchased to yield 100 pounds of dressed and eviscerated birds.

A price of lk(ß per pound for live birds at the plant door is assumed.

Therefore, material cost is extended to $19.Ml46.

Totals. Entered along the bottom of the form. They show a cumulative

product cost of $23.3^^5 per 100 pounds of 2-^/l6 broilers, dressed and

eviscerated.

U Differential. Shovm in the lower left corner of figure 29. Useful in

converting the cost as here computed to a current market basis. The 10

differential of $1.3889 per 100 pounds, using a market price base of 14^

represents the equivalent change in prime material cost of eviscerated

birds for each 1^ change in the price of live birds. Assume that the

market price is 16-I/2 cents per pound or 2-l/2 cents more than the ik^

used in the cost computation. The differential of $1.3889 is multiplied

by 2-1/2 and the result is added to the original cost of $23.3^91 to obtain a new total cost of $26.821^4- per 100 poimds of eviscerated bird.

Cost of Cut-Up Broilers - 2-^/l6 (figure 3Q)

The preparation of the Cut-up Broilers' "Product Specification and Cost

Sheet," figure 30, follows the same pattern as the illustration for the cost

of eviscerated bird in figure 29. Since the cutting-up process follows the

eviscerating process, the amount of labor and overhead per 100 birds, $lf,866

and $3.999, can be obtained directly from the eviscerated bird cost sheet.

The remainder of the calculations are made in the same manner as on the eviscerated bird cost sheet. The 3 percent loss for the cutting-up process and

the 31.00 percent (28.00 plus 3.OO) cumulative loss through the cutting-up process are obtained from the "Standard Loss Percentages" - figure 26.

Cost of Thighs and Drumsticks (figure 31)

The cost sheet for thighs and drumsticks follows the same pattern as the

Cut-up Broilers Cost Sheet in figure 30. The net quantity in this illustration

is 2k pounds of thighs and drumsticks. The percentages in the "^ Loss" column

again come from the "Standard Loss Percentages." The material, labor, and overhead rates (per hundred pounds in this case) come directly from the cost sheet

for Cut-up Broilers - 2-Í-/16 pounds in figure 30. The labor and overhead rates

per carton for packing are obtained from a "Process Cost Calculations" sheet,

- 80 -
00

H

Fancy Poultry Co.

Anywhere, U.S.A.

PRODUCT SPECinCATION

AND COST SHEET

PRODUCT \->*<^ —^y JLL.

■■^

^yi

LABEL *

SHIPPINO UNIT .

MATERIAL OR OPERATION

NET

QUANT.

%

LOSS

o ROSS

QUANT,

PRICINO

UNIT

MATERIALS LABOR OVERHEAD CUMULATIVE

PRICE AMT. MRS. RATE AMT. HRS. RATE AMT.

TOTAL

¿4re.«.c«^ui/«V ^3^JiM0O /oo 3 fo3,of C/3^M, 3" r^ V SLL *A^^ *^ 771 *y ,XrL *f /3fO

/oc 3 /C3.c^ cO^U^ / Z2Z / Z¿'> gj^ c ifff // ^77f / ^

/crCÜJ./14A. /C^ Ct^--^ -^^ùdé. L tjif J-oz/J // «f7^ f f

- -

^¿7 ,fu^ /CO :2^. CQJ<ÁJU z 7»fi X Zî>g yo5e/5

(^ í.g/l

/i^n^^^JjL^^ /cc 3/.00 /vy^? -^ /^o 2o »ft% 2/ 3..^

r

4

TOTALS ^ % tp-\ ^^r^v ""xiji/Vxj'3i,/'

»o oirair. •

SHIPPED - ICED ¡î^ OR FROZEN Q

1

, «-DIFFERENTIAL - $ /fV/? P ER /OO '%. ^ '4 t .

Figure 30
Fancy Poultry Co.

Anywhere, U.S.A.

PRODUCT SPECinCATION

AND COST SHEET

JCT ¿*^^ ^ wdfli^»A.>>^^<^¿^^*^

y^./S«^

SHIPPING UNIT .

'/S-<fo

^££••0

MATERIAL OR OPERATION NET

QUANT.

%

LOSS

GROSS

QUANT.

PRICING

UNIT

MATERIALS LABOR -- 1 CUMU-

'-ATIVE

PRICE AMT. HRS. RATE AMT. HRS. RATE AMT.

¿jlu>".^**^ /^^ai0\/â>ua ;?^ 2. 7^4(9 C^. 2fo ^fh' X 71í'>

^

/ÄJ ^

-^ ;e52 ma' L /?/f

^^í^ c» ^^i.<-.-..*.*;zíu-t j

^--^¿r^

//?-< /#«?) ¥i 3 H¥S c /•rr ofÙ

ü/jL»^ui*^. ir-ff ^^3) ^ 3 ^.YS c "V ^//3

¿2I*Ä5L [r-ßß /OZ) / 3 y.o3 C ? 2/0 ¿>f/3

1

OD 'va.,cÀ.*^^ V/ Z ¥i-9f c£i^ â> ¿2/ ^^¿/ / Ä^/ S/33 7 ¿2/^

ro

1

^^^ à'

1

^ ^ M.

TOTALS 1 ^V^ ^

WfA / ö/f^r Í..S4

SHIPPED- ICED [^ OK FROZEN |2]

S*^ -^fi. £^Ä*2*Si

1 ^'DIFFERENTIAL - $ -3/^9 PER CukjU^ ôZÎ^ ^

Figure 31
as illustrated in figure 28.

Packing Materials costs are computed on the basis of quantities specified^

adjusted (by dividing by the complements of estimated waste percentages) for

losses, and extended by prices paid to vendors.

For this cost sheet, the l^é differential per carton is obtained by dividing the total prime material cost per carton by the prime material base price

per pound. In the illustration, the total prime material cost of the bird,

$^+.9690 per hundred pounds, divided by 1^ cents a pound (the price per pound

live weight basis of the prme material) produces a differential of $.35^9.

In other words, for every l^zf change in the live weight price per pound of the

bird, a corresponding change of 35.^9iz5 is made in the cost of each carton of

k-8 8-oz. packages.

PLAET REPORTING

A Plant Report is illustrated in figure 32. This report is smilar to

the Plant Report described in Part II of this Guide.

REPORT CONTENT

The Plant Report is a summary of production and rejection counts recorded

at control points along the processing lines. Processing yield and loss percentages are computed from these recorded counts. This processing data complements the dollar and cents cost determinations and variances summarized in the

labor and overhead cost reports described later in this part of the Guide.

REPORT PREPAEIALTION

The procedure for preparing the Plant Report is described in Part II.

The Plant Report illustrated in figure 32 was prepared in accordance with this

same procedure.

COST REPORTING

The introduction to this Part III of the Guide points out that the control

system provides for a Statement of Income prepared from the general books of

account to be supported by a Summary of Cost Performance, a Plant Report (described above), and two detailed reports; one for labor and one for overhead.

This section describes the preparation of the labor and overhead cost reports

and the summarization of these data on the Summary of Cost Perfonnance.

First, a worksheet is prepared, figure 33;» from a week^s production data,

to compute the labor and overhead absorbed and allowed.

Next, a Weekly Cost Control Report, figure 3^^ is prepared, using data

from the worksheet, above.

- 83
g

Fancy Poultry Co.

Anywhere, U.S.A.

PLANT REPORT

POULTRY PROCESSED

Tn^si^L^

f^^^±^a.*^.^^

HOURS ft TYPE BIRD 7^.0 dl,0¿¿M^ /Î^U^iÙlA^ /SunL^^t^ ^^"itlsi^

WEIGHT CATEGORY 7^.^^^^/* ^-^¿ j-^/a ÍL-'Í,L 4-"/ ¥-^//¿

POUNDS BIRDS POUNDS BIROS POUNDS BIRDS POUNDS BIRDS POUNDS BIRDS POUNDS BIRDS

PURCHASES

TRUCKING LOSSES

LIVE SALES

NET TO DRESSING jLz,/ ßL 3.f a /oy /? 3 3¿ df2 fL¿ >3^ /> ;2/¿ af Lox" f37y /oy^y4 -:?/ -:e/Í5

DRESSING

%; '

">.^» /SI *-/2- ^53

ÀCV, /^?/ ">/ * ixf ACT. /, ^ %

LOSS

STD, ^

'mm " v,^* WM "%, /*M^ "-'^^W/Z/A •J'V.^r. W///A '^"•;?.r^. %%%

NET TO EVISCERATING sL III ^/¿// y^/ ¿:?*> foZ-j -¡•o f7>^

% Uc " ••/^ :. Hi 72. *3 yi-j -"V? * ^^-...^^ .ÍV-^

LOSS % m<^*'^-¿./ •<• WM '"r 0 » WM "^/., ? 'WM "V^" VM///, ST D. / ^J 'WM//,

CONDEMNATION «.r. y. V"-¿.8 •/. iz 4a ""•jr7 % ;? tf€;t^ ^-^J.^ •/. / ¿Zf *^V2 •/• ^H/ *'>,/ 7. -/^f

LOSS »TO. y.V/////. '^ J-.c 'LV//// *"'j^. -A ^<^^^ '"•vr« ?. '///// *^v« /• V//A '"J^»,/-/ :^////;

NET PROCESSED P7C, 33 c/o tf///? ^3/J1^ /i/ö// ¥¿Z7/ X^ ¿/tf 7 3// /;?/.; ^¿? ^öö

EQUIV. POUNDS IN W/M ñLuo WM f//// ^/^%i /y^jí'? y//M ^i <^f2 W/// /<5^ ^->^ y/////A

PROCESSING YIELD % '"- •« •'VJ./-. ">y^ * '5ir. « *'?^/* ""K.- ">^-?* •'?•//-> ">//-% ""' f%. %

TOTAL 1 AVERAGE

YiELD 1 WEIGHT

*'^- X V///, 7i.C » '////^

ACT.

777 » ^//// '^>y^ * r///// ACT: .

/////> *''J>.3' ///////

,rp. y^

LfiA- --7^.> '" ^

»TO. /

^••^i 1.95.

»TO.

7-^.1 -?.¿/.9..

5TD.

7/f ^<"'..,.

ST-o.

7^7 ^y/ u...

POUNDAGE DETAIL. POUNDS % TO

TOTAL POUNDS \ TO

TO T AL POUNOS %jo

TOTAL POUNDS

* TO

TOTAL POUNDS 7. TO

Tot AL POUND& » lo -

TÏTA1.

GRADE A % % % H % *

GRADE B % % % % % »

GRADE C % % .% % % *

^% % % % %

Figure 32
Then^ at the end of the month, weekly labor and overhead data are s-ummarized on a worksheet, figure 36, to obtain monthly totals for use in the Overhead Spending Variance Report, figure 37, and to provide monthly total data to

be summarized on the Summary of Cost Performance, figure 38.

WEEKLY COST COMROL REPORT WORKSHEET

The preparation of the Weekly Cost Control Report, figure 3!^-, requires a

supporting worksheet. This worksheet is illustrated in figure 33.

Worksheet Content

The worksheet illustrated covers eviscerating operations and is used to

compute total absorbed labor and overhead for the period by relating actual

production units to budgeted labor and overhead previously established for this

process as shown in figure 27.

Worksheet Preparation

The following are the sources of data shown on the worksheet:

Type Eird^ Weight Categoiy, and Production. From the Plant Report,

figure 32. Production In Units represents the output of the iirocess;

in this case, it is hundreds of birds eviscerated without consideration

of condemnation losses.

Per Unit - Labor and Overhead. Budgeted process costs developed as shown

on Process Cost Calculations, figure 27« These unit costs represent

planned costs based on normal operating conditions, budgeted labor and

overhead costs, and standard loss percentages.

Absorbed - Labor and Overhead. Computed by multiplying labor and overhead per unit by units produced. Absorbed costs represent the product

output of various processes (cost centers) at predetermined costs developed from the budget.

Allowed Labor and Overhead^ Productivity Variances and Ratio. Computed

from (1) line-hours operated - in this case J2 hours - and (2) costs

per line-hour as previously determined and shown on Labor and Overhead

Cost Rates Per Man or Machine Hour, figure 2k. These line-hour budgeted

costs of $62,801, labor, and $36,511^ overhead, are extended by the

actual line-hours of 72 to obtain allowed labor and overhead costs of

$ii-,521.67 and $2,626.79, respectively.

Productivity variances in dollars are obtained by subtracting

allowed costs from absorbed costs and result in $185.38, labor, and

$108.^4-3^ overhead, both favorable, resulting from producing at a rate

higher than standard.

The Productivity Ratio is the result of dividing total allowed

overhead of $2,626.79 "by total absorbed overhead of $2,737.22. The

- 85 -
Fancy Poultry Co.

Anywhere, U. S. A. ^'-'^^ ' ^

^'EEKLY COST COMT^^OL REPORT WORK Sii'EET ''''°""'

(WSTHOUT MAT^^IALS)

cZ<0trt>^'^* < m/^'»^T

ACTIVITY ^ V^o %

TYPE PRODUCT, OF

WEICHT

CATEGORY

PRODUCTION

IN

UNITS

PER UNIT ABSORBED

TYPE BIRD LABOR O'HEAD LABOR O'HE AD

Ú.yi.oiLa^ *-// d3û^/o ''3 /f/ / /Í. ""jc/if^ * ^/y7i

i( Í--?' 35/. ^6 3 /// /

<í'jí5' /*»-iV

t

¿'/5 ^^

*/ x-"/ 6^^Z^7^ 3 393 / 97J / ^^ ,f/;? .?f ^V 73^// 3 ¥f^ Á í?^^ 7V /4¿ 7'

o (/ V ¥-'/ jLo<:>,oo 3 fi'r X ¿37 7h'¿<> ¥47 'io

f /

TOTALS ^7V /./ ^737 2Z,

RAT ES ^-^ ER

LIN E_ HOUR

ALLOWED

LABOR O'HEAD

L 1 N K - HOURS OPERATED - /^. ^ */:. i'»/ %i ^/ ?/jiy ^7 \L:^¿ 7f

PRODUCTIVITY VARIANCES - - ~ -

PRODUCTIVITY RATIO — - — - - —

*//J5Í * /oi" V3

- 0 fío

Figure 33
ratio in this example is O.96O indicating that O.96O hoiir vas consiuned

in producing one standard hour of output - a favorable variance.

Activity. Percentage shown on the top of the worksheet indicates that

while the "budget was based on 160 hours per week^ figure 2k-y the actual

hours of operation were 72 hours or ^5 percent. Thus^, while the eviscerating lines operated only k^ percent of the time planned^ actual

hours of operation were relatively efficient as evidenced by the 0.960

productivity ratio. The significance of these results on costs will

become evident in the reports which follow.

WEEKLY COST COCTTROL REPORT

An illustrative Weekly Cost Control Report is shown in figure 3^. It has

been filled out^ as to details^ only for the eviscerating process used in this

example.

Report Content

This report brings together the actual payroll costs and the amounts of

absorbed and allowed labor to show the labor variance due to productivity and

the variance due to the amount of payroll being more or less than budget for

the actual line-hours of operation.

Report Preparation

Absorbed Labor^ Allowed Labor, Productivity Variance, and Productivity

Ratio. Transferred from the Weekly Cost Control Report Worksheet,

figure 33. In practice, worksheets would have been prepared for çach

department.

Actual Payroll. Taken ffom the company or plant payroll register and includes only straight-time wages for direct labor employees.

Payroll Variance. Represents the difference between Allowed Labor and

Actual Payroll. In this illustration the eviscerating department operated with $238.17 less labor cost than was budgeted for the actual linehours operated.

Labor Ratio. Computed by dividing actual payroll by absorbed labor. The

0.910 indicates that only 91 cents of payroll were expended for each

dollar of budgeted payroll cost "earned" or "absorbed" as a result of

units produced in the Eviscerating Department.

Plant Totals - Ratios. Computed in the same manner as that for each

department.

Activity. The percentage shown on the top of the report is ^8.9 percent.

The Overhead Rates developed in figure 2k were based upon total overhead per month of $58,^70 at 85 percent activity which is $68,788 per

month at 100 percent activity which, in turn, reduces to $15^87^ per

- 87 -
Fancy Poultry Co.

Anywhere, U. S. A.

WEEKLY COST CONTROL REPORT

yna^^^^f

^f-:Tfi '->^»^

ACTIVITY . ^f

PROCESS ABSORBED

LABOR

ALLOWED

LABOR

PRODUCTIVITY

VARIANCE

ACTUAL

PAYROLL

PAYROLL

V ARI ANC E

LABOR

RATIO

PRODUCTIVITY

RATIO

* # * ^ *

C^*»^

/

4-701 a/ //a/ ^7 ///-32 4zS3 ii, A3S V

fjo c fío

7

* /

utUtZu^

J

^^^^ ^^ /^-^jf

^^

PLANT TOTALS V//^ u V;-/, y/ ^(^oa /^ ^f/3;^ '

Í¿^; ^ (/ oif') 0 97^

MATERIAL USAGE

ABSO RB ED

v/MM/m/Á

USAG E

V ARI AN C E

^

Figijre 3^

- 88 -
week on the "basis of ^-l/3 weeks per month. Thus^ if 100 percent plant

activity requires $15,874 of overhead and the allowed overhead for the

week is ^J^j62.kO (suimnarized from the weekly worksheets for the four

departments), the activity level is ^8,9 percent.

Material Usage. Spaces at the "bottom of the report are for the use of

those companies desiring to measure usage of paclcaging and packing materials. Such companies should use a special Weekly Cost Control Report

Worksheet for the Packing Department^ as shown in figure 35. Unit costs

of materials will be obtained from the appropriate Product Specification

and Cost sheets^ as illustrated in figure 31. Here, the packing materials cost per unit is $0.2101 ($5.1791 less $^^.9690). The total materials data will he entered on figure 3^, opposite Material Usage^ absorbed

materials under "absorbed," actual usage in dollars under "actual" column

and the difference in the "Usage Variance" column.

LABOR AM) OVERHEAD AMLYSIS WORKSHEET

The purpose of this worksheet, figure 36, is to bring together data from

each Weekly Labor Cost Control Report Worksheet, figure 33^ and Weekly Cost

Control Report, figure 3^^ to obtain monthly totals and other data required

for the preparation of the Overhead Spending Variance Report, figure 37^ and

Summary of Cost Performance, figure 38.

WORKSHEET PREPARATION

Labor Section

The figures from the Weekly Cost Control Report, figure 34, are entered

in the Absorbed, Allowed, and Actual columns. Provision is made for entering

end-of-month accruals to adjust weekly data to a monthly basis.

Overhead Section

Data for the overhead section of the worksheet come from sources or computations outlined below:

Absorbed and Allowed. Amounts of overhead come froru the Weekly Cost

Control Report Worksheet, figure 33^ prepared for each department.

Departmental worksheets are added together to obtain weekly plant totals

for this analysis.

Normal Budget at 100^. Original budget at planned vol-ume of 85 percent

($58,^4.70700) as shown on Overhead Budget at Planned Volume, figure 21,

adjusted to a volume level of 10Ö percent ($58,1^-70.00 * .85 equals

$68,788.00). The Normal Budget at lOO/o merely provides a basis upon

which to determine the plant-wide activity and is not used for any other

purpose.

- 89 -
Fancy Poultry Co.

Anywhere, U. S. A.

WEEKLY COST CONTROL REPORT WORKSHEET

WITH MATERIALS

PROCESS

TYPE PRODUCT, OR

WCT.

CATEGORY

PRODUCTION

IN

UNITS

PER UNIT ABSORBED

TYPE BIRD

LABOR O'HEAD MATERIALS LABOR O'HEAD MATERIALS

^ ^ f * ^ ^

TOTALS

4> * 4

RATES PER ALLOWED 1

HOUR LABOR 0*HEAD

-HOURS OPERATED

4 S

////////

4. 4

PRODUCTIVITY VARIANCES t A

PRODUCTIVITY RATIO

Figure 35

- 90
LABOR

WEEK ENDING

Accruals - End-of-month

Sub-totals

Accruals - Last month

ABSORBED

$

9,182.60

FANCY POULTRY CO.

ANYWHERE. U.S.A.

LABOR AND OVERHEAD ANALYSIS WORKSHEET

ALLOWED

8,980.ii8

ACTUAL

9,632.20

PLANT Pleasantville

PERIOD March 19

VARIANCES

(UTJEAVORABLE)

PRODUCTIVITY PAYROLL TOTAL

RATIOS

(OVER 1.000 -

UNFAVORABLE)

PRODUCTIVITY TOTAL

PERIOD TOTAL $38,362.50 $37^7)i2.63 $36,922.75 $ 819.87 $ 819>86 $1,639>T^ .986 .972

I

OVERHEAD

WEEK ENDING

1.

2.

3.

k.

5.

Accruals - End-of-month.

Sub-totals

Accruals - Last month...

ABSORBED ALLOWED

NORMAL

BUDGET AT

100^

7,937.01 7,762.1+0

ACTUAL FIXED

.ADJUSTED BUDGET

VARIABLE TOTAL

PERIOD TOTAL $l+8,Ul8.32 $117.692.25 $68,788.00 $37.283.05 $32,183.00 $21,1+38.03 $33.^621^^

ACTIVITY 69jj2|

Variances

OVERHEAD VARIANCES AND RATIOS (Unfavorable)

TOTAL: Actual overhead expense incurred $57,285.05

Overhead expense absorbed U9,Ul8.52 |(8,866.33)

SPENDING: Actual overhead expense incurred 57,285.05

Budget adjusted to actual level of activity 53,623.05 $(3,662.00)

VOLUME: Budget adjusted to actual level of activity 53,623-05

Overhead allowed ^7,692.25 (5,930.80)

PRODUCTIVITY: Overhead allowed 1+7,692.23

Overhead absorbed 1+8,1+18.52 726.27

$(8,866.53)

Ratios

( Over

1.000 -

Unfavorable)

1.183

1.068

.985

Figure 36
Activity jo. Dividing the allwed overhead of $^7^692.25 hy noiTnal overhead of $68,788.00 results in 69.33 percent activity.

Actual. Expenses of $57^285.05 come from the total of overhead expense

accounts in the general ledger maintained in accordance with the chart

of accounts in Appendix 1 to this Guide.

Adjusted Budget. Original budget data of $32,185.00 fixed expense and

$26,285.00 variable expense per the Overhead Budget at Planned Volume

{fl^\jœe 21) with variable expenses adjiisted to the actual activity or

vol-ume level for the month. Planned volume vas 85 percent. Actual

volume vas 69.33 percent, or 8I.56 percent of planned volume. Thus,

the $26,285 variable expenses are multiplied by 8I.56 percent to equal

$21,ii-38.05.

Variances. Computed as shovn on the vorksheet:

Total variance. Difference betveen actual expenses incurred and expenses absorbed; is analyzed further into spending, volume, and efficiency variances.

Spending variance. Arises becausç actual expenses incurred exceed the

amount called for in the budget after adjustment of variable expenses

due to the fact that the actual level of activity or volume differed

from the activity or volume level used in the original budget.

Volume variance. Arises because the alloved overhead cost is based upon

the expectation that activity or volume vill equal a planned level of

85 percent. Actual activity or volume vas at 69.33 percent. The

original budget vas adjusted to the actual level vith respect to varible costs; hovever, fixed costs necessarily remained at the original

amount. The variance of $5^930.80 represents fixed costs vhich vere

not absorbed because of the lover than planned level of activity.

Productivity variance. Results from the fact that expenses are absorbed

on the basis of a predetermined productivity per line or man hour.

When actual productivity varies from this predetermined amount an

overhead variance results.

OVERHEAD SPEITOING VARIMCE REPORT

The Overhead Spending Variance Report, figure 37^ is prepared for the

purpose of reporting perfomiance in controlling overhead expense to adjusted

budgetary limits.

The report illustrated covers the total plant overhead expenses. In

practice, the preparation of individual reports for the various departments

vill often be desirable. Separate department reports vould be prepared similar

to the overall plant report except that they vould cover only such classifications of expense as are considered to be controllable by department supervision.

- 92 -
Fancy Poultry Co.

Anywhere, U. S. A.

OVERHEAD SPENDING VARIANCE REPORT

PERIOD

PUANT

'PH^L^I^OA^

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OVERHEAD BUDGET ADJUSTED BUDGET

wtu

2fa

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^ Zoooo

Jlfc

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^

Y

VARIABLE

.e ISO

VARIABLE

UL

yji,

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aL^

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/ fot ZX

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OZ

.ACTUAL

EXPENSE

SPENDir^O VARIANCES

(UN F AVO R ABL E)

CURRENT

j?y*

¿/7 ûX

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S'c VAíí

iZ

xi.

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YR.TO DATE

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Uc Jloo /¥S* /20-) f/oj //tgo

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^:4

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^g ^;? ^t/j-f

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é

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2Z ^^

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fei^

:zi/* xz: azi

¿U>eML rU\ ^ /5/ //¿? // /¿o // /f3Îi 33 ^Jll

,-<2M«^^V ^¿4^^y»AAi V< .?^e« V« ?2 Ù2. Í3Z Lz SiO. 30 ¿z

.^y.>- ^(^AM^ /^)4» .^2^ /ö3« /y» :î /öyi /^y^ X^3

¿:2^ é^ijL-^ m^. ^l^ll //f« f/:^£ /(f ^^ff^ a ^c34^^ (^ûsS û.

_A«¿i_:2^^ j^'//. ßijti'.. Jtiji!/

Figure 37

i/y>/ 1/ /3¿í? ' Hy7^//>/|'(^¿¿'¿)»»|
REPORT CONTENT

The Overhead Spending Variance Report includes^ for all plant overhead

expense accounts^ the amounts originally budgeted^ an adjusted budget based

on actual plant activity^ actual expenses incurred^ and the amounts by which

actual expenditures are more or less than the adjusted budget amounts.

REPORT PREPAEIATION

Accoimts and Overhead Budget. Taken from the original Overhead Budget

at Planned Volume^ figure 21.

Adjusted Budget. Variable and total expenses are the result of adjusting original budget amounts of variable expense to the actual activity

or volume level for the period.

In the example the original budget was based upon 85 percent activity. The actual overall plant activity for the period^ as shown on

the Labor and Overhead Analysis Worksheet^ figure 36^ was 69.33 percent.

Thus^ actual activity was 81.56 percent of planned activity.

Original budgeted amounts of variable expense are then multiplied

by 81.56 percent and entered in the Adjusted Budget-Variable column.

These amounts are then added to the fixed expenses to obtain total

adjusted budget amounts.

Actual Expenses. Entered from the general ledger expense accounts maintained according to the Chart of Accounts shown in Appendix 1 of this

Guide.

Spending Variances. Are computed by subtracting actual expenses from

adjusted budget amounts. Total spending variances should agree with

the spending variance shown on Labor and Overhead Analysis Worksheet,

figure 36.

SUMMARY OF COST PEREORMADiiCE

An illustrative Summary of Cost Performance report is shown in figure 38.

This report serves to point out performance in controlling important elements

of labor and overhead costs in relation to predetermined budgets and standards

and is intended to supplement the Statement of Income, figure 16.

Report Content

This report shows for the overall plant the amounts of labor and overhead costs incurred during the month and the types and amounts of variation

from budgets and standards for the current month, prior month, and year-todate. Ratios are also shown to serve as indexes of performance.

- 9^ -
FANCY POULTRY CO.

ANYWHERE. U.S.A.

SUMMARY OF COST PERFORMANCE

MARCH, 19

THIS MONTH VARIANCES...

VARIANCES AMOUNT LAST YR. TO

(UNFAVORABLE) EXPENDED VARIANCE MONTH DATE

LABOR -

Productivity $ $ 819-87 $ $

Payroll 819.88

Total ^56.922.75 $ 1.639.75 $ ^

OVERHEAD -

Spending $(3,662.00) $ $

Volume (5,930.80)

Productivity 726.27

Total $57,285.05 $(8,866.53) $ I

RATIOS

(OVER 1.000 - UNFAVORABLE)

THIS

MONTH

LAST

MONTH

YEAR-TODATE

LABOR -

.986

.972

1,068

.985

1.183

70.1^5^

Total • • •

OVERHEAD -

5^"niinH"i nor ««-.--.-...••.•»••.«

• • •

Total • • •

ACTIVITY

MORMAT ñR<íi • • • 1^ i'

Figijre

- 95

38
Report Preparation

The reported data for the month are obtained directly fï-om the Labor

and 0\rerhead Analysis Worksheet, figure 36. Data for the prior month and

^ear-to-date are obtained by using the report for the prior month.

UTILIZING REPORT DATA

In contrast with the operating and cost reports illustrated in Parts I

and II of this Guide, the reports in this Part III employ a more extensive

use of predetermined operating and cost standards. The reports point out

performance in meeting standards and budgets at the various key points of

control so that appropriate corrective action can be taken. Control points

are generally related to responsibility assigned under the plant or company

organization plan. Provision is made for the predetermination of process and

product costs for use in pricing decisions, to the extent they are based on

cost, and as aids in making other business decisions.

To be most useful, budgets and standards should reflect actual operating conditions to a reasonable degree. The frequency of revision in standards and budgets is therefore an important consideration. Standards should

not be revised with a frequency which defeats the prime objective, that is,

measurement of progress in relation to a predetermined goal. As a general

rule, standards and budgets should be reviewed, and revised as necessary,

annually. Revisions, however, should be more frequent when major changes

occur in the factors on which the goals are based.

Variations in the reporting pattern may be devised which will assist

in the effective utilization of reported information. For example, figure

39 illustrates a Weekly Ratio Chart that facilitates the evaluation of trends.

The horizontal axis uses 100 as standard and, when actual data are plotted,

shows the deviations and trend in deviations from established standards.

ALTERMTIVES AND EXCEPTIONS

STAIJDARD COST COIMROL

The system described in this Part utilizes many of the techniques of

Standard Cost Accounting without requiring a formalized accounting system

based on standard costs. Under Standard Cost Accounting, inventory ledger

balances and cost of sales information axe recorded and maintained at standard unit costs in contrast to actual or average cost. Differences between

"standard" and "actual" costs - Variances - are generally charged off each

accounting period as they occur.

The Budgetary system, as described, is expandable to complete Standard

Cost Accounting. The principal modification would consist of provisions for

standard or budgeted materials prices and for materials variances. As in the

- 96
Fancy Poultry Co.

Anywhere, U. S. A.

WEEKLY RATIO CHART

PACKIiJG

LABOR-CENTS PAID FOR EACH 100 CENTS

EARNED BY PRODUCTION.

99

7S

60

P RO DU C Tl VI TY - Bl RDS ACTUALLY HUNG COMPARED

TO EACH 100 BIRDS WHICH SHOULD

HAVE BEEN HUNG AT STANDARD SPEED.

ACTI VI TY - ACTU AL LINE-HOURS OPERATED

AS A PERCENTAGE OF PLANNED HOURS

OF OPERATION EACH WEEK.

LABOR AND P RODUCTIVITY-OVER 100 - UN F AVO R ABL E

ACTIVITY -OVER 100 - F AVO R ABL E

Figure 39

- 97 -
case of labor and overhead^ the materials variance can be separated into v^o

or more sub-variances^ such as price and quantity (or yield).

While prices -of &ome materials remain comparatively stable over long

periods^ market prices of the prime material (live birds) fluctuate fï-om day

to day^ making it difficult to establish standards. Standard cost controls^

however^ have many advantages which frequently warrant the effort required to

establish and maintain reasonably useful material price standards. Accounting

personnel knowledgeable in standard costing techniques should experience no

difficulty in completing an extension of the Budgetary system to that point,

if desired.

INCOME STATEMEM» ARRMŒEMEICT

The volume and types of detailed information available under the Budgetary system permit various Statement of Income formats to be used. Figure l6

shows one example. In this case, some variety is illustrated, such as the

degree of overhead detail, period-to-period comparisons, year-to-date trends,

and the like. The existing circumstances and the needs and preferences of

management personnel will dictate the format suitable to a particular company.

SELLING Am GEKERAL ADMINISTRATION EXPENSES

The procedure illustrated in this Part HI does not provide for identification of selling and administration costs to specific products. Various

methods of allocation may be used to assign these expenses to products, and

the appropriate method will depend upon the circumistances. Total product

costs, determined by the addition of such expenses to processing costs, are

frequently useful in making decisions on pricing and product profitability,

as well as for statistical purposes.

PLANT REPORT

The Plant Report, figure 32, for this Part III is similar to the Plant

Report illustrated in Part II as- figure 7« Tlie variations discussed in

Part II under "Alternatives and Exceptions" are also appropriate to plants

using the system described in this Part.

CONCLUSION

Cost reporting on a budgetary basis, as outlined in this section, is

designed for larger, more diversified plants. Provision has been made for

decentralizing responsibility for cost control to plant supervision. Through

the use of budgets and operating standards, process and product costs are

predetermined to serve as goals for measuring performance in the control of

cost. Data is provided at major control points for the control of labor and

overhead costs. Through extension of these procedures, material cost can

be included, and a full standard cost accounting system adopted as part of

the foiToal accounting procedures for the plant or company.

98
APPEKDIXES

1. Chart of Accounts and Account Codes.

2. Definitions and Description of Accounts.

3. Alternative Determination of Line-Hoiars

Operated^ by Bird Types and Weight

Categories.

k. Profitability Comparison.

5. Profitability Determinations for Various

Bird Parts.

6. Treatment of Special Accounting Problems,

7. Marketing and Distribution Costs.

8. Table of Recommended Bird Categories.

99 -
APPENDIX 1

CHART OF ACCQU3OTS ATO ACCQUM' CODES

Because the basic purpose of this Guide is to improve cost accounting,

record-keeping, emd reporting techniques in the poultry processing industry,

attention has been directed to plant operations. For this reason, references

in this manual to accounting records have usually been made to the operating

accounts for costs and expenses. Obviously, these operating accounts must be

integrated into a complete accounting system.

The purpose of Appendix 1 is to illustrate a complete chart of accounts,

including the operating accounts. A set of definitions and descriptions of

the content of these operating accounts follows in Appendix 2. Appendix 1

also includes a set of account codes which facilitate and minimize the work

required in the processing of accounting data.

The illustrated chart of accounts with related account codes is segregated into the following sections:

Balance sheet accounts

Sales, cost of sales, and other income and expense accounts

Direct costs

Overhead and other expense accounts

Farm, plant, and departmental designations

The chart of accounts and related account codes is presented in considerable

detail; few companies will need such a comprehensive structure. The chart

and codes can be adapted to individual company needs by consolidating and

eliminating various accounts and, in a few instances, by expanding the accoimts.

The code structure included with the illustrated chart of accounts is

known as a numeric code and comprises eight digits, for use as follows:

XXX XXX XX

_Plant, Farm, or Department Designations.

AA

---Direct Processing Costs, and Manufacturing, Selling, and

General and Administration Expenses.

^alance Sheet and Income Statement Accounts.

100
The code structure illustrated^ limited as it is to numerals^ is the

type most easily adaptable to tabulating systems. Other systems^ such as

an alpha-numeric code, may be used to advB.ntage in manual systems. For example, as an adaptation of the above code structure, a segregation of bank

accounts under account 112 might be as follows:

112 Cash in banks

.U2A Cash in bank A

112B Cash in bank B

The construction of the code is extremely important in the accounting

system for larger enterprises. The coding requirements depend upon the

complexity of plant operations and upon the information required from the

systems. The objective in foiroulating any code is to find the simplest code

scheme which will fulfill the requirements.

BALMCE SHEET ACCOUNTS

The balance sheet accounts follow the conventional accounting pattern.

Poultry processing companies which operate diversified activities such as

locker plants, frozen meat pie plants, feed mills, fertilizer plants, and

by-product plants can separate the income and expenses for each of the activities by the use of farm, plant, or departmental designations.

Current Assets and Related Reserves

110 Cash

lU Petty cash funds

112 Cash in banks

If a fuirther segregation is desired, for example, by petty

cash fund or type of account, additional codes may be used.

119 Cash in transit

120 Accounts receivable

121 Accounts receivable - Trade

If a further segregation of accounts receivable - trade is

desired, for example, by eggs, chicks, feed, live poultry,

iced poultry, etc., or types of customers, additional codes

may be used.

123 Accounts receivable - Officers and employees

12Í Accounts receivable - Other

125 Interest receivable

126 Rent receivable

129 Allowance for doubtful accounts

130 Notes receivable

131 Notes receivable - Trade

132 Notes receivable - Officers and employees

133 Notes receivable - Other

138 Notes receivable discounted

139 Allowance for doubtful notes

- 101 -
1^0 MarketalDle securities

1^1 United States Government securities, at cost

1^8 Other marketalDle securities, at cost

1^9 Allowance for decline in securities values

l60 Inventories - Direct materials

161 Poultry feed

162 Laying poultry

163 Growing poulti^ on farms

16k Poultry in process at plants

165 Processed poultry in bulk

166 Packaged poultry

167 Processing materials

170 Inventories - Indirect materials

171 Supplies and repair parts

A further segregation of supplies and repair parts can "be

obtained "by use of departmental codes shown on pages IO9

and 110. For example: I7I XXX 12 represents supplies and

repair parts for the eviscerating plant; the ^l-th, 5th,

and 6th digits would not be used.

176 Auto and truck supplies and parts

177 Gasoline and lubricants

178 Office supplies

179 Fuels for heating and process steam

Property, Plant, and Equipment

210 Land

211 Farms

212 Plant sites

220 Buildings

221 Farm buildings

222 Plants

228 Accumulated depreciation - Buildings

229 - Plants

230 Leasehold improvements

231 Leasehold improvements

239 Accumulated amortization of leasehold Improvements

2^0 Machinery and equipment

2^1 Farm equipment

2^2 Dressing equipment

2^3 Eviscerating equipment

2kh Cutting equipment

2^5 Packaging equipment

2k6 Ice plant equipment

2^4-8 Office furniture and equipment

2k-9 Accumulated depreciation - machinery and equipment

- 102
'^':>u I'ransportation equipment

251 Pick-up tiniclis

252 Delivery trucks

253 Buses

257 Automobiles

258 Aircraft

259 Accumulated depreciation - Transportation equipment. A further

segregation of fixed assets may be desired. Additional codes

may be used^ or the fixed assets may be segregated by using the

farm^ plant^ and departmental designations as illustrated under

account 17I - supplies and repair parts.

Other Assets

260 Investments

261 Miscellaneous security investments

262 Cash surrender value of life insurance

268 Rental properties

269 AccunrtLLated depreciation - Rental properties

Prepaid Expenses and Deferred Charges

270 Intangible assets

271 Patents

272 Trademarks

273 Goodvill

279 Accuimüated amortization - Patents and trademarks

280 Prepaid expenses

281 Prepaid rent

282 Prepaid insurance

283 Prepaid taxes

28^4- Prepaid interest

Liabilities

310 Accounts payable

311 Accounts payable - Trade

312 Accounts payable - Other

313 Social security taxes withheld from employees

31k Federal income taxes withheld from employees

315 State and city income taxes withheld from employees

319 Customers' advance deposits

320 Notes payable

321 Notes payable - Bank

322 Notes payable - Trade

323 Notes payable - Other

32^ Current portion of long-term liabilities

103
330 Accrued liabilities

331 Federal income taxes accrued

332 Salaries and wages accrued

333 Commissions accrued - Salesmen

33^4- Commissions accrued - Distributors and agents

335 Employees* vacation pay accrued

336 Social security taxes accrued - Employer's portion

337 State and local taxes accrued

338 Interest accrued

339 Compensation insurance accrued

350 Long-term liabilities

351 First mortgages

Stockholders* Equity (if incorporated)

Í4-10 Capital stock

Ml I^eferred stock

k-l6 Common stock

14-21 Additional paid-in capital

^22 Retained earnings

Í4.23 Other charges to surplus

^2^ Other credits to surplus

i|-25 Current profit and loss

¿4-28 Dividends, preferred stock

Í4-29 Dividends, common stock

Net Worth (if a proprietorship or partnership)

Í4.IO Capital

^11 Capital - Partner A

i|-12 Capital - Partner B, etc.

ii-20 Withdrawals - current

¿4-30 Profit and loss - current

SALES, COST OF SAIiBS, AM) OTHER INCOME AND EXFEINSE ACCOUITOS

500 Sales

501 Sales - Product group A

502 Sales - Product group B

5^9 Sales - Byproducts

550 Returns and allowances

551 Product group A

552 Product group B

558 Discounts allowed

IOÍ4-
600 Cost of sales

601 Pl'oduct group A

602 Product group É

608 Purchase discounts

6^9 Cost of sales - "byproducts

700 Direct charges

750 Manufacturing expenses

760 Selling expenses

770 General and administration expenses

800 other income

802 Interest

803 Dividend

8(A Profit on simdry sales

805 Rental income

806 Profit on sales of fixed assets

807 Profit on sales of investments

808 Royalties received

809 Miscellaneous income

850 Other charges

852 Interest

853 Idle plant costs

8^ Inventory markdovms and shrinkage

855 Bank servi.ce charges

856 Miscellaneous charges

860 Taxes on income

861 City income tax

862 State income tax

863 Federal income tax

DIRECT COSTS

All direct processing costs, that is, direct materials and direct labor

under the basic code of 700 - Direct charges, should be further segregated

using the ^th, 5'th, and 6th code position, as follows:

010 Direct labor

020 Chickens

021 Broilers or fryers

022 Roasters

023 Capons

02lj- Stags

025 Cocks

025 Hens

105
030 Turkeys

031 Fryers or roasters

032 Young hens and toms

033 Hens and toms

oho Other poultry

041 Ducks

0if2 Geese

Ck3 Guineas

Ohh Squahs and plgeonö

050 Ice and freezer storage charges

051 Ice-chilling

052 Ice-packing

056 Freezer plant charges or costs

060 Cooking materials

061 Fats

062 KLour

063 Bread, etc.

070 Packing material s

071 Poultry wrappers

072 Boxes

073 Box wrappers

07^ Cartons

075 Cases

076 Cans

077 Drums

The listed direct materials classifications apply to poultry processing

activities. When operations comprise other activities, such as producing

farms, "byproducts plants, and specialty products plants, similar appropriate

classifications and account codes should he developed.

OVJ!a{lil!LftD AND OTHER jgLb'JgW??!!: ACCuUHTS

Overhead and other expense accounts, claci'ified originally as 750 -

Manufacturing expenses, T60 - Selling expen*:c;s, and 770 - General and administration expenses, shou' c. he segreg9.ted iurther, using the ^th, 5^h, and

6th code positions, as F.own in the following list. Suggested hases of

allocation of the exrcuse accounts is included. Accounts designated "by an

asterisk (*) are applicahle only to selling expenses or general and adioinistration expenses, and allocation is usually not necessary.

Account Basis for Allocation

100 Supervision and Indirect Labor

HI Salaries - Supervision ) Direct charge or Payroll

112 Salaries - Technical and > (direct labor)

professional

- 106 -
Account Basis for Allocation

113 Salaries - Salesmen *

12h Commissions - Salesmen *

115 Salaries - Secretarial )

116 Salaries - Clerical )

117 Bonuses - Salaried personnel)

121 Wages - IncLirect labor )

122 Wages - Quality control )

123 Wages - Revork labor )

200 Other Related Payroll Costs

PU Overtime premium

PIP Shift premium

221 Vacation pay

222 Severance pay

231 Annuity costs

232 Pension costs

251 Contpensation insurance

252 Group insurance

261 Social securiiy taxes

262 Unenrplpyment benefit taxes

300 Supplies and i^cilities

311 Fuels - Heating and process

steam

312 Power and light

313 Water

31^ Sewerage disposal

321 General supplies

331 I>epartmental supplies

332 Office supplies

333 Lubricants

33**- Auto and truck fuels

3^1 Postage *

3*1-2 Advertising materials *

400 General Expense

4ll Procurement - Birds

^12 Transportation in

Ij-PI Repairs and maintenance

Buildings

)

)

Direct charge or Payroll

(direct labor)

Direct charge or Payroll

(direct labor)

Payroll (direct labor)

Direct charge or Floor

space

Horsepower requirements

Direct charge

Direct charge

Payroll or equalized equipnent

value

Direct charge

Payroll

Equalized equipment values or

Transportation Department direct

or Transportation inward and

outward

Transportation department direct

or Transportation inward and

outward

Direct to dressing department

Floor space

107 -
AecoTint

k-22 Repairs and maintenance

Equipment

^29 Royalties expense

^31 Professional services

^32 Insi>ection fees

^33 Weighing fees )

khl Dues and subscriptions ^

^51 Conventions and entertainment *

k^2 Travel expense ^

k6l Donations *

k62 Bad debts *

k-63 Directors' fees and expenses *

^71 Airplane expense *

kj2 Telephone, teletype, and

telegraph

^91 Advertising - direct *

^92 Advertising - agency ^

^93 Commissions - distributors,

jobbers, and agents *

^9^ Public Relations Expense *

I4.98 Warehousing charges *

^99 Transportation out *

500 JBlxed Charges

511 Depreciation - Buildings

512 Depreciation - Machinery

and equipment

513 Depreciation - Office

Fixtures

515 Amortization - Leasehold

Improvements

516 Amortization - Intangibles *

521 Taxes - Property

522 Taxes - Other ^

531 Insurance - Property

532 Insurance - Machinery and

Equipment

535 Insurance - Other

539 Lii*e Insurance - Officers ^

5^1 Rent - Occupied space )

5^2 Rentals - Machinery and )

equipment )

Basis for Allocation

Equalized equipment value

Direct charge or equalized

equipment values

Direct charge or Payroll

(direct labor)

Direct charge or allocations

as explained on page 115

Floor space

In place equipment values or

actual direct

Department direct or Payroll

(direct labor)

Floor space

Floor space

Floor space

In place equipanent values

Payroll (direct labor)

Floor space or direct charge

- 108 -
FARM, FIANT, AM) DEPAROMEMPAL DESIGMATIONS

Poiiltry processing may be the soH-e activity of a company or it may be

only one of the company^s activities. The following illustrates the coding

of farm, plant, and departmental designations for a large company with several activities. A plant engaged solely in poultry processing would use only

the Plants - Poultry processing section (below) together with the necessary

sales service and administrative departments.

FARMS

01 Feed farms

02 Laying flock

03 Growing flock

PLANTS

07 TTatchery

08 Egg marketing

10 Poultiy processing

11 Dressing

12 Bviscerat5.ng

13 Cutting

Ik Cooking

16 Packaging

IT Canning

18 Freezing

20 Ice manufacture

23 Freezer

2k Feed mill

30 Specialty products

31 Chicken pies

32 Turkey pies

33 Beef pies

3k Fruit pies

ko Byproducts

kl Fertilizer

k2 Poultiy feed

k3 Sma.ll animal food

k^ Facilities

k6 Heat and power

kl Water

k8 Sewage disposal

SERVICE PIANT OVEHHEAD DEPARTMENTS

50 Research and quality control

51 Research

52 Experimental farms

'd Feed crops

Poultry

109
59 Quality control

60 Plant engineering

61 Engineering

6k Plant repair shops

65 transportation (Auto and truck

storage and repair shops)

66 Transport in

67 Autos

68 Buses

69 Transport out

70 Cost and payroll

71 Cost accounting

72 Payroll accounting

75 Personnel

76 Personnel administration and training

77 Medical

80 Methods and time study engineering

GEMERAL ÖVERBEAD DEPAETMEMTS

85 Sales

86 Sales general

87 Advertising and sales promotion

89 Warehousing and distrihution

90 General administration

91 Administrative offices

92 General accounting

93 Legal

ck Office services

Companies operating plants for power, ice, water, or offal processing

may wish to account for these operations separately, as explained in Appendix

6. When separate accounting treatment is made, equitahle allocations of departmental charges or credits should "be made.

- no -
APPEKDIX 2

DEFINITIONS AND DESCRIPTIONS OP ACCOUOTS

The content of "balance sheet^ sales^ cost of sales, and other income

and expense accounts are dependent upon specific company requirements and

generally accepted accounting procedures and practices. These accounts are,

therefore, not further defined nor described in this appendix. The operating

accounts relate directly to the cost accounting and reporting practices described in Parts I, II, and III of this Guide and are defined and described

below:

DIRECT COST ACCOUNTS

Direct labor. Straight-time vages for work vhich adds to or changes

the character of the product. Also includes straight-time wages for

services directly related to production, that is, services performed

in conjunction with production operations. An example of the latter

type would be straight-time wages for furnishing wrapping or packaging

materials to the packing line.

Direct labor accounts normally should be segregated by departments and by cost centers.

Direct materials. Prime direct material - birds (hen, broiler, turkey,

etc.) - or its parts in the cut-up state. Direct material also includes items which accompany the prime direct material to the customer

and which are consumed in proportion to the prime direct material, for

example, packing ice, wrappers, boxes, and cartons.

OVEEfflEAD ACCOUNTS

Supervision and Indirect Labor

Salaries - Supervision. Salaries of supervisory and executive

personnel. Excludes salaries of specialists, which are chargeable to Salaries - Technical and professional.

Salaries - Technical and professional. Salaries of persons whose

activities require technical and professional training but who

exercise no supervisory authority. Examples of such specialists

are: physicians and nurses, method and time study engineers,

draftsmen and designers, and chemists or agriculturalists engaged

in research. Salaries of specialists who supervise a group of

employees should be charged to Salaries - Supervision.

- Ill
Salarles - Salesmen, Salaries of persons selling or taking orders

for company products. When such a person qualifies as a supervisor^ his salary should be charged to Salaries - Supervision.

Commissions - Salesmen. All commissions paid to company salesmen.

Commissions paid to outside agencies are chargeable to Commissions

- Distributors^ jobbers and agents.

Salaries - Secretarial. Salaries paid to secretaries of supervisors or executives. Does not include salaries of clerk-typists.

Salaries - Clerical. Salaries paid to persons engaged in clerical

activities, such as supply room clerks, clerk-typists, timekeepers,

cost clerks, and mail clerks.

Bonuses - Salary personnel. Includes year-end, Christmas, profit

sharing, productivity, or other bonuses paid to salaried personnel,

including non-exempt salaried personnel. Amounts paid as part of

a production incentive wage payment plan should be charged to

direct labor.

Wages - Indirect labor. All hourly wages not chargeable to direct

labor, wages - quality control, and wages - rework labor.

Wages - Quality control. Hourly wages paid to persons exercising

quality control functions under research departments or general

plant supervision.

Wages - Rework labor. Hourly wages paid for reworking rejected

poultry or other direct materials. The account is optional; its

use gives some measurement of the quality of work performed in

various stages of poultiy processing.

Other Related Payroll Costs

Overtime premiums. All overtime premiums paid under company

policies or wage and hour legislation.

Shift premium. All premium payments to hourly wage personnel for

work performed on other than the first shift. Differentials in

salaries paid off-shift personnel are not segregated but are considered part of salary costs.

Vacation pay. Cost of vacations of hourly paid personnel.

Severance pay. Salaries and wages applicable to the period following the severance date. Any allowance for earned vacation included in a final pay should be charged to the vacation pay.

Annuity costs. Company contributions to any annuity fund for

salaried or wage personnel.

- 112
Pension costs. Company contrilDutions to any pension fund for salaried or vage personnel.

Compensation insiirance. Premiums paid or other costs of workmen's

compensation insurance. Does not include payments under a group

insurance plan for medical and hospital "benefits or for unemployment "benefits.

Group insurance. Contri"butions made by the company to group insurance plans.

Social secTority and Unemployment benefit taxes. Contributions required of the company in conformance vith State and Federal

legislation.

Supplies and Facilities

Fuels - Heat and process steam. All fuels, such as coal, fuel oil,

and gas, consumed in heating the plant and in providing steam for

the processing operations.

Power and light. Cost of electricity purchased from outside sources

or cost of operating a company-owned power plant.

Water. Cost of water purchased from outside sources or cost of

operating a company-owned water filtration plant.

Sewerage disposal. Costs incurred for special disposition of process wastes or cost of operating a company-owned disposal plant.

General supplies. Supplies which, because of their character, cannot be segregated conveniently to department or office supplies

categories, such as cleaning supplies, light bulbs and tubes,

paint, and minor electrical fixture replacements.

Depsirtmental supplies. Supplies peculiar to processing departments

and general supplies issued to departments.

Office supplies. Supplies used in clerical, supervisory, and executive offices, such as stationery, filing materials, and typewriter ribbons.

f

Lubricants. Lubricating oils and greases consumed.

Auto and truck fuels. Gasoline and diesel motor fuel consumed by

transportation equipment.

Postage. Postage other than parcel post on incoming materials or

on outgoing products.

Advertising materials. Materials consumed in placing the company's

product before the public, such as calendars and bookmatches.

- 113 -
General Expenses

Prociorement - Birds> Costs inciirred in procuring "birds.

Transportation in. Cost of haiiling live poultry to the plant.

Includes payments to outside truckers for hauling poultry to the

plant and^ if the company operates a fleet of trucks^ that portion

of the cost of fleet operation related to hauling poultry to the

plant.

Repairs and maintenance - Building. Costs of repair and maintenance

of buildings.

Repairs and maintenance - Equipment. Costs of repair and maintenance of equipment. Equipment comprises processing^ farm^ office,

and advertising equipment and equipment used in repairing other

equipment. Does not include repairs and maintenance of motor

vehicles.

Royalties expense. Royalties paid for the use of processing equipment or methods. Royalties paid for trademarks, slogans, and other

similar items should he charged to selling expenses.

Professional services. Fees paid to legal coiinsel, accounting and

auditing firms, and for other outside professional assistance.

Inspection fees. Fees paid to government and private aigencies for

sanitation, quality, safety, and other inspection services.

Weighing fees. Fees and expenses paid for ^w^ighing services.

Dues and subscriptions. Membership fees,, periodic dues to trade

associations, and cost of subscriptions to trade Journals and

magazines. Does not include contributions to charitable organizations.

Conventions and entertainment. Costs of attendance at and travel

to and from trade conventions and meetings. Meals and other expenses inc-urred entertaining customers or other company guests.

Does not include payments to associations vhich conduct conventions.

Travel Expense. Costs of travel, fares, meals, and hotels incurred

by company personnel or outsiders while traveling on company business. Does not include expenses reimbursed in connection with

professional services and travel expenses reiiabursed to outside

personnel conducting weighing and inspection services.

Donations. Payments to agencies defined as "charitable agencies"

by the Internal Revenue Service.

- llif
Bad debts. Includes bad debts charged off^ or periodic provisions

for doubtful accounts If the company maintains an Allowance for

Doubtful Accounts.

Directors' fees and expenses. Amounts paid to directors for attendance at board meetings and for other directors' activities.

Airplane expense. Costs, including depreciation, of aircraft owned.

Telephone, teletype, and telegraph. Includes rental on installed

communication equipment and toll charges (including any taxes)

for long distance communications. Toll charges should be charged

to appropriate departments or activities. Rental costs shoiid

be charged to the department having supervision of the services,

unless the rental can be prorated on an equitable basis to departments and activities.

Advertising - direct. Costs of direct advertising programs developed and directed by the sales department. Does not Include fees

to outside agencies.

Advertising - Agency. Fees paid to outside agencies handling advertising programs by published media, radio, and television.

Commissions - Distributors, nabbers, and agents. Commissions paid

to distributors, jobbers, and agents through which company products are sold or distributed. Does not include commissions paid

to salesmen on the company payroll.

Public relations expense. Costs incurred in placing the company

name and policies before the public. Does not include costs of

advertising aimed at selling the company products. Contributions

to, or space piu^chased in periodicals of, civic institutions,

expenses of participation in public affairs and activities (parade, fairs, etc.), and costs of congratulatory advertising of

new local companies are examples of costs to be charged to this

accoimt.

Warehousing charges. Rentals paid for warehouse space. Also includes expenses of a company-operated warehouse.

Transportation out. Cost of transporting finished products to

customers, distributors, or outlying storage facilities. If the

company operates a fleet of trucks, that portion of the cost of

fleet operation related to transporting the finished product should

be charged to Transportation out. Instructions for allocating fleet

costs are shown on page 128.

Fixed Charges

Depreciation - Buildings

Depreciation - Machinery and eguipment

- 115 -
Depreciation - Office fixb-ures

Amortization - Leasehold improvements - the various methods available

for determining periodic depreciation and amortization charges are

not described in this manual. The method of allocating depreciation

and amortization to departments is described in Part II and in Part

III.

Amortization - Intanp^ibles. Periodic writeoff of the original cost of

patents, trademarks, goodwill, and the like.

Taxes - Property. Taxes on liand and buildings.

Taxes - Other. Taxes such as franchise and excise taxes. Does not include property, social security, and income taxes.

Insurance - Property. Cost o:? insurance on physical properties such as

buildings and inventories. Does not include insurance on machineiy

and equipment.

Insurance - Machinery and equipment. Cost of insurance on machinery

and equipment.

Insurance - Other. Premiums on insurance policies for use and occupancy,

riot and civil commotion, public liability, etc. Does not include

payments for compensation insurance, insurance on physical property,

life insurance premiums, or contributions to group insurance plans.

Life Insurance - Officers. Premiums paid for insurance on lives of

officers, executives, and key personnel reduced by the current increase

in the cash surrender value of the insurance.

Rent - Occupied space. Rentals paid for occupied real estate.

Rentals - Machinery and equipment. Rentals paid on machinery or equipment.

- 116 -
APPENDIX 3

ALTERNATIVE DETERMINATION OF LINE-HOURS OPERATED, ET

BIRD TÏPES AED WEIGHT CATEGORIES

Plants vhich change the conveyor speed vhen changing their processing

from one bird category to another during the course of a day or veek may

wish to adopt the following refinements to the methods of allocating hours

of operation to various bird categories.

Part I of this Guide provides that total operating hours be allocated

to the various categories of birds in proportion to "Birds Out" or "Bird

Production - Actual " quantities on the Production and Cost Report. If various categories of birds are processed at different conveyor speeds^ the

method suggested in Part I produces distorted results. Since different conveyor speeds are used^ compensating adjustments mu.st be made in the costing

technique.

The number of birds processed in each category is obtainable from

counters at the automatic weight segregation apparatus or through other

means^ such as summarization of invoices or packing or shipping records.

The conveyor speed in effect at the time each category is processed may or

may not be available. If the conveyor speed is not available, "standard" or

optimum speeds should be determined. îVom these two factors, avstilable for

each bird and weight category, the determination of "Hours Operated" can be

made.

As an

speeds :

example, assume the following as either actual or standard conveyor

Category Rate Per Hour

îtyers - 1.9 H^s. 3,600

Broilers 2.0 - 2.k lbs. 3,000

Broilers 2.5 - 2.9 lbs. 3,000

Broilers 3-0 - lbs. 2,700

Roasters - 3-9 Ihs. 2,700

Roasters ^.0 - lbs. 2,700

Turkey Hens 8.0-159 ^^^* 1^800

Assimie also that for a given week the plant processed the following quantities of birds while operating eight line-hours.

Category Number Processed

Fryers - 1.9 lbs. 87,532

Broilers 2.5 - 2.9 ll^s- 50,0^7

Broilers 3.0 - lbs. ^2,856

Roasters - 3-9 ll^s. 12,78?

Roasters k.O - lbs. 25,^^^3

Turkey Hens 8.0 -15-9 l^s. ^:^lrO

- 117 -
Prom this information the following computations can be macLe:

H?yers

Broilers

Broilers

Roasters

Roasters

Category

2.5 -

3.0 -

Ij-.O -

Rate

Numiber Per

Processed Hour

1.9 lbs.

2.9 lbs.

lbs.

3.9 lbs.

lbs.

Turkey BensS.O - 15.9 lbs.

87,532

50,Ä7

lt2,856

12,783

26,11.93

6,180

3,600

3,000

2,700

2,700

2,700

1,800

Total.

...Hours Operated...

Elapsed

Hours

Theoretical Prorated

2I1..3I

16.88

15.87

9.81

3M

75.03

25.9

18.0

16.9

5.0

10.5

80.0

The theoretical hours operated for eaxdi bird categcoy are thus factored

by the relationship between total theoretical hours and total actiial hours.

Time losses or inefficiencies can be further localized by recording the hours

at vhlch changes in speed are made to the coinreyar-llne. Elapsed times are

thus obtained by subtraction. ïNirther refinements can be made to this procedure by recording additional data at the processing lines.

118 -
APPENDIX k

PROîTCABILITr COMPARISON

Figure ko illustrâtes that the dassiTication of poultry which produces

the highest percentage of profit, or which produces the highest profit per

pound^ may not necessarily he the most profitable from the conrpaiiy^s iriewpoint. In this illustration, e\ren though hroilers weighing 2.5 to 2.9 lbs.

produce the highest percentage of profit, and roasters weighing ^l- lbs. and

over, produce the highest profit to the company per pound, turkqy hens

weighing 8.0 to 15-9 lbs. produce the most dollars of profit (provided, of

course, that this category of poultry can he sold and financed). Care sliould

therefar^ be exercised in using unit cost and profit data or iirofits. as a

percentage of sales prices in maJsing decisions as to which products or mix

of products to produce.

119 -
FANCY POULTRY CO.

ANYWHERE, U.S.A.

PROFITABILITY COMPARISON

BIRD AND WEIGHT CATEGORIES

TURKEY

FRYERS BROILERS BROILERS ROASTERS ROASTERS HENS

-1.9 2.0-2.4 2.5-2.9 -3.9 k.O- 8.0-15-9

CENTS PER POUND:

Selling price 27.5000^ 28.2500^ 29.8500^3^.2500^ 35-5000^37.0000^

Cost - sold 27.3^^53 27.6823 26.0k66 31.U98I 31.0873 33.66M»

Profit - sold .15^7^ .5677^ 3.803^ 2.7519^ U.Ul25^ 3-3336^

it OF SELLING

PRICE 0.56 2.01 12.71* 8.03 12.U3 9-02

PRODUCTION PER

LINE PER WEEK:

Speed per linehour 3,600 3,000 2,700 2,700 2,700 1,800

Hours (5 days)- kO kO kO UO hO kO

PRODUCTION AT

100^6 (Capacity) 1U1^,000 120,000 108-000 108-000 108,000 72,000

Birds

AVERAGE WEIGHT -

Ready-to-cook. I.782 2.381 2.693 3.^87 »^.386 II.I423

PRODUCTIVITY &

BIRD YIELD - -f, 97.^0 97-30 97-30 97-30 97.50 97.30

POUNDS/LINE/WEEK 250.193 278,577 283,373 367,181 lt6l,8U6 801,893

PROFIT/LINE/WEEK $387 $1,381 $10,783 $10,104 $20,379 $26,7lt8

Figure 40

- 120
APPENDIX 3

PEOFITABILITr DETERMINATIONS FOR VAJRIOUS BIRD PARTS

The poultry processor does not enjoy the privilege of purchasing, processing, and selling only those parts which result in the best profit. Instead, he must purchase the entire bird and market vhole birds or parts at

prices which reflect consumer tastes. This illustration sets forth a method

of estimating the gross profit from various product "mixes."

Four alternatives are illustrated in figure kl - whole birds and three

differing product mixes of parts. Any additional product "mixes" which

management deems informative may be similarly determined by following the

technique illustrated.

Poundage figures of parts obtained from the whole eviscerated birds

used in the components of the mix may be obtained from plant records or from

test runs. Poundages and applicable costs should be net, after losses in

cutting and packaging. In the illustration, the poundage figures and percentages for the three "mixes" were assumed to have been calculated from

plant records of three processing runs, as follows:

Eviscerated birds: 1

Number 1,782

Pounds l^-,008

After cutting: Lbs. ^

Half-birds 3,331 83.1

Backs

Breasts

Legs

Thighs

Dtrumsticks

Livers 120 3.0

Gizzards and hearts... 16O ^.0

Necks 3IT 7.9

Win^s

Shrink 80 2.0

....Mix No...,

2 3

1, i^95 1, ek2

3,368 ^,152

Lbs. Í Lbs. Í

37^^ 11.1 k6i 11.1

97T 29.0 l,20l|- 29.0

1,078 32.0

7lli- 17.2

61k lif.8

101 3.0 125 3.0

135 h.o 166 k..o

266 7.9 328 7.9

370 n.o ^57 11.0

67 2.0 33 2.0

Total ii-,008 100.0 3,368 100.0 ^,152 100.0

For comparison, the percentage figures above become the breakdown of

100-pound lots of eviscerated birds cut up into the various mixes, as shown

in figure ^1. For this illustration, costs computed on figures 29 and 30

are adjusted by the following factors:

(1) Materials - Birds are adjusted to a basis of 17íí per pound live

weight.

- 121 -
FANCY PODLTRT CO.

ANIWHERE. U.S.A.

PROFITABILITY DETEEÎMINATION AS OF 19

PROCESSING

MTJf ..SALES VALUE.. COST GROSS»

NO. TYPE PACK POUNDS LB. AMODNT LB. AMODNT PROFIT

Whole birds 100.0 31». 100^ *3U.10 28.300^ $28.30 $5.80

1. Half birds 83.1 3U.600^ J|ß8.75 28.61(1»^ $23.80

Livers 3.0 80.100 2.1(0 32.M»2 .97

Gizzards and hearts k.O 27.000 1.08 31,514 1.26

Necks 7.9 7.200 .57 31-516 2.49

Total 98.0 $32.80 $28.52 4.28

2. Backs 11.1 7.200^ $ .80 31,466^ $3.49

Breasts 29.0 U9.5OO 14.36 33,433 9.70

Ligs 32.0 U7.IOO 15.07 33.020 10.57

Livers 3.0 80.100 2.1(0 32.442 .97

Gizzards and hearts U.O 27.000 1.08 31.514 1.26

Necks 7.9 7.200 .57 31.516 2.49

Wings 11.0 26.100 2.87 32.411 3.57

Total 98.0 $37.15 $32.05 5.10

3. Backs 11.1 7.200^ $ .80 31.466^ $3.49

Breasts 29-0 U9.5OO IU.36 33.433 9.70

Thighs 17.2 U7.6OO 8.19 32.893 5.66

Drumsticks ll*.8 U7.UOO 7.02 32.755 4.85

Livers 3.0 80.100 2.1(0 32.442 .97

Gizzainis and hearts k.O 27.000 1.08 31.514 1.26

Necks 7.9 7.200 .57 31.516 2.49

Wi ngs 11.0 26.100 2.87 32.411 3.57

Total 98.0 $37.29 $31.99 $5.30

* Per 100 pounds of eviscerated birds.

Figure 4l

- 122 -
(2) Costs for cutting into half-birds are based on a productivity rate

of 5^'*-00 pounds per man-hour.

(3) Selling prices and other cost adjustment factors are:

Items

Whole birds

(including giblets)

Half birds

Eacks

Breasts

Vïhole legs

Thi^is

Drumsticks •• •

Livers

Necks

Gizzards and hearts ••

Wings

Se1_li.ne ....Packing ïkctors

Prices Production Materials

Per Pound (lbs./hour) Per Pound

3l^.lOO^ 700 0.175ÍÍ

3^^.600 675 0.225

T.200 250 0.200

1I-9.500 lUc 0.905

Í4-7.100 160 0.850

ii^7.6oo 165 0.800

k-j.koo 175 0.800

80.100 100 0.875

7.200 250 0.250

27.000 125 0.750

26.100 180 0.520

The results shown in figure ^1 indicate a more favorable gross margin

when bii'ds are sold in the uncut state. However, management must include a

factor of idle plant costs in a decision to sell birds as such and not operate

the cutting department.

- 123 -
APPENDIX 6

EEIEAJMENT OF SPECIAL. ACCOUNTING PROBLEMS

The flexihility and adaptability of the basic cost and financial accounting system has been emphasized previously. A description of the procedures

and instinictions for the handling of the various accounting problems which

may arise in the industry as a whole is not practical. However, for some of

the more common problems, suggested accounting treatments are contained in

this appendix.

SPECIAL TREATMENT OF A DIRECT CHARGE

The case used in Part H, an illustration of cost reporting on a departmental basis, indicated that the plant concerned "ships both ice-packed and

frozen birds in the whole, half, and cut-up state." The sepEtration of ice

costs and freezer costs between ice-packed and frozen birds was assinned to

be unnecessary. However, volume and pricing factors may warrant a separation

of these costs. Figure k2 demonstrates a revised Production and Cost Report

effecting such a separation.

The original Production and Cost Report showed:

Pounds Production:

Plant total 1,812,128

Broilers 1,14-90,366

Hens 222,14-Qlf 1,712,770

Direct Materials:

Ice $ ^,530.32

Packing 11,390.00

Assume the following additional conditions:

Chickens were ice-packed and each day's production was

shipped immediately.

Turkeys were sent to a freezer to be packaged, frozen,

and stored for later shipment.

AQ analysis of the charges to the ice account showed:

Packing, freezing, and storing turkeys. $ 9^6.32

Costs applicable to ice-packing 1,28^1-.00

Costs applicable to chilling 2,300.00

$^,^30.32

The cost of packing supplies ($11,390) applied only to chickens,

$10,102.50 applied to Broilers and $1,287.50 applied to Hens.

- I2k -
or /rj^tyV'C^

Fancy Poultry Co.

Anywhere, U. S. A.

PRODUCTION AND COST REPORT - î^^^rw-c^

PLANT ^Jl4t¿LA^ "^e.*--*^ Z^<^UJ>^

TOTALS

WU«NT CATKSORT -^

»»RODUCTIONi

LINE-HOURS OPERATED >n,»rlf,^, ^i.

SP EED P ER

IND PRODUCTION. l_lNE-HOUR W////////A ^ 4o€> ^ :í*>O / 0 00

CAPACITY <ffO ^ae> 7;?*> •**. ye> 4oo Xo o£>o

ACTUAL 7f^3¿^ (>fS ^f-J ¿7 Zo€> f^ z/x

'ROOUCTIVITV ;^lf-* 9'ko7^ fÄ4/- 9i\z^-

POUND PRODUCTION / //z /z^ / f^o 3á¿ ¿•xz V-y ^93/e

VIKLD-RIROS 9479 "^ ^4 Jo » fA^d - fà 4Í »

— POUNDS 7^ 7* 73oZ » fo /, » 7^ ^¿»

AVKRACK WUCHT ^

h4 2X/X 3 ^7^ /s/^

P RO C ESSI N C COSTS: RATK P«R

UAROR > DRUMN« i ^aJ CO ^i Uz. LINE-HOUR 7 S4^ ^« 773 /4 ^Í3 Z4\

ViaCKRATIN« J^o /-// ii yy azo LINE-HOUR n fU o« //3/ fO / /¥4¥o

PACK IN« 3 ^^^ 90 7 'f¿ LIN E-HOUR Z^i fo ¿l-f^ZS /f3^Z

TOTAL LARON 3rSÍ3 Co

100 POUND«

Z1Í73 Ú ¿•/«^//i/ ffff a

OVKRMKAD-TRANSPORT. IN ZX'oo zL a >3g Xo/i. zá S^ e/ ^ /37 /y

7^79 77 ZZ 3SL LINE-HOUR ¿>7,tT l,i 3^ 447\7Z\

VISCKRATIN« /o yy/4 ^f Ui LIN E-HOUR finiif t-H 30 ^V zC

PACKIN« Z 4Zd yj á '77 LINE-HOUR X áLs I'- X3t> /5 ^37 j^

TOTAL O'MKAO -e3^-/3 oo

OIRKCT MATSRIALS. BIROS ^7L 79^ Zo JU ¿3O oo -Hjii Zo Z^ 44z ««

ICK ^yjo 3Z ^«xf f2 ¥^AfS f o7Jt 4i

PACKIN« // 3^a oo foroz /o ,2tl /a '

TOTAL MAT'LS SfZ 7/J' /z JfJ74f ik i^y/^i ^//>4/2|

V-viy ^**^ 02C

COSTS PCR POUND IN CCNTSi

Vá.y5^ 4iU 34 iL^ 4¿Í3L

KVISCKRATINS / // /y-P / i^iio ¿Z33Z / f^fSo

PACKIN« /7 U3 ///// /? X3Z fi^n

TOTAL LABOR / 7^r^s: / it3Z7 / 3o 3ZÍ / SZ327

y3 797 '3 797 i 3 7^7 ^3804-

^3 434 ^r^¿/ 3Z Zo^ 4/öLf

/7 ^Zo -9 ;/• 42 ¿i4 A 7o^

/3 3áM

/

13 ¿47 o^hi /3 U7

/ Z3ZÍ4 3z4,f 9¿SÍi / 3z 4z,

Zo 79 Z'f7 2o ^1 4,4 ZZ 3/7// %o /7^7

ICC ^Se>o€> Zofi^ Zo ^Sf / ^7fj?/

i^m hiti^ /yi^o - —

Zl ^7/TT Ti 40i<^ 23 /3 7^V IL ¿r34z

24 7' 3Lo E áo /3f Z^ 4Z 1/0 ^ <fo 0^0

TOTAL COST L Í

Figure h2.

- 125 -
The cost per 100 lbs. for ice chilling is therefore determined as

$2,300 ¿ 1,812,128 lbs. or $0.12692 per 100 lbs. The cost per 100 l^s- ^^r

ice-pac¿Ln¿ is determined as $1,281^ * 1,712,770 lbs. or $0.07^1-97 per 100 lbs.

Costs for these two items vould be reallocated as follows:

Pounds Ice

Production Chilling Paclslng Total

Broilers 1,^1-90,366 $1,891.62 $1,117-30 $3,pp8.92

Hens 222^014- 282.28 166,70 ^^8.98

Total chickens. 1,712,770 2,173-90 l,28i|-.00 37<-57.90

Turkeys 99,338 126.10 0^6.^2^ 1,072.1^2

Total.... 1,812,128 $2,300.00 $2,230.32 $^,330.32

^Actual charge for packing, freezing, and storage of turkeys.

The Production and Cost Report, as revised, is shewn as figure k-2.

LOSS "LOADING" FOR XINPROZETABLE PROIÜCTS

It is characteristic in the poultry processing industry, as well as in

other process type industries, that unprofitable as well as profitable items

within a product group, are necessarily produced. In order to obtain a proper evaluation of the effect of loss items on the profitability of a product

group it is frequently desii^ble to bring the profits and losses of the related products together. This procedure is sometimes termed "loss loading"

and is illustrated in figures k3 and kk.

Figure k3 illustrates the loss loading procedure applied to product mix

2 in the "Profitability Determination" shown in figure í-l. The following are

the basic elements in the procedure:

Loading Factors

The processing costs of each of the VBTíOUS products in the mix are

added to "Other Costs" - selling and general and adiainistration expenses -

to arrive at the total cost. These costs are related to product sales prices

to arrive at the Profit (Loss) of each product. Wings, Gizzards and Hearts,

Backs, and Necks show a loss on this basis.

Loss Loading

The losses per pound, developed above, for Backs and Necks are moultiplied by the pounds of these items per 100 pounds of birds processed to arrive at the total amounts of loss required to be absorbed. Similarly, the

amount of loss to be absorbed is computed on the basis that these products

would normally be expected to generate a profit (in this instance 5 percent).

These losses per pound are then aSded to the total costs of the profitable

products to arrive at revised profits.

- 126 -
FANCY POULTRY CO.

ANYWHERE, U,S,A,

LOSS "LOADING" - (CUT-UP BIRD PARTS)

"LOADING" FACTORS - (IN CENTS PER POUND);

.COSTS.

CUT-UP PARTS LABOR

.PROCESSING.

O'HEAD TOTAL

DIRECT

MATERIALS

TOTAL

PROCESSED

"OTHER

COSTS"

Key A B ^ C

Note (6) (A + B)

Livers 3.662^1 l+.293^ 7-955^^

Breasts 3.861 U,029 7.890

Legs 3.727 3.805 7.532

Wings 3.623 3.630 7.253

Gizzards and hearts... 3.362 3.790 7-152

Backs 3.390 3.238 6.628

Necks 3.390 3.238 6.628

LOSS "LOADING" COMPUTATIONS - (IN CENTS PER POUND);

POUNDAGE

DISTRI- PROFIT NORMAL

CUT-UP PARTS BUTION (LOSS) "NET"

D

Note (6)

2l+.l+87^

25.5^3

25. W8

25.158

2U.362

2if.838

2U.888

E

(C + D)

32.1+1+2^

33.i^33

33.020

32.1+11

31.51^

31.h66

31.516

F

Note (1)

2.116^

1.650

1.573

1.226

1.227

.870

.870

TOTAL

,.TO BE "LOADED"...

BREAKEVEN W/PROFIT

Key K

Livers 3.0

Breasts 29.0

Legs 32.0

Sub-total 6U.0

Wings 11.0

Gizzard and hearts.... k.O

Backs 11.1

Necks 7.9

Sub-total ^k.O

TOTAL 98.0

L

(J)

14.1+17

12.507

(7.537)

(5.7^^1)

(25.136)

(25.186)

Note (5)

to. 71

M

Note (2)

1.305i^

1.350

0.360

0.360

N

(L + M)

(8.8l+2)iif

(7.091)

(25.1+96)

(25.5^^6)

(K X L)

Note (3)

(82.907ÍÍ

22.96I+

279.010

198.969

?83.650^

Q

(K X N)

Note (1+)

97.262^

28.361+

382.006

201.813

610.1+1+5^

TOTAL

BEFORE

"LOADING"

SELLING

PRICES

(]

G

+ F)

3I+.558ÍIÍ

35.083

3I+.593

33.637

32.7I+I

32.336

32.386

H

80.100^

1+9.500

1+7.100

26.100

27.000

7.200

7.200

PROFIT

(LOSS)

J

(H - G)

l+5.5^2í¿

II+.Í+I7

12.507

(7.537)

(5.7^1)

(25.136)

(25.186)

TOTAL PROFIT AFTER

. BEFORE . .TOTAL WITH "LOADING" ... '.'LOADING". ..

"LOADING" BREAKEVEN W/PROFIT BREAKEVEN W/PROFIT

R S T U V

(G) (9.123i!f +R) (9.53ei!f +R)(H - S) (H - T)

3l+.558í!Í

35.083

31+. 593

l+3.681íif

I+I+.206

1+3.716

l+l+.096í^ 36.kl9^ 36.001+^

I+I+.621 5.291+ 1+.879

1+1+. 131 3.381+ 2.969

(M)

1.305^5

1.350

0.360

0.360

NOTES;

(1)

2)

3)

k)

(5)

Consists of: Selling Expense as 1.5Í of Selling Price plus General

and Administration Expense as 11.55^ oí* Labor and Overhead costs.

556 of Selling Price.

583.850^ + 61+.0 lbs. = 9.123^

6l0.i+i+5í¿ 6Í+.0 lbs. = 9.538^

Result of a cumulative mulitiplication of Columns K and L, K and U,

or K and V, and represents the overall profit of each 100 lb. lot of

eviscerated blirds cut up and sold.

Flg\ire k3

9.538qf

(6) Processing cost data for this illustration begin with

costs computed on Figures 29 and 30, and adjusted to

17^ per lb. live weight birds, and for the following

packing cost factors:

Parts Lbs/hour Material sAb

Livers

Breasts

Legs

Wings «

Gizzards and hearts.

taoks

eoko

100

ll+O

160

180

250

250

.875^

.905

.850

.520

.¿60

.250
Figure kh illustrates similar factors and computations applied to the

data pertaining to the various grades of broilers as reported on the Plant

Report shown as figure T.

The results of the computations in figure k3 indicate an overall profitability of $3.71 per hundred pounds of processed birds. The overall profitability is computed by multiplying cumulatively the pounds of each part by

its corresponding cents per pound profit or (loss). The loading of losses

onto the profitable parts does not change those parts into (loss) items. However, in figure kh, the results indicate an overall loss of $621.05. Such a

situation can be corrected by such managerial actions as reducing the percentage of "undergrades. "

Once reliable data pertaining to a given product group are available,

management may then predict the profitability of that group. Such data include the poundage of each of the parts available per hundred pounds of birds

processed, the percentage of undergrades anticipated from a given classification of birds, the average processing costs, anticipated selling and general

and administration expenses, and the like.

These two illustrations demonstrate further that careful accounting

analysis can serve management by suggesting areas requiring correction or

improvement.

FLEET TRANSPORTATION COgTS

Some companies own and operate trucks for hauling live birds to processing plants, hauling jxrocessed products to outlying points, or both. The extent of detail in accounting for fleet operations may VBry. Nevertheless,

the inclusion of all operating costs is of prime importance for control purposes and to make such data useful in decisions to replace fleet equipment

or to engage outside truckers.

A Monthly Fleet Operating Report is illustrated as figure k^. The

illustrated report covers a fleet of five trucks for hauling live birds to

the plant and a fleet of si:s trucks for hauling processed products from the

plant. Basically, the monthly report contains three types of operating

charges: direct charges, allocated charges - payroll, and aU-Ocated charges

- ton-miles.

Direct Charges

"Direct Charges," those overhead expenses which can be charged directly

either to the "Transport-In" or "Transport-Out" sections of the Transportation

department, are grouped in the first section of the report. Wherever possible, overhead expenses should be charged direct.

128 -
"LOADING" FACTORS - (iN CENTS PER POUND)

FANCY POULTRY CO.

ANYWHERE. U.S.A.

LOSS "LOADING" - (BROILERS)

.COSTS.

WHOLE BIRDS LABOR

Key -

Grade A^ )

Grade B )

Grade C )

1.823i^

.PROCESSING.

O'HEAD

1.321+^

TOTAL

DIRECT TOTAL

MATERIALS PROCESSED

C D

(A + B)

E

(C + D)

2k.eiii{

"OTHER

COSTS"

F

Note (l)

0.741^

0.726

0.662

TOTAL BEFORE

"LOADING"

G

(E + F)

25.38l9f

25.363

25.299

SELLING

PRICES

25.500izf

2Í+.25O

20.000

PROFIT

(LOSS)

J

(H - G)

0.1199(

(1.113)

(5.299)

LOSS "LOADING" COMPUTATIONS - (IN CENTS PER POUND);

ro

TOTAL PROFIT AFTER

BIRD POUNDAGE PROFIT NORMAL ....TO BE "LOADED".... BEFORE ....TOTAL WITH "LOADING" "LOADING"

GRADES DISTRIBUTION (LOSS) "NET" TOTAL BREAKEVEN W/PROFIT

Key -

Grade A

Grade B

Grade C

Sub-total

Total

3IL336

27,700

14>376

U2,076

Iil9,^12

L

(J)

0.119^

(1.113)

(5.299)

$(621.05)

Note (5)

M

Note (2)

1.213i!f

1,000^

N

(L + M)

P

(K X L)

Note (3)

(2.326)^ 30,830.IO9Í

(6.299)i^ 76,178.42

107,008.52^

Average 0.283^

(K X N)

Note ik)

61|, li30.20í2Í

90,55^.^2

15^,984.62<zf

"LOADING BREAKEVEN W/PROFIT BREAKEVEN W/PROFIT

R S T U V

(G) (R + 0.283) (R + O.Ull) (H - S) (H - T)

25.381Í2Í 25.661+^ 25.792 {0.iek)(f^ (0.292)i^

1.213

1.000

NOTES:

(1) Consists of: Selling expense as 1.5^ of Selling Price plus General and Administration Expense

as 11.5^ of Labor and Overhead costs.

(2) 5.0^ of Selling Price.

(3) 107,008.52i^ + 377,336 lbs = 0.283i^

(4) 15^^,984.62^ * 377,336 lbs = 0.411^^

(5) Results of a cumulative multiplication of the elements of columns K and L.

Fig\ire W-
FANCY POULTRY CO.

ANYWHERE, U.S.A.

FLEET OPERATING REPORT

Month of March, 19

TOTAL

TRANSPORT- TRANSPORTIN OUT

$1,025.00 $1,1465.50

22.80 110.50

52.50

705.10

51.25 1*2.80

1,11*2.50 1,628.90

165.25

DIRECT CHARGES:

Wages - Indirect labor $2,1*90.50

Overtime premium 133-30

aiift premium 52.50

Meals and lodging 705.10

Lubricants 9Í^.05

Auto and truck fuels 2,771.1*0

Telephone and telegraph I65.25

Sub-total 6,1*12.10

ALLOCATED CHARGES - Payroll:

Salaries - Supervision 785.00

Salaries - Clerical 235.50

Wages - Indirect labor 260.20

Vacation pay 110.65

Compensation insurance 62.85

F.O.A.B. taxes 1*2.80

Unen^loyment benefit taxes 1*6.20

Sub-total l,5l*j.2Ó

ALLOCATED CHARGES - Ton-Mile:

Departmental supplies 286.50

Repairs and maintenance - Bldg I85.OO

Repairs and maintenance - Equip 362.50

Charges from other Plant Accounts 1*82.60

Sub-total 1,316.60

DEPARTMENT TOTAL $9,271.90

Ton-Miles hauled Ill*,301

Total Per Ton-Mile $.0811

ALLOCATION DATA

Wages - Indirect 2,1*90.50

7» 100.0

Ton-miles Ill*,301

i 100.0

Tons hauled 281.6

Miles hauled ., 82,931

Figure 1*5

- 130 -

2,294.05 U.II8.O5

635.80

367.33

31,867

$.01035

1,025.00

1*1.2

31,867

27.9

191.1

21,988

907.1*0

91*9.27

$3,297.18 $5,97^^-72

82,1*31*

$.00725

1,1*65.50

58.8

82,1*31*

72.1

90.5

60,91*3
Allocated Charges

In other cases, overhead accounts can be charged direct to the Transportation department, but segregation of the direct charges to either Transport-In or Transport-Out is impractical. For such expenses, the proration

is made by using the percentages developed at the bottom of the Monthly Fleet

Operating Report under "Allocation Data."

Allocated charges are segregated on the report into tvro groups - charges

allocated on the basis of payroll and other charges allocated on a ton-mile

basis.

The second section of overhead charges on the report. Allocated Charges

- Payroll, is prorated between Transport-In and Transport-Out on the basis

of the indirect labor included in the direct charges - in this example, wages

paid to truck drivers, bird collectors, and truck helpers. Included in this

second section of overhead accounts is an item of Wages - Indirect labor or

wages which could not be segregated between Transport-In and Transport-Out.

In this illustration, the item represents wages paid to a mechanic who kept

no time record. Had this mechanic kept a detailed record of time worked on

each truck, his wages would have been included in the first section. Direct

Charges.

In the illustration, the total of $1,5^3.20 for "Allocated Charges -

Payroll" is allocated on the basis of ^1.2^ and 58.8^. Each account within

the group could have been allocated by these percentages if individual expense allocation had been desired.

The third section of overhead expenses on figure h^ is Allocated

Charges - Ton-Mile. These expenses are prorated monthly on the basis of

ton-miles as shown under Allocation Data at the bottom of the report. Except for the "other Plant Accounts" the overhead accounts are chargeable

directly to the Transportation Department but direct segregation between

Transport-In and Transport-Out is impractical. The amount of $^82.60,

charged to the Transportation Department from other plant accounts in this

illustration, represents the cost of heat, light, water, and the many other

indirect costs applicable to the Transportation Department.

Allocation Data

The Allocation Data shown at the bottom of figure k^ are obtained from

various sources. Indirect wages are obtained from the first line of the

report itseli; the percentages are simple computations. The percentages

of ton-miles are obtained monthly frcm data contained on "Daily Hauling

Reports" (figure ^6) for hauling live birds to the plant and the "Trip Report" (figure ^7) for hauling processed products from the plant. The tonmiles for hauling birds to the plant are determined for each truck daily.

The ton-miles for hauling processed products from the plant are determined

for each trip by each truck. For example, the ton-miles are for the "Daily

Hauling Report" illustrated is calculated from 122 miles times 6,292 pounds

divided by 2,000 or 383.8; the ton-miles for the "Trip Report" illustrated

is calculated from 1,^5 miles times ii-,285 pounds divided by 2,000 or

- 131 -
Fancy Poultry Co.

Anywhere, U. S. A.

DAILY HAULING REPORT

TRUCK NO.

g/WPeeOOMBTCII o KND

KTKN - acaiN

Cj.-R^

NO.

TTP« «IRD NO. omos POUNDS AVOE. WT.

/ "P^1%^11>^> ^So I3£2* ?tQP

1# y»o Jl^i 3. oo

S

If J/o 1 05-J. a-.TTT

y 1/ •iao /a.4.r Jt <»/

s Ti^.^ 3tS IH^-S" 3-10

TOTAL*

^o%S 4d1^

K.O.V. 'T^. LjUlvi»^,o>o

Figure i|-6

3,l8l,6. The ton-miles are then stmnnarized for the month for each truck and

in total for "Transport-In" and "Transport-Out" on the worksheet illustrated

in figure k8.

self-explanatory.

The balance of the information amder "Allocation Data" is

Several ways are available for effecting control over transportation

costs. For the small and medium-sized company without a budgetary control

program, a "target" ton-mile cost can be established and used in measuring

periodic truck operations. The larger company can extend the budgetary

control program, in which case Transport-In will be based on activity of the

Dressing Department and Transport-Out will be based upon activity in the

Packaging Department.

132 -
Fancy Poultry Co.

Anywhere, U. S. A.

TRIP REPORT

TnuCK NO.

OATK IN

OATK OUT

DAYS OUT

J3*.

a/11/-

ApiU

S^S IÍé>

•PECOOMETER OUT 33 loi

TRIP MILEACE 1 H^€

POUNDS OUT _ V ^yd-

(^v> vJ-i;t,,

ilgure 4T

ACCQUIJTING K)R CQMPANY-OWKED FACILITIES

Some large companies own separate facilities for power, water, ice,

sewerage disposal, etc. As in the case of fleet transportation costs, the

extent of detail in accounting for operations of the facilities may vary.

Similarly, the accounting and reporting procedures will follow the same

pattern as those outlined for fleet transportation costs.

In measuring and controlling these activities, the total, including

allocated expenses, should be carried to an appropriate account provided on

the Plant Overhead Allocation Worksheet, figure 9« Ice may be treated either

as a direct material or as an item of overhead expense.

- 133 -
FANCY PODLTRT CO.

ANIWHERE. U.S.A.

TRUCKING SUMMARY WORKSHEET

March, 19'

TRANSPORT IN

Truck No. Days Operated Ton-Miles Average Per Day

1 19 7,315 385

2 20 6,920 346

3 16 5,792 362

h 11 3,608 328

5 21 8,232 392

TOTAL 8? 31,867 366

TRANSPORT OUT

Truck No. Trips Made Ton-Miles Average Per Day

11 5 16,225 3,245

12 6 17,376 2,896

13 3 9,138 3,046

14 h 10,740 2,685

15 5 17,915 3,583

16 6 11,040 1,840

TOTAL 29 82,434 2^843

Figure 48

- 134-
APPENDIX 7

MARKETING AND DISERIBÜTION COSTS

Emphasis in this Guide has been placed upon processing cost determination

and control. However, the determination and control of marketing and distribution costs may he equally important. Management may need to measure and

control such costs in terms of distribution method and outlet, as well as in

product profitability.

Marketing and distribution costs include expenditures for advertising,

promotion, sales solicitation, sales administration, storage, order-filling,

shipping, biUiag, and collecting. Control over these costs is best effected

by periodic analysis so conducted as to support sound management decisions

pertaining to marketing effort. Such analysis goes beyond the normal day-today accounting practices and requires periodic segregation of expenses between

products, product lines, territories, customers, customer classes, distribution channels, types of orders, size of orders, and other classifications of

significaüce.

The manual does not present any forms or procedures far handling marketing and distribution costs. Selling methods and distribution patterns are so

numerous that a detailed design of a type of analysis to satisfy the needs of

each would be too voluminous. Further, any such analysis would follow, basically, the pattern used in analyzing processing or any other type of costs.

A direct result of the growing magnitude of this problem has been the

great amount of literature on the subject. In addition to the literature

which has been published privately, seversil documents are available for a

small charge from The Superintendent of Documents, U. S. Government Printing

Office, Washington 25, D« C. Among those available are several published

by The Department of Commerce in the Distribution Cost Studies series. Domestic Coranierce series, and the Miscellaneous series. The Small Business Administration has also published several documents on this subject in the Snail

Business Management series.

- 135
APPENDIX 8

TABLE OF RECOMMENDED BIRD CATEGORIES

The procedures described in this manual demonstrate the desirability of

segregating processing costs by type and veight category of bird. The table

below is recommended for guidance in establishing categories to suit the needs

of individual processors. A further brealcdown may be desired or suggested

categories may be combined.

Ready-to-Cook Poultry

Rinds and classes Weight Range per

Carcass

Broilers

Mature Chickens (Roasters, Hens, Cocks)

Turkeys

- 1.9 pounds

2.0 - 2.k pounds

2.5 - 2.9 pounds

3.0 - pounds

- 3*9 pounds

^.0 - pounds

- 7*9 pounds

8.0 -15.9 pounds

16.0 -23.9 pounds

2ÍÍ-.0 - pounds

136 -

* U.S. GOVERNMENT PRINTING OFHCE : 1961 O—599137