SOUTH DAKOTA SUCCESS STORY, CHAPTER II — COST CENTERS

What happens when farming operations across the country adopt full managerial accounting? Last month we began our first case study based on a presentation by Daryl Ellis, controller at Jorgensen Land & Cattle, Ideal South Dakota, at Advanced Training IX.     In this issue we'll identify the operation's cost centers and how they are related.     As with many livestock operations that feed all or part of their crops, Jorgensen Land & Cattle is "vertically integrated," in that they "manufacture" a large percent of the raw materials used to "assemble" their final product.  The cost of one final product–commercial bulls–is significantly affected by the value assigned to the raw materials–grain, forage and pasture.   Moreover, determining the cost to produce any individual products is further complicated by all the indirect costs–labor, machinery, utilities, etc.–that are shared between all products.     The first step in achieving meaningful cost control and analysis is to identify the farm's profit and cost centers. Here's an aerial view of some cost centers at Jorgensen Land & Cattle

Ellis has classified Jorgensen costs centers as either consolidating or service:

No.	Consolidating Centers	No.	Service Centers
46	Embryo Expenses	40	Semen/Certification
50	Sale Expense	72	Cattle Hedging
60	Hog Entity Consulting	130	Field Labor-Crop
80	Land Cost-Crops	132	Field Labor-Cattle
82	Land Cost-Cattle	140	Mngmt Labor-Crop
93	Interest	142	Mngmt Labor-Cattle
171	FacilityCost-Marketing	153	OfficeLabor
215	Animal Delivery	160	Shop Expenses
220	Hay Swathers	170	FacilityCost-Crop
221	Hay Balers	172	FacilityCost-Cattle
222	Hay Moving	173	FacilityCost-G&A
230	Spray&Fert Equipment	183	Office
241	Combine-Stripper	193	Tractors
242	Combine-Corn Head	200	Trailers - Crops
243	Combine-Bean Head	201	Trailers - Marketing
244	Combine-Pickup	202	Trailers - Cattle
250	Grains,Trck/Aug	210	Vhcls/4Wheel-Crop
260	Silage Harv Equip	212	Vhcls/4Wheel-Cattle
270	Tillage Work Equip	213	Vhcls/4Wheel-G&A
280	AirSeeder Equip	240	Combine
290	RowCropPlant Equip	300	Cattle Manure Haul
320	General-Crops	305	Cattle Feed Equipment
321	General- Marketing	310	General Prod Overhead
322	General-Cattle
323	General- G&A
400	Dry Corn Processing
405	Silage Packing
410	HM Corn Processing
415	HM Packing
500	Cow Calf Costs
550	Feedlot Yardage Cost
560	Animal Development
600	Direct Sales Costs

Note that most of the consolidating centers represent activities, while the service centers are components of one or more of these activities.   "Every time you do something, it's an activity and costs money," says Ellis.  The accounting process behind this is called Activity Based Costing, and it involves assigning the costs of these activities to the final products using an appropriate cost driver, activated by production records.     Right now the major cost items are being lumped together; for example, all tractors are coded into center 193.  The eventual goal is to re-define some of these cost centers into individual equipment items.  Ellis finds the most difficult allocations are those costs that may be considered a production-related expense for one purpose, but a marketing-related expense for a second purpose.  For example, hauling hay sold to a neighbor versus hauling the same hay that is utilized in cattle feeding.  According to Ellis, "Having proper cost and profit center structure is more important than a long detailed chart of accounts!" To assign direct costs, Ellis does the following: 1. Posts all indirect expenses to either a consolidating or service center.  (With the exception of custom fed or applied inputs, nearly every expense in production agriculture is indirect.) 2. Once a year, determines how service centers were allocated to consolidating centers.  In the example below the field labor "pool" is split between 15 activities.

3. At the beginning of the year, Ellis updates cost driver rates and list of production centers they service.  Here the Spray & Fertilizer activity will automatically charge each selected production center $2.50 per every acre covered by the spraying and fertilizer equipment.

4. At the end of the year, management reviews the efficiency of the Spraying & Fertilizer activity by comparing the expenses incurred in the period by this cost center with the standard cost allocations made to the production centers it serviced.  In the example below, Spraying & Fertilizer beat the budget with a favorable variance of $4516.94 or $.33 per acre.

Producers with traditional accounting programs have no equivalent way of accessing cost center performance within their operations.  Yet this information is critical, not only in accurately determining and comparing product "cost of production," but also measuring efficiency of the most significant source of variation between operations.  If you're interested in learning more about managerial accounting can be used in your operation, or would like to be notified of Cropshop training in your area this winter, contact Norm Brown at 800-437-7638 ext. 101 or Norm@FBS Systems.com.

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NEW WORK-SPEEDING FEATURES IN WINDOWS VERSION 7.40 CAN SAVE YOU UP TO AN HOUR A DAY AT THE KEYBOARD!

For every full day you now spend operating an integrated system under Windows version 7.3, you could be cutting an hour from your schedule with new 7.4.  That's almost a 13% time saving.  And it's because "ease of use" and "quicker results" are the prevailing benefits.
    The following head a score of improvements calculated to make your job simpler:

    •  Easier file handling (all programs)

    •  TransAction Plus
       o  Data inputting
           •  Easier-to-read format, featuring alternating colored lines
       o  Reports
           •  User-Defined Report adds:
              o  Recaps by entry
              o  Debit, Credit and Entry Date columns
           •  Consolidated Cost Analysis adds options:
              o  10 report templates
              o  Supporting schedules
                  •  Service Center allocations
                  •  CCA/Ledger Account match

    •  Crop Audit Plus
       o  New e.CLIPSE options:
           •  Creates A/R for landlords (automated landlord billing)

    •  Smart Feeder
       o  Reports
           •  User-Defined
              o  Added "drill-down" by column
              o  Locked description columns
           •  "Drill-down" added to Open and Closed Group reports
           •  Ingredient Summary
              o  Displays running inventory
              o  Displays negative values in bold

    These are a few of more than 400 changes made to our software since 7.3's release last fall.  And keep in mind, as always, the majority of major improvements are initiated by clients.
    New 7.4 is the fifth version released under the TiMEsaver Service Agreement since its '97 inception.  It's not only proof to the fifth power that TiMEsavr lives up to its name, it shows indisputably why you should be a subscriber.  For a more complete listing of 7.4's key changes, visit the FBS Web site.

IT'S THAT 'SPECIALS' TIME OF YEAR, FOLKS. AND WITH SAVINGS THIS BIG ON MULTIPLE-MODULE BUYS, THE WORD ISN'T INTEGRATE – IT'S INTEGREATLY!

For a limited time—choose from two outstanding offers, each dispelling notions of price being a barrier to investing in ag's leading integrated management information system.

SPECIAL NO. 1: Buy one program, get a second at HALF PRICE; buy two, get a third program FREE!  Save up to $1,200.  Earn 60 days of free support.   Buy any FBS program listed below and you can get a second one of equal or lesser value at 50% OFF.  Or, buy two programs and you'll get a third one of equal or lesser value absolutely FREE.  A great opportunity to get started with your integrated MIS!

• TransAction Plus
• Accounts Payable
• Accounts Receivable
• Report Generator
• Depreciation Plus
• Payroll
• AFRA

• Ferguson System
• Crop Audit Plus
• CA Inventory. Valuation
• Smart Breeder
• Smart Feeder
• SF Group Monitor
• SF Group Tracking

SPECIAL NO. 2: Buy the complete e.CLIPSE management information system. Save $1,390.  Get a FREE Compaq iPAQ Pocket PC.  Two days of on-site training are included in the package. (Free SST Stratus software is also included with crops version.)  This is our first special on e.CLIPSE and one that hands you a turnkey integrated MIS at unprecedented savings.
    For full particulars on both specials, including details on individual programs, features and benefits, call 800.437.7638.  Since these are time-limited offers, don't wait until it is too late!

Have you checked your Client Appreciation Program (CAP) credit lately?  If you've been on the TiMEsaver Service Agreement for three years, paid each invoice by June 30 and haven't redeemed any of your CAP credit, you've accumulated the maximum 40% discount toward the purchase of any FBS program.  Amount of credit is determined by the number of years spent on TiMEsavr and accordingly would currently be 10, 20, 30 or 40%. If you don't know your actual TiMEsavr credit/discount, contact your FBS sales representative at 800.437.7638 or sales@fbssystems.com.  By combining this opportunity with Special Offer No.1 (above), you could add another module for extra savings up to $798!  So set your CAP for maximum savings. But here again, time is vital!  Contact us today.

Last year's drawing for this $599 top-of-the-industry item from Compaq spurred such interest that we've decided to do it again.  All you do to qualify is fill out a brief form you'll find at the FBS Web site.  Takes you about a minute and a half.  No purchase is required.  The drawing will be done on computer at 4:00 p.m. (CST), Mon., Mar. ^3rd, 2003.  The winner will be notified immediately.  Registrations will be accepted through 12:00 p.m., Mar. ^3rd.
    Don't miss this opportunity to earn a premier prize for a pittance of information.  Visit our Web site to register now!

2002 tax forms and 2003 tax tables – The 2002 payroll tax forms and 2002 tax tables will be shipped with the Payroll Version 7.0 (Windows) and 10.0 (DOS) upgrades in December, 2002, and not with the FBS Version 7.4 (Windows) and 6.52 (DOS) upgrades mailed in October and November.  If you are on a current support plan, the updates will be mailed to you as soon as they are available.  You can test the printing of your forms through your current taxforms software at any time and order your tax forms through your favorite supplier.  It doesn't look like there will be any major changes in the forms this year.

SOFTWARE Q&A – WITH Q'S FROM YOU, OUR CLIENTS!

Send us your questions/problems–be they short, long, simple or downright frustratin'!–about SeRVware and we'll handle them right "on the air" for the benefit of all.  This month's question courtesy of John McNutt, consultant with Latta, Harris, Hanon & Penningroth LLP, Tipton, Iowa, and Larry Swanson, Dutch Creek Custom, Fairmont, Minn.

Q.

How do I handle a credit invoice in the Accounts Payable module?

a.

Create a credit invoice as a payable with a negative amount to the appropriate expense account.  If the credit is more than the amount due at the end of a pay period, leave it until the payables for that vendor accumulate to more than the credit.  Then pay all invoices including the credit memo to the vendor.  A check will be generated for the net amount. Tips for AP/AR users:  The A/P aging report uses the date due when running the report.  The aging report looks at the last payment date before it calculates the current amount due.  If you make a payment after the due date, the report will not recognize it or any payments made before the due date.  (Example:  If you do a split payment on the invoice–one before the due date and the second one after the due date–and run the report with the ending date of the due date, the report wouldn't catch either payment.)  The A/P detail report, using options 5, 6 or 7, would catch the early payment.    The amount-paid box should not normally be edited.  This removes the transaction from the A/P modules and will cause the general ledger to be out of balance.     It is important to use unique invoice numbers in the A/P module.  When an invoice is paid, the invoice number is stored in the description field on the check. – Cheryl Brown, Support Technician Call in your questions (800.437.7638) or e-mail them to support@fbssystems.com.