Getting Cost Allocation Right, Dashboard Featured In Successful Farming Magazine, 2012-2013 Trade Show Calendar, November "One O'clock Webinars", Q&A: Quick and Easy Crop Inventory Adjustments.
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 FarmSMART                                              October 2012 

In this Issue:

Getting Cost Allocation Right

Dashboard Featured In Successful Farming Magazine

2012-2013 Trade Show Calendar

November "One O'clock Webinars"

Q&A:  Quick and Easy Crop Inventory Adjustments


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Don't be "shocked" by some of the harvest stories you hear this year or even the prices paid for feed, crops, land or groceries.  This month we were in another corner of the world and witnessed "T.L.C." as an alternative to U.S. wide-swath efficiency.  The results are a bountiful but pricey cornucopia of fruit, vegetables and meat.  Which means you can always fill up on rice. 

Get your fill of free, nutritious information in this month's FarmSmart:

  • Are overhead variances good or bad, and what do you do about them?  This months Best Practices column discusses how to Get Cost Allocation Right..
  • Follow our link to Successful Farming Magazine's story on executive dashboards, including FBS's Farm SeRVey.
  • Note where you can find us on the trade show circuit.
  • Our free, weekly one o'clock webinar covers a number of practical tips and processes in November.
  • The Q&A of the Month describes a quick and easy way to get your crop inventories cleared out and/or reconciled for the year.
  • What's your farm information management level?  Find out at the Farm Management Software Blog. 


Getting Cost Allocation Right

A-B-C Editor's note: This article continues a new series on the "best practices" FBS users have developed to improve effectiveness, efficiency, internal control and compliance from their information system. In theJune 2012 newsletter we illustrated the analysis opportunities created when actual overhead costs deviated from standard cost drivers used inActivity-Based Costing (A-B-C).

In order to make the transition from traditional to management accounting you must begin with some "heroic assumptions" regarding values to assign to Activity-Based cost drivers. The paradox is that a) you're converting to management accounting because you want to determine your internal costs, but b) in order to discover those costs (and produce reliable financial statements) you must first know and accurately allocate costs from segment to segment. In other words, in order to know your costs you have to know your costs.

The most practical solution is to use standard costs throughout the startup period. These "ballpark" costs are widely available throughout agriculture (custom rates, grower contracts, etc.). When and how, though, do we go beyond these "plugged" costs and get to "real" costs? And what do we do with the variances? 

Variances are a reality of management/manufacturing accounting. 

Here's a quote (with our emphasis) from Harvard Business School: 

Since overhead allocation rates are predetermined, the amount of indirect costs actually applied to products or services will almost neverbe equal to the expenditures on resources consumed. The difference between the actual indirect costs and those assigned to products or services arises because of a failure to predict indirect cost expenditures and activity levels perfectly, and is usually called an overhead variance. If small, overhead variances are usually charged as period costs. If large, further cost analysis may be justified, and the entire process of allocating indirect costs may be repeated after the fact to allow managers to figure out what is really going on as they create products or services.

Understanding Costs

William J. Bruns, Jr.

When Do I Adjust My Allocations? 

Be prepared to wait from three months to a year before adjusting cost drivers. That's because of the seasonal and "lumpy" nature of indirect costs. 

Why use these longer time periods?

  1. The "Numerator Reason." The shorter the period, the greater the influence of seasonal patterns as well as the effects bynon-seasonal erratic costs that benefit future months.   The classic examples in agriculture are equipment that are repaired and maintained in the winter months and used for only a month or two in the growing season. (See Figure 1 below.)Seasonal variations even occur with confinement livestock (heating in the winter and cooling in the summer).
  2. The "Denominator Reason." Unlike the numerator reason where costs for the period vary, in this situation, costs remain relatively constant, but output varies. For instance the operations costs of a cow herd may be relatively uniform from month-to-month, but the output ("weaned calves") may only occur once or twice during the year.

Minimum Time Periods Required To Determine and Adjust to "Actual" Costs: 

  • Annual Crops: Twelve months.
  • Perennial Crops: Much longer if crops are just being established.
  •  Livestock:   Initially, the duration of a feeding period or production cycle.

However, in production systems with historical cost accounting,uniform monthly output and appropriate month-end accruals you can achieve a high confidence level in activity costs on a monthly basis. 

How To Adjust Allocations 

In FBS E.CLIPSE Management Accounting the recommended report for monitoring and adjusting standard costs is the Standard Cost/Vendor Monitor Report. In the example below we chose a one year/four quarter view of costs for the Crop Harvesting Support Cost Center. Note the highest expenses were in the Quarter 1($19,665.61 due to maintenance and repairs) but no harvest activity occurred in that period. Quarters 3 and 4 did include internal harvesting and custom work income as a credit to the costs. When this activity is "closed" for the year the Standard costs are adjusted to equal the Actual costs of $36.58/harvest acre so that this cost center "breaks even" with the $49,065.54 costs "pushed" to crop work-in-process production centers. 

Figure 1 Standard Cost/Vendor Monitor for Harvest Activity Cost Center
Figure 1.  Standard Cost/Vendor Monitor Report for Harvest Activity Cost Center.

 Next month we'll go over the process to automatically adjust overhead variances and learn about three approaches manufacturers use to handle end-of-period adjustments. 

Dashboard Featured In Successful Farming Magazine
Too many producers are driving with the "pedal to the metal" without a clear view of speed, direction or the dangers lurking ahead.  Many companies outside of production agriculture are actively using graphical dashboards to distill the most critical trends going on inside and outside of their businesses. 
Composite Dashboard 
Business Editor Dan Looker takes a look at some early adoptions of agricultural dashboards and their benefits in the October issue ofSuccessful Farming Magazine.  Read how Texas A&M Universityand the King Ranch are experimenting with these powerful tools and how FBS has already automated graphical dashboards that display FBS data over the web and through smartphones and tablets,
For more information on the Farm SeRVey automated dashboard, clickhere.
2012-2013 Trade Show Calendar 

 Iowa Pork Congress 

Please look us up at at least one of these trade shows this season.  Watch your mail and our website for more details. 


Oct. 29-Nov 2


   American Society of Farm Managers and Rural        Appraisers

Westin Hotel,

Indianapolis, IN

Jan. 16-17 Minnesota Pork Congress


Minnesota Convention Center



Jan. 23-24


Iowa Pork Congress

Minneapolis, MN


Iowa Events Center
Des Moines, IA

Feb. 5-6 Illinois Pork Expo Peoria Civic Center
Peoria, IL
Feb. 13-16 National Farm Machinery Show

Kentucky Exposition Center

Louisville, KY



Feb. 28-March 2

Commodity Classic


Gaylord Palms Resort
Kissimmee, FL

June 5-7 World Pork Expo


State Fairgrounds

Des Moines, IA


November "One O'clock Webinars"
Webinar Screen

 We've moved our free Moday webinars to 1:00 pm Central Time. 

Open Session Q&A, November 5. 
Feed by Ticket and Fixing Feeding Errors, November 12. 
Inactivating Setup Options (DO NOT DELETE!), November 19.
Preparing for 1099s, November 26.
All webinars run between 1:00 pm and 2:00 pm CST.  To register, e-mai by 12:00 pm CST on the day of the webinar.
Q&A of the Month--Quick and Easy Crop Inventory Adjustments
Sarah Dixon
Sarah Dixon, FBS Technical Services Manager.

Q.  I just cleaned out my bins getting ready for harvest but FBS still shows an inventory. How do I clear this up? 

A.  This is the ideal time of year to reconcile grain inventories. When you know the exact date that your bins or storage facilities are empty then you can reconcile FBS to match this. For example, if you know you have no more corn on hand at all, but FBS is still showing 384 bushels then we need to get that cleared up. First I recommend running a Crop Inventory Report for each commodity and look through all harvest, buy and sell entries to make sure they are all correct and that the amount you are off in your inventory isn't from a typo. If you have ruled out that possibility you need to adjust your inventory.  Here's an an example of that report.  Note that Wet BU and Dry BU carry different balances.
Crop Inventory Report with balance
Crop Inventory Report with ending balances.

To adjust your inventory go to Input | General | Crops | General Inputand choose option "L" Adjust crop inventory. From here your screen can vary based on if you use projects or not. The column (or line) Inc/Dec (Add to Inventory/Deduct from Inventory) will be the same on all screens. 

Adjust Crop Inventories entry
Adjust Crop Inventory Entry

Note that you can adjust Wet Quantity independently from Dry Quantity--a common situation when grain has been removed at different moisture from what it was placed into inventory--and it's not necessaryto enter Moisture, Unit Price or Value. Make sure to rerun the Crop Inventory Report alternately recapping by project and storage locationas well as center to verify they all net out correctly.

Crop Inventory Report with 0 balances

Wet and Dry BU are now netted out.


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