162 Repokt of Farmers' Institutes 



REAL PROFITS FROM THE DAIRY BUSINESS AS MEASURED BY COST 



ACCOUNTING 



Professor G. F. Warren 



The data for table I is from the same farms as those for which 

 results were given by Professor Thompson on pages 4 to 8. 

 The methods of calculation are the same as there given. The 

 work is being done in cooperation with the Office of Farm Man- 

 agement of the United States Department of Agriculture. 



Before one is ready to interpret cost accounts he must know 

 the methods of calculation, and should know what to expect from 

 an industry. From any industry that is not a monopoly we should 

 expect to pay wages and interest on the capital invested. By 

 interest is meant the usual business rate of interest. Probably 

 government bonds give the nearest indication of the true rate for 

 the use of money without risk of loss. Farm interest of 5 or 6 

 per cent is higher because there is more risk for money thus in- 

 vested. 



One should not expect more than interest and wages, on the 

 average, although many individuals make more. We are par- 

 ticularly interested in seeing how they do it. With this point of 

 view one should not expect the average crop or animal to show 

 much profit by the method of cost accounting here used, because 

 interest and wages, use of buildings, and all other costs, have been 

 included. Many persons think that agriculture should pay much 

 more than this; but it can not do so except temporarily, for as 

 soon as it is evident that the farms are paying more than interest 

 at the farm rate and farm wages, the price of land promptly rises 

 to take up the slack, or wages rise, or cows sell for more. In 

 some way an adjustment takes place that again brings the average 

 profit to the normal one of wages and interest. You have all 

 seen how rapidly such adjustments take place in the price of cows, 

 and have seen the more tardy but no less certain changes in the 

 price of land. 



The usual assumption is that the aim of cost accounting is to 

 determine what things pay, so that we may raise more of them ; 

 and what things fail to pay, so that we can stop raising them. 



