they set their prices on the basis of what they would be willing to pay for 

 the same services. Detailed cost analyses apparently had little part in estab- 

 lishing the rates charged. As would be expected from these types of rate- 

 setting principles, the prices charged by custom operators varied considerably. 

 The distance to and the size of the job were factors in the price charged. 

 Most operators made no charge for travel time within their immediate neigh- 

 borhood. Some, however, charged for the total time going from and return- 

 ing to their headquarters; others charged for travel time only one way. 

 Some raised their hourly rates for the more distant jobs to compensate for 

 the greater travel time. Jobs requiring less than a half day are frequently 

 priced at a higher rate than jobs that involve more time. 



Method of Determining an Economic Organization of 

 Machinery and Equipment 



Arriving at the optimum economic pattern of machines and of their owner- 

 ship for a farm involves evaluation of the work load for the specific jobs to 

 be done and the capacity of various types and sizes of machines for per- 

 forming the jobs within the seasonal time for the work. Having chosen the 

 alternative machines and combinations of machines from the view of physi- 

 cal production, the next step is to compute the machine and labor costs for 

 each combination to arrive at the least-cost combination for the particular 

 farm. 



Machinery and Labor Costs 



Annual ownership costs include interest on investment, taxes, fire in- 

 surance, housing, and that part of depreciation that is associated with age 

 and obsolescence of the machine. In general, ownership costs per year for 

 farm machines are 10 to 15 percent of the purchase price of new machines 

 Power-take-off and auxiliary engine-driven machines have the higher annual 

 cost rate. Table 8 shows annual ownership charges for some of the more 

 important farm machines. Depreciation, as a part of ownership costs, is 

 figured on the basis of a useful life of from 8 to 18 years, depending on the 

 amount of use of the machine. If a machine is used many hours each year 

 it probably wears out before it depreciates through obsolescence; if it is 

 used only a few hours, time depreciation alone is important. Interest is com- 

 puted at the rate of 4 percent, taxes at the rate of 20 mills (2 percent) and 

 fire insurance at the rate of ^7.50 per $1,000 (0.75 percent) on half the 

 original investment. Housing varies from S2.00 to S6.00 a year, depending 

 on the size of the machine. 



Direct operating costs vary with the amount of use of a machine. These 

 costs include such items as gas, oil, grease, twine, spray materials, repairs, 

 and, as indicated previously, that part of the depreciation due only to use 

 of the machine. 2 The bulk of New England farm machinery is seldom used 

 enough each year to depreciate from use. A charge for wear depreciation is 



2 For a discussion of "time depreciation" and "wear depreciation" see 0. J. Sco- 

 ville, "Fixed and Variable Elements in the Calculation of Machine Depreciation", Agri- 

 cultural Economics Research Vol. 1, Number 3, Bureau of Agricultural Economics, 

 USDA, July, 1949. 



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