Unit costs were determined only in relation to volume. This obscures 

 other types of variations due to season and market conditions. Costs which 

 vary seasonally are: heating, ice, and labor. Market conditions affect short- 

 run buying and selling costs. 



Costs were classified under four types: variable operating, constant-unit 

 operating, fixed operating, and fixed overhead. The allocations made are 

 mutually exclusive with respect to all major items. All unit costs in this 

 report are on the basis of live weight. They can be converted to an eviscer- 

 ated weight basis by dividing by the percentage yield from live to eviscer- 

 ated weight."* To convert these costs to an operating margin some allowance 

 also should be made for net profit and for the cost of short-term (oper- 

 ating) loans. Figure 2 illustrates the behavior of major cost groups for 

 one plant size. 



Variable Operating Costs 



These items comprise the only cost element which increases on a unit 

 basis after 100 percent of capacity is reached. This produces an upturn in 

 the total unit cost curve for each plant in this study. Major components 

 are wages (including fringe benefits), utilities, variable repairs, and wear 

 depreciation. 



Wages 



Payroll and volume data indicate that output per dollar of input increases 

 and cost per unit of output declines until 100 percent of capacity is reached. 

 When plants are operated at more than 100 percent of daily capacity, re- 

 duced production and/or overtime wage rates decrease output per dollar 

 of input and increase unit costs. 



Utilities 



Unit expense for electricity and water generally declines as plant volume in- 

 creases. Rate structures usually have a fixed initial charge and successively 

 lower rates with increases in physical units used. 



Variable Repairs 



In a California study, Sammet divides repairs expense into a fixed cost 

 component and a direct repair expense determined on the basis of a per- 

 centage of replacement cost per 100 hours of usage-'^. In this study, plant 

 repairs and maintenance, plus equipment maintenance, are treated as fixed 

 cost components; repairs to equipment as a variable operating cost com- 

 ponent. Figure 3 illustrates this method. 



^ 72% can be assumed as a typical yield for converting live broilers to an eviscerated 

 product. If it costs 5.130 cents per pound live weight to process broilers in a plant of 

 150 broilers-per-hour capacity (Table 2,) the equivalent cost per pound eviscerated 

 weight would be 7.13 cents. In contrast, a plant processing 10,000 broilers-per-hour 

 at a cost of 2.64 cents per pound live weight (Table 2), the equivalent cost per pound 

 eviscerated weight would be 3.67 cents. 



•^Sammet, L. L. : In-PIant Transportation Costs as Related to Materials Handling 

 Methods — Apple and Pear Packing, Calif. Agric. Expt. Sta. (Giannini Foundation), 

 Mimeo Rpt. No. 142, Jan. 1953, p. 7-10. 



10 



