2. Mill Supplies Costs — Mill supplies include lubricants, house- 

 keeping materials, and a number of other miscellaneous items and mat- 

 erials used in the mill. The cost of this category is based on accounting 

 information provided by the observed mills. 



3. Miscellaneous Costs — Miscellaneous costs include feed regis- 

 tration and analysis fees, audit and legal fees, travel expenses for man- 

 agerial personnel, dues and subscription costs for various trade mag- 

 azines and journals, office supplies, telephone, and other minor costs. 

 Accounting data from the observed mills were used to develop estimates 

 of these costs for the model mills. 



4. Inventory Costs — Sufficient ingredients storage capacity has 

 been built into each model mill to meet capacity needs for ten-day's 

 operation. However, mills generally have smaller volumes of ingredients 

 on hand. For purposes of this analysis, the average quantity of ingre- 

 dients on hand was assumed to be equivalent to five days of capacity 

 operation. 



Two costs are associated with the ingredient inventory, insurance 

 and interest on the investment. Insurance is generally purchased quar- 

 terly and the cost approximates $1.00 per $100 of ingredients. Interest on 

 investment is a cost since mills must either use their own or borrow 

 working capital to purchase ingredients. An interest rate of five percent 

 is assumed for capital invested in the five-day supply of ingredients. 



The inventory value is established by using the average 1963 deliver- 

 ed price of feed ingredients to New England points. Quantities of ingre- 

 dients stored are derived from formulations and quantities of each for- 

 mulation produced per day. 



5. Shrinkage Costs — Mills experience some loss of ingredients 

 during the handling, storing, and manufacturing stages. This loss is re- 

 ferred to as shrink. Shrink may be caused by loss of moisture in some 

 ingredients which reduces their weight. Other losses occur during the 

 unloading and handling in the mill. 



Observed mills did not have precise data on shrink. Most indicated 

 that losses probably ranged from one-quarter to three-quarters of one 

 percent by weight. 



A shrink rate of one-quarter of one percent is adopted for the model 

 mills. A low rate is assumed since the model mills have equipment to 

 minimize losses. Shrink was determined for all ingredients except fat 

 and the premixes. Prices used are the average delivered ingredient price 

 to New England points. 



6. Summary of Costs — Table 12 is a summary of the several cost 

 categories for the eight model mills operating at capacity. The costs are 

 classified as either fixed or variable. Fixed costs include ownership, ad- 

 ministrative and supervisory, and miscellaneous. All other costs are 

 variable. 



Three of the nine major cost categories account for between two- 

 thirds and three-quarters of the total cost per ton. In Mills A through C. 

 these major costs are ownership, labor, and administrative and svxper- 

 visory. In Mills D, E and F, the three major costs are ownership, utili- 

 ties, and administrative and supervisory. 



28 



