Importance of Farm Cost Accounting 



By W. J. Predmore 



FARM COST ACCOUNTINC], 

 as the words signify, means keep- 

 ing a record of farm costs; not in 

 a lump sum, nor "in one's head , 

 but keeping an accurate account of every 

 expense involved in the production of 

 crops, live stock, etc., so that the exact 

 cost may be known, and so that the rela- 

 tionship of cost to the selling price may 

 be known. 



The importance of farm accounting 

 has been recognized only of late years. 

 This, indeed, may be said of business in 

 general, but the manufacturing enterprises 



THE ONLY WAY TO 



EARN MORE 



IS TO 



LEARN MORE 



— Tom Murray. 



of the world were years ago compelled to 

 enter upon a system of cost accounting in 

 order to save themselves from actual 

 bankruptcy. Now the changing condi- 

 tions of farm life, which are turning the 

 modern farm into an industrial enterprise 

 of greater or less magnitude, compel the 

 farmer, if he would save himself, to adopt 

 a rigorous system of accounts. 



Correct information in regard to costs 

 is a prerequisite to profit in any branch 

 of agriculture, and is absolutely essential 

 to the formation and maintenance of any 

 line of policy regarding the management 

 of the farm. Management certainly in- 

 volves these two elements: first, good 

 judgmentas to products particularly adapt- 

 ed to the farmers environment — soil, cli- 

 mate and markets; and second, thorough 

 knowledge of the cost of the commodities 

 he produces upon his farm. On most 

 farms physical operations are carried on 

 in a systematic manner, but as a rule the 

 most essential operation — finding of the 

 costs — is quite lost sight of. ^ et it is 

 not only one of the most essential ele- 

 ments in the farmer's success; it also is 

 one of the least expensive, one of the 

 simplest and one of the best money-inak- 

 ing operations that can be performed upon 

 the farm. 



In this age of ours there has come to 

 be a very close relationship between 

 farming and manufacturing. Before a 

 farm implement ma\- be manufactured 

 there must come the purchase of the raw 

 material, such as' iron, lumber, bolts, etc. 

 Then the manufacturer must hire labor 



to make up these raw materials and as- 

 semble these parts into an implement 

 ready for the farmer's use.. The value 

 and price of that implement depends up- 

 on the quality of material you put into it, 

 the v\orkmanship, and the general condi- 

 tions under which it was produced — that 

 is, the conditions of machinery, buildings 

 and economical arrangement of the plant. 



So with the farm. Before a good crop 

 may be produced the farmer must pur- 

 chase his materials, not merely seed, but 

 the fertilizer, implements, horses; he must 

 arrange, if he lives in a land of limited 

 rainfall, for irrigation expenses, and he 

 must hire labor to aid him in carrying 

 forward the enterprise. All of these things 

 must enter into the cost of his product 

 the same as the raw materials enter into 

 the manufacturer's implement which we 

 ha\ e considered: and all these things must 

 be considered in their relationship to the 

 market price of the farmer's productions 

 before the farmer may know whether he 

 is operating at a profit or a loss. So, just 

 as it is essential for the manufacturer to 

 know the cost of the implement he pro- 

 duces before he can fix the price and 

 know his profits, so is it essential that the 

 farmer know the cost of his crops in de- 

 tail, before he can know his profits. 



It is true that the farmer does not fix 

 his own prices as does the manufacturer, 

 as the price of staple articles produced 

 upon the farm is governed by world-wide 

 conditions of supply and demand. But 

 there are many lines, even upon the farm, 

 in which the farmer may specialize, and 

 b\' developing a superior quality of prod- 

 ucts, be able to fix a higher price for his 



product, because his products are in great- 

 er demand. But even in the case of the 

 farmer whose products are governed by 

 world-wide condition — his situation is 

 identically the same as that of the manu- 

 facturer, so far as the relation of cost to 

 profit is concerned, and the necessity of 

 his knowing both, if he is to be successful 

 in his line of endeavor. Should the manu- 

 facturer lack thorough knowledge of these 

 costs, he would never know where to cut 

 them, and therefore must sooner or later 

 meet with failure. And so will the far- 

 mer, if he goes on producing goods at a 

 greater cost than the market is willing to 

 pay, reach the same unfortunate end. To 

 be able, therefore, to cut the costs of pro- 

 duction these costs must be known in 

 detail. Hence the absolute necessity on 

 the farm as in the factory of knowing ex- 

 actly what each article produced is costing. 

 In carrying forward farm operations of 

 whatever nature, as well as in all other 

 lines of business, there always is the man 

 at the head, the man who holds the reins 

 and directs the enterprise. We find that 

 the farmer, because of years of experience 

 and more than a quarter of a century of 

 ceaseless endeavor, knows more about his 

 business than any other member of his 

 family. He knows when and where and 

 how to plant, cultivate and sell. He 

 knows pretty well what pays best and he 

 knows something about this, that and the 

 other crop. This knowledge, all of it, he 

 "carries in his head". He keeps no books. 

 When he dies the knowledge dies with 

 him. He lea^■es nothing by means of 

 which his work may be carried on where 

 he left off. This is not good business and 



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