METHODS OF CONDUCTING COST STUDIES. 19 



The argument in favor of using the replacement value as a basis 

 is that it places the values consumed in shelter and storage uses on 

 the present-day price level. There may be considerable difference, 

 for instance, between the shelter cost computed on the basis of original 

 cost for a cow housed in barn that originally cost $1,000 fifteen years 

 ago and the cost computed on the basis of the barn's replaceable value, 

 since such a barn would probably cost $3,000, with materials at 1920 

 prices. 



The permanency of the price level is one of the factors to be con- 

 sidered in changing from the original cost to the replacement-value 

 method. If building materials are on a more or less permanent 

 level of prices and the decline to a lower level may be expected to be 

 gradual, then the practice of estimating present values on the new 

 price level becomes a much safer basis then if the prices of building 

 materials were likely to fall suddenly to their former price level. 



The safer basis of valuing buildings and equipment over a term of 

 years is that of the original cost, thereby eliminating the dangerous 

 practice of estimating present-day values, in the face of shifting 

 prices of building materials and farm machinery. It has been 

 pointed out by some that if the original cost basis of valuing build- 

 ings and machinery is maintained the original cost basis should also 

 be used in computing the interest on the actual investment in land 

 and its improvement. There is considerable difference, however, 

 between charging depreciation on buildings and interest on land. 

 Buildings and equipment always depreciate, whereas land often 

 becomes more and more valuable. Land is therefore likely to remain 

 at its increased price, at least for a considerable length of time, but 

 the value of buildings if raised must be depreciated again. For the 

 purpose of comparing costs and relative profits the land value basis 

 adopted by the leading authorities in the study of the farm business 

 has been the conservative ready sale value, regardless of the original 

 cost of the land and improvements. 



EQUIPMENT. 



The equipment on the farm should be itemized in detail and classi- 

 fied according to its use. It is always advisable, if possible, to learn 

 the date of purchase and the original cost of each implement con- 

 cerned in the farm operation. Two methods have been advocated in 

 placing the present value on farm machinery; one based upon the first 

 cost, depreciated by the number of years of use and its present condi- 

 tion, and the other that of estimating the present depreciated value 

 by assuming the machinery cost at present prices when new, and de- 

 preciating it by the number of years and its present condition. 

 Theoretically, the amount of work done should have a strong influ- 

 ence in the fixing of present values. Practically, this factor may be 



