36 



Operating Costs and Returns 



Operating costs were classified into six groups to simplify computation 

 and to effectively analyze the several methods of cost breakdown pre- 

 sented in the annual reports of the different associations. 



The six cost groups were: (1) Salaries, wages, and commissions; (2) 

 facility and equipment charges; (3) general administrative expenses; 

 (4) financing costs; (5) taxes, licenses, and bonds; and (6) leaf 

 account and adjustment cost. 



Cost of salaries, wages, and commissions generally comprised over 50 

 percent of the total operating costs of the associations, in some cases 

 ranging over 60 percent during certain years. The cost of salaries 

 and wages did not vary directly with the amount of tobacco handled, 

 but rather was semi-fixed, a set number of warehouse employees being 

 able to handle volumes which could range quite widely in size. 



Facility and equipment charges, including depreciation, repairs, and 

 insurance, were>for the most part, fixed costs. Annual depreciation 

 rates on warehouse facilities were typically set at 2 or 3 percent. 



Annual depreciation rates on equipment generally averaged about 10 

 percent. The depreciation rates on baskets were generally high com- 

 pared to those for more substantial types of equipment such as scales 

 and office machinery. Facility and equipment operating costs averaged 

 about 20 percent of total operating costs for associations marketing 

 burley and flue-cured tobacco and about 15 percent for those handling 

 the dark tobaccos. 



General administrative expenses include charges for such items as office 

 supplies, postage, professional fees and dues, utilities, telephone and 

 telegraph, public relations, travel, and advertising. This type of 

 expense generally ranged between 15 and 20 percent of total operating 

 costs, averaging highest for the associations marketing the dark tobaccos 



Cost of financing, or interest charges on loans obtained to acquire 

 facilities and equipment or for operating purposes, averaged approx- 

 imately 5 percent of total operating costs for the associations. Charges 

 for taxes, licenses, and bonds averaged 5 percent for associations 

 handling burley tobacco and 2 to 3 percent for the associations handling 

 other types. Losses on the leaf account and adjustments made to buyers 

 for underweight baskets comprised an average of only 1 or 2 percent of 

 total operating costs for all associations. 



