METHODS OF CONDUCTING COST STUDIES. 29 
cows, miscellaneous cash expenses of the farm enterprises, and similar 
items which should all be placed directly against the proper accounts. 
Distribution of the overhead expense should be on the basis of the 
direct expense incurred by the productive enterprises of the farm, 
namely, the field crops and classes of live stock. The capital invest- 
ment and productive crop acres and units of live stock have been 
proposed as bases, but inasmuch as the labor requirements and other 
costs of the various enterprises vary widely, these methods of appor- 
tioning the overhead do not place the proper share of expense against 
the various enterprises. Inasmuch as all expense is similar in source — 
that is, is incurred through the use of land, labor, and capital in the 
operation of farming — -the distribution of the overhead expense on 
the basis of direct expense seems to be a more equitable basis than 
any other. 
Business risk. — There are many classes of business risks, such a& 
loss from hail, drought, fire, diseases, weeds, pests, and employers 7 
liability. It is seldom that a farmer carries a large amount of insur- 
ance, and that which is carried is usually not for the full value, so 
that the farm carries the remainder of the risk. The insurance that 
is carried for a certain business risk is charged directly to the proper 
account. If no insurance is carried, it is not common practice to 
charge the farm with the risk as an expense but rather it is assumed 
that the profits should be great enough to carry this risk. 
Some authorities have advocated the charging to crops and classes 
of live stock the full insurance charges against these various risks, 
whether carried or not, on the assumption that the farm business 
must stand the loss if such is entailed, and that therefore an insurance 
charge is warranted. However, inasmuch as insurance is a direct 
cost, it is doubtful if it is good accounting to charge any other than 
the actual expense incurred for the risk involved. It is nevertheless 
true that the net returns should be such as to cover uninsured risks of 
the business. 
Profit. — In complete cost-accounting studies there has probably 
been little misuse of the term " profit, " inasmuch as the accounts 
are in sufficient detail to bring out the actual profit or loss made. 
In a great many publications, however, the term is misued by apply- 
ing it to the return from an enterprise or a farm business above one 
or two of the principal expenses. For example, it has been quite 
common practice to call the return above feed of dairy cows " profit." 
In some cases the labor may be included as a cost along with the 
feed, and the difference between these charges and the receipts called 
"profit." As a matter of fact the miscellaneous and indirect charges 
of some farm enterprises amount to one-third of the total cost of 
operation, and to leave these items out of consideration in determin- 
ing the cost of the enterprise is erroneous and misleading. 
