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 pripe 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. 
t 
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 
