REFLECTION ON PRODUCTION COST IN

AGRICULTURE

University of Agricultural Sciences and Veterinary Medicine Iai

Abstract

Reliable finances reflected in production cost and total income analysis is the main goal
of accounting. These two aspects can influence optimal investment decision. The
financial situation of a business is diagnosed by accounting analysis.

The financial situation of a business is a major player in decision making, thats why
accounting information must be complete, relevant and realistic, but also comparable
and comprehensible. Financial informations comparability implies temporal analysis of
current and previous data.

Keywords: information, accounting, production cost, decision making

Accounting is a logical and rational system producing specialized information and being
subjected to conventions and social norms. Societys survival in financial conditions like
high-cost credits, foreign brands competition in the market, impossibility of accessing
external markets, political instability, permanent fluctuation of prices and reduction of
buying-power are worsened by the lack of domestic capital.

The accounting field has created not only a craft, but also an ordered and balanced way
of thinking. Accounting is the most important source of economical information of a
nation. Almost all economical decisions rely on accounting information. Management
accounting provides detailed analytical data on production factors efficiency. Using
management accounting we can determine each service or products production cost.
As a process of management accounting, calculating production cost is about using
different methods of principles and economical calculations in order to compute the
production cost. Determining the goal of calculation is the starting point in achieving the
objective and its about precise delimitation, in space and time, of its content.

Production cost calculation purpose is identifying cost indicator and is realized by a

sequence of calculations and methods following economic-accounting logic.

Particularities of determining production-cost:

1. In the case of greenhouse cultures which are farmed in two production cycles, 1st
cycle in the first half of the year and the 2nd cycle in the second half of the year, is
required the delimitation of the unfinished and obtained products production-cost,
per cycle of production.
2. Annual and perennial fodder crops have some particularities in the sense of
delimiting production expenses for planting perennial crops which are distributed for
the entire crops life (2-3 years) by highlighting it in under-execution production.
3. For sheep breeding, the particularities are determined by the heterogeneous traits
of the products: wool, milk, lambs, and manure. The first are main products, while
the latter is secondary. The products are being planned and keeping tracked of on
categories (adult sheep, wether, young sheep etc.), from each category being
obtained two or more kinds of products. For example, in determining wool cost, one
must subtract from the total expenses the value, at internal settlement price or net
value, of the others products obtained simultaneously: milk, weaned lambs, young
sheep, from the previous year, skins and manure. Thus there are many main
products without a calculation process of the cost, which negatively influences the
cost of the main product for which one refers to a methodology of calculations.
4. Poultry farming particularity is the fact that for the eggs production one computes
the cost of both the eggs intended for reproduction (hatchery) and the eggs
intended for sale, in two categories:
With the influence of the difference between the cost of registration and the
recovery cost
Without the influence of the costs
5. Beekeeping presents the particularity that a colony of bees produces: honey,
swarms, beeswax and pollen.
6. Cattles farming has more categories, but the most important is cattle farming for
milk and reproducing. From this category one gets two main products, milk and
calves, and a secondary product, manure.
In the hypothesis in which the milk is the only main product, cost-related
calculations are computed by the remaining-value method, calves and manure
being products with no calculation.
7. For the young animals which are not to be weighed like high breed animals from
some species of horses, sheep, etc. one computes a cost per animal by reporting
expenses (except secondary production) to the number of livestock.
8. Long term debt when the initial term has been for more than 12 months and there
is a reschedule or refinancing agreement, set before balance sheet date. When the
amount to be repaid is greater than the amount received, the difference is written in
the balance sheet and must be presented in the explanatory notes.

Two aspects of choosing the accounting method that influence the quality of profits can
be highlighted. First of all, certain accounting methods are by nature more conservative
than others because they tend to generate lower net income for the current year.
Secondly, there is that freedom of choice of methods, especially those relating to the
amortization of assets.

Generally, the cost of production (c) is calculated by reporting the production cost (Ch)
to the production obtained, according to relationship:
Ch
c
Q
Due to the particularities of the technological processes, the complexity of the products
obtained and the way in which the production costs are recorded in the accounting,
several methods of calculating the production costs are used:
after the occurrence in time, two groups of methods are distinguished: classical
methods and modern methods.
 after the production costs, two groups of methods are distinguished: methods
of calculating total costs and methods of calculating partial costs.
By combining the criteria for classifying these methods, we present the following costing
calculation methods: the global method and the phased method as classical methods
and the calculation of total costs and the standard cost method and direct cost, as
modern methods.
The global method is a postcalculation method in which several procedures are used:
the simple division process - can be used if a single main product with no
secondary production is obtained from a crop or animal category.
The cost is calculated by referring to the total production cost (Ch) of the production
obtained (Q):
Ch
c
Q
The process can be used to calculate the production cost for: grapes, fruits, vegetables
and pork.
the residual value (or allocation) method can be used if from a crop is obtained
a secondary production in addition to the main production. Cost (c) is calculated
as follows: From the total production cost (Ch) subtract the value of the
secondary production (s) and relates to the main production achieved (Q):

Ch s
c
Q

The process is used to calculate the cost of grain crops.

A version of this process is applied in animal husbandry when from one species there
are obtained several main products (3). Of these, one will be the "main product with
computation" and for it it will be calculated the cost of production, and the other products
will be "without calculation".

The cost (c) will be calculated as follows: From the total production costs (Ch) will be
substracted:

The value of the main products without calculation (v) and

the value of the secondary production (s)

 and refer to the main output ("the main product with the calculation (Qc)").

Ch v s
c
Qc

The process can be used to calculate the costs of the category: milk cows (milk, calves,
manure) and ewes (wool, lambs, milk, manure).

the equivalence process that is used when several major products are
obtained, which can be equated with each other.

The production cost (c) is calculated by reference to the total production cost (Q) of the
first main product (Q1) plus the second main product (Q2), multiplied by an equivalence
Ch
factor (e): c
Q1 Q2 * e

The process can be used to calculate the cost of production for fodder crops (green and
hay).

The Phase Method can be used when the finished product is obtained by scrolling
through the process of several phases for which the expenses incurred are accounted
for. The unit cost (c) is calculated by adding the production costs of each phase (Chf1,
Chf1 Chf1 ...Chfn
Chf2, Chfn) to the obtained product (Q): c
Q

The Phase Method can be applied in agriculture when calculating the cost in nursery
trees and vines (grafted trees) and in livestock and poultry (cattle, sheep, and poultry)
complexes.

The Standard Cost Method is an antecalculation method. For the calculation of the
cost, the current rules on direct production costs (raw materials, consumables, salaries,
insurance and social security contributions, etc.) are taken into account, and the level of
indirect costs (common expenses, general expenses and selling expenses) is the one
set in the "spending budget". At the end of the year, the standard cost is corrected for
deviation (extra or minus) depending on the actual expenditure incurred.
The Direct Cost Method only uses a part of the expenses to calculate the cost, namely
expenses called "variables", which directly influence the production of the product.

The other expenditure category, called "Fixed Expenses", is taken into account when
determining the economic and financial result - "Profit and Loss", decreasing by its
value the profit of the respective company for the given product.

The use of one or other of the methods presented is based on the calculation period,
the product type, the technological characteristics of obtaining the product, and the
context in which this economic indicator is used, called "production cost".

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