FarmSMART 
April 2012
In This Issue
Time to plant and plan
PORK$HOP moves
Farming 2020
Activity-based costing
May free webinars
Adjust crop applications
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Greetings!
 
 

   

Time to Plant

"For every time there is a season, and a time for every matter under heaven...a time to plant."

 

While the Preacher of Ecclesiastes didn't mention them in Chapter 3, it's also a time to spray and spread.  All of these activities affect input inventories, and that's what we'll be addressing in this month's newsletter.

 

Our feature story addresses the business side of inventories as covered by Farm Futures Magazine and This Week in Agribusiness.

 

The Q&A of the Month shows you how to balance crop input inventories

 

Those products are applied to the field through an activity, so we're going to explain how to apply Activity-based costing (ABC) to agriculture in our Best Practices column.

 

Our Farm Management Software Blog delves into why stand-alone reporting systems used by many large operations can't provide true accounting control.

 

Pork producers are being alerted that our 20th annual PORK$HOP seminar has been moved to coincide with the World Pork Expo.

 

Schedule your free webinar training for May.

 

                                                                                      SDG

 

PORK$HOP Moves On-site at World Pork Expo

John McNutt
John McNutt covers cost benchmarks at last year's PORK$HOP.

The 20th annual PORK$HOP Management Seminar co-sponsored by the Latta, Harris, Hanon & Penningroth CPA firm and FBS Systems has been moved (date, time and location) to 10:30 am on Thursday, June 7 at the World Pork Expo held at the Elwell Family Food Center at the Iowa State Fairgrounds, Des Moines, Iowa.


The 1 1/2 hour session will focus exclusively on current benchmark comparisons for all stages of pork production.  Admission and handouts are free, but you must pre-register by completing this form or contacting [email protected] or [email protected].  

 

You can also submit your own data for comparison by contacting [email protected]

Farming 2020Farming 2020 Looks to Real-Time Inventories

 

As many of you know, FBS has an obsession with inventory accuracy (since it affects everthing you think you know about your operation).

 

That's why we were delighted to cooperate with Farm Progress Companies and Case IH in their Farming 2020 series which has been featured recently in a number of farm magazines as well as RFD-TV.

 

Farm Progress Editorial Director Willie Vogt inquired about trends in incorporating "real-time" data into business processes.  (Precision farming practices incorporate real-time data, but their objective is usually agronomic, not economic, optimization.)

 

Our goal is turning your data into dollars.  We begin with the final product:  an integrated managerial accounting and budgeting system built on a foundation of inventories driven by production activity.  Whenever possible, though, we accumulate "real-time" data from trading partners (packers, feed mills, elevators) as well as on-farm technologies (planter/sprayer/harvest monitors, scales, handhelds, etc.)

 

So get a glimpse of the potential by reading the Farm Futures article, "From Field to Server" and viewing the April 2012 Farming 2020 segment from This Week In Agribusiness with Max Armstrong and Orion Samuelson or visit our blog for a more in-depth discussion.

 

This Week In AgriBusiness 

"Best Practices" for Activity-BA-B-Cased Costing

 

 

Editor's noteThis article continues a new series on the "best practices" FBS users have developed to improve effectiveness, efficiency, internal control and compliance from their information system. 

    

Responsibility-center accounting is a multi-stage process. In prior articles, we defined two classifications of cost centers--service and support centers--and described the first two accounting steps: posting indirect expenses to the service centers, then allocating them by percentage to support centers.  This article describes the procedure for allocating costs from support centers to crop or livestock production centers using activity-based costing.

 

Traditionally, managers have assigned indirect costs to products using either percentage or per-unit allocation.   The underlying assumption behind this practice is that producing products is what causes costs to occur.

 

Activity-Based Costing (ABC), on the other hand, assumes that activities create costs. ABC systems determine why costs occur and how they are absorbed into "cost objects" (either products or other cost centers), rather than simply allocating what has already been spent.

 

Allocation Decisions

 

As previously described, each cost center is associated with measurable physical activities. The extent and attributes of those activities will determine where and how costs will be transferred. Allocation decisions involve answering three questions regarding each activity:

 

1. Which cost and/or profit centers will be "serviced" by this activity?   The easiest way to visualize these cost flows is to trace them in a flow chart. For example, a Crop Planting Activity cost center will, by definition, exclusively service Crop Production centers (Figure 1). On the other hand, a Trucking cost center can provide services for feeder pigs as well as crops, and a Shop and Maintenance "service" center can support other cost centers through a second level of allocation (Figure 2).

Figure 1

 

  

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Figure 2

 

 2. Which cost drivers are most appropriate?  Cost drivers are based on the premise that consumption of resources is "driven" by a measurable activity. In selecting a cost driver, the manager should consider:

  • The cost of capturing extra detail.
     
  • Which measurement or output correlates most closely with the consumption of the resource. In effect, ABC converts the fixed and variable costs originally assigned to the cost center into variable, direct costs allocated to the cost object. (See Figure 3.)

 

ABC Figure 3
Figure 3

 

  • The "lowest common denominator" among the cost objects. Sometimes, as with the example Trucking cost center that services both livestock and crops, there may be no satisfactory lowest common denominator. That means that two cost drivers may need to be used simultaneously.

Figure 4 lists suggested cost drivers for common cost centers.

 

ABC Figure 4
Figure 4

 

The third step is to determine a standard rate.  We'll address the "how," and more importantly, the "why" of using standard rates next time.

 

To download a free white paper describing the ABC allocation process click here.

Free May Webinar Schedule

 

Webinar Screen
Setting Preferences, May 7  

User Defined Balance Sheets and Income Statements, May 14
 
Balancing Your Bank Accounts, May 21
 
All webinars run between 10:00 am and 11:00 am CST.  To register, e-mail [email protected] by 9:00 am CST on the day of the webinar.
Q&A of the Month--Adjust Applications

 

Sarah Dixon
Sarah Dixon, FBS Technical Services Manager.

Q.   I am getting ready for planting season and want to make sure that my input inventories are starting out the crop year correct. What is the best way to go about this?

 

A.   This is a great question. Ideally you would reconcile your input inventories every month with application and purchase records and then with a physical inventory twice a year, but yearly is good too!  It is hard to plan for what you need to purchase if you don't know for certaint what you have on hand. Ag inputs are sometimes hard to track due to differences in purchase vs. application quantity and because of spilling or calibration errors.

 

To start off you should run a Crop Inputs Inventory Report for each category (chemicals, fertilizer, seed) for the day you on which want to do the reconciliation. The ending inventory quantity should match the amount your physical inventory.

 

If your number matches what you show in FBS then you are done. If they don't match then you need to make adjustments. Because inventories in FBS are tied directly to accounting, the most likely reason inventories are off is due to the production record side (missed fields, doubled entries, calibration issues, overlaps or spilling).

Figure 5 Crop Inputs Inventory (before)
Figure 5

In Figure 5, the Crop Inputs Inventory shows the ending inventory for Aztec insecticide is 2,800 pounds as opposed to an actual physical inventory of 1,800 pounds. You first verify that these values are correct:

  • Beginning inventories
  • Purchases (compare purchase unit prices to verify the correct quantities were selected)
  • No products were exchanged or returned to the supplier
  • No fields were "missed" or double-entered

Next go to Input | General Crops tab | Global Adjustment of Applications and click Add. Then select the date range you want to adjust across, the product you want to adjust and the net adjustment you want to make to purchase units in the Change column. The Actual column will display the Current inventory after your net change. To accept his change, press the Adjust Applications button. (See Figure 6.)

 

 

 

 

 

 

Figure 6 Global Adjustment Screen
Figure 6

 

 

Figure 7 shows the effects of this global adjustment. All applications in the selected time period have been adjusted proportionately to achieve the desired ending inventory. 

 

 

 

 

Figure 7 Crop Inputs Inventory (after)
Figure 7

Tips:  

  • You must already have applications recorded in order to adjust them. (Crop Audit can't create new applications out of thin air!)
     
  • You can't create negative applications or ending inventories.
     
  • Be careful to adjust using purchase units, rather than application units.
     
  • If you make a mistake in your adjustments you can easily re-run the routine as many time as needed.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sincerely,

FBS Systems