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Agricultural Economics Mimeo Report No. 60-6
40
-:000441
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George L. Capel
and
R.E.L. Greene
Department of Agricultural Economics
Florida Agricultural Experiment Stations
in cooperation with
Marketing Economics Research Division
Agricultural Marketing Service
U.S. Department of Agriculture
December, 1959
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CONTENTS
PRIEACE . ,. .
SUMLAR.Y . . .
. . iii
INTRODUCTION.. . ..... .....
Method of Study . . .
Recent Setting of Packing 10-pound Bags
in the Southeast. . ..
* 9 0 9 *
* 0 5 *
ANALYSIS OF METHODS CF PACKING 10-POUND BAGS. . .
Method A. . . .
Method B. . . .
Metliod C. .
Method D. .
Total Costs for All Methods .
. S 0
* 9 9
* 9 9
* 9* 9
9 9949
COMPARISON OF COSTS FOR 10- AND 100-POUND BAGS. ..
Materials . . . .
Labor and Equipment. . . . .
Extra Potatoes.. .. . .
Total Costs for Materials, Labor and Equipment,
and Extra Potatoes. . . . .
Other Cost Considerations . . .
APPENDIX. . . . . . .
Page
ii
PREFACE
Potato packers are frequently confronted with changing methods,
equipment, and containers for handling, packing, and shipping potatoes.
While these changes are often limited to one operation in the packinghouse,
they usually affect others. The packinghouse operator must assess'these
innovations to determine those which are economically desirable for his
particu-..l operation, taking into consideration the alternatives ard the
possible effects upon all segments of his packing operation. Impor ant
recent developments which affect Florida and Alabama potato shippers are
(1) bulk hauling of potatoes from the field to the packinghouse resu2.-.ing
from the use of mechanical harvesters, (2) flumes for initial handling of
potatoes at the packinghouses, (3) scales which allow simultaneous filling
and weighing of 50- and 100-pound bags, (h) the adaptation of conveyor beli'
for inplant transportation of packed potatoes, and (5) the emphasis on p.-.'kng
potatoes in consumer-size packs (mainly 10-pound bags) at the shipping pcitt.
The Florida Agricultural Experiment Station and the Agricultural
Marketing Service of the U. S. Department of Agriculture undertook a study of
potato packing in the Southeast to provide information to aid packers in
making decisions about these changes. This project is a continuation and
extension of earlier regional work on factors affecting market quality and
the use of mechanical harvesters. It deals with problems in packinghonsa
management and is specifically aimed at determining: (1) the most eff.';cient
methods of performing various packinghouse operations, (2) the most efficient
combinations of labor and equipment, (3) the efficiency of grading, and (I)
the levels of costs according to type of container. This report contains an
analysis of the costs for packing and handling 10-pound bags. Subsequent
reports will deal with other specific packinghouse operations. The first
ii
report in this series, "Packing Costs and Grading Efficiency in Florida and
Alabama Potato Packinghouses," Agricultural Economics Mineo Report 59-7,
December, 1958, presented data on average costs for an entire season and the
basic data on grading.
SUMMARY
This study of the cost of packing and handling 10-pound bags of
potatoes in Florida and Alabama was undertaken to compare costs for alternative
methods available, and to compare these costs with costs for packing 100-pound
bags.
Costs were computed for four currently available methods of packing.
The method which requires the smallest investment in equipment has the lowsst
costs from the least volume which might be packed up to about 20,000 hundred-.
weights (200,000 10-pound bags) in one season. This method employs a simple
belt with filling stations along the side. For annual volumes above 20,000
hundredweights, the so-called roll-around table had lower costs.
Selection of packing methods depends on certain factors, in addition
to costs. Some of these are: (a) total investment required, (b) ease with
which the method is adaptable to the packinghouse and to changes in the
packinghouse, and (c) adaptability of the equipment to moving between packing-
houses and areas.
In comparing the relative costs for packing and handling 100- and
10-pound bags, it was recognized that some costs could and some could not be
determined. Costs were computed for materials, labor and equipment, and
iii
extra potatoes. It was shown that the extra cost per hundredweight for these
items for packing 10-pound bags ranged from 91.5 cents, if the annual volume
of 10-pound bags was 2,500 hundredweights;to 56.6 cents, if the annual volume
was 50,000 hundredweights. These differences are representative assuming:
(a) the packing firm uses the lowest cost method for its annual volume and
(b) the cost of extra potatoes is 3 cents a pound. Factors with undetermined
cost effects were: (a),the possibility that the firm employs extra workers
at all times that are needed only in the 10-pound operation and (b) the
risk that the investment in facilities for packing 10-pound.bags will be
lost by nonuse.
AN ANALYSIS OF COSTS FOR PACKING POTATOES
IN 10-POUND BAGS IN THE SOUTHEAST
by
George L. Capel and R. E. L. Greenel
INTRODUCTION
The increase in quantity of fresh fruits and vegetables offered to
consumers prepackaged is commonplace knowledge. Nearly all fruit and vegetable
commodities are available in this form. The proportion of each which is pre-
packaged varies but, by any measure, the total quantity prepackaged is large.
Prepackaging is done at many points in the marketing process--by shippers,
wholesalers, jobbers, and retailers. The point in the marketing channels at
which specific commodities are prepackaged varies depending upon the location
of the production area and upon the characteristics of the products themselves.
Potatoes have been prominent in the trend toward prepackaging. The
type of potato affects the amount prepackaged and the point in the marketing
channel where it occurs. In general, prepackaging at the shipping point has
been more general for potatoes with a longer storage period than for potatoes
with short storage life (i.e., southeastern potatoes). However, there has
been a gradual increase in the prepackaging of potatoes in the Southeast. In
Florida and Alabama, many firms have added facilities for consumer packing.
The proportion of the Alabama crop prepackaged has probably been somewhat
1Agricultural Economist, Marketing Economics Research Division,
Agricultural Marketing Service, U. S. Department of Agriculture; and Agri-
cultural Economist, Florida Agricultural E:xporiment Station, University of
Florida.
higher than that for Florida. However, up to now, the quantity of potatoes
prepackaged in the Southeast has been below the capacity permitted by the
facilities available* Probably the most important reason for this is that in
recent years the quality of potatoes has not been that which could be prepack-
aged suitably. While many shippers in Florida are not yet committed to a
program of prepackaging, they have a considerable interest in it because of the
interest of their customers in shipping-point prepackaging.
The decision to prepackage, in turn, brings a need for decisions on
many other points. Important among these is the question of what prepackaging
system to use. There are a number of systems centered around various types of
equipment and undoubtedly all have certain advantages. The decision as to
what type of system to use must rest upon a number of factors. Probably, the
most important is the relative cost of the systems. Another problem that
prepackaging brings is that of establishing price differentials for 10-pound
bags with prices for larger containers. A standard differential has developed
between 100- and 50-pound containers. Since 10-pound containers came in more
recently and are of less importance in terms of volume, the differential
between 10-pound and 100-pound containers is less well established, so the
pricing question remains important to shippers.
The specific purposes, therefore, of this study are: (1) to compare
the various systems for packing 10-pound bags to determine the cost for each
at various levels of output per hour and per season and (2) to explore the
problem of the difference in cost between 10-pound containers and the larger,
more conventional containers.
Method of Study
The development of cost estimates for various systems of bagging
10-pound bags started with observations of labor and equipment used. Direct
observations were made of labor use and output rates for all the systems found
to be operating in Florida and Alabama, From these studies, production stand-
ards were developed for the various jobs in each system. With these data, crew
sizes were estimated for the appropriate output rates, and the equipment
requirements listed. Fixed and variable equipment costs were computed.from
the equipment requirements, based upon the replacement cost of the equipment
and its consumption of electricity for operation. Labor costs were computed
from the crew sizes and output rates, assuming certain-wage rates. Wage rates
used were chosen to closely parallel those observed in the industry. Variable
repair costs per hour were assumed to be .005 percent of the total replacement
cost of the equipment.- Labor cost and fixed and variable costs for equipment
were combined to give the total costs of these items for each method. To
compare costs for packing 100-pound and 10-pound bags, certain averages from
the 10-pound packing cost data were compared with the costs for packing 100-
pound bags as reported in "Packing Costs and Grading Efficiency in Florida and
Alabama Potato Packinghouses," Florida Agricultural Experiment Station, .
Agricultural Economics Mimeo Report No. 59-7.
Recent Setting of Packing 10-pound Bags in the Southeast
Bagging of potatoes in 10-pound bags in the Southeast has increased
because large retailers wish to handle a portion of most fresh fruit and
v" vegetables prepackaged. Many of these prefer to have a large portion of their
prepackaged products packed at the shipping point rather than perform this
operation in their own facilities. Shipping-point packing firms can make sales
to these organizations more readily, therefore, by offering a portion of their
output in small containers. This is true since there is a tendency for buyers
to purchase their requirements in larger containers from those firms able to
satisfy their needs of prepackaged potatoes.
Prepackaging requires a higher level of quality than the regular
100- and 50-pound bags. In some years shippers in a given area have difficulty
in finding potatoes of suitable quality in the volume desired. This happened
in the Hastings area in the 1956, 1957, and 1958 seasons. In 1959, however,
the average quality in the Hastings area was such that potatoes could be
prepackaged readily. Packinghouse operators are unable, in a given season, to
predict in advance if they will have suitable quality. Furthermore, quality
can change due to weather conditions during a season and cause the potatoes
to become undesirable for prepackaging. This increases the uncertainty
involved and, in effect, lowers the volume that a firm may achieve with a
given organization for prepackaging.
The relative prices of southeastern potatoes and old crop potatoes
moving to market at the same time affect prepackaging. In 1959 in the Hastings
area, prepackaging ceased abruptly when the price of Hastings potatoes increased
to five dollars per 100-pound bag or 59 cents for 10-pound bags. Many buyers
concluded that their customers would not purchase consumer-size bags at this
price. The underlying reason, however, is probably not quite as simple as
stated. What probably happens is that with a relatively high price for
southeastern potatoes with respect to old, the corresponding relative volume
moving through retail stores is low. Therefore, retailers will devote less
display space to this relatively high-priced commodity. In addition, the
higher price will cause the sales of southeastern potatoes to average lower,
perhaps adversely affecting sales in 10-pound bags to an even greater extent.
Retailers might, therefore, prefer to have one bulk display of new potatoes
rather than any other alternative. This constitutes a second problem which has
caused uncertainty in planning 10-pound packing operations. The result of these
factors is that some firms have made large investments for 10-pound packing
operations which have not been efficiently used.
The number of packinghouses engaged in packing consumer-size bags in
South Florida, Hastings, and Alabama areas has probably not exceeded five firms
in any one of these areas. The annual volumes that these packinghouses have
been able to attain have been, for the most part, disappointing. Data collected
in 1956 and 1957 showed that no packinghouse exceeded 200,000 bags or 20,000
hundredweights ina season; the majority of the houses were under 100,000 bags.
Observations in the Hastings area in 1959 showed that all houses there packed
considerably less than 100,000 bags in that season. The studies in 1956 and
1957 showed that packinghouses were able to attain output rates for packing
10-pound bags of 150 hundredweights or less per hour. This compared with rates
in excess of 300 per hour for 100-pound bags. In one case, a firm with an
outstanding crew averaged about 165 hundredweights per hour. These rates, and
to some extent the volumes mentioned here, indicate that a packinghouse must be
organized to handle part of its volume in 10-pound bags and part in other
containers simultaneously, or reduce the output of the packinghouse substan-
tially over what it can maintain when packing only 100- or 50-pound bags.
ANALYSIS OF METHODS OF PACKING 10-POUND BAGS
The four basic methods of packing in use when this study was made are
included in this report. For convenience of identification they are given
letter designations. The methods are described and the costs presented, in turn,
and finally, the costs for all methods are compared.
Method A
Under this method potatoes are first delivered into a small bin. Next,
they move up an elevator to a wide, slow-moving belt which delivers them to the
bagging equipment. Chutes with brackets for holding 10-pound bags rim the
equipment which rotates as the bags are filled. Along the side of the bagger
are stations where the brackets open automatically for the insertion of empty
bags. After workers place bags on the brackets, they close securely. As the
bags rotate, the potatoes run from the belt into the chutes and down into the
bags.
Each unit is mounted onto a scale which allows each bag to be weighed
individually as it is filled. The scales are set so that when the desired
weight is registered, a door closes on the side of the chute which stops the
flow of potatoes into the bag. As the bags rotate, workers check their weights,
adding or removing potatoes as necessary. The filled bags are released auto-
matically by the machine on the side opposite from where they are filled. An
open-bag conveyor catches the bags as they drop off the machine. Workers along
this belt shape the tops of the bags for sewing and guide them into the sewing
machine. After sewing, the bags move from the sewing machine conveyor to a
conveyor system and are carried to the loading station. One or more workers
may be stationed along the conveyor system to handle bags from one conveyor to
another or around corners in the conveyor system. An alternative handling
method is to stack the packed bags in an open container which can be hand
trucked to the loading station. Usually a team of 3 or more workers will be
stationed in a truck or car to remove the bags from the conveyor or hand truck
and stack them in the load.
Costs.--The labor crew required to pack 10-pound bags using the Method A
system normally includes 13 workers assigned as follows:
Job: Number of Workers:
Supply empty bags 1
Feed empty bags onto machine 2
Feed, operate and check weight 3
Close bag and sew 3
Handle packed bags on conveyor 1
Load packed bags in truck or car 3
TOTAL 13
This crew assignment permits a net output per hour of crew time of 127.5
hundredweights or 1275 10-pound bags.
The estimated variable and fixed costs for labor and equipment for
this system are shown in Table 1. The 13-man crew results in a labor cost of
$13 per hour assuming wages of $1.00 per hour. Electricity cost of 13.5 cents
per hour wae determined from the number of horsepower required times a charge
of 3 cents per horsepower hour. Repairs were estimated at 0.5 percent of the
equipment replacement cost per 100 hours of use. This would result in a repair
cost of about 69 cents per hour. The total variable costs per hour, therefore,
are about $13.83. This means that for an average of 127.5 hundredweights packed
per hour variable costs are $0.1084 or nearly 11 cents per hundredweight. The
total fixed costs for packing by Method A would be $2130. The largest share of
this, by far, is the cost of the bagging machine itself, which amounts to about
75 percent of the total fixed costs.
TABLE 1.--ESTIMATED VARIABLE AND FIXED COSTS FOR LABOR AND EQUIPMENT FOR
PACKING, HANDLING, AND LOADING 10-POUND BAGS OF POTATOES BY METHOD A
Variable Costs Fixed Costs
Cost Replace- Annual
Item per Item ment Fixed
Hour Cost Costa
dollars -dollars- -
Labor: 13-man crew 13.0000 Bagging machines 9250 1526
Electricity: 4-i horsepower 0.1350 Sewing machines 1400 184
Repairs: 0.6917 Open-bag conveyor 721 95
TOTAL PER HOUR 13.8267 Conveyor system 2034 268
Potato supply belt h29 57
AVERAGE per hundredweightb 0.1084 TOTAL 1U83Uj 230----
aFor computation of annual fixed costs, see Appendix Table 2.
bOutput of 127.5 hundredweights per hour.
The estimated total season costs and the average costs per hundredweight
for selected volumes packed per season are shown in Table 2.
TABLE 2.--ESTIMATED TOTAL COSTS AND COST PER HUNDREDWEIGHT FOR LABOR AND
EQUIPMENT FOR SELECTED VOLUMES OF 10-POUND BAGS PER SEASON BY METHOD Aa
Season Costs
Volume Packed Costs per
per Season Fixed Variable Total Hundredweight
hundredweights - -dollars- cents
2,500 2130 271 2401 96.04
5,000 2130 542 2672 53.44
10,000 2130 1084 3214 32.14
15,000 2130 1626 3756 25.04
20,000 2130 2168 4298 21.49
25,000 2130 2710 4840 19.36
30,000 2130 3252 5382 17.94
35,000 2130 3794 5924 16.93
aOutput of 127.5 hundredweights per hour.
Method B
In Method B, the potatoes are first delivered to a storage hopper.
Each bagging machine observed in this study had one storage hopper and two
bagging stations. The potatoes move on a small conveyor from the storage
hopper to a bagging hopper at the bagging station. The bagging hopper, which
is designed to hold somewhat more than 10 pounds, is mounted on a scale which
weighs the hopper and its contents continuously. When the hopper contains the
specified weight, the scale actuates a switch which causes the conveyor to
stop. The operator then observes the scale setting to determine whether
potatoes should be removed or added. When the operator is satisfied that the
weight is correct, the potatoes in the hopper are dumped into a bag and the
filled but open bag set on an open-bag conveyor. The release of the hopper
activates a switch which starts the conveyor moving potatoes from the storage
hopper to refill the bagging hopper. The job of sewing and handling the bags
from the open-bag conveyor to the loading station is done the same as in the
other methods, as described for Method A.
Costs.--Costs for this method were computed for two rates of output--
120 and 160 hundredweights per hour. This was possible because the bagging
machines can be added in units. The crew organization is as follows for the
two rates of output:
Number of workers Number of workers
Job: for 120 cwt. for 1oO cwt.
per hour per hour
Supply empty bags 1 1
Fill bags 6 8
Close bags and sew 3 4
Handle packed bags on conveyor 1 2
Load packed bags in truck or car 3 4
TOTAL li 19
The 120 output per hour rate requires 14 workers and the 160 rate, 19. The
relatively large increase is caused by the fact that the volume is increased
beyond the capacity of one sewing machine, requiring that the volume be split
into two groups for sewing. This necessitates 2 extra workers for sewing and
closing bags, an extra worker each for handling bags on conveyors and for
loading, in addition to the 2 extra workers for filling bags.
The estimated variable and fixed costs for labor and equipment for
packing potatoes in 10-pound bags by Method B are shown by data in Table 3.
For the 120 rate per hour, labor costs are $14. Electricity costs are 13.5
cents based on horsepower requirements of 4-1/2. Variable repairs are about
49 cents per hour. All variable costs amount to $14.63 per hour or an average
of $0.1219 per hundredweight. The fixed costs for equipment required for this
output totals $1450, of which over half i the cost of the packing machines.
Labor costs total $19 per hour for the 160-hundredweights-per-hour
organization, or $5 more per hour than for 120. Electricity and variable
repairs are greater, totaling 22.5 and almost 76 cents per hour, respectively.
The total variable costs are nearly $20 per hour, or $0.1249 per hundredweight.
The fixed costs for this output are about $2200, of which the packing machines
account for about half.
The estimated total season costs and the average costs per hundredweight
for selected output per hour and volumes packed per season are shown in
Table 4.
TABLE 3.--ESTIMATED VARIABLE AND FIXED COSTS FOR LABOR AND EQUIPMENT AT
SELECTED OUTPUTS PER HO'R FOR PACKING, HANDLING, AND LOADING 10-POUND
BAGS OF POTATOES BY METHOD B
Variable Costs Fixed Costs
Cost Replace- Annual
Item per Item ment Fixed
Hour Cost Costa
dollars -dollars- -
Output of 120 Hundredweights per Hour
Labor: 14-man crew 14.0000 Supply belt
aecTricity: 4-j horsepower 0.1350 (24" x 20') 683 90
Repairs: 0.4901 Packing machines (3) 4800 792
TOTAL PER HOUR 14.6251 Open-bag conveyor(l) 884 116
Sewing machine (1) 1400 184
Conveyor system 2034 268
AVERAGE per hundredweight 0.1219 TOTAL 9801 1450
Output of 160 Hundredweights per Hour
Labor 19-man crew 19.0000 Supply belts
Electricity: 7- horsepower 0.2250 (2-24" x 15') 1112 146
Repairs: 0.7572 Packing machines (4) 6400 1056
TOTAL PER HOUR 19.9822 Open-bag conveyors
(2-14') 1442 190
Sewing machines (2) 2800 369
Conveyor system 3390 446
AVERAGE per hundredweight 0.1249 TOTAL 15144 2207
aFor computation of annual fixed costs, see Appendix Table 2.
TABLE 4.--ESTIMATED TOTAL COSTS AND COST PER HUNDREDWEIGHT FOR LABOR AND
EQUIPMENT FOR SELECTED OUTPUT PER HOUR AND VOLUMES OF 10-POUND BAGS PER
SEASON BY i'THOD B
Season Costs
Volume Packed Costs per
per Season Fixed Variable Total Hundredweight
hundredweights - -dollars- cents
Output of 120 Hundredweights per Hour
2,500 1450 305 1755 70.20
5,000 1450 610 2060 41e20
10,000 1450 1219 2669 26.69
15,000 1450 1828 3278 21.85
20,000 1450 2438 3888 19.44
25,000 1450 3048 4498 17.99
30,000 1450 3657 5107 17.02
35,000 1450 4266 5716 16.33
Output of 160 Hundredweights per Hour
2,500 2207 312 2519 100.76
5,000 2207 624 2831 56.62
10,000 2207 1249 3456 34.56
15,000 2207 .1874 4081 27.21
20,000 2207 2498 4705 23.52
25,000 2207 3122 5329 21.32
30,000 2207 3747 5954 19.85
35,000 2207 4372 6579 18.80
Method C
Method C employs a bagging machine which is commonly called a "roll-
around table." The machine gets its name from two conveyor belts moving in
opposite directions. Bagging stations are located along the side of the belts.
Metal bars placed across the belt keep the potatoes in a position to pass into
the bagging stations. Those potatoes which do not pass through a bagging
station as they move the entire length of one belt are pushed by shunts to the
other belt where they move past the bagging stations along that belt. Shunts
are provided at each end of the machine. It is possible, although unlikely,
for a potato to make several trips around the machine.
Each bagging station consists of a hopper (like the one employed in
Method B) into which the potatoes fall. The hopper is mounted on a scale which
weighs the hopper and its contents continuously. When the hopper contains a
specified weight, the scale closes a door at the side of the table preventing
further filling of the hopper. The operator can then observe the scale setting
to determine whether potatoes should be removed or added. When the operator is
satisfied that the weight is correct, the potatoes in the hopper are dumped
into a bag. The bag is then set on an open-bag conveyor for handling, sewing,
and loading, as in the other methods.
Costs.--Costs are shown for this method for three rates of output per
hour--120, 160, and 200 hundredweights. For the 120-hundredweights-per-hour
output rate, the crew organization is as follows:
Job: Number of Workers:
Supply empty bags 1
Fill bags 6
Close bags 2
Sew 2
Handle packed bags on conveyor 1
Load packed bags in truck or car 3
TOTAL 1
The crew assignment for 160 rate differs as follows: Two additional workers
are required in filling and 1 in loading, or 3 more workers for a total of 18.
For the 200 rate, 2 additional workers are required only in filling, for a
total of 20 workers.
The estimated fixed and variable costs for Method C are shown in
Table 5. For the 120 rate, the 15-man crew results in a labor cost of'$15
per hour. Electricity is 16.5 cents and repairs, nearly 50 cents per hour,
which totals $15.66 per hour or an average of $0.1305 per hundredweight packed.
Total fixed costs for this rate of output are $1419 of which the most important
is the packing table. However, the packing table accounts for somewhat less
than half of the total, unlike Methods A and B.
An 18-man crew is required to pack 160 hundredweights per hour, which
results in labor costs of $18 per hour. The electricity cost is unchanged but
repairs, at 55 cents, are higher because of the increased cost of equipment.
This gives total variable costs of $18.72 per hour or an average of $0.1170
per hundredweight packed. The total fixed costs for this output rate are
$1581 of which the bagging machine accounts for about 40 percent.
A 20-man crew is required to pack 200 hundredweights per hour, or a
labor cost of $20 per hour. Electricity is the same as for the 120 rate but
the variable repair cost is increased to almost 60 cents. This results in
average variable costs per hundredweight packed of $0.1038. This method has
the lowest variable costs computed at any rate of output. The fixed costs for
this rate of output are $1736, of which the bagging machine accounts for
about 40 percent.
The estimated total season costs and the average costs per hundred-
weight for selected volumes packed per season are shown in Table 6.
TABLE 5. -ESTIMATED VARIABLE AND FIXED COSTS FOR LABOR AND EQUIPMENT AT
SELECTED OUTPUTS PER HOUR FOR PACKING, HANDLING, AND LOADING 10-POUND
BAGS OF POTATOES BY METHOD C
Variable Costs Fixed Costs
Cost Replace- Annual
Item per Item ment Fixed
Hour Costs Costa
dollars
Output of
- -dollars- -
120 Hundredweights per Hour
Labor: 15-man crew
Electricity: 5-1- horsepower
Repairs:
TOTAL PER HOUR
AVERAGE per hundredweight
15.0000
0.1650
0.4977
15.6627
Potato supply belt
Return flow belt pack-
ing table
Open-bag conveyor
(2-14')
Sewing machines (2)
Conveyor system
0.1305 TOTAL
429 57
3249 536
1442 190
2800 368
2034 268
9954 1419
Output of 160 Hundredweights per Hour
Labor: 18-man crew
Electricity: 5- horsepower
Repairs:
TOTAL PER HOUR
AVERAGE per hundredweight
18.0000 Potato supply belt
0.1650 Return flow belt pack-
0.5500 ing table
18.7150 Open-bag conveyor
(2-17')
Sewing machines (2)
Conveyor system
0.1170 TOTAL
429
3969 655
1768 233
2800 368
2034 268
11000 1581
Output of 200 Hundredweights per Hour
labor: 20-man crew
Electricity: 5-12 horsepower
Repairs:
TOTAL PER HOUR
AVERAGE per hundredweight
20.0000
0.1650
0.5982
20.7632
Potato supply belt
Return flow belt pack-
ing table
Open-bag conveyor
(2-20')
Sewing machines (2)
Conveyor system
0.1038 TOTAL
429
4808 793
2841 249
2800 369
2034 268
12912 1736
aFor computation of annual fixed costs, see Appendix Table 2.
-
TABLE 6.--ESTIMATED TOTAL COSTS AND COST PER HUNDREDWEIGHT FOR LABOR AND
EQUIPMENT FOR SELECTED OUTPUTS PER HOUR AND VOLUMES OF 10-POUND BAGS
PER SEASON BT METHOD C
Output of 120 Hundredweights per Hour
1419 326 1745
1419 652 2071
1419 1305 2724
1419 1958 3377
1419 2610 4029
1.l19 3262 4681
1419 3915 5334
1419 4568 5987
Output of 160 Hundredweights per Hour
1581 292 1873
1581 585 2166
1581 1170 2751
1581 1755 3336
1581 2340 3921
1581 2925 4506
1581 3510 5091
1581 4095 5676
Output of 200 Hundredweights per Hour
1736
1736
1736
1736
1736
1736
1736
1736
259
519
1038
1557
2076
2595
3114
3633
69.80
41.42
27.24
22.51
20.11
18.72
17.78
17.11
74.92
43.32
27.51
22.24
19.60
18.02
16.97
16.22
79.80
45.10
27.74
21.95
19.06
17.32
16.17
15.34
1995
2255
2774
3293
3812
4331
4850
5369
2,500
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2,500
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2,500
5,000
10,000
15,000
20,000
25,000
30,000
35,000
- -- ---------
Method D
This method consists of a simple one-directional belt with filling
stations along one side. As the potatoes move along the belt, they are pushed
to the bagging stations by metal shunts. A worker, located at each station,
presses a pedal which starts the conveyor that moves the potatoes into a bag.
When the worker estimates that the bag contains the specified weight, he stops
the conveyor and sets the filled bag on a scale. Another worker checks the
weight, adding or removing potatoes as required. Next, this worker sets the
bag on the open-bag conveyor for sewing, handling, and loading as in other
systems.
This system generally works best if provision is made at the end of the
conveyor which moves the potatoes to the bagging machine to handle any overflow
of potatoes not placed in 10-pound bags. This may by done by diverting the
potatoes back to the regular equipment for bagging in regular bags for ship-
ment af put in temporary storage until they can be dumped back on the 10-pound
belt.
Costs.--The crew organization for packing 10-pound bags of potatoes
using Method D is as follows:
Job: Number of Workers:
Supply empty bags 1
Fill bags 5
Weigh
Close bags and sew 3
Handle packed bags on conveyor 1
Load packed bags in truck or car 3
TOTAL 1i
This crew organization is capable of packing 127.5 hundredweights.per hour.
The estimated fixed and variable costs of labor and equipment for
handling 10-pound bags of potatoes by Method D are given in Table 7. The
18-man crew results in labor costs of $18 per hour. The low horsepower
requirements in this method result in a low electricity cost of 12 cents
per hour. The variable repair costs also are lower--about 29 cents--because
of the low replacement costs of $5760. This resulted in average variable
costs per hundredweight of $O.1444. The total fixed costs for this method
are the lowest for any of the methods studied--$759. The bagging equipment
is a minor item in the fixed costs for this method. The conveyor system is
the largest item, accounting for about one-third of the total fixed cost.
TABLE 7.--ESTIMATED VARIABLE AND FIXED COSTS FOR LABOR AND EQUIPMENT FOR
PACKING, HANDLING, AND LOADING 10-POUND BAGS OF POTATOES BY METHOD D
Variable Costs Fixed Costs
Cost Replace- Annual
Item per Item ment Fixed
Hour Cost Costa
dollars --dollars- -
Labor: 18-man crew 18.0000 Supply belt (24"x101) 429 57
Electricity: 4 horsepower 0.1200 Fill belt with gates 950 125
Repairs: 0.2880 Open-bag conveyor(1-20') 947 125
TOTAL PER HOUR 16.4080 Sewing machine (1) 1400 184
Conveyor system 203h 263
AVERAGE per hundredweightb O.ll44 TOTAL 5760 759
aFor computation of annual fixed costs, see Appendix Table 2.
bbutput of 127.5 hundredweights per hour.
The estimated total season costs and the average costs per hundred-
weight for selected volumes packed per season are shown in Table 8.
TABLE 8.--ESTIMATED TOTAL COSTS AND COST PER HUNDREDWEIGHT FOR LABOR AND
EQUIPMENT FOR SELECTED VOLUMES OF 10-POUND BAGS PER SEASON BY METHOD Da
Season Costs
Volume Packed Costs per
per Season Fixed Variable Total Hundredweight
hundredweights -- --dollars- - cents
2,500 857 362 1219 L8.76
5,000 857 724 1581 31.62
10,000 857 1447 2304 23.04
15,000 857 2170 3027 20.18
20,000 857 2894 3751 18.76
25,000 857 3618 h475 17.90
30,000 857 4341 5198 17.33
35,000 857 5064 5921 16.92
aOutput of 127.5 hundredweights per hour.
Total Costs for All Methods
A comparison of the estimated total costs per season for the four
methods at selected volumes and output per hour is shown in Figure 1. Costs
for Method B are those for an output of 120 hundredweights per hour; data for
Method C are for an output of 200 hundredweights per hour. Costs would be
lowest for Method D for the lower volume range. This is to be expected in
view of the fact that fixed costs are lowest for this method. At a season
volume of 5,000 hundredweights, Method D would be nearly $500 lower than Method B
and $700 less than Method C. At 10,000 hundredweights per season, Method D
would be about $365 cheaper than Method B. It is at a volume of about 21,000
Method A--127.5 cwt. per hour
/- Method B--120 cwt. per hour
Method C--200 cwt. per hour
Method D--127.5 cwt. per hour
t 9 I I
5,000 10,000 15,000 20,000 25,000
Season Volume hundredweightss)
30,000 35,000
Fig. 1.--Total costs for packing potatoes in 10-pound bags
according to method of packing in Florida and Alabama, 1959.
60r
0
ct, 30
0
M
20
f 7 ..,
C
B
D i/
10 1-
hundredweights per season that the costs for Method C would be equal to those
for Method D. Beyond this point costs would be lower for Method C.
A comparison of average costs per hundredweight for all methods for
output rates and seasonal volumes similar to those above are presented in
Figure 2. The per unit costs for Methods A and B would be above one or both
of the other methods at all season volumes for which data are shown. The
variable costs for Method A are relatively low but, since fixed costs are high
and one other method has lower variable costs, there is no point at which the
costs for Method A would be the lowest. Per unit costs would be lowest for
Method D until seasonal volume exceeded about 26,000 hundredweights.
In addition to costs, there are certainly other considerations which
might affect the decision on what system to select. One of these is the
investment required. A firm, which is uncertain about its plans or the future
of small containers, might prefer a system which would require the smallest
investment in facilities for packing. Method D is in a class by itself in
this respect. Each of the others requires a much larger investment ranging
from nearly two to about three times greater. The investment required for
Method A would be the highest for all methods except for the 160 hundredweights
output for Method B.
The number of people required to operate a system is another consider-
ation in selection. To operate Method D would require 5 more people than the
number needed to operate Method A. The largest number of people would be
needed to operate Method C at the 200 hundredweights output per hour. However,
at this rate, this method is the most efficient in the use of labor in terms
of output per man. At the 200 hundredweights perhour, the output per man hour
is 10 compared to only 7.1 hundredweights for Method D at a rate of packing of
127.5 hundredweights per hour.
BCA
50o D
i .......... Method A--127.5 cwt. per hour
S\ -- Method B--120 cwt. per hour
Method C--200 cwt. per hour
,40 ..-...- Method D--127.5 cwt. per hour
U)
0 \ P
30
Cro
0 20 -
10 -
0
0- $
5,000 10,000 15,000 20,000 25,000 30,000 35,000
Season Volume hundredweightss)
Fig. 2.--Average costs for packing potatoes in 10-poua~. bags
according to method of packing in Florida and Alabama, 1959.
A third consideration in selecting a system is the flexibility of its
operation. How easy is it to change the way the system operates in relation
to the other operations in the packinghouse? In this respect, there is little
basis for choice between methods. All are relatively inflexible in a packing-
house. It is difficult or impossible to change the size of crew used. The
only method which permits any marked degree of flexibility is B for Thich the
number of machines can be varied. A firm may be able to use one Method C
machine with an output of about 40 hundredweights perhour. At this output,
however, it would be difficult to perform the other jobs efficiently. For the
other methods, problems in low output operation would be more acute.
A fourth consideration in choosing between the various methods is the
adaptability of the equipment to being moved from one packinghouse to another
or from one area to another. The machines have a variable suitability for
this. The Method A machines are frequently moved great distances for use in
different areas. Two factors contribute to this, First, the machine, while
large, is a compact unit and, as such, may be readily loaded. Second, its
initial cost is large and increasing its use in this way materially reduces
the fixed costs per unit of output. The Method B machine could likewise be
transported. In Methods C and D, moving is less feasible.
COMPARISON OF COSTS FOR 10- AND 100-POUND BAGS
Shippers have a problem of establishing a price differential between
containers of different sizes. In the Hastings area, the base price is stated
for 100-pound bags and price of the other sizes--50- and 10-pound--is some
differential from the 100 price. The price relationship between 100- and 50-
pound bags is well established because the 50-pound bag has been used exten-
sively for a long while. The 10-pound bag is used for a smaller volume of
potatoes and has been is use for a shorter period of time. Therefore, the
price differential between 100- and 10-pound bags is less well established.
There may be several bases on which the amount of the price differe.n-
tial could be determined. It is likely, however, that both buyers and sellers
prefer to use a differential which reflects the difference in costs for packn.l
each container, although the exact cost difference is difficult to compute.
Many of the cost items can be estimated. The more important of these are
materials (primarily bags), labor and equipment, and the value of the extra
potatoes in 10-pound bags. These costs will be discussed subsequently. Other
cost items are difficult or impossible to determine. Among these are the cost
of maintaining extra labor for packing 10-pound bags and the risk inherent in
investing in 10-pound equipment.
iMaterials
The difference in costs of materials between 100- and 10-pound ba.s
lies primarily in the cost of the bag itself, but also in the cost of the
bag-closing material--twine or string. In the Hastings area for the 1959
packing season, a 100-pound bag cost about 1.6 cents and twine for closing the
bag about O.h cents, or a total cost of 15.0 cents per 100-pound bag. Ten-
pound bags cost about 39.8 cents for 10 and the sewing twine about 0.2 cents
or a total of 40 cents for ten 10-pound bags. The above prices were for the
most commonly used materials and also include an allowance for wastage.
Labor and Equipment
A recent study showed the cost for labor for handling 100-pound bags
from bagging to loading in the Hastings area to be about 6.5 cents per bag.2
This was for labor to bag, weigh, sew, hand truck or handle on conveyor, and
load. It did not include any costs for equipment. The equipment costs for
this operation were estimated to average about 0.6 cents per bag. The cost of
labor and equipment for packing 100-pound bags is about 7.1 cents per hundred-
weight.
The estimated average costs per hundredweight for packing
as determined in this study for specified annual volumes would be
Annual Volume (cwt.) Average Cost (cents
2,500 48.8
5,000 31.6
10,000 23.0
20,000 18.8
30,000 16.2
40,000 14-.7
50,000 13.9
These costs are averages for the low-cost method at the specified
2,500 to 20,000 the costs are for Method D and beyond 20,000, for
the 200-hundredweights-per-hour rate of output.
10-pound bags
as follows:
per cwt.)
volume. For
Method C at
Extra Potatoes
Packers follow a practice of placing an extra weight of potatoes in
packed bags. This is in accord with long-accepted practice in the fruit and
2"Packing Costs and Grading Efficiency in Florida and Alabama Potato
Packinghouses," Florida Agricultural Experiment Station, Department of Agri-
cultural Economics Mimeo Report 59-7, December, 1958, by George L. Capel,
R. E. L. Greene, and L. J. Kushman.
I
vegetable industry. The main justification for adding extra weight is that,
after harvest, the products lose weight in the form of moisture. New potatoes
are particularly susceptable to a loss of moisture. For this reason, 100-pound
bags in the Hastings area are customarily packed to weigh 103 pounds each. The
bag weighs about 0.6 pound, leaving 2.4 pounds of extra potatoes per bag. In
the Alabama area, 100-pound bags are packed slightly heavier.
In packing potatoes a larger percentage of extra potatoes is packed in
small than in large containers. This is necessary for two reasons. First,
since loss in weight is variablewith a given percent of extra weight, the
chance of being underweight is greater than with larger containers. Second,
as containers get smaller, one additional potato constitutes a larger percentage
of the total. This factor is especially important in the case of 10-pound bags.
In many crops of potatoes in the Southeast, a large portion weigh more than
one-half pound. This fact alone requires that the limit for 10's be set well
over 10 pounds. In practice, the scales are set at 11 pounds, or 110 pounds
per hundredweight. Allowing 1.4 pounds for the weight of the bags, this leaves
108.6 pounds as the net weight of the potatoes. Comparing this amount with the
102.4 net pounds in the 100-pound bags indicates that the extra weight of
potatoes in 10-pound bags is approximately 6.2 pounds per hundredweight.
Recent experience has shown that the value of potatoes at the shipping
point varies from 2 to 6 cents per pound. However, new potatoes are not
normally packed in 10-pound bags at the high price ranges. If one takes a
price of 3 cents, the value of the extra potatoes is 18.6 cents. However, the
value can be as low as 12.4 cents or as high as 37.2 cents.
Total Costs for Materials, Labor and Equipment,
and Extra Potatoes
Estimated totals for the three items of cost for packing 100- and 10-
pound bags in the Hastings area are shown in Table 9. The total for 100-pound
bags is 22.1 cents per bag. Using a value of 18.6 cents for the extra potatoes
placed in ten 10-pound bags, the extra costs for packing 10's would range from
50.4 cents for a high volume (50,000 hundredweights) to 85.3 cents for a low
volume (2,500 hundredweights). This difference would vary depending on the
market value of the extra potatoes. If the upper limit--37.2 cents--prevailed,
the difference at 5,000 hundredweights packed would be 84.7 cents. The differ-
ence would also be greater if a method other than the lowest cost was used in
packing the potatoes. If Method A was used and only 5,000 hundredweights were
packed, the difference in cost would be 89.9 cents instead of 68.1 cents.
TABLE 9.--CGMPARISON OF COSTS PER HUNDREDWEIGHT FOR PACKING 100- AND 10-POUND
BAGS IN THE HASTINGS, FLORIDA AREA
100- 10-pound Bags for Annual Volume hundredweightss) of:
Item pound
Bag 2,500 5,000 10,000 20,000 30,000 40,000 50,000
-- - -.. -cents per hundredweight- - - -
Materials 15.0 40.0 40.0 40.0 40.0 40.0 40.0 40.0
Labor and
equipment 7.1 48.8 31.6 23.0 18.8 16.2 14.7 13.9
Extra potatoes .... 18.6 18.6 18.6 18.6 18.6 18.6 18.6
TOTAL 22.1 107.4 90.2 81.6 77.4 74.8 73.3 72.5
Amount 10-pound
higher than
100-pound cost .... 85.3 68.1 59.5 55.3 52.7 51.2 50.4
The difference in costs for packing 100- and 10-pound bags in the
Alabama area would be about 5 cents less per hundredweight at each annual volume,
because of higher costs for handling 100-pound bags.
Other Cost Considerations
As mentioned earlier, there are other considerations in packing 10-pound
bags which affect costs. Therefore, the data presented should be considered as
the minimum differences that exist for the items that can be computed. The
cost disadvantage for the other factors must be estimated by packing firm
management and added to these to get a true estimate of total costs.
Most firms which occasionally pack 10-pound bags employ more workers
than are needed for packing larger containers alone. Frequently, the additional
workers are assigned to the grading table except when needed in the 10-pound
operation. Many of the workers in the 10-pound crew are shifted from the 50-
and 100-pound bagging stations. It should be theoretically possible to achieve
a balance in the crew which would permit a given group of workers for regular
bags to be reassigned to the 10-pound operation such that each crew would be
optimum. In practice, this is difficult, The packinghouse manager would have
to reassign personnel for nearly every job in the house because output is
reduced. Another impediment is the fixed nature of some of the jobs. For
example, even at reduced rates of output, someone must be assigned to handle
B-size potatoes or creamers. In such jobs, a reduction in the number of
workers is frequently impossible as only one worker is assigned. The reduced
rate of output results in a loss of efficiency in the performance.
Firms which can pack a relatively high output of 100- or 50-pound bags
do not wish to reduce their output when packing 10-pound bags. This problem is
usually met by diverting only a portion of the output to 10-pound bags. A
reduced crew continues to pack 100- or 50-pound bags. In this case considerable
reassignment is required. This temporary reassignment often results in a less
efficiently organized crew to continue handling the output of 100- or 50-pound
bags.
The cost of extra workers, if any, and any loss of efficiency was not
included in the costs computed in this study because of the variable success
of firms in avoiding them. The exact magnitude of these costs is difficult to
estimate. Packinghouse managers may be able to adjust the size of their crews
from day to day, adding or dropping workers as expectations on the packout for
the day change. Therefore, the cost of unneeded labor is likely to be incurred
only on selected days when the workers are employed.
A final consideration in considering the possible extra costs incurred
in packing 10-pound bags is the risk involved in making the investment in
facilities for a 10-pound operation. It may be argued that there is a risk in
investing in equipment for any kind of packing (i.e., 100-pound bags). Howe-Ter,
it must be recognized that the risk of discontinued use is not the same for all
types of containers. From the history of 10-pound bagging in the Southeast,
it must be concluded that the risk to the firm that an investment in 10-pound
equipment will become useless is greater than in 100-pound equipment. If this
is true, then there is a differential in costs for risk between the two con-
tainers. Likewise, there might be a greater risk or physical loss of the
potatoes when they are packed in 10-pound bags, because of difference in
handling methods, or the characteristics of the container itself. Even if
the possibility of physical losses is no greater, the cost of rectifying the
losses which do occur is likely to be larger for 10-pound bags because of the
necessity of repacking.
APPENDIX
APPENDIX TABLE 1.--HOURLY PRODUCTION STANDARDS IN HUNDREDWEIGHTS FOR THE
VARIOUS JOBS IN PACKING AND HANDLING 10-POUND BAGS
Job Hundredweights per Hour
Feed, operate and check, Method A 45.6
Feed bags, Method A 74.5
Fill bags, Methods B and C 20.1
F.ll bags, Method D 25.4
Weigh bags, Method D 28.2
Close bags and feed sewer 45.0
Close bags only 86.4
Sew only 93.8
Handle on conveyor 131.1
Load 43.9
Supply bags, all methods 154.4
-- -
APPENDIX TABLE 2.--CCMPUTATION OF FIXED COSTS FOR 10-POUND PACKING EQUIPMENT
Annual Charge
Esti- Annual for Taxes, Total
Replace- mated Depreci- Insurance, Annual
Item ment Service ation Interest, and Fixed
Cost Life Costs Fixed Repairsa Cost
dollars years - --dollars- - -
Method A machine 9,250 10 925.00 601.25 1,526.25
Method B machine 1,600 10 160.00 104.00 264.00
Method C machine
(6 stations) 3,249 10 324.90 211.19 536.09
Method C machine
(8 stations) 3,969 10 396.90 257.99 654189
Method C machine
(10 stations) 4,808 10 480.80 312.52 793,32
Method D filling belt 950 15 63.33 61.75 125$.0
Supply belt (24" x 10') 429 15 28.60 27.89 56,"9
Supply belt (24" x 15') 556 15 37.07 36.14 73'.21
Supply belt (24" x 20') 683 15 45.53 44.40 89.93
Open-bag conveyor (14') 721 15 48.07 46.87 94o"9
Open-bag conveyor (17') 884 15 58.93 57.46 116.39
Open-bag conveyor (20') 947 15 63.13 61.56 124.69
Sewing machine 1,00 15 93.33 91.00 184.33
Conveyor (12" x 20') 678 15 45.20 44.07 89.27
Separate scales 150 15 10.00 9.75 19.75
aMade up of taxes, 1 percent; insurance, 1
and fixed repairs, 1.5 percent.
percent; interest, 3 percent;
GLC/bh 11/30/59
Ag. Exp. Sta. Ag. Econ.
1,000 copies
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