THE DAIRY INDUSTRY.

Hawera Star, Volume XLVIII, 5 July 1924, Page 16

THE DAIRY INDUSTRY.

BUSINESS SIDE OF BUTTERAIAKING. ADDRESS BY MR. W J. F. DEAR. At the annual conference of tlie National Dairy Association, held at Auckland, Mr. \Y. J. F. Dear, secretary of the Kaipara Co-operative Dairy Company, delivered an address on “The Business Side of Butter Making.” Mr. Dear said the subject included the whole work entailed from the time the cream left the farm until the butter was sold and the final payment made to the supplier. At the outset he gave a brief sketch of the organisation of a co-operative dairy company, and said that personally he believed it could be improved with benefit to all concerned. Dealing with the question of administration, Mr. Dear said that, as the directors were to determine the policy of the company, the rates of advance payments, etc., it was imperative that they should have a full knowledge of the company’s position and working. Each director should have some days before each meeting, a statement of the company’s finanee for the month to be reviewed, showing receipts and expenditure in detail, with the balance “overdraft” or “funds” on the last day of the month; also a statement of the cream and butter-fat received of each grade; the butter made and its grade and disposal; and the over-run for the month. A written report' from .the manager, presented at the meeting, was also recommended. On the collection of cream Mr. Dear said no general rule could he applied to suit all cases. Each company by reason of its geographical position had its own methods and problems and all appeared to be in a somewhat experimental stage as vet.

Some companies ’paid all the charges for this work from the general fund; others had separate charges against separate districts and some subsidised runs. A fairly general rule appeared to be that suppliers were required to put their cream on a main road. "Whatever the system, the farmer must pay for it in the end, either bv direct charge or by increased working costs of his company, decreasing the fund available for payments for,butter-fat. MANUFACTURE OF BUTTER. Continuing, Mr. Dear said: The technical work inside the factory is the manager’s province. Its results may be judged by the grade notes and the running costs. As „a principle of business organisation tlie factory staff should be relieved of clerical work which can possibly be done in the office. But there are some records which must be kept by the factory staff; the quantity and grade of cream received, and the description and quantity of 'butter made. These two records form the basis of much of the office work. Costs of making I will deal with later.

The over-run is a subject which comes in for much discussion. In a paper dealing with the business of but-ter-making it cannot be left out altogether. Avoiding the technical aspects I may say that that is the factory’s working barometer. If it remains steady it may be taken as an indication that the work of weighing and sampling the cream, the testing, and the butter-making, are being done without waste and accurately; also that a fairly uniform moisture, content is being main, tained. A sudden fluctuation in the over-run is an indication of something wrong.

The bulk of our butter must he exported, and marketing costs are incurred the - moment the butter leaves the factory. Most of the subjects under this heading are at present being investigated by the Control Board and may therefore be left over for the present. Now for a few words on the annual report and balance-sheet. The form of the latter is usually fixed hv the articles of association, and the form given in the Companies Act is a very suitable one. except that it is preferable to show the share capital in full detail, authorised capital, allotted and paid up, separately. The manufacturing and profit and loss accounts should be published in as simple a form as possible, readily understandable by any supplier, as this is the object of their publication. The accounts must first he made up in the usual manner for the auditor, and should then be re-written. I have .found it a good method to start off with a statement of the butter made and sold, adding the stock on hand at a valuation, plus any other receipts, and total, thus accounting for the whole of the output and showing in one line the total of receipts from all sources. Follow this by the expenditure, commencing with cost of cream collection; next, the, various factory costs grouped together, such as wages, stores and boxes, and other item s directly under the control of the manager, showing the total; and last, what may be termed administrative charges, interest, directors’ fees, and other expenses not cermected with the factory working or tlie marketing. . The four totals; cream < collection, factory costs, marketing costs, and administrative charges are then added into one total tor deduction from the total receipts, the balance being the amount available for suppliers. As advances will have been made, those are next deducted, and the resultant balance is what is known as the “profit” for the year. The directors’ rorommendations regarding dividend and final payment mav then he added.

From this arrangement ir is possible to see at a glance the total cost ar the various stages, and it is a cornparatively simple matter to calculate the average amount per lb received tor the butter; the costs of cream collection manufacturing, marketing, and other charges, either at per lb oi butter-fat. or per !h, cut., or ton of butter made.

These costs may then be compared with those of former years, and the explanation of any increase- or -decrease in the rate per unit mav be sought for. A comparison may also usefully be made with the average of other companies, but some care is necessary in making any comparison between any two companies, as no two appear to be situated exactly alike. Rut in any case the arriving at accurate costs of running, year after year, is a very great assistance to any business. Ac■sounts must lie kept, and it is only a matter of arrangement to make this information readilv available.

The building up of a reserve fund is frequently discussed. If this means that a tend, is to be established by taking something from this year’s biitter-lat payment it lias little to com. mend it. It simply -amounts to keeping back payments duo to this season's suppliers for the benefit of some future suppliers. Rut a reserve fund may be gradually built, up from receipts other than those from the sale of butter and by-products. from forfeited sharecapital. for instance. A reserve is a very necessary fund in an ordinary business, and also in a co-operative trading concern, but the position of a co-operative dairy company is different Here the suppliers having found the necessary capital to build and ecmip the factory, may justly claim that after

all reasonable expenses and charges have been met,- the .balance- remaining be distributed pro rata, to butter-fat supplied. Strictly speaking, there is no “profit,” anything remaining over being merely undistributed receipts for the suppliers’ produce. Depreciation, too, i s a subject often discussed, and about which there appears to be a considerable misunderstanding I have seen in annual reports recommendations from directors that a stated sum he written off as depieciation, apparently leaving the share holders at the annual meeting to settle the question. The point to remember in connection with this subject is that the depreciation goes on whether it is provided for or not; the value dis appears just as surely as does the fuel burnt or the money paid in wages. Accountants have various methods of dealing with this subject, each one suitable to some particular case, j The one most applicable to a dairy companv is to keep a list of the items subject to depreciation, assess a “life” to - each, and calculate the annuaDcharge from that. This method. shows the value of each item at the end of each venr, which is useful in a case where plant has to he sold, and also ensures a steady depreciation charge year by year. STOCK RECORDS.

During the past few years some companies have got into difficulties by losing trace of a portion of their output at the end of their financial year. This should not- occur if a proper j stock record wore kept in addition to the usual hooks of accounts. Such a record need not he an elaborate one. It should show the daily output taken from the factory records, distinguishing the various brands, etc. a clailv record of sales; and a monthly summary of make, sales, shipments, etc. From this an annual summary may be made up in minutes, accounting for the whole of the season’s make.