Cost Rate Charges for Horse Work

Abstract

The farm cost accountant is constantly confronted with the problem of prorating the several items of cost of farm operation to the-productiveenterprises in such a way that the resulting costs may serve as a basis for the selection and comparison of enterprises. The numerous items of joint cost as well as the complementary and supplementary relationships involved make the problem a complex and difficult one. For the sake of expediency purely arbitrary methods are often used even though the accountant fully realizes that at least theoretically, an error is involved in the method that may more or less obscure the relations that are being studied.Flat Rates for Horse Work-An example of an item of farm cost that must be prorated to the productive enterprises is the expense of maintaining the work horses. The expense for horse work is usually charged at a flat rate per hour. To determine this flat rate the total cost of maintaining the horses is divided by the total number of hours which they work. The rate is then multiplied by the number of hours of work chargeable to each enterprise in order to arrive at the total horse charge against that enterprise. Obviously such a method is open to criticism. Some crops require large amounts of horse work for a few days during the rush of the planting or harvest season. Extra horses may be kept throughout the year to handle these peak loads. Livestock, on the other hand may present a fairly uniform demand for horse work throughout the year or their heaviest demands may come during the winter when crops are not demanding attention.It may not be altogether fair to charge to all enterprises the cost of extra horses kept to handle the peak loads when certain enterprises contribute most largely to these peaks.As an example of the inequality that might result from the use of a "flat rate" let us consider a farm which could easily be operated by six horses during the entire year with the exception of a few weeks during wheat seeding and harvest. An extra team must be maintained throughout the year simply to have its services available for this peak demand of the wheat crop. Under the "flat rate" method of distributing horse costs all enterprises on the farm would bear part of the cost of this extra team, although they could have been maintained as well without it. As a matter of fact this extra team may have done work on other enterprises than the wheat crop during the year. Such use would merely be by way of substitution for the other six horses and (369) at Dalhousie University on June 21, 2015 http://ajae.oxfordjournals.org/ Downloaded from