Brian Whipker, Regional Extension Specialist
Commercial Floral and Vegetable Crops,
Department of Horticulture, Purdue University. West Lafayette.
IN
Profitable production of garden mums is dependent on the knowledge and control of production costs. With the knowledge of production costs, growers may be prepared to make production decisions on the optimal number of plants to produce and to help establish prices. This study presents surveyed costs - variable and fixed costs, marketing expenses, profit-margin analysis - of the production of garden mums. These figures will be useful to current growers who wish to evaluate their own expenses and for potential growers to determine if they wish to begin garden mum production.
The Typical Operation
Information for this study was gathered from a group
of growers who produced 6,000 to 20,000 plants and were willing to share
their financial information. Costs are calculated based on the 1990 growing
year. An average or "typical" operation was created from these figures
as follows:
-- 8,200 rooted cuttings are planted into containers and placed in the
growing area.
-- an automatic watering system is provided for the plants.
-- 289 hours of labor are required during the growing season. 71% is
provided by the owner at a cost of $ 8.00 per hour; remaining labor is
at $4.00 per hour.
-- Social Security was calculated at a rate of 7.65% for the owner
and hired labor.
-- all plants were sold wholesale, with 75% of the plants delivered
in shipments of 225 plants.
-- taxes, insurance, utilities and debt on investment were calculated
by averaging the surveyed growers' costs.
Structuring the Costs
Production expenses are divided into two categories
- variable and fixed. Variable costs (container, plant, hired labor, fertilizer,
pesticides) are incurred only if production occurs. Fixed costs (taxes,
interest on investment, ownership costs of machinery and facilities) must
be paid whether or not a crop is produced.
Variable Costs
For the typical operation, variable costs were divided
into three categories; Direct Items (pot, plant, etc.). Labor and Interest
(see Table 1). Direct Items totaled $0.72 per plant. The cutting, pot and
growing medium were the largest components, $0.66 or 91%. Overall, the
Direct Items represent 51% of the total cost of producing garden mums.
The labor required for garden mum production, 289 hours, added $0.24 per pot or 17% of the production costs. Interest on the direct items is a charge for the use of capital to pay these expenses instead of depositing the capital in the bank and drawing interest. It was calculated at 10% interest and was $0.02 per pot.
Fixed Costs
Fixed costs were identified as Annual Depreciation,
Interest on Capital Equipment, Repairs on Capital Equipment and Overhead
Operation Costs. The calculations for the Annual Depreciation are listed
in Table 2. Each item was allocated a use percentage, based on the time
that the item was used for the garden mums compared to the total annual
usage. The Interest and Repairs on Capital Equipment and Overhead Operation
Costs amount to $0.17 per pot and are listed in Table 3.
Marketing Costs
Marketing costs are a variable cost based on the
preparation and delivery of the plants (Table 4). It was assumed that 75%
of the plants were delivered in loads of 250 plants. Expenses included
4 hours of labor ($8.00 per hour) and 10 gallons of gasoline ($1.00 per
gallon). Marketing costs were nearly $0.17 per pot or 12% of the production
costs.
Total Costs and Returns
Total costs for garden mum production in containers
and marketing added to $1.42 per pot, Table 4. Based on a typical wholesale
price of $2.25 per pot, the gross revenue for 8,200 plants would be $18,450.
with a net profit of $7,120. Net profit would be $0.83 per pot for a delivered
plant and $0.99 for a non-delivered pot.
Profit per pot was based on variations in the number of plants delivered and prices (Table 5). The net profit margin analysis for garden mums is presented in Table 6. Based on a price of $2.25 per pot, delivered plants had a profit margin of 36.8% and non-delivered plants had 44.2% profit margin.
Conclusions
Garden mums offer the potential of a profitable
summer crop. Market outlets should be secured prior to the decision to
produce the crop. Growers should be aware that the costs presented here
are based on an average of a number of garden mum growers. Your costs may
vary significantly, depending on the number of plants you produce, the
availability of labor and equipment and the grower's management ability.
Table 1. Variable Costs for Pot Grown Garden Chrysanthemums.
| ITEM | AMOUNT | TYPE |
|
TOTAL COST |
|
| DIRECT ITEMS | |||||
| Number of Plants | 8200 | ||||
| Direct Items | |||||
| Cutting | 8200 | Rooted Cuttings | $0.25 | $2,050.00 | $0.2500 |
| Soil (bags) | 81 | 5.5 cubic ft | $16.00 | $1,296.00 | $0.1580 |
| Pot | 8200 | 8' pot | $0.25 | $2,050.00 | $0.2500 |
| Fertilizer (#) | 126 | 20-10-20 | $0.63 | $79.38 | $0.0097 |
| Fertilizer | 55 | pound Osmocote | $1.00 | $54.73 | $0.0067 |
| Fertilizer | 264 | pound CaNO3 | $0.14 | $35.90 | $0.0044 |
| Fertilizer | 106 | pound KNO3 | $0.28 | $29.89 | $0.0036 |
| Acid | 4.5 | gal Phosphoric | $5.80 | $26.10 | $0.0032 |
| Insecticide | 2.3 | pound Dipel | $15.25 | $35.08 | $0.0043 |
| Insecticide | 16 | oz. Avid | $5.66 | $90.56 | $0.0110 |
| Insecticide | 10 | pounds Orthene | $11.50 | $115.00 | $0.0140 |
| Fungicide | 2 | oz. Subdue | $1.54 | $3.08 | $0.0004 |
| Fungicide | 8 | pounds Captan | $2.41 | $19.28 | $0.0024 |
| Growth Retardant | 98 | tspns B-Nine | $0.35 | $34.30 | $0.0042 |
| Subtotal | $5,919.30 | $0.7219 | |||
| LABOR | |||||
| Transplant in pot | 26.4 | Hours | $4.00 | $105.60 | $0.0129 |
| " | 26.4 | Hours | $8.00 | $211.20 | $0.0258 |
| Fill Pots | 8.28 | Hours | $4.00 | $33.12 | $0.0040 |
| " | 8.28 | Hours | $8.00 | $66.24 | $0.0081 |
| Fert./Water/Care | 87.5 | Hours | $8.00 | $700.00 | $0.0854 |
| Osmocote App. | 4.1 | Hours | $4.00 | $16.40 | $0.0020 |
| Pinching #1 | 4.1 | Hours | $8.00 | $32.80 | $0.0040 |
| Pinching #2 | 20.6 | Hours | $8.00 | $164.80 | $0.0201 |
| Apply Insecticides | 8.8 | Hours | $8.00 | $70.40 | $0.0086 |
| Apply Fungicide | 4.1 | Hours | $8.00 | $32.80 | $0.0040 |
| Growth Retardant | 2.7 | Hours | $8.00 | $21.60 | $0.0026 |
| Irr/Cloth Set-up | 44 | Hours | $4.00 | $176.00 | $0.0215 |
| " | 44 | Hours | $8.00 | $352.00 | $0.0429 |
| Subtotal | $1,982.96 | $0.2418 | |||
| Subtotal (Direct Items & Labor) | $7,902.26 | $0.9637 | |||
| Interest on Direct Expenses
($7,902.26 ' 10% interest ' .25 years) |
$197.56 | $0.0241 | |||
| TOTAL VARIABLE EXPENSES | $8,099.81 | $0.9878 | |||
Table 2. Machinery and Equipment Costs for Pot Grown Garden Chrysanthemums.
| Item | Purchase Price | Salvage Value | Life | Percent Allocated to Mums 1/ | Average Value 2/ | Allocated Average Value 3/ | Total Annual Depreciation 4/ | Allocated Annual Depreciation 5/ | Cost per Pot |
| Landscape Cloth | $1,085 | $0 | 7 | 100% | $542.50 | $542.50 | $155.00 | $155.00 | $0.0189 |
| Watering
System |
$2,700 | $0 | 7 | 100% | $1,350.00 | $1,350.00 | $385.71 | $385.71 | $0.0470 |
| Fertilizer
Injector |
$965 | $0 | 10 | 12% | $482.50 | $57.90 | $96.50 | $11.58 | $0.0014 |
| Hydraulic
Sprayer |
$1,200 | $350 | 10 | 12% | $775.00 | $93.00 | $85.00 | $10.20 | $0.0012 |
| Delivery Truck (Aluminum-Used) | $6,000 | $2,000 | 10 | 30% | $4,000.00 | $1,200.00 | $400.00 | $120.00 | $0.0146 |
| Tractor (Used) | $10,000 | $5,000 | 10 | 20% | $7,500.00 | $1,500.00 | $500.00 | $100.00 | $0.0122 |
| Wagon (Used) | $300 | $100 | 10 | 50% | $200.00 | $100.00 | $20.00 | $10.00 | $0.0012 |
| TOTALS | $4,843.40 | $792.49 | $0.0966 | ||||||
1/ Percentage that equipment item is utilized for pot
chrysanthemum production.
2/ Calculated by adding the purchase price and salvage
value, then dividing by 2.
3/ Calculated by multiplying the Allocation Percentage
by the Average Value amount.
4/ Annual depreciation = (Purchase Price - Salvage Price),
then divided by item's life.
5/ Calculated by multiplying the Allocation Percentage
by the Total Annual Depreciation amount.
Table 3. Charges to Pot Garden Chrysanthemums.
| ITEM | TOTAL COST | COST PER POT |
| Interest on Capital Equipment ($4,843.22 @ 10%) x | $484.34 | $0.0591 |
| Repairs on Capital Equipment ($4,843.22 @ 3%) xy | $145.30 | $0.0177 |
| Overhead Operation Costs | ||
| Taxes | $160.00 | $0.0195 |
| Insurance | $183.27 | $0.0224 |
| Utilities: Telephone | $75.00 | $0.0091 |
| Utilities: Electricity | $75.00 | $0.0091 |
| Land (0.5 acre at $100 per acre) | $50.00 | $0.0061 |
| Social Security (3,032.56 @ 7.65%) (includes delivery labor) | $231.99 | $0.0283 |
| Total Overhead Costs | $775.26 | $0.0945 |
| Total Interest, Repair and Overhead Costs | $1,404.90 | $0.1714 |
| Total Variable Costs (from Table 1 ) | $8,099.81 | $0.9878 |
| Total Machinery Depreciation Costs (from Table 2) | $792.49 | $0.0966 |
| TOTAL PRODUCTION COSTS | $10,297.21 | $1.2559 |
x - The investments cited here are the average values
calculated in Table 2.
y - The 3 percent figure is the approximate annual repair
and maintenance expenses estimated from farm records.
Table 4. Marketing Expenses for Pot Garden Chrysanthemums.
| ITEM | TOTAL COST | COST PER POT |
| Total Production Costs (from Table 3) | $10,297.21 | $1.2559 |
| MARKETING EXPENSES - DELIVERED PLANTS | ||
| Delivery Cost (for 6.150 plants)(Labor & Gas) | $1,033.20 | $0.1680 |
| TOTAL COSTS (DELIVERED) | $11,330.41 | $1.4239 |
| REVENUE
WHOLESALE: Non-Delivered & Delivered 8,200 plants at $2.25 $18,450.00 |
||
| NET PROFIT | ||
| TOTAL NET PROFIT | $7,119.59 | |
| PER POT- NON-DELIVERED x | $0.9941 | |
| PER POT- DELIVERED x | $0.8261 | |
x - Due to rounding during addition. these per pot profits
may not equal the numbers presented in Table 5.
Table 5. Per Pot Profit Analysis Based on Varied Number of Plants
Delivered and Prices Received.
| Number of Plants Delivered | |||||
| Price
Received |
0
(0%) |
2050
(25%) |
4100
(50%) |
6150
(75%) |
8200
(100%) |
| $1.26 | $0.00 | ($0.04) | ($0.08) | ($0.12) | ($0.16) |
| $1.50 | $0.24 | $0.20 | $0.16 | $0.12 | $0.08 |
| $1.75 | $0.49 | $0.45 | $0.41 | $0.37 | $0.33 |
| $2.00 | $0.74 | $0.70 | $0.66 | $0.62 | $0.58 |
| $2.25 | $0.99 | $0.95 | $0.91 | $0.87 | $0.83 |
| $2.50 | $1.24 | $1.20 | $1.16 | $1.12 | $1.08 |
| $2.75 | $1.49 | $1.45 | $1.41 | $1.37 | $1.33 |
| $3.00 | $1.74 | $1.70 | $1.66 | $1.62 | $1.58 |
| $3.25 | $1.99 | $1.95 | $1.91 | $1.87 | $1.83 |
| $3.50 | $2.24 | $2.20 | $2.16 | $2.12 | $2.08 |
Table 6. Net Profit Margin Analysis for Garden Chrysanthemums.
| DESIRED NET
PROFIT MARGIN x |
REQUIRED PRICE PER POT | ||
| NON-DELIVERED | DELIVERED | ||
| 30% | $1.80 | $2.04 | |
| 35% | $1.93 | $2.19 | |
| ACTUAL | 36.8% | $2.25 | |
| 40% | $2.09 | $2.37 | |
| 41% | $2.13 | $2.41 | |
| ACTUAL | 44.2% | $2.25 | |
| 45% | $2.28 | ||
| 50% | $2.51 | ||
x - To be able to calculate the price to charge based on a desired profit margin. a profit margin multiplier is required. The cost of production is then multiplied times the multiplier to calculate the profit margin.
The formula for calculating the profit margin multiplier
is:
1
------------------------------
(1-desired profit margin)