LAS TICs POR PARTE DE LAS PYMES EN AMÉRICA DEL SUR
TIEMPO EN MESES
273
UNIT 5 PROJECT COST CONTROL
274
Variable Cost: They vary as output e.g. labour, raw materials, fertilizer, fertilizer, feed, depreciation, maintenance, repair cost, selling, administration, taxes, and interest payments on borrowed funds.
Total Cost: Total cost includes the fixed and variable costs including depreciation.
Depreciation is wears and tears of any fixed asset. The useful life or the lifespan is taken into consideration. The remaining aspect after the useful life is known as salvage value or junk value. Depreciation depends mainly on the intensity of use. Straight line method of depreciation is one of the methods used in project evaluation. For example, if the useful life is five years and cost of purchase is N5000.00.
Depreciation for each year is N5000.00 divided by 5 which is equal to N1000/year,i.e. N5000.00/5 = N1000/year.
3.2 Returns from the Project
These are benefits expected from a project. Most of these are products that the project yields. To achieve good returns, the following point has to be taken into consideration:
1. Types of production to be undertaken which may be in livestock, crop production, fishery etc.
2. Quality i.e. grade of the products e.g. small, medium, large.
3. Quantity available for sale
4. Quantity available for personal and home consumption 5. Time of marketing whether during festive periods 6. Price of the product.
3.3 Some Evaluation Concepts
Market Survey: This involves going round the town, outside the country or anywhere one can get prices of things to use in a project and consider the relative prices of other goods in the area. You notice the wages of labour and product prices as you move round. Labour cost is referred to as wages.
Concept of Man-day: This is the number of hours an average man works per day and it is usually considered to be eight hours. Many factors determine this e.g. age, stress, taking alcohol etc. In paying wages, woman and children output may be lower to that of an adult male so it is customary to take one hour work of a woman to be 0.66 of an adult male while the output of children is put as 0.50 of an adult male. It should be noted however, that women perform certain farm operation faster than men.
275
Price Rate: You pay workers according to their capacity to work, If 200 heaps cost N100.00 and a man makes 600 heaps/day, he get N100x3 which gives N300.00
Stock: Unused stocks should be valued at the current or prevailing market price; value of the remaining stock is got by multiplying the number by the unit price.
Point of first sale: All other things being equal, the best place to value the output of a project are at the point of first sale and it is the farm gate in agriculture.
Farm gate price: This is the price the farmer receives when he sells his produce at the boundary of his farm. Value is added when marketing and processing are carried out. The value added goes to labour and capital engaged in processing, marketing and selling. The farm gate price is also used to value home consumed production. In some cases, the farm gate price may be skewed especially when part of the price is taken off for development purposes. During the time of the marketing boards, the price the farmers was paid was well below the international market price of the commodities concerned (cocoa, coffee and groundnut). In this wise, the evaluator resorts to the use of the shadow price (opportunity cost).
Seasonal fluctuation: These affect prices of products and inputs so the best time to choose price to use for analysis is at the peak of the harvest season. Grades need to be taken into consideration and the best price is the average price of the various grades expected.
Inflation: Make contingency allowance for inflation and this is usually 10% of the total cost.
SELF-ASSESSMENT EXERCISE i. Give two examples of fixed cost.
ii. Give two examples of variable cost.
iii. Kindly, explain a concept of Man-day.
4.0 CONCLUSION
You have learnt about some key concepts of evaluations and costs and returns involved in projects.
276
5.0 SUMMARY
In this unit, you have learnt that total cost is divided into fixed and variable cost including depreciation. Moreover, depreciation is wears and tears of any fixed asset. The useful life or the lifespan is taken into consideration. The remaining aspect after the useful life is known as salvage value or junk value.
6.0 TUTOR-MARKED ASSIGNMENT
1. What is farm gate price?2. What do you understand by market survey?
7.0 REFERENCE/FURTHER READING
Nelson, A.G. & Murray, W.G.(1968). Agricultural Finance Iowa, U.S.A.: Iowa State University Press, Ames.
277