 Spray drying costs in low-volume milk plantsLee Kolmer ISU General Staff Papers from Iowa State University, Department of Economics Abstract: Dairy plant managers and boards of directors who contemplate installation of a skimmilk spray drying system need reasonably accurate information on the cost-volume relationships involved in spray-drying processes if they are to make economic investments. The need for this information has increased recently because of changes in dry milk production and consumption patterns. These changes have resulted in an increased demand for non-fat dry milk solids for human food. The increased demand has been reflected in a higher price and increased production;Increased production has necessitated an increase in processing facilities. In many instances the decision to install drying facilities was made without adequate information about cost-volume relationships. This has resulted in inefficient resource allocation in some plants. The objective of this study is to provide information concerning the cost-volume relationships in low-volume spray-drying plants and thereby assist entrepreneurs in investment decisions. The study is based on a budget analysis of four plants with volumes of 938,200, 1,875,600, 2,817,000 and 3,767,500 pounds of powder produced per year. These volumes of powder production correspond to annual butter volumes in plants producing one, two, three and four 1800 pound churnings per day in the peak season. Several additional cost points were budgeted in order to obtain the minimum cost point for each of three equipment combinations. In this budget analysis the physical inputs required were determined and prices were attached to these physical inputs;The analysis indicates that as volume increases, up to a volume of 3,174,700 pounds of powder per year, unit costs decrease quite rapidly. Beyond this volume costs do not decrease appreciably as volume increases. The processing costs varied from 7.64 per hundredweight in a plant producing 938,200 pounds of powder per year to 5.08 per hundredweight in a plant producing 3,174,700 pounds per year. At a volume of 3,767,500 pounds of powder per year, a volume increase of 582,800 pounds per year, processing costs only decrease .04 per hundredweight. Therefore for all practical purposes the low cost point is achieved at a volume of 3,174,700 pounds per year. In addition to unit processing costs being reduced, the distribution of costs change as volume increases. The variable costs become relatively more important and the fixed costs relatively less important as volume increases;The findings of this analysis provide information which may be used as an aid in comparing the relative profitability of each alternative operation available to the plant. In addition to providing information for comparison of the relative profitability of several alternatives, the costs derived in this study provide cost data for producer payment under a "component" pricing plan;The general conclusions of this analysis indicate that: (1) Processing costs decrease as volume increases, within the range of this study. Processing costs decrease rather rapidly in the lower portion of the volume range, from 7.64 per hundredweight at a volume of 938,200 pounds per year to 5.08 per hundredweight at a volume of 3,174,700 pounds per year. Beyond this volume, however, costs do not decrease appreciably as volume increases. (2) Skimmilk drying equipment is not utilized most efficiently at volumes of 938,200, 1,875,600, and 2,817,600 pounds of powder produced per year. When volume exceeds three million pounds per year resources are used efficiently and the lowest processing costs are obtained. Date: 1954-01-01 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:isu:genstf:1954010108000013432 Access Statistics for this paper More papers in ISU General Staff Papers from Iowa State University, Department of Economics Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070. Contact information at EDIRC. |
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