Calculation features in the grain production process

The grain production is one of the main activities in the plant production process. The greatest share from the total agricultural produce is held by the grain production. It is also provides food to the Earth`s population – whether it could be for direct consumption of used as fodder. This makes the grain production one of the most important and crucial processes in the economy.

In their activity, the grain producers always seek financial results, which will allow them to function normally in the terms of the market economy. The most important factor, directly related to the financial results is the expenses. The information about the expenses and the quantity changes, in the form of different kinds of prime cost (real, standard, total, limited), is crucial for making management decisions.

In the new economic terms, the precise characterization of the production expenses and the prime cost calculation attain new meaning and content. [3, p.232] For the expense management in the grain production process is important to set different types of prime cost, which can be distinguished by different marks – area of application, content and time of calculation. Calculating the prime cost helps to solve some problems, related to the production activity, such as: planning the manufacturing types and sorts; evaluating the profitableness of the production and the services; developing new production programs; establishing marketing and price policies; developing preservation programs and managing the sale rates; terminating or establishing new activities; developing and bringing in new budgets for optimizing the structure of the products in the grain production. [4, p.300]

The grain production in Bulgaria involves calculating the real prime cost of the production and the services, which is not a management instrument, but a result from different kind of decisions. The concept about the prime cost has to be changed, considering that it is a conclusion, related to the expenses. The newly calculated prime cost has to be used for: evaluating the achieved results of the company; identifying the problems and finding solutions for them.

In the companies, involved in the process of grain production, the realized production is being evaluated, in the primary recognition process, by its net fair cost. This type of evaluation doesn`t exclude the necessity of calculating its real prime cost.

In correspondence with AS 2 – Inventories, the prime cost is formed by the material costs, the manufacturing costs and other costs, related to the production process. The prime cost of the produced production doesn`t include the administrative, the financial, the extraordinary and the sale costs, which are accounted as current for the period, when they were made. Based on these statements, professor Gerganov assumes that the so called “incomplete production prime cost” of the agricultural produce is being formed. [1, p.284] To determine the value of that type of cost, we need information about the: calculation amount, object of calculation, the item of calculation and the calculation method.

In the process of grain production, the calculation amount is obtained by the following methods:

The first method: without any additional calculations, we assume that the debit of the detailed account for the current production is actually the calculation amount. This method is used when there is only one type of product manufactured in the production process. For an example: from the wheat and barley production, this is straw; from the corn production – maize; there is only main produce in the process of sunflower production.

The second method: the debit of the detailed account for the production is transformed into a calculation amount by a few logical and consistent calculations, which depend on the used method for calculation. This is a way to correct the debit expenses with the evaluation of the additional production.

When the prime cost of the produce from the grain production process is being calculated, it has to be determined which the object of calculation is. Specific feature of the grain production process is that the main and the additional produces are gained at the same time. The basic produce, which is actually the reason why the process is being organized, is determined as main produce. It is different to the concomitant produce, which is in most of the cases worthless and that`s why it is determined as additional. Only the main produce is considered as an object of calculation – the produce of which the production process is organized for and the one that the prime cost is calculated for. The main produce from the crops is grain, while the corn, except for the grain itself, could be cultivated for silage; the sweet corn – for fresh consumption; the popping corn – for pop-corns. The variety of the produced grain production sets the usage of different calculation measures – kilograms, tons, liters, number.

The features of usage of the grain crops also could be an object of calculation. In the wheat production, this is the amount of proteins and gluten, and hectoliter mass as well. The barley is used as fodder for the stock and also in the brewery. The feature of usage in this case is the amount of the proteins and the mass of the grain. The corn production also has its own features of usage. The basic tendency is using the corn as fodder and the basic feature of usage is the amount of proteins. When the corn is used for silage, the main feature of usage is the amount of sugar and starch in the corn leaves and stems. When the corn is used for fresh consumption, the feature of usage is the amount of sugar in the grain; in the popping corn usage, that is the glassines of the endosperm. In the sunflower production, the feature of usage is the amount of fats. When the prime cost is calculated, considering the factor “feature of usage”, it orientates the farmers to cultivate more efficient crops, in more suitable economic, soil, climate and other, related to the process, conditions.

In any case, the grain produce has to be evaluated by its fair cost, right at the moment of gathering. The sale costs also have to be considered here, which reduces the amount of the fair cost and turns it into net realization cost. Following the current accounting standards – IAS 41 Agriculture and AS 41 Agriculture, the fair cost of the grain production could be reliably evaluated.

The additional produce (straws, maize) is not added to the object of calculation and real cost doesn`t have to be calculated, but it also has to be evaluated. Professor Gerganov claims, that “by evaluating the cost of the additional produce, the debit amount of the detailed account is being corrected. The additional produce is being evaluated by its net production cost or by a cost set by the company, when it uses the additional produce” [1, p.285]. In case, when the quantity is not measured, the additional produce doesn`t have to be evaluated and is not considered in the prime cost calculation.

In AS 2 Inventories is mentioned, that the net production cost of the additional produce is being calculated out of the main product cost. But professor Gerganov claims, that “the net production cost of the additional production has to be calculated out of the expenses for the main and the additional produces, not from the main product cost”[1, p.286].

The method for calculating the real prime cost of the main produce in the agrarian sector, is affected by the number of the end main products, which are accompanied or not by the additional produce.

The production of a single main product with an additional produce, is typical for the grain crops. For an example, in the processes of wheat, barley of corn production, along with the main produce, additional one is also manufactured.

In these cases, the real prime cost of the manufactured produce, is estimated as a total amount from the basic production costs, accounted in the debit of account 611 Main activity expenses; the current detailed account is decreased with the amount of the additional production by the method of expense exclusion. The amount of the real costs for the main production is divided by its quantity and thus, the real prime cost for a single main production item is being calculated. After that, the difference between the real cost and the fair cost is being estimated. Then reduced with the approximate amount of the sale expenses, and after that a correcting account for ending account 611 Main activity expenses, is being created.

This is the following method for calculating the real prime cost of an item of main produce, presented in the literature. It is in order with productions with or without additional produce:

• 1.    The total amount of the expenses, recognized in the debit of the detailed account for the current production until the end of the manufacturing process.

• 2.    Evaluation of the total usable additional production.

• 3.    Calculation amount for the main produce (p.1-p.2)

• 4.    Object of calculation – the quantity of the main standard produce, evaluated in items of calculation.

• 5.    Real prime cost for a single item of calculation (p.3:p.4).

This method is used for grain crops, in which the straw is considered as additional produe, but only in the cases when the company gathers, stores and uses the straw or when it`s being sold.

In some grain crops, it`s possible after every single finished stage of the technological process, a main product to be obtained (a product with consumable features). After finishing the technological process itself, a main product is also obtained. Typical example is the corn production. From a single crop (for example 1000 acres of planted corn), a part of it (200 acres) to be gathered in the brownsilk stage (and to be used as fodder), while the other 800 acres to be gathered in the dough stage(firm grain). In this case, the seeding and the planting expenses, until reaching the brown-silk stage, are added to the gathering expenses, in order to form the calculation amount. To the corn in the brown-silk stage are added the expenses for its gathering, and thus the calculation amount is being formed. To the dough-stage corn expenses, we add the additional expenses (like water expenses), to finalize the technological process and the gathering costs. This is a way to form a calculation amount in order to determine the real prime cost of the grain.

In the accounting literature, the following method for calculating the real prime cost of the main products of the corn production process, is presented as follows [2, p.179-180]:

Stage I – Forming and distribution of the total costs (total production costs) until the harvesting stage:

• 1.    Total amount of the costs, recognized in the debit of detailed account, until gathering the corn is the brown-silk stage. For example: 80 000 BGN.

• 2.    Total seeded acres, for example: 1000 acres.

• 3.    Total production costs for a single seeded acre (p.1 : p.2) = 80

• 4.    Distribution of the total production costs:

  • 4.1    Total production costs for brown-silk stage corn (for example 200 acres) – 200 acres X 80 BGN/acre = 16 000 BGN

  • 4.2    Total production costs for dough-stage corn (800 acres) – 800 acres X 80 BGN/acre = 64 000

BGN/acre

(Base for the total production costs distribution is the real acres for brownsilk stage corn and dough-stage corn.)

Stage II – Calculating the ream prime cost for a single item of calculation in brown-silk stage corn.

• 1.    Distribution of part of the total production costs for the corn production (p. 4.1 from Stage I)

• 2.    Additional gathering costs for brown-silk stage corn.

• 3.    Calculation amount (p.1+p.2)

• 4.    Object of calculation – the quantity of the gather corn in brown-silk stage (in tons)

• 5.    The real prime cost for a single ton of corn in brown-silk stage.

Stage III – Calculating ream prime cost for dough-stage corn.

• 1.    Distributing part of the total production costs for the corn production

• 2.    Additional costs in the dough-stage corn production process

• 3.    Additional gathering costs for dough-stage corn

• 4.    Calculation amount (p.1+p.2+p.3)

• 5.    Object of calculation (the corn quantity, measured in tons)

• 6.    The real prime cost for a single ton corn (p.4 : p.5)

process (p.4.2. from Stage I)

To be applied the presented method is necessary to create detailed accounts for the total production costs and for every single crop.

Summarize:

• •     When we calculate the real prime costs of the produce in the grain

production process, we have to determine the object of calculation. A distinctive feature of the grain production process is the simultaneous gathering of the main and the additional produce. As object of calculation, we consider only the gathered main produce and calculate its real prime cost.

• •      Object of calculation could be the features of usage of the grain crops.

When calculated this way, the real prime cost stimulates the farmer for planting more efficient crop sorts.

• •      The additional produce is not an object of calculation. It`s being

evaluated by the net realization cost, or by cost, set by the company, when the additional produce is used.

• •     The value of the additional produce doesn`t have to be calculated out

of the main produce production costs, but out of the main and additional produce costs.