S* 1 "[•>,, A Publication of The College of Agriculture

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Up/71/

IVERSITY OF CALIFORNIA

The Fifth Report in o Series on

Efficiency in Fruit Marketing

BUILDING AND EQUIPMENT COSTS,
APPLE AND PEAR PACKING

L. L. Sammet and I. F. Davis

UNIVERSITY OF CALIFORNIA 1

DAVIE

CALIFORNIA AGRICULTURAL EXPERIMENT STATION
GIANNINI FOUNDATION OF AGRICULTURAL ECONOMICS

Mimeographed Report No. 141

December 1952

FOREWORD

This report is the fifth of a series aimed at improved efficiency and
lowered costs in the local marketing and packing of deciduous fruits. The
present report deals with one segment of the packing costs—the fixed costs
for buildings and equipment. In a typical plant, the fixed costs per
packed standard box amount to roughly 10 per cent of the total packing cost
and thus represent a significant area for study.

Data are given in this report from which replacement costs can be
estimated for the buildings and equipment required for olants of different
capacities and involving the use of different types of equioment. The cost
data are applicable to well-organized plants of current design rather than
to "ideal" or optimum-efficiency plants. The report also includes data for
estimating annual charges for buildings and equipment. Indices of replace-
ment cost for buildings and equipment are given which show the variation in
such costs for the period 192$ to 1951.

These studies were made cooperatively by the Giannini Foundation of
Agricultural Economics, California Agricultural Experiment Station, and the
Bureau of Agricultural Economics, United States Department of Agriculture.
They were made under the authority of the Research and Marketing Act of
19U6.

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Efficiency in Fruit Marketing

BUILDING AND EQUIPMENT COSTS — APPLE AND PEAR PACKING
L. L. Sammet and I. F. Davis-^

Packaging and loading fresh fruits and vegetables for shipment to
distant markets require heavy investments for buildings and equipment.
For a typical pear packing plant with capacity to ship 2 cars per 8-hour
day, the replacement cost at the 1950 price level was approximately
$1|0,000. For a plant with capacity to ship 8 cars per day, this cost was
about $130,000 for plants equipped to operate with hand trucks; if equipped
for operation with fork trucks, the cost would be approximately $160,000.

Plant investments of this magnitude are particularly important in
view of the short operating season for many packing houses. The length of
the shipping season varies from year to year and with the crop and the
locality. For pear packing plants in California, the season ordinarily
ranges from U to 8 weeks. For most California apple packing plants, the
season of full scale operation is only about h weeks, although in some
plants there may be an additional period of about 3 months operation at a
reduced level. As a result of the short period of operation per year, the
fixed costs for buildings and equipment are high in relation to annual
volume of output.

PLANT COSTS AS DEVELOPED IN THIS REPORT
In an accounting sense, expenses for buildings and equipment enter
the calculation of costs as charges for insurance, taxes, repairs, inter-
est, and depreciation. Such charges vary widely from one plant to another.
Aside from the size of plant, they depend on the type of building construc-
tion and equipment used, the local tax rate, insurance rates and the firm's
policy in regard to insurance coverage, and — perhaps most important — the
price level at the time of purchase. Because these factors vary so much
from plant to plant, a study of efficiency must include the fixed costs
for buildings and equipment on a comparable basis for all plants. This is

1/ L. L. Sammet is a Cooperative Agent of the California Agricultural
Experiment Station and the Bureau of Agricultural Economics, United States
Department of Agriculture.

I. F. Davis is a Research Assistant in Agricultural Economics,
University of California.

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done by estimating fixed costs on the basis of the replacement cost in a
given year, using standardized cost-rates for the several cost components.

This report provides data from which estimates of the replacement cost
of buildings and equipment can be made for plants of different size and for
plants employing different types of equipment. A separate treatment is
given plants designed for hand-truck equipment in contrast with those
equipped with fork trucks. This applies to building costs as well as to
costs for equipment, as the use of fork-truck equipment has an important
bearing on the type of building construction used (Figure 1).

The estimates are based on standards derived from a study of the quan-
tities of equipment and building space used for the various operations in
several of the more efficient plants. Through this procedure, schedules of
space and equipment requirements were drawn up for plants of different
capacity. These schedules form a standard specification which may be used
as a basis for comparison. The standards are appropriate for well-organized
plants of current desipn rather than for "ideal" or optimum-efficiency
3/

plants. -

From the standard specification, engineering estimates of construction
costs were prepared, based on representative prices for northern California
in 19^0. Although these estimates show the general level of building and
equipment costs that may be expected in plants of different size and type,
they cannot be expected to indicate the construction or "replacement" cost
for a particular plant. For a given plant, details of building construc-
tion, the quantities and types of equipment, and the amounts of space re-
quired for the various plant activities may vary from those used in these
estimates. Such variations will cause the replacement costs in a particular
plant to differ from the standardized costs presented in this report.

2/ As an intermediate type of plant, one should also consider facilities
in which the major part of the in-plant transportation work is performed
with power conveyors. For this type of plant, the replacement costs for
buildings and packing equipment would be similar to those for the hand-
truck plant; the costs for in-plant transportation equipment would lie be-
tween those for the hand -truck and fork-truck plants. For simplicity, the
conveyor-type plant is not considered in detail in this report.

3/ For greater detail regarding the method of establishing these stand-
ards", see Appendix A.

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(A) Fork-truck plant: (concrete floor on earth base; con- (B) Hand-truck plant: (wood floor construction at truck-

crete side walls; wood frame roof construction). bed height; wood frame sidewall and roof construction).

Figure 1. Typical California pear and apple packing houses.

Cannery truck

OUT

Full

Empty

lugs

Grower's
truck

Empty
lugs

Full
lugs

Cannery-cull
setoff

Box
Making

Shook
Storage

Box supply
to packers

Sorting

Packing

Shook car
or truck

_ Temporary ^
I Storage I

Car or
truck

Figure 2. Process chart for major operations in packing fresh fruit.

The actual investment in a given plant also is affected by local prices
for construction labor and materials, local variations in equipment prices,
variations in the builder's profit for facilities constructed under contract
and by other factors. The replacement cost data given in this report, how-
ever, should indicate reasonably well the level of replacement costs in
most plants.

Although prepared primarily for use in studies of efficiency, the data
regarding replacement costs should also be useful in connection with the
appraisal of existing facilities or in making preliminary cost estimates
when planning new construction.

In the following discussion, data are given for estimating replacement
costs. This is followed by estimates of expected use-life for various types
of buildings and packing house equipment. Cost-rates for estimating annual
fixed costs from replacement costs are given, and the calculation of fixed
costs per unit of output of the different categories of fruit is explained.
An index of replacement costs for buildings and equipment is presented which
shows the variation in replacement costs of typical Dlants since 192$.

MAJOR PACKING HOUSE OPERATIONS
The cost data which follow are presented in terms of the various opera-
tions performed in the packing process and the quantity of fruit handled in
each operation. The major types of operations are represented in the process
chart given in Figure 2, from which the operations may be classified broadly
as follows:

(a) Unloading and storage of incoming fruit; storage of empty
field lugs; loading of grower's trucks.

(b) Dumping field lugs; sorting field-run fruit; distributing
the sorted fruit to the positions for packing and for
filling cannery and cull lugs.

(d) Boxmaking; storage of shook and boxes.

(e) Loading packed fruit, cannery fruit, and culls for ship-
ment.

\x/ A minimum delay prior to shipment is assumed; facilities for cold
storage or precooling are not considered in this cost analysis.

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For each type of operation, estimates of plant costs are given in
relation to the appropriate quantity of fruit. Thus, the cost of building
space and equipment required for the dumping and sorting operations is
related to the capacity rate at which fruit is run per hour, while such
costs for boxmaking are related to the capacity rate of fruit packing per
hour, and so on. The quantity of fruit selected as a measure of output in
each case is the capacity rate, or "design rate," at which the plant is
capable of operating. It is important to distinguish this quantity from
other measures of output, such as total season output or season average
rate of output, as the capacity rate is the factor that governs the physi-
cal size of the plant and, hence, determines the plant investment.

ESTIMATING EQUIPMENT REPLACEMENT COSTS
Packing Equipment — Requirements and Replacement Costs
The packing line ; The key unit of equipment in an apple or pear packing
house is the "packing line." This consists of the work space and equipment
for the packers, conveyors to transport the packed fruit to the lidder, and
a conveyor system for transporting fruit from the sorting table to the
packers.-^ Except for the belt-type packing lines, the conveyor system from
the sorting table to the packers also serves as a mechanical sizing device.
With the equipment observed for packing apples, the fruit is sized by weight
and the sized fruit is delivered to rotating tubs, from which it is packed.
In the pear packing plants, two different types of equipment were observed.
One type consists merely of a conveyor belt which supplies fruit to the
packers and from which selection of fruit by size is made by the packer.
In the other method, the fruit is sized mechanically and the sized fruit is
delivered into stationary bins or rotating tubs. Two sizes of tubs were
observed — 36 inch diameter and 90 inch diameter tubs.

Replacement Costs and Space Requirements ; The characteristics of the dif-
ferent types of equipment that are pertinent to estimating investment re-
quirements are the floor space occupied per packing line, the normal capa-
city output of packed fruit per hour of line operation, and the replacement

$1 For more detail regarding packing equipment and rates of output of
packed fruit, see Packing Costs for California Apples and Pears, Mimeograph
Report No. 138, Giannini Foundation of Agricultural Economics, University
of California.

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cost per equipment unit. These characteristics are summarized for each type
of equipment in Table 1. Thus, for a tub-type packing line used for pack-
ing apples, the normal capacity rate of output is about 9,000 pounds of
fruit wrap-packed in standard boxes per hour. The floor space required —
including space for the packing equipment, work space for the packer, and
space for the packed-box conveyor — is 1,700 square feet per line for the
first unit and 1,100 square feet per line for each additional unit. The
replacement cost of the packing line is estimated as $5,100 per unit; the
cost for the packed-box conveyor is estimated as $2,100 for the first unit
and 11,100 for each additional unit. These estimates include the cost of
installation. The cost estimates for the packed-fruit conveyors are based
on the use of power conveyors in all cases except with the bin-type equip-
ment. Conveyor costs for the bin-type equipment are based on the use of a
gravity conveyor, the packed boxes being moved along the conveyor by the
bin boys commonly employed to assist the packers with the bin-type equip-
ment.

Other Equipment

Although the packing line forms the core of the packing house opera-
tions, a large amount of supplementary equipment is required. The replace-
ment cost of such equipment for a typical plant is given in Figure 3. The
diagram is divided into two parts. In Part II, replacement costs are given
for the equipment required to transport fruit and materials at the packing
house with fork-truck equipment or with hand-truck equipment. In Part I of
Figure 3, replacement costs are given for four additional categories of
equipment. In regard to each category, the replacement costs in a typical
plant are given in relation to the capacity rate of output per hour for the
particular class of equipment. The equipment grouping for each of the cost
lines in Figure 3 and the category of fruit to which each cost line is re-
lated are summarized below.

Line A ; gives the replacement cost of supplementary packing

equipment, including the following: boxmaking machine;
equipment for the distribution of empty boxes to the
packers; packing stands and miscellaneous packing
equipment; and lidding machine. The replacement costs
indicated are related to the quantity of fruit packed
per hour.

TABLE 1

Estimates of Normal Capacity Output, Floor Space Requirements
and Replacement Cost of Various Typos of Pear and Apple Sizing Equipment

Type of equipment:-/

Estimated
normal
packing
capacity
per unitJV

Estimated replacement cost

Floor area required '

for equipment j Conveyor

First | Each addi- Packing I for first

pounds per
hour

| Apples

Tubs: lach unit composed of two sections placed
end to end. Each section contains 10 tubs per
side, making a total of 40 tubs per unit. Tubs
27 to 30 inches in diameter. Fruit sized by
weight. Over-all dimensions of grader and tubs,
17 feet x 67 feet.
Pears

Belts: Each unit composed of a packing belt 2
feet wide and 60 feet long, with a return belt
for unpacked fruit Z$ feet Y.dde. Space ade-
quate for 16 packers. Fruit sized by packer.
Bins: Each unit composed of a double line of
bin's. Bin length per side 42 feet. Fruit sized
mechanically with a rope sizer. Over-all dimen-
sions of grader and bins 12 feet x 42 feet.
Tubs— 36 inch: Each unit composed of one section
containing 11 36-inch diameter tubs per side.
Fruit sized mechanically with a curtain sizer.
Over-all dimensions of grader and tubs 8 feet x
75 feet.

Tubs — 90 inch: Each unit composed of one section
containing 7 90-inch tubs. Fruit sized mechani-
cally with a curtain sizer. Over-all dimensions
of grader and tubs 8 feet x 85 feet.

9,000

10,000

8,100

12,000

uni t j tional unit j unit_

unit

Conveyor
for each
additional
unit

square foet£/

dollars"/

1,700

1,200

1,100

1,900

2,100

700

800

1,300

1,400

5,100

2,100

1,100

3,100

990

1,020

1,100

290

170

4,300

2,200

1,000

4,950

2,350

1,150

(Continued on next page.)

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Table 1 continued.

a/ Some variation exists in the number of tubs per line and in the dimensions of bin and belt type of equipment.
" The equipment specified, however, is considered typical. For lengths of packing belt or bin different than
specified, the difference in normal capacity output per line would be roughly proportional to the difference
in length. Similarly, the normal capacity of the tub-type equipment could be adjusted for lines differing
from the above in regard to the number of tubs per line.

For more detail as to equipment and packing capacity per unit, see Packing Costs for California Apples
and Pears, Mimeographed Report No. 138, C-iannini Foundation of Agricultural Economics, University of
California.

b/ Assuming fruit is packed in standard boxes only. A somewhat greater output ivould normally be achieved if part
~ of the fruit were packed in Los j\ngeles lugs or San Francisco lugs or were loose packed in standard boxes.

c/ .For all types of equipment, oxcopt the packing belt, this includes an area approximately 4^ feet wide parallel to
~~ sizing equipment to provide space for packed fruit conveyors and working space for the packers. With the packing
belt over-all space for belt, work space, and conveyor is 10 feet wide; also, an additional aisle 5 feet wide is
provided between adjacent units. With all types of equipment, a 4-foot wide "outside" clearance is provided
adjacent to each group of sizing units.

d/ 1950 price level.

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10 20 30 40 JO 60 70 80 90 100

40 M I M I I I I I I I 1 I I I I I I I I I I I I I I I I I I i I I I | I I I I I I I I I I I I I I

1 20
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EQUIPMENT CATEGORY COST RELATED TO:
Fruit packed

A. Supplementary packing
equipment

B. Dumping, sorting, etc.

C. Office equipment, tools,
scales

Total fruit run

D. Cannery and cull equip- Cannery and cull

E. Transportation (fork truck) Total fruit run

F. Transportation (hand truck) Total fruit run

I r, , I I I I I I I I I I [ I I I I I I I I I l I I I I I I I I I I I

30 40 50 60 70

Quantity of fruit— 1 ,000 lbs. per hour

90 100

Figure 3. The effect of capacity rate of plant operation on the replacement cost of
several categories of equipment for apple and pear packing operations.

10.

Line B: gives the estimated replacement cost in a typical plant
for the dumping equipment; sorting table; fruit dis-
tribution belts; and miscellaneous equipment. Replace-
ment costs are related to the total quantity of fruit
run per hour .

Line C t gives the replacement cost in a typical plant of office
equipment; miscellaneous tools; and scales. The re-
placement costs indicated are related to the total quan -
tity of fruit run per hour .
Line D ; gives the replacement cost of cannery and cull fruit
belts; equipment for placing the fruit in lugs; and
miscellaneous equipment. The replacement costs in-
dicated are related to the quantity of cannery and
cull fruit run per hour .
Line E : indicates the replacement cost of equipment required for
in-plant transportation with fork-truck equipment. It
includes the cost of pallets but not the cost of con-
veyor systems for loose fruit or for packed boxes. The
replacement costs indicated are related to the total
quantity of fruit run per hour .
Line F ? is similar to Line E, except that the replacement costs
indicated are for the use of hand trucks for in-plant
transportation, rather than fork trucks.
The use of Figure 3 in estimating the replacement cost of equipment for
a given packing house is illustrated with the following example. Suppose we
want an estimate of replacement cost for equipment in a 3-line pear packing
house in which the fruit is packed from 90-inch tub equipment of the type
specified in Table 1. For this equipment, the normal rate of output of
packed fruit is 12,000 pounds per hour per line, which makes the plant rate
of output of packed fruit 36,000 pounds per hour. If, in this example,
only 80 per cent of the total fruit received is packed, the capacity rate
for total fruit run is U5,000 pounds per hour, and the capacity rate for
cannery and cull fruit is 9,000 pounds per hour; in-plant transportation is
performed with fork trucks. The estimate of replacement costs for equipment
in this plant is as follows:

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Item

Estimated
replacement
cost

Packing lines: (computed from Table 1)

Initial line t 7,300

Two additional lines 12,200

Packing equipment supplementary to packing

lines: (Read from Line A, Figure 3 for rate

of fruit packing = 36,000 pounds per hour) 20,300

Dumping, sorting and related equipment:

(Read from Line B of Figure 3 for a rate of

total fruit run = U5,000 pounds per hour) 9,500

Office equipment, miscellaneous tools, scales:

(Read from Line C of Figure 3 for rate of total

fruit run = U5,000 pounds per hour) 8,000

Cannery and cull fruit equipment: (Read from

Line D of Figure 3 for rate of cannery and cull

fruit run = 9,000 pounds per hour) 1,000

Transportation equipment: (Read— for fork-truck
equipment— from Line E of Figure 3 for a rate of
total fruit run « U$,000 pounds per hour) 17,700

Total replacement cost of equipment $76,000
Similarly, estimates of replacement costs for equipment can be made for
plants of other sizes and types and with different proportions of packed and
cannery fruit.

ESTIMATING F T ILDING REPLACEMENT COSTS
The data regarding building replacement costs involve two stages. One
stage concerns estimates of the amount of floor space required for a given
plant, the other, construction cost of the building in terms of the floor
areas involved. Two distinctly different types of structures are considered.
One type is appropriate for plants using hand trucks for in-plant transpor-
tation, the other, for plants using fork trucks for this purpose. In part,
the floor space requirements for the two types are identical. This applies
to the space occupied by the packing equipment, temporary storage for packed
fruit, office space, and miscellaneous storage space. In regard to space
used for the storage of incoming fruit, empty boxes, and shook, the space
requirements in the two types of structures are different. In these areas,

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pallet loads of material can be stacked several tiers high in the fork-
truck plants, and the floor space provided can be less than in the hand-
truck plants where storage normally is limited to a single tier. These
differences are reflected in the data on space requirements.

Floor Space Required
The floor soace required for the packing lines is given for the various
types of equipment in Table 1. For a pear-packing line using 90-inch tubs,
for example, the floor soace needed for the first unit is 2,100 square feet,
while each additional unit requires 1,1^00 square feet. The space required
for activities other than packing can be estimated from Figure k> Part I
of this Figure refers to the soace requirements for hand-truck plants; Part
II refers to space requirements for fork-truck plants. In both parts of
the diagram, space requirements for the various plant operations are given
on the vertical scale. For each type of operation, the space required is
given in relation to the Quantity of fruit run per hour— shown on the hori-
zontal scale. The various categories of space as represented in Figure h
for the two types of plants are as follows:

Line G ; gives the floor area required for boxmaking and lidding

equipment; shook and box storage; and packed fruit setoff.
The space required is related to the normal capacity
output of packed fruit per hour .
Line H ; gives the floor area required for incoming fruit; dump-
ing, washing, and drying equipment; setoff and storage
of cannery and cull fruit; and temporary storage of
packed fruit. The estimate of space is related to the
total quantity of fruit run per hour .
Line I : gives the space required for aisles in the packing house,
office space; and miscellaneous areas. This space re-
quirement is related to the total quantity of fruit run
per hour .

Line J: gives the unroofed area required for the storage of

empty lugs. This area is related to the total quantity
of fruit run per hour .

Line K; gives the amount of paved area adjacent to the building

required for receiving and shipping operations. This area
is related to the total quantity of fruit run per hour.

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:ift;

nsr.

axis J[££o#-

t.c ss^£*ioja orij h.-it^jsp^xv swift b'jJftbiMj jrf^ 93vl:s ;l» anil
cs-xr eiifX .afx©x4-srr^qe ^xaa£ri«, baa gnivi^osn •noa- - S>:>»6£i»p:i* >

10 20 30 40 50 60 70 80 90 100

20 g i i i I i i i i I i i i i I i i i i I i i i i I i i i i I i i i i I i i i i | u i i I i i i i

30 40 50 60 70

Quantity of fruit— 1,000 lbs. per hour

Figure 4. The effect of capacity rate of plant operation on floor space requirements in
hand-truck and fork-truck plants for packing apples and pears.

With the data on space requirements given in Figure h for the various
kinds of plant operations, the total floor area required can be estimated
for any specified plant. The procedure can be illustrated for the hypo-
thetical plant used above in regard to equipment costs.

We first observe that building costs are given in Figure 5 in relation
to the roofed area only, although the costs of the open storage and paved
areas are given in Figure U and are included in the total construction
costs. Our first problem, then, is to determine the amount of roofed area
required. This can be done from Figure h, using Part II— the portion which
refers to fork-truck plants. The space requirements obtained from Figure h
are summarized below.

Item

Packing lines— three 90-inch tub lines:
(Computed from Table 1)

Initial line

Two additional lines

Supplementary packing equipment and storage—
boxmaking and lidding equipment; shook and
box storages (Read from Line G of Figure h
for rate of packing ■ 36,000 pounds per hour)

Storage for incoming fruit; dumping, drying,
and sorting equipment; setoff and storage for
cannery and cull fruit; temporary storage of
packed fruits (Read from Line H of Figure U
for rate of total fruit run = U5,000 pounds
per hour)

Aisle space in the packing house; office space;
miscellaneous storage and service areas: (Read
from Line I of Figure h for rate of total fruit
run = h5,000 pounds per hour)

Total roofed area, square feet

Area
required
square feet

2,100
2,800

6,000

7,700

19,200
27,800

Building Replacement Costs
Estimates of replacement costs are given in Figure 5 for hand-truck
and fork-truck plants. The general characteristics of the two types of
structure are as follows:

feavso Jbfis j^&re&B i»
ncrJointf 5/100 J'sj

000 t o tTtfori voq ebauaq 000 t d£'« 3

•'SfflV'tb .SfljtWUrb 'J'rtrr'l an

idJ tit bsbhXaal'Qib bn& J zau^t^ at n$v.
*1 gaiBir ^ sna^xl bk.i1 aaob :*J ned aid'

i6 sol^axT.

II 1 II 1

1 1 1 1

-Z

MM
/

Mil
1

MM-

t —
t

/ /

/
/
/
/

tiff

/«/

-ft-

/
✓

II A'
ft

/ /

1 1 1 1

111!

1 1 1 1

M * i

i i i 1

1 1 1 1

Mil"

10 20 30 40 50 60 70 80

Roofed area — 1 ,000 square feet

Figure 5. Effect of size of building on packing house construction costs
(1950 price level).

Hand-truck plants : The building replacement costs for hand-truck
plants are based on a wood frame structure with a wood floor con-
structed at truck-bed height. Exterior walls are surfaced with a
single layer of wood sheathing—except office spaces, which have
an interior finish. The clear height from the floor to the under-
side of the roof trusses is 12 feet. Roof spans are relatively
short— 30 to hO feet. All spaces are roofed except the area for
storage of empty field lugs, which consists of an open platform.
Replacement costs in relation to roofed area are given for this
type of structure by Line 0 of Figure

Fork-truck plants ; Data for estimating replacement costs are
given for three types of construction for fork-truck operation.
In all three, the floor consists of a concrete slab at ground
level. As in the hand-truck plants, an open storage area is pro-
vided for empty field lugs. Costs for three variations of this
basic model are given in Figure 5 as follows: (1) Line L rep-
resents the cost of a building in which the sidewalls are of con-
crete, with the clear height to the underside of the trusses 18
feet throughout the building. A relatively long-span roof con-
struction is employed—?^ to 100 feet— to reduce the interference
of the roof supports with the operation of the fork trucks
(2) Line M gives the estimated cost of a building similar to the
above, except that the sidewalls are of wood construction like
that described for the hand-truck plant; (3) Line N gives the
cost of a building which combines some features of both the fork-
truck and hand-truck plants. The sidewall construction is of wood.
In the receiving and box storage areas, where pallet loads of fruit
and materials are stored several tiers high, the roof is of long-
span construction and the clear height to the underside of the
trusses is 18 feet. In the remainder of the building, the roof

6/ Whether the additional construction cost for the long-span roof con-
struction is justified by increased efficiency in the operation of the
fork trucks is not clear, although designers of plants built specifically
for fork-truck operation evidently prefer to use roof construction of
longer span than is common in hand-truck plants.

xoind-bftsri 10I r.4«ot- tr.amot.Lqari gnifclij/d srif igd/tftlq jfotrfd*
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rXavxdsXftt site

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sift sdaco *»9spr-!06£q?»'r gnxdsiSides -:o2 Bird :?„jfir>£u 3fc?ysd-'rftD' ; !
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ttZfil 2o abso'i doXXBq *xsriw « easts s^stoda xod bnfi gfixvisogi srid rii
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srid noxdaieqo srid nx vonsi:3x22r> b?
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. :.fnr,Xer id-b

17.

construction is similar to that for the hand-truck plant and the
clearance beneath the roof trusses is only 12 feet.-
Estimates of construction costs at the 19$0 price level are given in
Figure 5 for the types of buildings described above. In this diagram, con-
struction costs for a given size building are represented on the vertical
scale in relation to the roofed area of the building, which is shown on the
horizontal scale. Although related to the roofed area only, the construc-
tion costs indicated include the cost of open storage and paved areas. The
construction cost of a railroad siding also is included but not the cost of
landi 7

As represented in Figure 5, the relative construction costs for a
building of a given size are as follows s The most expensive is the fork-
truck plant with concrete sidewalls, followed in decreasing order by the
fork-truck plant with wood sidewalls, the "combination" type of building,
and the hand-truck plant. The higher level of construction costs in the
fork-truck plants results primarily from the more expensive roof construc-
tion and the higher sidewalls. These influences are partly offset by the
fact that the concrete floor slab laid directly on the ground is less ex-
pensive than the wood floor supported above the ground at truck-bed height.
Note, however, that a correct comparison of the construction costs of fork-
truck and hand-truck plants requires consideration of the floor areas re-
quired. In the preceding estimate of floor area requirements for a plant
of US, 000 pounds per hour capacity, the roofed area for the fork-truck plant
is 27,800 square feet. In contrast, a hand-truck plant of the same capacity
would require, about 37,500 square feet. The building construction costs
corresponding to these areas may be read from Figure 5 as follows:

7/ In the type of construction most commonly used for the fork-truck
plants, the sidewalls are of concrete. No buildings of the "combination"
type were observed, although this type of construction should provide a
satisfactory building. In contrast with the other construction <f thods,
the "combination" type would provide less flexibility with regard to future
use of the building, such as a radically different type or arrangement of
packing equipment, or conversion of the plant to an entirely new activity-
for example, a warehouse.

8/ The cost of land is omitted from the present discussion because of the
extreme variation in land costs at different locations-ranging from rural
Ses! poorly suited for agriculture, to highly valuable trackside locations
in cities In calculating the fixed costs for the physical plant, however,
the cost of land must be included.

ai a<

sett fane tfrrsJc XoinJ-bnaA arid- . iox t&di.o3 lElim

jJsel CI vino si 5988X0* loo* 9rij rftaaaacf «ns«xs?Xo
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to cfaoo siicf- ion iuri babi/Xonx ai. osXs an/fet* bs^Xiei e io .teoo cioxteirtfeooo

a lox eJeoa /xofctoiTrtsnoo -vxjbXo-i srfj ,5 sural** nt bojngas-
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t anlfc£/:xrf xo aq-^r *Ujo^erii*soo" 9*7 ,aXX SW3 bir
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9rfj Yo* 7951*20 x^'lfiq 91.9 saonr^fXlnx sasdl .aJ
**s 8B9X ai bnvot% wif no ^Xjjmxb brsl dele i_
.jri^i?rf t^d-jjotrii d-s bnooig 9ii<f svode bsd-ionqr/a rtoc;X
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-9*4 Sfieifi tocil srfj To noitf/vxsbxanoo ssiiupn Sl7njs
xnfilq fi <iol ajnoiiB-rxtfpsi seia tooXl lo ad-smjtfes jjrt
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rT inslq jfoincf-jhtot
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3rt.j

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.JS:-I 9TDS/7!

ji 5S9'ib oa^i'iv 0$ ^jLCfioqe^n':

CJB3

18.

Fork-truck plant (roofed area = 27,800 square feet)

With concrete sidewalls $73,000
With wood sidewalls 65,000
"Combination" building 5h,500

Hand-truck plant (roofed area = 37,500 square feet) 62,000

A further problem in comparing building costs is the effect that the
materials and type of construction have on the rates appropriate for de-
preciation and insurance. This problem is considered below.

ANNUAL FIXED COSTS FOR BUILDINGS AND EQUIPMENT
As the normal life of buildings and equipment extends over several
packing seasons, their costs are computed on the basis of annual charges,
which include taxes, insurance, repairs, interest on the investment, and
depreciation. An exact determination of the annual charge is impossible,
in part because of uncertainty regarding the correct depreciation rate.

The depreciation rate selected will depend on how long the equipment
or building can be used before it is actually worn out, whether it will
become obsolete before it wears out, and on the eventual salvage value.
Answers to questions of this kind in advance of final disposal of the prop-
erty must depend on judgment and, for this reason, considerable variation
may be expected in the practice followed by different firms. This is re-
flected in the charges for depreciation noted in analyzing the costs of a
number of different firms. As indicated in Table 2, the expected use-life
on which these firms base depreciation charges varies with the type of
equipment and with the firm. In regard to buildings, for example, the use-
life applied to wood frame structures ranged from 20 to UO years and
averaged 2$ years. For concrete structures, the range was the same as for
wood frame structures, but the average was UO years. Similar variations
appear in the estimated use-life for various types of equipment. The range
for packing machinery was h to 20 years, with an average of 10.6 years;
the range for fork-truck equipment was 5 to 10 years and averaged 8.8 years.

The observed data on building and equipment "write-off" given in Table
2 suggest the level and variation in rates used for accounting purposes.
However, some departure from these levels may be warranted in connection
with studies of efficiency. This is based on the fact that the "depreciation"

*0. -

tool) it

f J f J,

con

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19.

TABLE 2

Estimates of Use-Life of Buildings and Equipment
Required in Packing and Shipping Operations for Pears and Apples

Item

Years of use-life, from
accounting records^/

Selected

use-lifeV

Range

Average

Buildings t

hoc/

Concrete, reinforced

20-50

Wood frame

20-UO

33"

Equipment ;

5-10

Fork trucks

Pallets

5-io

Packing machinery (grader

nailing machine, conveyor,

etc. )

h-20

a/ Accounting data derived from studies of 19 apple, pear, and grape
packing houses.

b/ The selected rates are in general intermediate between the averages
~ of rates used by the firms studied and the rates recommended by the

United States Bureau of Internal Revenue (see Bulletin "F," United

States Treasury Department).

c/ Applies also to steel frame structures.

8v»"J

20.

rates frequently applied in an accounting sense take into consideration
several factors other than the probable use-life of the equipment. One
such consideration is the rate of "write-off" that is acceptable for in-
come tax purposes; another is the problem of uncertainty, or business risks.
The manager of a firm frequently takes a precautionary view toward new in-
vestment. This attitude is based on uncertainty in regard to the actual
use-life of equipment and as to the future trends in costs or in product
prices. The manager operates under a policy that an investment in new
equipment will be undertaken only if it will "pay out" within a given time
period. When new investments are made, the annual accounting charge fre-
quently reflects this precautionary view rather than the probable use-life.
When this is the case, the difference between the "depreciation" rate
actually charged and the rate that would represent the probable use-life of
the equipment may be regarded as insurance against the business risk
elements .

From the standpoint of efficiency studies, however, the precautionary
considerations should be separated from those regarding probable use-life.
It is the actual use-life that is significant in the comparison of costs
and efficiency with different methods. With this in mind, the "selected"
use-life given in Table 2 has been chosen as representing a reasonable ex-
pectation of use-life for the general classes of buildings and equipment in-
dicated. For particular items of equipment, some variation from the general
levels shown should be appropriate. The rates given, in other words, may be
thought of as weighted averages appropriate for the equipment groupings in-
dicated.

In addition to depreciation charges, it is necessary to have some basis
for estimating the remaining elements of fixed costs for the physical plant,
these being taxes, insurance, interest, and repairs. These costs vary widely
from one situation to another, but cost-rates commonly used are summarized
in Table 3. These rates reflect differences in anticipated repair costs and
insurance costs resulting from the different types of building construction.-
Depreciation rates based on the selected use-life given in Table 2 are also
included. The fixed cost rates given in Table 3 are the percentage of the
replacement cost that is charged annually.

9/ Insurance rates for stationary equipment—for example, a packing line
or a sorting table— are assumed to be the same as for the structure in which
it is housed.

21.

TABLE 5

Annual Fixed Cost of Buildings and Equipment Required for Packing
Apples and Pears, Expressed As a Percentage
of the Replacement Cost

Item

(Selected j
use-life I Depre- /
' years 'ciation-'

— ' " n" -i- \ -v* r*i "r

Re-

Insur-

Interest
and

Buildings :

Concrete, reinforced
Steel frame
Wood f rame

Equipment :
Fork trucks
Hand trucks
Pallets
| Packing, machinory
(grader, nailing
machinery, con-
veyor, etc.)

14.5 to 15.2

S/ Selected use-life, from Table 2 .

V Repair costs, especially for equipment will ^^^efatSLTo whicT
This also is true for depreciation, F ^ f ^/^*^ion of a constant cost per
this report applies, however, tfca simplifying assumption
season seems reasonable.

cV Typical base rates for fire insurance in ^^^f^^l^f^
to a particular building would depend on type of coverage, exposir
jacent structures, and other factors.

y Taxes 1.0 per cent; interest 3 per cent (interest at 3 per cent equal to ap-
proximately 5 per cent on undepreciated balance).

e/ use same rate as for building in which equipment is housed.

■I

22.

As presented in Table 3, the annual charges for equipment and buildings
are constant per year, regardless of the amount of use. This may not be
strictly correct, especially in regard to equipment, as the amount of actual
use per year would normally affect repair costs and, in many instances, the
use-life of the equipment. For the short operating season typical of Cali-
fornia pear and apple packing houses, however, the effect of variations in
actual use per season would be relatively small. For simplicity, these costs
are regarded as a constant cost per season in this report.

with the data presented above, an estimate of the replacement cost of
buildings and equipment and of annual fixed costs can be made. Thus, using
the results of our previous example of a 3-line pear packing house of U5,000
pounds per hour capacity, the estimated replacement costs and annual fixed
costs for the buildings and equipment are as given in Table J4. In this
summary, all equipment other than transportation equipment is grouped under
"packing equipment," and its estimated replacement cost is the same in both
the hand-truck and fork-truck plants. Annual fixed costs for this equip-
ment, however, are lower in the fork-truck plant, this reflecting the lower
fire risks in the fork-truck type of building. The annual fixed costs for
transportation equipment are much higher in the fork-truck plant than in the
hand-truck plant. This difference reflects both the higher replacement cost
and the higher percentage annual charge for the fork-truck equipment, in

contrast with hand trucks.

The relative replacement costs for buildings for the fork-truck and
hand-truck plants depend on the type of construction used in the fork-truck
plant. Replacement costs for the hand-truck plant are $62,000, in contrast
with $73,000 for the fork-truck plant with concrete sidewalls, $65,000 for
the fork-truck plant with wood sidewalls, and $5U,500 for the "combination"
type fork-truck plant. In terms of annual fixed costs, the effect of type
of construction used for the fork-truck plant is less than is suggested by
the differences in replacement cost. This is due to the higher percentage
annual charge applicable to the wood-frame construction. The range in annual
fixed costs for the fork-truck plants is $6,500 for construction with con-
crete sidewalls, $6,300 with wood sidewalls, and $5,300 with the "combina-
tion" type of contraction. Thus, if the "combination" type of construction
were used for the fork-truck plant, the annual fixed cost for the buildings
would be lower than for a hand-truck plant. For the types of construction
commonly used, however, it appears that annual fixed charges for the building

bits in

on y;aM a

fx ar.oxisxisv 1c

>mne 9.i^ . t £ oldr.T nx fooir
li "io eeaifrsBi©** .te^v i3f

bsxxl !*r

riic

i Jtl:

xjt no on.

TO t

•1+ tnt

lOXTT^-XIOl

"t.+ snor

5# "noircf

23-

TABLE h

Effect of Type of Transportation Equipment
and Type of Building Construction on Estimated
Replacement Costs and Annual Fixed Costs in a 3-Line
Pear Packing House of U5,000 Pound Per Hour Capacity

Item

Replace- a /
ment costs-

Percentage
annual
charge

Annual
fixed cost j

dollars

Hand truck

Pflpk"i t\p pmiiomsirfc

X CX \-/ XV -1,1 1 K Q UU J- KJlllt" *x V

58,300

15.2

8,900

Transportation equipment

1,900

1U.7

300

Buildings:
Wood frame

62,000

io.5

6,5oo

Fork truck

Packing equipment

58,300

H.3

8,^00

Transportation equipment

17,700

18.0

3,200

Buildings :

Concrete sidewalls
Wood sidewalls
"Combination"

73,000
65,000
5U,5oo

8.9

9.7b/

6,500
6,300
5,300

a/ At 1950 price level.

b/ Average of rates for concrete and wood frame buildings.

' «7c-v>3 OBXLl

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ij.OI

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t '

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0.91

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-' -v'i >r.»r.j'i boo:* i>rus ecf&icnoo iol lo

2h.

in the example being considered are-at the 1950 price level-approximately
the same for both hand-truck and fork-truck plants. Note, however, that
the relative prices of the various construction materials and of the dif-
ferent kinds of construction labor used in building the hand-truck and
fork-truck type plants may change from year to year. Consequently, the
relative replacement costs of the two types of construction may be dif-
ferent at time periods other than 19^0 (see page 27).

Another consideration in comparing replacement costs for hand-truck
and fork-truck plants of equal capacity is the size of plant. The relative
replacement costs may change slightly as the size of plant is changed.
This change in relative costs would not be great enough to change signifi-
cantly the conclusion noted above. —

Fixed Costs Per Unit Output

The calculation of fixed costs on the basis of cost per unit of output
is also of interest. Although such unit costs will vary with the size of
plant and the type of equipment, the most important factor is the total out-
put per season. The general level of the average unit fixed costs can be
indicated with calculations pertaining to the 15,000 pound-per-hour pear
packing plant on which the preceding examples are based.

In estimating fixed costs per unit of output, the entire fixed cost of
equipment used exclusively for packed fruit-for example, the packing lines
and boxmaking equipment-is charged to fruit packing. Fixed costs for
equipment used specifically for cannery fruit is charged to the cannery
cost. The fixed cost of equipment used jointly for packed fruit and cannery
fruit-for example, trucking equipment for incoming fruit and equipment for
dumping and sorting-is allocated to packed and cannery fruit in proportion
to the quantity of fruit run in each category. Building fixed costs are
allocated on the same basis.

10/ Although building costs for hand-truck and fork-truck plants are
approximately the same, the fixed costs for transportation equipment ar e
much higher for the fork-truck plant. On the other hand, labor costs for
in-plant transoortation are much lower in the fork-truck P^. For a
discussion of costs with different types of equipment for in-plant trans
portation, see, In.Plant Transportation Costs, as Related to Materials
Handling Methods, Apple and Pear Packing, Mimeogr aphed_ Report ^.^2,
Giannini Foundation of Agricultural Economics, University of California.

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itoxiuoooTq nr litnl vis?
si* sJsoo .fcsxil 15 flit :

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The allocated annual fixed costs divided by the total quantity of fruit
run per season in each category give the average fixed cost per unit of out-
put. For a plant operating at a given rate per hour, this calculation thus
requires consideration of the length of operating season. Annual outputs of
packed fruit and of cannery fruit for the 3-line pear packing plant referred
to above are given in Table 5 for various lengths of season. — This table
also shows the allocated annual fixed costs for hand-truck and fork-truck

plants and the average fixed cost per standard box packed and per ton of

12/

cannery fruit for each level of annual output. —

With the fixed charges for equipment and buildings constant for the
season, the average fixed cost per unit of output decreases as the annual
output increases. The fixed cost per packed box, for example, decreases
from ftO.190 per box in the hand-truck plant with 100 hours capacity opera-
tion per season (75,000 standard boxes packed per season) to $0,038 per box
with 500 hours capacity operation per season (375,000 boxes per season).
Similarly, the fixed cost for cannery fruit in the hand-truck plant de-
creases from #3.18 per ton with 100 hours operation per season to %0.6h per
ton with 500 hours operation per season.

At UOO to 500 hours operation per season, the major benefits through
expansion of annual output appear to have been realized, although some re-
duction in fixed costs per unit output would result from further expansion.

11/ The actual period of operation per year for a particular plant
varies from year to year and with the plant location. For a given plant,
the area from which fruit is drawn is relatively small, and the period of
plant operation is limited to the harvest period for the crop in that
locality, although in some instances a shift in market conditions may
terminate the fresh pack operation before the harvest is complete. If a
plant packs only one variety of fruit— say, Bartlett pears— the operating
season may range from 2 or 3 weeks in some areas to 6 or 8 weeks m other
areas. A longer season may be expected in plants packing several varieties.
For example, in plants packing both early summer and fall varieties of
apples, a packing season of 3 months per year would not be unusual.

12/ In these calculations, it is assumed that the capacity rate of output
is maintained for the period indicated or that the plant is operated oyer a
longer period at a reduced rate to produce the annual output shown. It is
also assumed that all packed fruit is in standard boxes. The unit costs
would be different if a portion of the packed output were in other types ol
packages and if the proportions of packed and cannery fruit were different
than those specified in this example. The general level of costs would not
be greatly different than those indicated, however, for plants differing
considerably as to type of package and the proportions of packed and cannery
fruit.

ASM

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26.

TABLE 5

The Effect of Annual Output on Average Fixed Costs Per Standard Packed
Box and Per Ton of Cannery and Cull Fruit in Typical Apple and
Pear Packing Plants (California, 1950 Price Level)

Packed fruit

Hours of
operation
per season

Season
pack,
1,000
boxes

Fixed cost, dollars/box

Hand-truck
plant

Fork -truck
plant

Cannery fruit

Total
tons
per

season

Fixed cost, dollars/ton

Hand-truck
plant

Fork-truck
plant

100

150

200
250
300
1*00
500

Pear packing^/

37.5
75-0
112.5

150.0

187.5
225.0
300.0
375.0

.379
.190

.127
.095
.076
.063
.01*7
.038

.1*25

.217
.11*2
.106
.085
.071
.053
.01*2

225

U50

675
900

1,125
1,350
1,800
2,250

6.36
3.18
2.12
1-59

1.27
1.06

0.79
0.61*

9.20
1*.60
3.07
2.30
1.81*
1.53
1.15
0.92

Apple packings

1*2.8

.355

.393

225

100

85.7

.178

.197

U50

150

128.5

.118

.131

675

200

171.1*

.089

.098

900

250

211*. 2

.071

.079

1,125

300

257.1

.059

.065

1,350

Uoo

3U2.8

.01*1*

.01*9

1,800
2,250

500

1*28.5

.035

.039

9.20

3.20

U.60

2.13

3.07

1.60

2.30

1.28

1.81*

1.07

1.53

0.80

1.15

0.61*

0.92

*/ Based on a plant containing 3 90-inch tub-type packing lines (see Table 1). Ca-
pacity rate per hour = 1*5,000 pounds total fruit run; 36,000 pounds per hour
packed, 9,000 pounds per hour cannery and cull fruit. Standard boxes of ho
pounds net weight each packed per hour = 750; tons of cannery and cull fruit per

hour = 1*.5« |.j

Fixed costs per season allocated as follows: Hand-truck plant— $1U, 200 to
packed fruit, f 1,1*00 to cannery and cull fruit; fork-truck plant— $15,900 to
packed fruit, $2,100 to cannery and cull fruit.

*>/ Based on a plant containing 1* tub-type apple packing line? (see Table 1). Ca-
pacity rate per hour = 1*5,000 pounds total fruit run; 36,000 pounds per hour
packed, 9,000 pounds per hour cannery and cull fruit. Standard boxes of U2
pounds net weight each = 857; tons of cannery and cull fruit per hour = 1*.5«

Fixed costs per season allocated as follows: Hand-truck plant--' 15, 200 to
packed fruit, $1,1*00 to cannery and cull fruit; fork-truck plant--$l6,800 to
packed fruit, $2,100 to cannery and cull fruit.

,6?

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27.

Annual fixed costs per unit of output for an apple packing plant are
also shown in Table 5. In this case, a U-line plant is considered in which
the capacity output of packed fruit is 36,000 pounds per hour and the total
fruit run per hour is 1£,000 pounds. The rates of output are thus the same
as in the example relating to pear packing, although the number of boxes
packed per hour is greater in the apple packing plant because of the smaller
weight per box (U8 pounds net per standard box for pears and U2 pounds net
per standard box for apples). Replacement costs for a given capacity rate
are slightly higher in the apple packing plant, but due to the lighter
package the fixed costs per box are not much greater than in the pear pack-
ing plants. The estimated fixed costs per ton of cannery and cull fruit
are the same for both kinds of fruit.

Comparison of the unit fixed costs for fork-truck and hand-truck plants
in Table 5 shows the unit fixed costs in the fork-truck plant to be appre-
ciably higher when the season is short, but this difference becomes pro-
gressively smaller as the length of season increases and the difference in
annual fixed costs is spread over an increasingly larger output.

INDICES OF REPLACEMENT COSTS FOR FOLDINGS AND EQUIPMENT
Over a period of time, large variations in the price level result in
corresponding variations in replacement costs of the buildings and equipment
required for fresh fruit packing. The extent of such variations can be
shown approximately by means of a replacement cost index, which expresses
replacement costs in a given year as a percentage of the replacement cost
in a base year.

Indices of replacement cost for buildings and equipment are given in
Figure 6, with 1950 as the base year. In each case, the index for 1950 is
100 and replacement costs in other years are expressed as a percentage of
the 1950 purchase costs.

Index of Building Replacement Costs
Indices of building replacement cost are given in Figure 6 for hand-
truck and fork-truck plants for the period 1925 to 1951. As with prices in
general, these indices show a strong upward trend since 19U0. For example,
with 1950 - 100, the index of building replacement cost for hand-truck
plants in 19ti0 is only 1*2. This general effect is also true of the building
replacement cost for fork-truck plants, although the rise is less pronounced.

•TS

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ni aon^sllifa 8ftt fans ee&as-xwi noassa lo rfi 3 n 9 X srtt as .lalisme ^feviaaois
.iuqtao lagrtsX ^Xaniac^oni ns iavo bsyiqe si siaoo b^xil Xeorar.s

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ni a^Hq iWbr sA .X^i oi &KX bott-q adi lol-Whtsiq. ^xni-^ol fans Hosn*
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110

100

Note: The replacement cost indices for buildings are based on the quantities of the principal
types of construction materials and construction labor required for typical packing houses. The.
replacement cost for these items was estimated, using retail prices applicable in northern Cali-

- fornia in 1950. Replacement costs in other years were obtained by application of the Bureau
of Labor Statistics indices of wholesale prices for the types of materials and classes of construc-
tion labor involved to the 1950 purchase costs of these items. Replacement cost in a given year
expressed as a percentage of the 1950 replacement cost — taken as 100 — is the replacement

- cost index for that year. For equipment, the index for the period prior to 1947 is based on the
BLS index of farm implement prices. For the period subsequent to 1947, the purchase cost of
the various types of equipment required was estimated at 1950 retail prices. These costs were
then adjusted for a particular year by means of the BLS indices of wholesale prices for farm

- implements, conveyors, scales, and office equipment and furniture. The index was then calcu —
lated in the same way as for the indices for buildings.

30k-

y- Building for hand truck plant

J I I L.

1925

1930

1935

1940

1945

1950

1955

Figure 6. Indices of equipment and building costs for pear and apple packing houses

in California. (1950 = 100)

29.

The 19hO index for fork-truck plants is 52, in contrast with an index of
i|2 for hand-truck plants.

The difference in trend for the two indices is due primarily to the
difference in the quantities of lumber and concrete used in the two types
of construction and to changes in relative prices for these two materials.
For the types of construction on which the indices are based, more than
twice as much lumber is used in the construction of the hand-truck plant as
is used for the fork-truck plant. On the other hand, the fork-truck plant
requires roughly 80 times as much cement. As for the relative prices of
lumber and cement, the index of lumber prices in 19li0 was only 31 per cent
of the 1950 prices, while the index for Portland cement in 191*0 was 66 per
cent of the 1950 price. Thus, the index of replacement cost for the hand-
truck type construction — in which the quantity of lumber is relatively high

and that of cement is relatively low — shows a sharper rise than the index

13/

for the fork-truck type construction. —

One precaution to be observed in comparing the indices of replacement
costs for the hand-truck and fork-truck plants is that each index shows
relative costs for a particular type of construction over a time period. A
comparison of the index for the fork-truck plant with that for the hand-
truck plant in a particular year does not indicate the relative replacement
costs in dollars for the two types of construction. For example, the index
of replacement cost in 1950 is the same for both types of construction, yet
the preceding estimates of 1950 replacement costs of the building required
for a typical pear packing plant of 1*5,000 pounds per hour capacity were
$62,000 for the hand-truck plant and $73,000 for the fork-truck plant.
These costs can be converted to costs for other years by means of the cost
indices given in Figure 6. Replacement costs obtained in this manner for

13/ This applies also to the fork-truck plants constructed with wood
sidewalls. Note that the indices are also affected by movements in the
prices of other construction materials and in the wages of different
classes of construction labor, but the major influence can be attributed
to changes in the relative prices of cement and lumber. Note also that
the widespread use of the fork truck is a fairly recent development. The
projection of the index of construction cost for this type of plant to
a period earlier than 19li0 is not a significant factor in comparing
hand-truck and fork-truck plants. Nevertheless, the index for the fork-
truck plant is included for the period prior to 191*0 as a matter of
general interest.

i.teoy .tnem;

esoit>r

the period 1935 to 1950 are summarized in Table 6. These costs indicate a
substantial variation in relative cost for the hand-truck and fork-truck
plants over this period. In 1935, the building replacement cost for a
fork-truck plant was about 1.58 times that of a hand-truck plant of the
same capacity; in 1950 this cost ratio was only 1.18.

TABLE 6

Relative Cost of Replacement for
Typical Hand-Truck and Fork-Truck Pear
Packing Houses (Buildings Only), 1935 to 1950

Estimated replacement cost

Relative cost, 1

Year

Hand-truck
plant

Fork-truck
plant

fork-truck versus
hand-truck plant

dollars

1935

22,800

36,000

1.58

19U0

26,000

39,UOO

1.52

19U5

33,800

1*6,000

1.36

1950

62,000

73,000

1.18

Index of Equipment Cost

An index of variations in replacement costs for equipment for the period
1925 to 1951 also is given in Figure 6. The trend in the index is similar to
that indicated in regard to the indices of building replacement costs. The
index for the period prior to 19U7 is presented with some reservations, as
price series adequate for developing an index of replacement costs for pack-
ing house equipment are not available for this period. The index shown is
based on the United States Bureau of Labor Statistics index of prices for
farm implements. The farm implement price index probably represents fairly
well the range of variations in the replacement costs of packing house equip-
ment during this period.

For the period since 1<>U7, the index has been computed to represent the
variations in the replacement cost of equipment in a typical packing house.
The elements considered in the calculation of the index since 19U7 are noted
in Figure 6.

etfsoo

beiis

31.

Application of the Price Indices
In addition to portraying the variation in replacement costs for
buildings and equipment over a time period, the cost indices in Figure 6
can be used to obtain an approximation of replacement costs at current
prices— or at least at a more recent period— of facilities purchased in
some past period. Suppose, for example, that a hand-truck plant were
constructed in 19U5, the building cost being $50,000 and the equipment cost
$U5,000. An estimate of its replacement cost in 1951 is desired. From
Figure 6, the index of replacement cost for the building at 19U5 prices is
approximately 5h per cent and the equipment cost index in 19U5 is 66 per
cent. Dividing the 19h5 purchase costs by the respective cost indices
gives the replacement costs in the base year, 1950, as building $92,000,
and equipment $68,000. Then, multiplying the 1950 replacement costs by
the respective indices for 1951, the approximate replacement costs at the
1951 price level are building $99,000 and equipment $75,000.

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rtflq ei c?49I ni: xsbtrj: cfsoo tots
■

32.

SUMMARY

In California pear and apple packing plants, the fixed costs for
buildings and equipment are high relative to annual output of fruit. This
is due in large part to the short operating season. Comparisons of fixed
costs for plants of different types and sizes can be made in terms of
estimates of replacement costs for buildings and equipment. From such
estimates, annual fixed costs can be calculated by means of standardized
cost-rates expressed as a percentage of the replacement cost.

The replacement costs of buildings for fork-truck and hand-truck
plants vary to some extent with the particular design and the kind of con-
struction materials used. In general, however, the replacement cost of the
building for a hand-truck plant will, at the current price level, be less
than for a fork-truck plant of equal capacity. Because of the higher per-
centage annual charge applicable to the hand-truck type construction, the
annual fixed costs estimated from current replacement costs are about the
same for the two types of structures.

The replacement costs for trucking equipment are much higher in the
fork-truck plants than in the hand-truck plants, and this applies also to
the annual fixed costs for the two tyoes of equipment.

Replacement costs for packing equipment are the same in the two types
of plants, but annual fixed costs for the packing equipment are lower in the
fork-truck plant. This is because of the lower fire insurance rate applic-
able to the fork-truck type of building construction.

The fixed costs per unit of output decrease as the length of season
and the total season output increase. This is illustrated with estimates
of fixed costs for a pear packing plant of h$,000 pounds per hour capacity
(36,000 pounds per hour of packed fruit and 9,000 pounds per hour of cannery
fruit). With a capacity operation for only 100 hours per season, the
average fixed cost in such a plant is approximately 19 cents per standard
box in the hand-truck plant and 22 cents per standard box in the fork-truck
plant. With capacity operation for 2^0 hours per season, however, the
average fixed costs are about 8 cents per standard box in the hand-truck
plant and 9 cents per standard box in the fork-truck plant. In regard to
cannery and cull fruit, the average fixed costs with 100 hours operation
per season are approximately $3.20 per ton in the hand-truck plant and $U.60
per ton in the fork-truck plant. The corresponding average fixed costs for

>9 bne

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cannery fruit with 250 hours of plant operation per season are $1.25 per
ton in the hand-truck plant and $1.85 per ton in the fork-truck plant.

Indices of replacement costs for buildings and equipment rise rapidly-
through the period since 19U0. w ith 1950 as a base year (1950 » 100) the
19li0 building replacement cost for a hand-truck plant was only 1|2 per cent
of the 1950 replacement cost. Similarly, the 19U0 building replacement
cost of a fork-truck plant was 52 per cent of the 1950 cost. The replace-
ment costs for equipment in 19U0 were only 66 per cent of the 1950 replace-
ment costs.

The data presented can be used to estimate replacement costs at the
1950 price level for different types and sizes of plants. The index of
replacement costs for buildings and equipment can be applied to such esti-
mates—or to actual investments in a past period— to obtain an estimate of
replacement cost at the current price level.

3U.

APPENDIX A

Establishing Standard Requirements for Buildings and Equipment
for Use in Estimating Replacement Costs

The replacement cost data presented in this report are intended to
represent costs for well-organized plants of current design, rather than
to indicate costs for "ideal" plants. The procedure used to establish the
standards for equipment and building requirements on which the cost esti-
mates are based is briefly as follows:

Three plants were selected which appeared to be well planned and which
were "efficient" in the sense that labor costs were relatively low. The
allocation of floor space to various functions observed during actual opera-
tion of these plants was tabulated. Variations between plants in the space
allocations for equipment of a given type and size were relatively small.
Considerably greater variation appeared in the space allocation for the
storage of incoming fruit and packing materials. By comparison within the
group of selected plants— and by comparison with observed space alloca-
tions in other plants not selected for special analysis— the space alloca-
tions in the selected plants were adjusted to levels that appeared repre-

sentative and adequate.

Space allocations were standardized for hand-truck and fork-truck
plants on the following basis. In regard to storage space for incoming
fruit and for shook and empty packing boxes, it was estimated that 1 square
foot of floor space in a fork-truck plant is equivalent to 2$ square feet
of floor space in a hand-truck plant. This is based on the observed ratio
in the height to which these materials are commonly stacked. For example,
in hand-truck plants incoming fruit is usually stored in stacks 6-lugs
high, while in fork-truck plants, the stacks commonly are 3-pallets high,
with boxes stacked £-lugs high per pallet. Floor space for all other cate-
gories was standardized on a 1 to 1 ratio for both types of plant, except
that aisle space was provided in greater proportion to total floor area in
fork-truck plants than in hand-truck plants.

Through the above process, floor space requirements in relation to
volume of fruit handled were standardized as in Table A. These standard
space requirements were then "fitted in" to what appear to be efficiently
arranged floor plans. Some small shifting between the various areas was
necessary in the "fitting in" process, but the standardized total area was
maintained. The estimates of space requirement, grouped according to

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35.

TABLE A

Space Allocations, Hand-Truck and Fork-Truck Plants, Pear and Apple Packing

Curve
desig-
nation /
Fig. h—

*" j Floor area

i" Hand- truck plant) Fork-truck plant

|^-b/L >-c/!

Operation I line-' ' lines- |

line- 7 lmes-

H
H
H
H

•

Incoming fruit
Packed fruit 1
Cannery and cull fruit j
Sorting and dumoing equipment

Subtotal

Rnnfed areas

U.2
2.U
0.5

11.0
6.0
1.0

2.U

o.5

u.u

6.0
1.0

7.1
— i

18.0
1

U.6

li. U

I
I

Aisles

Miscellaneous (toolroom, office,
restrooms, etc.)

Subtotal

3-0
2.0

8.6
3.0

3.5
2.0

3.0

5.0

11.6 i 5.5
1

13.5

G
G

Packing boxes, shook, and lids,
storage

Boxmaking, labeling, and liddmg-
Subtotal

U.2

o.U

1U.2 1 1.7
2.3 o.U

5.7
2.3

U.6

16.5 1 2.1

r- ;

8.0

Sum of H,
G, and I

Total roofed area, excluding
sizing equipment & /
Sizing equipment (Table l)-

Total roofed area

16.7
2.1

U6.1 | 12.2
6.3 i 2.1

32.9
6.3

18.8

52. U J

39.2

J
I

1 K

Empty lug storage
Receiving area
Shipping area

TTnroofed areas

2.8 j 10.5
3.8 , 9.6

e/ } e/

0.8

U.o
3.0

3.5
12.0
5.2

a/ Curves H, I, J, and K related to capacity rate, total fruit run? curve G re-
~ la ted to capacity rate, fruit packed.

b/ Capacity rate: total fruit run, 20,000 pounds per hour; packed fruit, 12,000
pounds per hour.

c/ Capacity rate: total fruit run, 75,000 pounds per hour; packed fruit, U8,000
pounds per hour.

d/ Storage of empty boxes assumed to be on main floor of packing house. If
- boxes are stored in a box loft, the total roofed area may ^ leas than in-
dicated. In this event, building costs in relation to roofed area given m
Figure 5 would be greater for a given roofed area than indicated,
e/ Assuming track adjacent to packing house, with direct access to storage for
packed fruit.

L zj£

•

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. . ¥ .. . t . ...... J

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■4

36.

relevant capacity rate, were plotted as in Figure b. A straight-line varia-
tion in space requirements for plants of different size was assumed.

Specifications for details of building construction were drawn up,
from which the quantities of labor and materials required for construction
were estimated. These quantities were priced at the 19?0 level to obtain
estimates of construction cost, and the cost estimates were plotted in
relation to the roofed area of the building (Figure $).

Detailed lists of equipment were prepared for plants of four different
capacities. The types and quantities of equipment included in these "stand-
ard" lists are indicated in the summary for a 2-line pear packing plant
given in Table B. Each item of equipment was priced at manufacturer's 1950
list price, plus an estimated amount for delivery and for the cost of labor
and materials required for installation. The level of quoted prices was
verified in many cases by comparison with the actual cost of recent pur-
chases in particular plants. These estimated costs were then grouped ac-
cording to the relevant variable— e. g. , total fruit run for sorting equip-
ment; fruit packed for boxmaking equipment. The results were plotted and
a straight line "smoothed" between the cost points for different plant
capacities (Figure 3)«

Total floor space requirements estimated from the "standards" derived
in the above manner compare favorably with the total floor space in actual
plants, and the estimated costs for buildings and equipment appear consist-
ent with actual costs in recently constructed plants. This suggests that
the data indicate fairly well the level of building and equipment costs
that may be expected. It should be emphasized, however, that the data are
intended only to provide a basis for estimating the general level of
aggregate costs for buildings and equipment. Considerable variation will
result if the data are applied to a particular plant that differs in im-
portant respects from the model used in this analysis. Also, the data re-
garding space allocations and equipment requirements are quite generalized
and are not intended as a guide for planning plant layout.

11 .iGJIIcXU

'Jcterwsv drip-
iii>. f 5:fr<C'J iu'

37.

TABLE B

Equipment List for a Representative Pear Packing House-'

Table or
chart

designa-
tion

Item

Figure 3,
Line A

Figure 3,
Line B

Figure 3,

Line C

Figure 3,
Line D

Table 1

Figure
Line E

Figure 3,-
Line F

BOXMAKING AND LIDDING
Boxmaking machine
Stitcher

Empty box conveyor: gravity, sidewheel
Lidding machine
Accumulator

Conveyor: gravity turn
Packing stands
Car squeeze

DUMPING AND SORTING EQUIPMENT, DISTRIBUTION BELTS
Conveyor to dumper
Water dump
Dryer

Sorting table, 20 feet long

Distribution belt, 2h inches wide x 18 feet long

OFFICE EQUIPMENT, TOOLS, SCALES

Office: business machines, furniture, record vault
Tools and miscellaneous: stenciling machine, belt
lacer, fire extinguisher, trucking boards, mis-
cellaneous tools
Scales: truck scale, 32,000-pound capacity

platform scale, 2,000-pound capacity
line scales, 100-pound capacity

CANNERY AND CULL FRUIT BELTS

Cannery fruit: 18 inches wide x 30 feet long
12 inches wide x 30 feet long
Cull fruit: 10 inches wide x 30 feet long

SIZING EQUIPMENT AND PACKED FRUIT CONVEYOR

Sizing unit, curtain sizer, with 7 7|-foot tubs
Conveyor, power belt, 12 inches x 85 feet
Conveyor, power belt, 12 inches x 25 feet

TRANSPORTATION EQUIPMENT
Fork trucks, U, 000-pound capacity
Pallets

Empty field lug conveyor: power belt, 12 inches
x 150 feet

Hand trucks: two wheeled, side clamp
Empty field lug conveyor: power belt, 12 inches
x 150 feet

Number
of
units

1
1

liOO feet
1
1
2
36
1

2
2
2
2
2

2
2

1
1

3
1

h
5oo

15
15

a/ A 2-line plant: capacity rate, total run, 38,000 pounds of fruit per

~ hour | packed fruit (in standard boxes) 2U,000 pounds per hour.

b/ Value of office equipment and furniture and tools and miscelleneous items

~ approximately 60 per cent of Line C at 1950 price level,

c/ Alternate equipment for hand-truck or fork-truck plants.

9HISISJ L el<fc

i99l 0

38.

Previous Reports in This Series on
EFFICIENCY IN FPU IT MARKETING

Marketing Costs for Deciduous Fruits
Grading Costs for Apples and Pears
Orchard-to-Plant Transportation
Packing Costs for California Apples and Pears