APPLE PACKING COSTS IN WASHINGTON, AN ECONOMIC-ENGINEERING

W. Smith Greig and A. Desmond O'Rourke

SUMMARY AND CONCLUSIONS We have assembled data on the main in-plant sources

of costs in selected Washington fresh apple packing houses. Overhead costs per packed box for buildings, equipment, and management rise dramatically as utilization of current plant capacity drops off. For the plants studied, such costs in 1970-71 at maximum capacity would have been 85.1¢ per packed box; at 80o/0 of maximum capacity, 106.5¢; at 60o/o of maximum capacity, 142.2¢; and so on at an increasing rate for each subsequent 1o/0 fall in rate of utilization.

A related factor is the extent of utilization within a season of packing line facilities. On average, the plants in our sample packed their 1969-70 pack in 91 8-hour shifts. They could have packed all of their current storage capacity in 109 8-hour shifts. One house ran 144 8-hour shifts in 1969-70. Utilization at this level by all plants in our sample would have permitted throughput of 58.2o/0 more packed boxes than were actually handled, with a reduction in overhead costs per packed box of 36.2% or 31.3¢ below actual 1969-70 average costs.

Undoubtedly, through use of double-shifts even more 8-hour shifts could be operated per season. At present, the plants in our sample have 26o/0 of their annual costs tied up in packing house and line equipment and 41o/0

in CA (controlled atmosphere) and cold storage buildings and refrigeration. Despite this, the relative allocation to packing facilities still appears to be excessive, and many individual plants could further reduce overhead costs per packed box by adding more storage facilities. However, serious overcapacity would develop if the industry as a whole added enough storage so that each existing packing hc;mse could operate 145-150 shifts per year. This fact suggests a reduction in numbers of packing houses and the reallocation of currently available storage among fewer houses.

The additional fixed annual overhead cost of CA storage buildings and refrigeration per packed box of Red Delicious (assuming 15% culls) would be 10.5¢; of Golden Delicious (assuming 25o/o culls), 11.8¢. The fixed annual overhead cost of ordinary cold storage would be 6.9¢ per packed box of Red Delicious and 7.8¢ for Golden Delicious. Electrical costs for either type of stor­age would cost a further cent per month of operation. In addition, increased storage would demand an equivalent increase in field bin capacity at an annual cost per packed box of 7.9¢ for Red Delicious and 9.0¢ for Golden Deli­cious. As a general rule, firms will be able to reduce per box costs by adding storage until savings per packed box on further utilization of packing facilities becomes less than the additional costs of specific storage facilities desired.

Golden Delicious overhead costs per packed box for

buildings, equipment and management typically are higher than those for Red Delicious because of a higher cull rate. Storage of apples that will be culled has the same effect on cost per packed box as underutilization of capacity. However, fruit going to a processor must be stored some­where. The processing plants cannot process all the off­grade fruit during the harvest season. Perhaps cheaper storage could be evolved for fruit for processing. Fruit could be sampled before storage to ascertain whether each lot should be stored for fresh market or should be diverted directly to processors. Presizing and pregrading could also reduce storage costs.

Our analysis of overhead costs also showed that a num­ber of smaller plants, through better management and utili­zation of their facilities, currently had costs as low as or lower than larger plants. However, larger plants on aver­age appeared to have a cost advantage of lower annual fixed costs per packed box. Firms could reduce their costs substantially by having larger plants, their storage facilities more in balance with packing line capacity, and enough fruit to consistently utilize this capacity at its maximum level. The industry coulc.i. lower costs even with current technology.

Three main factors influenced operating costs of the packing line: the quality of fruit, internal organization of workers and size of plant.

The higher the proportion of Extra Fancy apples, the lower the cull rate, and the larger the apples handled, the quicker the packing and the less the direct packing cost per packed box. This suggests that packing charges need to be more directly related to the actual costs of handli~g different qualities of fruit. Only in this way can the better grower be rewarded and the poorer grower be penalized. The overhead costs presented and the operating cost for­mulae developed in this bulletin provide a framework for setting up a schedule of differential charges for different qualities of fruit.

The efficiency of grading was the key factor in de­termining the quantity of fruit moving along the line, and the productivity of all other workers. Apart from fruit quality, the major factor affecting grader time was number of graders on each side of the line. On Red Delicious lines, management should aim for four graders per side. Additional graders added more to cost than to output. On Golden Delicious lines, where sorting is more demand­ing, five or even six graders per side should be better than four.

On average, the Red Delicious lines studied had 8 graders for each 10 packers, the Golden Delicious lines 8.6 graders for each 10 packers. Even making allowance for the specific pack being handled in the runs studied, our

1

results suggested that packer work time rose when the ratio of graders to packers fell below these averages. We can say tentatively that for the range of quality of fruit in our sample, plants could cut packer work time per packed box by having relatively more graders and thus speeding the flow of fruit to packers. We cannot say what the op­timal ratio is. We do consider that failure to keep an ade­quate balance between the graders required to handle a given quality of fruit and the packers required for a spe­cific volume of fruit and pack type can be costly.

Economies of size in line operations were a major fac­tor in reducing the costs of miscellaneous work time. Many miscellaneous operations, such as tally, marker, box close, dumper, etc. are required regardless of the volume of fruit handled. Therefore, the larger the line and the greater the volume of fruit handled per unit of time, the lower the cost per box of these miscellaneous workers. Clearly, many Washington plants have not yet grasped how critical to cost reduction are greater packing line capacity and fuller utilization of that capacity.

Packing materials costs are the third major contributor to total storage and packing costs, ranging from 54¢ for Red Delicious tray pack no wrap, size 64; to 99¢ for full wrap, true cell pack Golden Delicious size 160. The smaller the apple and the more wraps, the higher the packing ma­terial costs and the more packer time required. As labor and materials costs continue to rise, it becomes more per­tinent to question the marketing returns to be gained from the more expensive packaging and to seek cheaper pack­aging.

In our study, the Golden Delicious variety consistently

cost more to store, grade, pack and prepare for shipment. Accordingly, both growers and plant managers should con­sider market prospects, anticipated storage, and packing costs for each lot early-then decide whether returns would not be higher from consigning the lot immediately to the processor. This study provides most of the basic data needed to estimate prospective storage and packing costs.

Finally, our study has analyzed the costs of current standard technologies. The results are presented in such a way that different parts of the present system can be looked at separately. The introduction of a new tech­nology in any part of the system can be readily examined in light of whether it adds to or reduces the cost of the present system. In addition, the costs set down here can be used in evaluating any new system.

Limited observations were obtained on a new grading technology-pregrading and presizing. This system now appears to have a slight disadvantage in labor require­ments and in overhead costs of buildings and equipment. It also has a slightly higher cullage rate. (The apples are handled an additional time.) However, packing advantages are co-mingling different lots of fruit, inventory control, and early diversion to processors. Marketing advantages are rapid order filling, and availability of specific grades and sizes for more efficient prepackaging.

In the future, increased automation associated with pre­grading and presizing might cut grading and packing costs. However, the main advantages of presizing and pregrading will probably be the marketing advantages rather than cost reductions.

INTRODUCTION Washington has for decades been the leading supplier

of fresh apples to the United States market. On average, in the years 1965-69, Washington growers received $73.7 million for an output of 675,500 tons of apples. Eighty percent of all Washington apples are shipped to fresh market. Since the state itself absorbs only 4o/0 of this fresh pack, a major arm of the industry has developed to assemble, store, grade and pack apples, mainly in 42-lb cartons, for shipment to distant markets as demand war­rants. This marketing arm of the industry in 1965-69 added a further $75 million to the value of apples shipped from the state ( 8).

The price of Washington apples is normally negotiated at shipping point in terms of dollars per packed box for specified variet;es, grades and sizes. The packing house then deducts packing, storing and selling charges from

this price and remits the balance to the grower. According­ly, Washington growers are acutely aware of how their returns are affected either by a fall in shipping point prices or by an increase in packing house charges. While many factors that affect market price are outside the control of the Washington industry, growers and warehousemen working together in the state's 185 packing sheds can very rapidly put into effect any methods that promise to cut costs or increase efficiency.

The basic problem packing sheds faced in the last dec­ade was an apparently irresistible rise in the principal cost items, wages, packaging materials, and interest. Managers have been in a quandry as to how to cut such costs while maintaining the quality (color, grade, appearance, etc.) that enables Washington apples to earn a price premium in U. S. markets.

PURPOSE The general purpose of this study was to conduct a de­

tailed stage by stage analysis of fresh apple storage and packing costs in different sizes and methods of operation in Washington. In essence, this is a base line study of costs under the technology nearly universally used in Washing­ton. The cost data developed should provide packing house

2

managers with guidelines for more efficient utilization of their present plant and equipment. We also should ascer­tain current standards of performance. When costs of cur­rent technologies are available, it is easier to measure the possible effects of new technological developments.

METHODS This study is an engineering-economic analysis of in­

plant costs in apple packing houses.1 The overhead costs of buildings and equipment were developed from an engi­neering base and the internal operating costs were deter­mined by time and motion studies or time studies. In de­termining the overhead costs of building and equipment, engineers obtained the physical specifications of all build­ings and equipment from blueprints from each individual packing house, by direct measurement, or by consulting packing house management. A current replacement value for buildings and equipment was used rather than original cost or depreciated book value. Thus, we are not measur­ing true costs or actual cost of any specific packing house but rather measuring packing costs under very specific pre­scribed conditions.2

Current replacement value of buildings and equipment was used because it is extremely hard to compare account­ing costs (for example depreciated book values) of plants built at different times and under different interest rates. Further, each plant could use a different method of de­preciation for its buildings and equipment to arrive at book value.

The operating cost of each of the packing houses in

EMPIRICAL Our sample was 16 selected fresh apple packing houses

in Washington. Some operations in British Columbia and around Hood River, Oregon, also were observed. For reasons of confidentiality, data problems, etc., complete returns for buildings and equipment replacement costs and for operating costs can be reported for only 14 apple packing houses. The following sections tell how each phase of the study was conducted and give detailed results.

Building and equipment replacement costs The conversion factors used to determine current re­

placement costs of building and equipment are in table 1. These cost estimates were obtained from engineers who had done much work on apple packing and storage throughout the United States.4 For storage costs, we as­sumed a modern cold storage facility where field bins 4-ft by 4-ft, each holding 875 lb of fruit (25 field boxes of 35 lb each), could be stacked 9 high. With an allowance of 25o/0 for aisles and waste space, the storage capacity of the building would be 11.25 field boxes per square foot (field boxes equivalent to 35 lb).

Engineers estimated that a modern cold storage build­ing meeting these requirements could be built for $10.50/

1 For earlier methodological studies of in-plant costs, see references 2 and 5. References 3 and 6 are previous economic-engineering approaches; other methods are in 4 and 7.

2 For example, a plant built today, because of price increases and inflation, may cost 50% more than a plant built 15 years ago. Further, a plant built 15 years ago could conceivably have a book value or depreciated value of only 25% of current replacement costs. Second, interest rates 15 years ago were undoubtedly sub­stantially below current interest charges-further reducing the

our sample was directly measured. Accounting records of labor costs, for example, were not obtained from each in­dividual firm. The operating costs, particularly the labor costs, were measured directly, either by time studies or by time and motion studies ( 4). In effect, a ratio-delay meth­od of measurement was used on most of the internal opera­tion. In the packing stage, direct time measurement was used.

In the ratio-delay method of work measurement, a sta­tistical probability sampling method is used to determine the percent of the time a worker on any prescribed job is working and the percent of the time that he is in a non­work cat~ory. Thus, the total time the employee is on the job is measured. Then by a sampling technique, the actual percent of the time he is working is measured. 3 In the time studies of the packing stage, we used stop watches to measure the exact length of time it took packers to pack any specific size, grade, and type of packed box. By com­bining overhead costs with direct labor costs, we were able to determine the total cost for packing any size and grade of fruit into any specific type of container. The following descriptions of the empirical results of the study will help to make the study methods clearer.

RESULTS sq ft and the refrigeration system could be obtained for an additional $4.00/sq ft. To estimate the cold storage cost for any specific plant in our study, the total current stor­age capacity in field boxes was divided by 11.25 to calcu­late the square feet of equivalent modern storage needed. This then was multiplied by $14.50/sq ft to get the total cost for buildings and refrigeration equipment for cold storage capacity.

The controlled atmosphere (CA) storage costs were estimated at $16.00/sq ft and the refrigeration and the CA system itself was calculated at $6.00/sq ft. Field bins were valued at $14.00 each; pallets, $3.80; and fork trucks, $9,000 each. In the case of grading equipment, the engi­neers physically inspected the packing lines in each plant, then estimated the manufacturing replacement costs. Then to the manufacturing replacement costs, an electrical sys­tem cost of 25o/0 and an installation of 15o/0 of the manu­facturing replacement cost were added to obtain total cost for equipment in each packing house.

The estimated total replacement cost of buildings and equipment for the 14 apple packing houses in the study is listed in table 2. This is the total dollar value for stor­age, refrigeration, packing sheds and other buildings, pack-

cost of a plant built 15 years ago compared to current costs. Thus we did not measure true or real or actual overhead costs of any of the specific plants in the sample; we measured only current replacement costs.

3 For example, suppose a worker was observed 100 different times during a 2-hour work period, and in 90 observations he was working and in 10 he was not. The lapsed time is 120 minutes but the work time is only 108 minutes.

4 Food Industries Research and Engineering, Yakima, Washington.

3

ing line equipment, field bins, pallets, and fork trucks. The estimated total replacement costs range from $2,498,-325 to $285,435. With the wide range of plant sizes in the study, investment in the largest plant was nearly 10 times that of the smallest plant. The total estimated replacement cost of buildings and equipment of the 14 apple packing houses in the study was $21,091,280.

For ease in comparing plants, table 3 gives the per­centage distribution of replacement costs of the different segments in each of the apple packing houses. For exam­ple, based on current replacement costs, cold storage and refrigeration were 36o/0 of the total replacement costs in

TABLE 1. Engineering cost factors to calculate building and equipment replacement costsl

REPLACEMENT COST FACTORS

Cold storage ;·ooms Cold storage refrigeration CA storage rooms CA refrigeration & CA system

Packing Office

Dry storage Machine room Covered areas Concrete paving Asphalt paving Field bins Pallets Fork trucks

Grading equipment--estimated manufacturing replacement cost2 + 25% for electrical systems + 15% installation costs

$10.50/sq ft 4.00/sq ft

16.00/sq ft 6.00/sq ft

7.00/sq ft 16 .00 sq ft

6.00/sq ft 6.00/sq f t 4.00/sq ft

.80/sq ft

.45/sq ft 14 . 00 3.80

$9,000

STORAGE CAPACITY PER SQ FT OF SPACE FOR LOOSE BOXES

For cold storage

Field bins are 4' x 4' each holding 875 lb of fruit (25 field boxes of 35 lb each) Stacked 9 high and 25% for aisles and waste space, the capacity is then 11.25 field boxes per sq ft

For CA storage

Assumed only 10% of space for nonstorage use--i.e., for aisles and other waste space .

FOR PACKED BOXES

Assume pallets 4' x 4' with 40 boxes (5 layers of 8 each) per pallet. The pallets are stacked 2 high without sup­ports or frames--but are stacked 4 high with wooden sup­ports or frames. Without frames and assuming 25% aisles and waste space this is 4 packed boxes per sq ft. With frames and assuming 25% aisles and waste space this is 8 packed boxes per sq ft. For storage costs we assumed 8 packed boxes per sq ft For storage costs we took the storage capacity given by each plant and ca 1 cu ~ ated costs from the above conversion factors.

1Estimates developed by engineers of Food Industries Research & Engineering, Yakima, Washington, under a contrac­tual agreement. 2Each grading line was analyzed by engineers and replacement costs developed after a physical inspection of each line .

4

the 14 packing houses. CA storage and refrigeration were 12.5o/0 ; all storage was 48.5% of the total investment.

The packing shed itself accounted for 16.2% of the total investment and the packing line equipment 14. 7o/o. Thus, the packing house and equipment combined repre­sented 30.9o/o of the total replacement costs of the packing houses.

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TABLE 3A. Percent distribution of replacement costs of building and equipment, 14 selected fresh apple packing houses, Washington, 1971 1

Plant number Weighted

2 3 4 5 6 7 8 9 10 11 12 13 14 average

(Percent)

Cold storage (bldgs. & refrigeration) 44.3 31.1 37.8 40.6 37.3 40.5 30.1 48.9 23.1 30.7 22.2 30.8 39 . 5 24 .8 36.0 CA storage (bldgs. & refrigeration) 14.0 6.6 7. 8 11.6 15.3 12 . 0 16.5 3.1 25.2 26.3 21.7 21.2 9.3 12.5

Storage sub total 58.3 37.7 45.6 52 . 2 52.6 52.5 46.6 52.0 48.3 57.0 43.9 52 . 0 48.8 24.8 48.5

Packing house 11.1 26.8 22.0 15.2 13.8 9.8 20.0 10.5 9.0 12. 8 17.5 13.4 10.3 18.9 16.2 Packing line equip . 8. 9 16.7 15.5 9.4 9.5 16.7 11.1 17.3 12.1 21.6 18.0 14.0 17.6 45.7 14.7

Packing sub tot a 1 20.0 43 . 5 37 . 5 24.6 23.3 26 . 5 31.1 27.8 21.0 34.4 35.5 27.4 27.9 64.6 30.9

Field bins 18.5 14.9 12.7 18.4 20.1 16 . 2 18.5 15.3 17.9 2. 82 16.1 16.2 17.9 3.92 15.7 Pallets . 7 1.1 1.6 1.4 .4 .8 . 3 1.3 5.4 1.7 .8 . 5 1.6 .4 1.2 Fork trucks 2.5 2.8 2.6 3.4 3.6 4.0 3.5 3.6 7.3 4. ]3 3.7 3.9 3.8 6.3 3.7

Total 100.0 100.0 100.0 100.0 100.0' 100.0 100. 0 100.0 100.0 100.0 100.0 100. 0 100.0 100.0 100.0

lAn additional packing house is included in the weighted averages. 2Rents additional field bins. The rental charges will be included in annual costs per packed box, table 6. 3Rents additional fork trucks. The rental charges will be included in annual costs per packed box, table 6.

TABLE 3B. Percent of total storage volume in CA storage and in cold storage, 14 apple packing houses, Washington, 1971

(Percent)

CA storage 25 .8 14.1 13.8 20.4 24.1 24.2 29.8 6.0 46.9 40 . 0 43.1 34.9 18.6 0. 0 23.3 Cold storage 74.2 85.9 86 . 2 79.6 75.9 75.8 70.2 94 . 0 53.1 60.0 56 .9 65.1 81.4 100.0 76.7

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100. 0 100.0

TABLE 3C. Capacity of field bins as percentage of storage capacity, 14 apple packing houses, Washington, 1971

Field bins owned as percent of storage capacity 101 95 66 95 94 97

The field bins were 15.7o/o; pallets, 1.2o/o; and fork trucks 3.7o/0 of the total replacement costs for the 14 apple packing houses in the study.

Total storage cost as a percent of total replacement costs ranged from 24.8o/0 to 58.3o/0 of the total investment. It will be shown later that these differences in relative amounts of storage strongly affect total costs per packed box. Similarly, the packing house and equipment varied from 20o/0 to 64.6o/0 of total replacement costs.

In the packing houses studied, 23.3o/0 of the total stor­age capacity was CA storage and 76.7o/0 was cold storage. CA storage ranged from none to 46.9o/0 of the total stor­age capacity.

Another aspect of the costs was the owned capacity of field bins as a percentage of total storage capacity. This ranged from 66o/0 to ownership of field bins equivalent to 105o/0 of total storage capacity. Sometimes bin owner­ship of less thim total capacity is probably correct, as many plants were not operating at full storage capacity. For ex-

(Percent)

99 85 98 72 95 80 105 95 88

ample, one plant with a field bin capacity of only 66% of total storage capacity seldom operated at more than 66o/0 of total storage capacity. In other cases where the ownership was relatively low, field boxes may have been rented. If so, these rental charges were added to the total cost of the plant later in the study.

Converting replacement costs to annual costs A very specific set of assumptions was used in convert­

ing total replacement costs to annual costs. We took into account:

1. the depreciation for the buildings and equipment 2. the interest rate 3. taxes 4. the repair rate 5. the cost of insurance 6. a normal profit. Normal profit, as we have used it, is an economic con­

cept, indicating not what we feel is a "fair" or "justifiable"

5

TABLE 4. Method for converting replacement costs to annual costs

Formula: K [1 ERe

a I + (l-E)Rb + 1-F-I + FI +T+N+G]

Where: K Multiplier for converting replacement costs to annual costs for input i in packing house r.

a Proportion of time input is used in apple packing. (Some apple packing houses and equipment may be used for other products during part of the year).

L Lifetime in years for depreciation of item i.

E Stockholders equity as a proportion of total assets.

Rb Annual rate of interest on borrowed funds.

Re

F

Rate of return of stockholders equity after state and federal income taxes.

Average federal income tax rate.

State corporate income tax rate {Washington has a $.0044 gross receipts tax; assuming a 6.5% gross margin per $1.00 of sales, this is an equivalent income tax of .0044 f . 065 or 6.8%).

T Local property tax rate.

N Insurance rate on item i.

G Annual rate of repairs.

Examples: Annual cost of cold storage buildings with replacement cost of $500,000. (a) A corporation in a 31 % federal income tax bracket.

K 100 [~o + (1-.60) .07 + l-. 3 l-.0~~(~0~~ 3 l X •068 ) + .0117 + . 0105 + .005~ K .163174 $500,000 x .163174 = $81,587.00- annual cost for corporations

(b) A tax exempt cooperative.

K 100 [ ~O + (1-.60) .07 + 1 :~~~0~~\ O + .0117 + .0105 + .005 J K .140035

$500,000 x .140035 $70,017.50 annual cost for cooperative

profit, but rather the estimated opportunity cost of money. For example, during the period studied, AAA bonds yield­ing as much as 8.75o/0 fyear were available. Thus the op­portunity costs for money or a normal yield that one could have obtained on the money market was more than So/0 •5

Our study assumed a normal profit of So/0 on equity. Note that we shall not develop an average cost of pack­

ing apples in Washington. Rather, we shall develop a cost of packing apples under prescribed conditions and assump­tions.

The formula used for converting replacement costs to annual costs is in table 4. The formula may look compli­cated but it isn't. If the formula is investigated one item at a time, its simplicity becomes fairly clear.

The definition of each factor is given in table 4. How­ever, we will further explain some of these items.

The small letter a denotes the proportion of the time the apple packing house and equipment were used in pack­ing apples. In some cases the packing house may pack cherries, peaches, pears or nectarines, etc., therefore, the total cost of the building should not be charged solely to

5 This is a relatively high opportunity cost compared with the past; however, we do not know whether this will be low, normal, or a high opportunity cost in the future.

6

the apple packing function. L is the lifetime in years of depreciation for each item in the packing house.

(1-E)Rb is a formula used to determine the total amount of interest paid. E, the proportion of total assets represented by owner's equity, varies widely; 60o/0 was chosen from past studies of small business and (1-E) is the proportion of borrowed money used. Multiplying the amount of borrowed money times the interest rate (Rb) gives you the cost of interest each year for the apple packing house.

The next entry, ER., is the equity proportion of total assets multiplied by a normal rate of return on investment. Thus E x Re is the normal rate of profit for the apple packing house for the year. To determine the rate of profit after taxes it was necessary to adjust ERe by the tax rate to get the rate of profit that must be made before taxes.

F is the federal tax rate; I is the state income tax rate (in most areas the state income tax is deductible from federal income taxes). The formula adjusts the federal rate by the state tax rate to give the total tax rate. A dif­ferent federal tax rate was used for each packing house. Some of the houses were corporations, some were coopera­tives paying no federal income taxes, some were corpora-

tions organized under subchapter S (having the option of paying at individual or partnership tax rate), some houses were partnerships, and some were individual proprietor­ships. T, the local property tax rate, was obtained from the local property tax assessor in the principal Washington counties with apple packing houses. The insurance rates, N, were obtained from a large insurance company in the area. G, the annual rate of repairs, was based on engi­neering estimates.

Table 4 gives two examples of use of the formula un­der given assumptions about the value of each element to convert replacement cost to annual cost for a cold storage building with a replacement cost of $500,000. One ex­ample is for a corporation with a 31o/0 federal income tax rate. The other is for a federal-tax-exempt cooperative. For this $500,000 cold storage building, the annual cost

of operation for the corporation would be $81,557 per year; for the cooperative it would only be $70,017.50 per year.

The factors used in converting replacement costs of buildings and equipment to annual cost are in table 5.

Washington does not have a state income tax but does have a .0044o/0 gross receipts tax. If we assumed a 6.5% profit margin per $1.00 of sales, the .0044o/0 gross receipts tax is equivalent to a 6.8o/0 state income tax rate.

The conversion of the gross receipts tax to the state income tax rate simplified computation. The state local property taxes were assumed to be 1.17o/0 a year, the in­surance rate was 1.14o/0 , and the repair rate varied, depend­ing upon the particular piece of equipment. For cold stor­age buildings, the repair rate was .5o/0 per year. The fork truck repair rate was assumed to be 2.5o/0 per year.

TABLE 5A. Factors used in converting replacement costs of building and equipment to annual costs

Rate of State & Expected Owners Interest rate return on State income local 1 ife of equity in on borrowed equity after taxes or % property Insurance asset asset funds taxes of net profit 1 taxes 2 rate 3

years % % % % % %

Cold storage bldgs 30 60 7 8 6.8 1.17 1.14 CA buildings 30 60 7 8 6.8 1.17 1.14 Packing shed 30 60 7 8 6.8 1.17 1.14

Cold storage refrig 20 60 7 8 6.8 1.17 1.14 CA refrig system 20 60 7 8 6.8 1.17 1.14 Packing line equipt 15 60 7 8 6.8 1.17 1.14

Field bins 10 60 7 8 6.8 1.17 1.14 Pallets 10 60 7 8 6.8 1.17 1.14 Fork trucks 8 60 7 8 6.8 1.17 1.14

1Washington has a $. 0044 gross receipts tax. Assuming a $6.50 profit margin per $1 . 00 of sales, this is equivalent to .0044 f .065 or a 6.8 percent state income tax rate.

20btained from county tax assessors where apple packing houses were located.

30btained from a major insurance company.

4Estimated.

TABLE 5B . Approximate 1970 federal income tax rates !

Taxable income Corporate tax rates 2 (%) Individual tax rates 3

$ 12,000 22 . 55 18.83 16,000 22.55 20.37 20,000 22.55 21.90

25,000 22.55 24.08 37,500 31.43 29.73 50,000 35.87 34.12

62,500 38.53 37.80 75,000 40.31 40.63

100,000 42.53 45.18

150,000 44.75 51.32 200,000 45.86 55.49

1Source: Commercial Clearing House "Explanation to tax reform act of 1969", 1970.

2A simple method for 1970 is to multiply taxable income by 49.2% then subtract $6,662.50.

(%)

Repair rate or % of total costs 4

%

. 5 1.5

.5

2.0 2.0 2.0

2.0 2.0 2.5

3Married filing joint return. These rates apply to partnerships, individual proprietorships, and to subsectionS corporations.

7

Having calculated the total equity in the operation and assumed a normal profit on equity, we could determine the normal income from each packing house per year. The tax rate tables then showed the federal tax for each pack­ing house's normal income. The corporate tax rate and the individual tax rates for different levels of taxable in­come are listed in table 5B.

Annual cost for buildings and equipment

Using the formula for converting replacement costs to annual costs (table 4), and the input factors in table 5, we developed the annual cost for each major cost segment in each of the 14 packing houses. The annual costs for an individual packing house ranged from $481,284 to $54,606 (table 6). The combined annual costs for the 14 packing houses were $3,725,409 per year.

The percentage distribution of annual costs of build­ings and equipment is in table 7. More meaningful anal­ysis of differences between plants in annual costs can be made by examining the percent distribution rather than the absolute level of annual costs.

The percentage of total annual costs for cold storage and refrigeration as a weighted average for the 14 plants studied was 31.4. The percentage total cost allocated to CA storage and refrigeration was 11.6. Thus on an annual basis, 43o/0 of the total costs of the houses in the study was allocated to either cold or CA storage.

As a weighted average, the packing shed itself ac­counted for 13.2o/0 of annual costs and the packing line equipment, 15.7o/0 . Together, the packing house and the packing equipment represented 28.9o/o of annual costs.

Field bins alone accounted for 21.2o/0 of annual costs while pallets accounted for 1.2o/0 and fork trucks for 5.7o/o.

The sample packing houses differed considerably in the percent allocation of costs to different functions. Storage overhead costs ranged from 20.8o/0 of total building and equipment costs to 52.6o/0 • The packing shed and packing line combined ranged from 19.2o/0 of total annual costs to a 62.6o/0 • Field bins ranged from 7.5% of annual costs to 28.1%, fork trucks from 3.7o/0 to 10.7o/0 • The distribu­tion of annual costs among storage, packing house, and field bins, pallets and fork trucks becomes very important when the total annual costs are converted to a cost per packed box.

Seasonal packing box capacity

As the total quantity of apples produced in Washing­ton varies from year to year, so does the utilization of the apple packing houses and the annual fixed cost per packed box. In some years, the buildings and equipment may be used nearly to capacity. In other years, a relatively low level of total capacity may be used. Thus, rather than use records of actual pack in the different houses we de­veloped a maximum capacity for each packing house. The maximum capacity of any packing house was defined as 10o/0 more than the combined CA and cold storage loose box capacity (this allowed for packing 10o/0 of the storage capacity at harvest time), plus 60% of the packed box

8

capacity in those houses that had storage facilities suitable only for storage of packed boxes. The maximum capacity (100% of capacity) for each packing house is in table 8.

We also calculated the capacity of each house in packed box equivalents at 90, 80, 70, 60 and 50o/0 of estimated maximum capacity. In addition, table 8 lists the 1969-70 season actual packed box output for each of the 14 packing houses in our study.

In estimating the maximum packaging capacity of each house we assumed that the fruit was 78o/0 Red Delicious and 22o/0 Golden Delicious, with an average of 18o/0 culls. We assumed 25 loose boxes of 34 lb each in a field bin, and that a packed box held 42 lb net weight of fruit .

Under these assumptions, 100 loose boxes would yield 68 packed boxes, a packout of 68o/0 . This is approximate­ly the Washington packout of several recent years (5). The maximum packing capacity of the houses in the study ranged from 59,497 packed boxes to 717,620. The actual 1969-70 packs ranged from 59,497 packed boxes to 665,-561.

The packed box capacity under our definition is di­rectly related to cullage. We assumed 18o/0 culls (fruit unsuitable for packing fresh); this fresh "cullage" may be highly suitable for processing.

Typically, Golden Delicious have a much lower per­centage packout than do the Red Delicious. For example, in our study, Red Delicious runs averaged 16.6o/0 culls while Golden Delicious runs averaged 27.9o/0 • Or con­versely, the packout of Reds was 83.4o/0 of that stored and of Goldens only 72.1o/o.

Total overhead costs each year must be allocated to boxes of fruit actually packed. Thus, in our example the overhead costs of storage alone on Goldens would be 15.7% more per packed box than on Reds.

In general, the quality of fruit delivered for storage decidedly affects the cost of storage when costs are based on packed box equivalents. The maximum capacity of each plant (as we defined capacity) was based on a cullage rate of 18o/0 • Plants receiving higher quality fruit than this would have a larger packed box capacity and those receiving poorer fruit would have less.

Annual building and equipment costs per packed box

Dividing the number of packed boxes at different pack­ing house capacities into the annual costs for buildings and equipment gave the packed box costs. For comparability, all firms were adjusted to a capacity of 25o/0 CA storage and 75o/0 cold storage. These data are in table 9. At 100o/0 of capacity in the various packing houses, the total costs per packed box for buildings and equipment ranged from 55.9¢ to 94.7¢ with a weighted average for the 14 apple packing houses of 68.1¢. If the capacity for a particular season was only 50o/0 of maximum, the overhead costs for buildings and equipment could range from $1.11 to $1.89 per packed box.

The actual pack of the houses for the 1969-70 season resulted in an overhead cost for buildings and equipment ranging from 64.1¢ to 95.3¢ per packed box. The weighted average for the season was 81.1¢ per packed box for the 14 packing houses under our specific assumptions.

TABLE 6. Annual costs for buildings and equipment, 14 selected fresh apple packing houses, Washington, 1970-71 1

Plant number

2 3 4 5 6 7 8 9 10 11 12 13 14 Total

$

Cold storage buildings 130,689 79,810 77,433 75,256 56,124 64,249 53,410 93,273 27 '711 27,122 17,748 23,498 32,832 7,728 802,819

CA buildings 43,959 18,136 20 '188 23,343 24,666 20,506 31 ,210 6,268 32,062 25,049 18,617 17,303 7,849 0 303,623

Packing house 45,428 94,880 62,113 38,880 33,751 21 ,565 49,083 27,716 14,824 15,642 19,270 14,139 10,958 8,110 491 ,589

CA refrigeration 18,634 7,823 8,709 10,070 10,640 8,847 13,239 2,638 13,624 10,804 7,954 7,392 3,140 0 130,361

Cold storage refrigeration 59,723 37,435 36,360 35,336 26,352 30,168 24,434 42,169 12,610 12,735 8,209 10,868 11 ,492 3,580 368,347

Packing line equipment 47,312 72,883 63,455 29,795 29,697 45,018 35,432 58,597 25,945 34,476 26,286 19,450 24,863 26,086 584,530

Field bins 113,532 84,144 67,003 74,794 77,911 56,544 68,509 59,352 44,159 21 '198 27,406 29,570 26,284 4 '111 788,789

Pallets 4,178 5,921 7,267 5,921 1 ,692 2,944 1 '116 488 1 ,367 3,384 1 ,338 713 2,675 221 43,454

Fork trucks 17,829 18,787 13,973 16,439 16,439 16,439 15,282 15,975 20,714 12,244 7,290 7,290 7,290 4,770 211 ,897

Totals 481 ,284 419,819 356,501 309,834 277,272 266,280 291 ,715 306,476 193,016 162,6902 134,118 130,223 127,383 54,606 3,725,409

1 Figures are adjusted for packing houses packing products in addition to apples and for rented facilities and/or equipment. Federal income tax based on size of firm and whether a corporation, corporation subsection S, partnership, cooperative or individual proprietorship.

2For 1969-70, only $152,690, as $10,000 was received for warehouse space rented out.

\0

...... TABLE 7. Percent distribution of annual costs of buildings and equipment, 14 selected fresh apple packing houses, 0 Washington, 19711

Plant number

2 3 4 5 6 7 8 9 10 11 12 13 14 Weighted average2

(Percent)

Cold storage (bldgs & refrigeration) 39.6 27.9 31.9 35.7 29.8 35.4 26.7 44.2 20.9 24.5 19.3 26.4 34.8 20.8 31.4 CA storage (bldgs & refrigeration) 13.0 6.2 8.2 10.9 12.7 11.0 15.2 2.9 23.7 22.1 19.8 19.0 8.7 -- 11.6

Storage sub total 52.6 34.1 40.1 46.6 42.5 46.4 41.9 47.1 44.6 46.6 39.1 45.4 43.5 20.8 43.0

Packing house 9.4 22.6 17.4 12.5 12.2 8.1 16.8 9.0 7.7 9.6 14.4 10.9 8.6 14.8 13.2 Packing line equip. 9.8 17.4 17.8 9.6 10.7 16.9 12.2 19.1 13.4 21.2 19.6 14.9 19.5 47.8 15.7

Packing house & equip. sub total 19.2 40.0 35.2 22.1 22.9 25.0 29.0 28.1 21.1 30.8 34.0 25.8 28.1 62.6 28.9

Field bins 23.6 20.0 18.8 24.1 28.1 21.3 23.5 19.4 22.9 13.0 20.5 22.7 20.6 7.5 21.2 Pa 11 ets .9 1.4 2.0 1.9 .6 1.1 .4 .2 .7 2.1 1.0 . 5 2.1 .4 1.2 Fork trucks 3.7 4.5 3.9 5.3 5.9 6.2 5.2 5.2 10.7 7.5 5.4 5.6 5.7 8.7 5.7

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100 .0 100.0 100.0 100.0 100.0 100.0

1Figures adjusted to reflect apple use of the facilities as a percentage of total use. That is, some firms used the facilities a portion of the year for pears, peaches, nectarines, sweet cherries, and other fruits.

2An additional plant is included in the weighted averages.

TABLE 8. Estimated seasonal packed box capacity at various levels of storage and equipment utilization, 14 selected fresh apple packing houses, Washington, 1970-711

Place number Percent maximum capacity used2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Total

(Packed boxes)

100 717,620 605,880 604,608 503,306 497,569 408,204 376,244 412,619 242,360 258,452 164,560 189,460 184,850 59,497 5,472 '751 90 645,858 545,292 544,147 452,975 447,812 367,384 330,502 371 ,357 218,124 232,606 148,104 170,514 116,365 53,547 4,925,476 80 574,096 484,704 483,686 402,644 398,055 326,563 293,779 330,095 193,888 206,762 131 ,648 151,568 147,880 47,598 4,378,200

70 502,334 424,116 423,225 352,314 348,298 285,743 257,057 288,833 169,652 180,916 115 '192 132,622 129,395 41 ,648 3,830,926 60 430,572 363,528 362,764 301 ,984 298,541 244,922 220,334 247,571 145,416 155,071 98,736 113,676 110,910 35,698 3,283,650 50 358,810 302,940 302,304 251 ,653 248,784 204,102 183,612 206,310 121 '180 129,226 82,280 94,730 92,425 29,749 2,736,376

1969-70 season pack 665,561 600,000 471 ,000 488,054 287,300 341 ,934 340,000 335,895 202,753 189,000 153,505 133,399 178,763 59,497 4,591 ,643

1Maximum capacity or 100% capacity is calculated as 10% greater than the combined CA and cold storage loose box capacity (this allows for packing 10% of storage capacity at harvest) + 60% of the packed box capacity.

2Assumed 78% Red Delicious and 22% Golden Delicious with 18% culls with a field bin holding 25 loose boxes of 35 lb each and a packed box holding 42 lb. This then is a packout of packed boxes to loose boxes of 68%.

TABLE 9. Estimated annual building and equipment costs per packed box at various operating capacities, 14 selected fresh apple packing houses, Washington, 1971 1

Plant number

Percent of total Weighted capacity 2 3 4 5 6 7 8 9 10 11 12 13 14 average

(Cents per packed box)

100 66.9 72.0 65.2 62.2 55.9 65.3 76.7 78.1 76.0 66 .7 78 . 5 70.3 69.8 94.7 68.1 90 74 .3 78.5 70.9 69.1 62 . 1 72.5 85.2 85.6 84.4 72.4 87.2 76.3 77 . 6 105.2 75 . 7 80 83.6 88.4 77.9 77.8 69.9 81.6 95.9 96.4 95.0 79 .6 98 . 1 83 .9 87.2 11 8.3 85.1

70 95.6 101.0 86.7 88.9 79.9 93.3 109.6 110.1 108.6 88.8 112.1 95.8 99.7 135.3 97.3 60 111.5 117.8 101.1 103.7 93.1 108.8 127.8 128.5 126.7 101.1 130.8 111.8 116.3 157. 8 113.5 50 133 .8 141 .4 121.3 124 .4 lll.8 130.6 153.4 154.2 152.0 121 . 3 157.0 134.1 139.6 189.4 136.2

1969-70 72.2 71.4 77.9 64 . 1 96.7 78.0 84.9 94 . 7 90 . 9 77 . 6 84.1 95. 3 72.2 94 . 7 81.1

1For direct comparison all firms adjusted to 25% CA and 75% cold storage. At some capacities, some firms would have to purchase additional field bins. These additional costs are included. All rentals of storage space, equipment and bins were included in the calculation of annual cost based on 1970-71 operating data . An additional plant is included in the weighted averages . A packed box is equivalent to net weight of 42-lb of fruit .

At higher levels of utilization of capacity, some firms would have had to buy additional field bins. Costs of such purchases are included in the calculations. All rentals of storage space, equipment, and bins were included in the calculations of annual costs, based on the cost of these factors during the 1970-71 operating season.

Management costs

The estimated internal management costs were obtained from interviews with the general manager of each pack­ing house. We did not include the salaries of the general manager or the sales personnel in our calculations. Thus the management costs include only those concerned with the actual packing and storage. The overhead manage­ment costs allocated to packing, excluding the general manager and sales personnel, are in table 10.

The absolute costs ranged from $1,000 to $79,405 per year. In some of the smaller plants, practically no manage­ment people, other than the general manager or owner are associated with the packing line. In contrast, some larger packing houses have specific people in accounting, warehousing, the packing line, refrigeration, security, etc. At 100o/0 of capacity, these management overhead costs per packed box range from 1.7¢ to 13.9¢ per packed box. For the 1969-70 actual pack, the cost per packed box ranged from 1.7¢ to 16.9¢ per packed box.

Building, equipment and management costs per packed box

Simply adding the entries in tables 9 and 10 gives the total costs for building, equipment and management (table 11). At 100o/0 of capacity, the weighted average costs per

TABLE 10. Estimated management costs (not including general manager or sales personnel), 14 selected fresh apple packing houses, Washington, 1970-71 1

Plant number and total annual management costs, $

2 3 4 5 6 7 8 9 10 11

Total annual $ management

12 13

Totals or weighted

14 averages

costs, $ 63,100 55,932 79,405 49,780 47,900 56,820 -- 33,000 32,112 28,125 5,930 11,970 14,750 1,000 512,704

(Cents per packed box) Percent of total capacity

100 8.8 9.2 13.1 9. 9 9.6 13.9 8.0 13.2 10.9 3.6 6.3 8.0 1.7 10.1 90 9.8 10.2 14.6 11.0 10.7 15.5 8.9 14.7 12.1 4.0 7.0 8.9 1.9 11.2 80 11.0 11.5 16.4 12.4 12.0 17.4 10 .0 16 . 0 13.6 4.5 7.9 10.0 2.1 12.6

70 12.6 13.2 18.8 14 .1 13.7 19.7 11.4 18.9 15 . 5 5. 1 9.0 11.4 2.4 14 .4 60 14 . 7 15 .4 21.9 16.5 16.0 23.2 13.3 22.1 18.1 6.0 10 . 5 13.3 2.8 16.8 50 17 . 7 18.4 26.2 19. 8 19.2 27.8 16.0 26.5 21.8 7.2 12 . 6 16.0 3.4 20.1

1969-70 pack 9. 5 9.3 16.9 10.2 16.7 16.6 9.8 15 .8 14.9 3.9 9.0 8.3 1.7 12.2

1An additional plant is included in the weighted averages.

11

TABLE 11. Estimated building and equipment and management costs per packed box (excluding costs of general manager and sales personnel) for 14 fresh apple packing houses, at various operating levels, Washington 1970-71

Packing house number

Percent use of maximum capacity 1 2 3 4 5 6

(Cents

100 75.7 81.2 78.3 72.1 65.6 79.2 90 84 . 1 88.7 85.5 80.1 72.8 88.0 80 94 . 6 99.9 94 . 3 90.2 81.9 99.0

70 108.2 114.2 105.5 103.0 93.6 113.0 60 126.2 133.2 123.0 120.2 109.1 132.0 50 151.5 159.8 147.5 144.2 131.0 158.4

1969-70 pack 81.7 80.7 94.8 74.3 113.4 94.6

1See footnote to table 8 for definition of maximum capacity.

2 An additional plant is included in the weighted averages.

packed box for both buildings and equipment, and man­agement are 78.2¢. At 50o/0 of the maximum capacity, the costs double: '156.3¢. The weighted average cost for the 14 packing houses in the study for the 1969-70 actual pack was 93.3¢ per packed box.

Relationship between building and equipment overhead costs and volume

We found a clear relationship between overhead costs per packed box and size of plant. Based on actual output during the 1969-70 crop year, a plant putting out 100,000 boxes had overhead costs for buildings and equipment of approximately 90.2¢ per packed box. A plant with 700,000 boxes had costs of about 68.7¢ per packed box (figure 1).

However, note the considerable deviations from the line of best fit. This shows some factors of cost are not directly associated with size.

BU I LDI NG AND EQUIPMENT COST

PER PACKED BOX (DOLLARS)

!.DO COSTS OF INDIVIDUAL PLANTS X

X X LINE OF BEST FIT

.90

.BD

. 70

X

.60

COSTS IN CENTS PER PACKED BOX • 93.866 - ( .OODD3S9 , OUTPUT OF PACKED BOXES)

.so t • 19.356 t • - 2.6B4

R2 • .375

.4o.__~:":":-:-""""':':-:-"::-:---:-' ____ ._ __ .._ __ ....._ __ _.... 100,000 200,000 300,000 400 ,000 500 ,000 600,000 700,000

ACTUAL 1969-70 OUTPUT IN PACKED BOXES

1. Relationship between building and equipment over­head costs and volume ( 1969-70 actual volume in packed boxes), 14 fresh apple packing houses, Washington, 1971.

12

Weighted 7 8 9 10 11 12 13 14 average2

per packed box)

86.1 89.2 77.6 82.1 76 . 6 77 . 8 96.4 78 . 2 94 . 5 99 .1 84.5 91.2 83 . 3 86.5 107.1 86 . 9

106.4 111 . 0 93.2 102.6 91. 8 97 . 2 120.4 97.7

121.5 127.5 104.3 117.2 104.8 111.1 137.7 111.7 141.8 148.8 119 . 2 136.8 122.3 129.6 160.6 130.3 170.2 178.5 143.1 164.2 146.7 155.6 192 . 8 156.3

104 . 5 106.7 92 . 5 88.0 104.3 80.5 96.4 93.3

If all plants were operating at 100o/0 capacity (as previ­ously defined), a plant with an output of 100,000 packed boxes per year would have building and equipment over­head costs of 79.7¢ per packed box. A plant with 700,000 packed boxes would have overhead costs of only 62.5¢ per packed box (figure 2).

Figure 3 compares overhead costs per packed box at the 1969-70 actual output of the sample plants, to costs at maximum possible capacity. The two lines become closer and closer together as volume increases. This indicates that the larger plants in our study typically were packing nearer to maximum capacity than were the smaller plants. We do not suggest this is typical of the industry as a whole. However, the similarity of the lines is striking and there does seem to be a relationship between total volume and costs whether based on actual volume or on a calculated maximum possible volume in each of the packing houses.

BUILDING AND EQUIPMENT COST PER PACKED BOX (DOLLARS)

1.00

.90

.BO

. 70

.60

COST I N CENTS

COSTS OF INDIVIIXJAL PLANTS X

LINE OF BEST FIT

PER PACKED BOX • B2 . 663 - (. 00002B76 OUTPUT I N PACKED BOXES) .50 t•17.839 t•-2.59B

R2 • .360

X

· 40 ~o --~~oo~.~oo~o -~2o::-=o'":.oo~o~~3::-=oo:"-.::-=oo~o -"':'4o""oL,,oo""o-~s""oo,...,""oo.,...o --,6o""o "'.oo""o-""7o~o .ooo MAXIMUM POSS I BLE VOLUME IN PACKED BOXES

2. Relationship between building and equipment over­head costs and maximum possible volume, 14 fresh apple packing houses, Washington, 1971.

Number of shifts to pack a season's volume The capacity of the packing line in each plant was

estimated in two ways. First, the manager gave us an esti­mated pack capacity based on plant experience for both Red lines and Golden lines. In some cases the Red and Golden lines were separate, in others interchangeable. Second, we measured the line capacity during our tests of runs in the plant. The simple average of these two mea­surements was the estimated line capacity. As in many of our other calculations, we assumed a variety mix of 78o/0

Red Delicious and 22o/o Golden Delicious for each plant. Then we determined the number of shifts each plant would have to run for different levels of capacity (table 12).

The maximum capacity could be packed in 58 days in plant no. 14 but would require 155 days in plant no. 1. On the average, the maximum season capacity could have been packed in 109 days. Similarly, the actual 1969-70 pack was processed in 58 days in plant 14 and 144 days in plant 1. The average was 91 days for the 14 plants studied.

In our estimation, the packing shed and packing equip­ment, representing 28.9o/0 of annual cost for all buildings and equipment (table 7), are seriously underutilized. If all the plants had utilized the packing shed and equipment as much as plant 1, 58.2o/0 more apples could have been handled through the plants than actually were packed in 1969-70. Similarly, the maximum capacity (with more storage) of the 14 plants could increase from 5.4 million boxes to 7.4 million boxes, if 145 8-hour shifts rather than 109 8-hour shifts were used.

If the Washington industry as a whole increased stor­age capacity so that each packing house would operate around 145 days, there would be a serious overcapacity of both storage and packing facilities. Yet, an individual

operator must try to increase the length of his run each year to reduce his own costs. Adjustments of the industry as a whole are nearly diametrically opposed to adjustments of individual plant operators. This suggests the closing of the packing lines of some operations and allocating their associated storage to the remaining lines, by merger, combination, or purchase. That is, storage from two or more current operations would supply only one packing house.

Now we shall examine some of the internal differences in labor costs in the packing houses based on differences in quality of fruit, organization of the packing house, etc. Then we can tie together the overhead costs of buildings,

BUILDING AND EQUIPMENT COST PER PACKED BOX (llOllARS)

!.DO

.90

.BO

. 70

.60

.50

.40 1, .... __ ...._ __ ...._ __ ...._ __ _._ __________ ....._

0 100,000 200 ,000 300 ,000 400 ,000 500 ,000 600,000 700,000

OUTPUT IN PACKED BOXES

3. Relationship between building and equipment over­head costs and volumes (maximum possible volume and actual 1969-70 packed volume), 14 fresh apple packing houses, Washington, 1971.

TABLE 12. Number of 8-hour shifts to pack seasons volume, various capacities, 15 selected fresh apple packing houses, Washington, 1970-71 1

Level of operation as percent Packing house maximum Weighted capacity 2 3 4 5 6 7 8 g 10 11 12 13 14 average

(Number of 8-hour shifts)

100 155 97 99 99 173 103 96 112 135 75 104 127 92 58 lQ9 90 139 87 89 89 156 92 84 101 121 67 94 115 58 52 98 80 124 78 76 79 138 82 75 90 108 60 83 102 73 46 87

70 108 68 69 69 121 72 65 79 94 52 73 89 64 41 76 60 93 58 60 59 104 62 56 67 81 45 62 76 55 35 65 50 77 49 50 49 86 51 47 56 67 37 52 64 46 29 54

1969- 70 pack 144 96 77 96 100 86 87 91 113 55 97 90 89 58 91

Stated pac k rate2 4950 6800 5780 4760 3144 4080 3930 2872 1734 3400 1518 1436 2116 1028 3332

Measured pack rate2 4325 5667 6406 5437 2611 3869 4470 1860 3514 1642 1540 1917 875 3376

Estimated av. rate2 4638 6234 6093 5098 2878 3975 3930 3671 1797 3457 1580 1488 2017 952 3354

1The data here assume 78% Reds and 22% Goldens as the average pack.

2Rate in packed boxes per 8-hour day. A figure was obtained for both Red and Golden Delicious, some houses have separate Red and Delicious lines, others are interchangeable.

13

TABLE 13. Number of workers in packing line by major work function, 16 selected fresh apple packing houses, Washington, 1971

Plant Graders No. % No.

Red Delicious

1 32 36.4 38 2 16 21.1 42 3 22 29.3 30

6 14 29.2 19 8 15 34.9 16 9 12 29.3 14

11 8 29.6 10 12 10 32.3 12 13 11 29.7 13

15 11 33.3 12 16 25 43.1 15

Average. 16 31.4 20

Golden Delicious

1 35 38.9 37 2 26 31.0 38 3 23 37.7 20

4 25 41.0 20 5 17 32.7 21 6 11 34.4 11

10 9 28.1 11 12 10 29.4 15

Average 19 33.9 22

equipment and management and the operating costs on the packing line to show some of the total differences in pack­ing costs in Washington packing houses.

On-line operating costs

The operations of the sample plants were observed November, 1970 through February, 1971. Five observers recorded the actual number of workers performing each function on the packing line during any run. Plants normally operated four runs per day, the complete opera­tion coming to a halt for morning coffee, lunch, and after­noon coffee. Each run was of about 110 minutes. A rec­ord of total bins dumped, culls, and number and type of boxes packed during a run was made at the end of each run.

During each run, the observers noted when each worker began work and when he finally left his post at the end of the run. We will refer to this time as "lapsed time." By use of ratio-delay methods, the observers also found what proportion of this lapsed time workers were actually working. Thus, for each worker and each opera­tion, we calculated "work time," the number of minutes workers actually worked. The relevance of these concepts will become clearer after examining tables 13, 14, and 15.

Runs involving different varieties of fruit were re­corded separately. Observations were completed on 87 runs of Red Delicious, 57 runs of Golden Delicious and 9 runs of other varieties. The actual packing of about 3 mil­lion pounds of fruit was observed. Detailed analyses of

14

Packers Miscellaneous Total workers % No. % No. %

43.2 18 20.4 88 100.0 55.3 18 23.6 76 100.0 40.0 23 30.7 75 100.0

39.6 15 31.2 48 100.0 37.2 12 27.9 43 100.0 34.1 15 36.6 41 100.0

37.0 9 33.4 27 100.0 38 .7 9 29.0 31 100.0 35.1 13 35.2 37 100.0

36.4 10 30.3 33 100.0 25 . 9 18 31.0 58 100.0

39.2 15 29 . 4 51 100.0

41.1 18 20.0 90 100. 0 45.2 20 23 .8 84 100.0 32.8 18 29.5 61 100 . 0

32.8 16 26.2 61 100.0 40.4 14 26.9 52 100.0 34 . 4 10 31.2 32 100.0

34.4 12 37.5 32 100.0 44 .1 9 26.5 34 100 . 0

39.3 15 26.8 56 100 . 0

line operations for Red Delicious and Golden Delicious only are presented here. Data for other varieties were not available from enough packing plants.

Table 13 details the total number of line workers in the sample plants in which Red Delicious and Golden De­licious runs were measured, and the deployment of these workers in grading, packing or other miscellaneous line operations.6 The largest crew had 90 workers, over three times the number in the smallest crew. Size of crew was only one clue to daily output of plants. Plants differed considerably in the number and proportion of workers used for grading, packing and all other miscellaneous ac­tivities. On average, lines running Golden Delicious had a slightly higher proportion of graders than lines running Red Delicious (table 13). However, the differences be­tween lines packing the same variety were very wide, ranging in Red Delicious from 21.1o/0 of all workers as­signed to grading to 43.1o/0 , and in Golden Delicious, from 28.1o/0 to 41.0o/0 • These differences in number of graders and in the deployment of workers to the three main functions had a major influence on operating costs.

Quality of fruit was also a major influence on operat­ing costs. Table 14 summarizes the quality of fruit in sample plants during our observations. A comparison of weighted averages suggests that Red Delicious apples gen­erally could be handled faster and cheaper than Goldens.

6 The miscellaneous category includes line supervisors and oper­atives responsible for fork trucks, dumping, supplies, box mak· ing, weighing, stamping or marking, tallying, box closing, ele­vator operation, and part-time activities.

TABLE 14. Quality of fruit and rate of output, 16 selected fresh apple packing houses, Washington, 1971

Plant Proportion of pack Average X-fancy Fancy C-grade count per box

% % % No.

Red Delicious

1 47.3 45.6 7.1 117.7 2 85.4 14.6 0.0 110.6 3 48.8 46.1 5.1 125 . 1

6 70.6 29.4 0.0 115.4 8 43.2 50.4 6.4 134.2 9 65.3 28.6 6.2 135.0

11 75.7 24.3 0.0 116.9 12 68.4 23.5 8.1 127.8 13 43.6 44.2 12.2 143.1

15 82.7 17.3 0.0 90.7 16 73.0 20.0 7.0 132.2

Weighted average 62.6 32.1 5.2 122.0

Golden Delicious

1 48.8 42.3 8.9 120.6 2 67 . 5 32.5 0.0 110.4 3 38.9 34.2 26.8 112.4

4 64.0 27.7 8.3 120.8 5 48.4 37.5 14.1 104.0 6 67.3 23.0 9. 7 113.1

10 59.2 40.8 0.0 128.9 12 59.1 32.2 15.7 99.9

Weighted average 53.0 36.4 10.6 112.9

Red Delicious runs had an Extra Fancy packout 10 percentage points higher than Golden Delicious runs. The proportion of Red Delicious apples culled was more than 11 percentage points lower. Reds produced almost three packed boxes more per field bin dumped, had a 13.7% higher average rate of output in packed boxes per minutes, and a 39.1o/0 higher maximum rate of output. Only in size of apple handled did Golden Delicious apples appear to have an advantage over Red Delicious apples likely to lead to lower costs.

Table 14 clearly shows very wide differences between plants handling the same variety on every quality and rate of output characteristic. This presented a problem. Com­parison between any two plants of the time taken to handle a given volume of fruit was influenced by the quality of fruit handled in the plants during our observa­tions. However, the large volume of data we collected on the time taken to pack fruit of widely varying qualities in plants of different size and differing deployment of workers gave us an opportunity to find which factors were most critical in determining the cost of packing any given lot of fruit.

Before turning to this more sophisticated aspect of our analysis, note the observed time in man minutes taken in each plant to pack a standard 42-lb box of apples (table 15). Data are in man minutes rather than dollar costs, since wages for the same job vary with plant and area. Dollar data can rapidly become out-of-date, whereas time to do a given job under given circumstances should be

Culls/apples Packed boxes Boxes packed per min. dumped per bin dumped Average Range

% No. No. No.

18.8 17 .1 9.33 9.23- 9.42 9.2 17.3 7. 07 6.39- 7.62

20.6 16.7 9. 07 8.16-10.03

21.1 15.7 6.05 4.01- 8.10 18.9 17.0 4.32 3.69- 5.24 10.8 19.1 4.54 3.95- 5.21

19 . 0 17.4 3.94 2.89- 4.83 19.7 17.3 3.96 3. 34- 5. 01 9, 7 21.3 4.21 3.95- 4.48

13.8 17.6 4.43 4.26- 4.73 14.0 18.3 6.46 5.87- 7.68

16.6 17.5 5.24 2.89-10.03

19.4 14.2 6.93 6.60- 7.21 30.5 13.4 5.79 5.16- 6.20 28.9 14.3 5.59 4.67- 6.44

28.1 15.8 5.58 4.89- 6.33 58.7 9.9 2.80 1.73- 4.68 20.1 14.9 2. 67 2.59- 2.81

21.0 15.4 1. 92 1.91- 1.93 17.4 16.3 2.90 2.69- 3.03

27.9 14.6 4. 61 1.73- 7.21

fairly consistent until technology changes. In addition, readers can apply their own estimates of wage rates to the man-minutes data to compare dollar costs.

Lapsed (on the job) worker time per packed box of Golden Delicious was 54.2o/0 more during the observed runs than for Red Delicious. Actual work time was 42.4o/0 longer for Golden Delicious.

As the column detailing work time as a percent of lapsed time shows, idle time was considerably higher for Golden Delicious runs. Only 78.6o/0 of lapsed time as opposed to 85.1o/0 for Red Delicious runs was spent ac­tually working. Of the idle time, some is personal time, but most was due to lack of work, for tallying, box closing, segregators, and other workers down the line. This idle­ness was caused by delays in grading, overmanning of these posts relative to the flow of work, etc. Golden De­licious runs suffered from more of these problems than Red Delicious runs.

The left half of table 16 breaks down the actual work time per packed box for each plant accounted for by graders, packers and miscellaneous line workers. Clearly, the differences in plant costs for these functions separately are relatively greater than the differences in total work time.

For example, while plants 3 and 9 had almost identical total work time per packed box, plant 3's packer work time was over 20o/0 longer and its miscellaneous work time 28% shorter than that of plant 9. The breakdown by function also pinpoints why it takes longer to pack a box

15

TABLE 15. Lapsed time and work time per packed box 16 selected fresh apple packing houses, Washington, 1971

Lapsed time Work time Work time as % Plant per packed box per packed box of lapsed time

(man-minutes) (man-minutes) %

Red Del

1 9.33 8.28 88.7 2 10.77 9.27 86.1 3 8.57 6.97 81.3

6 8.43 6.94 82.3 8 10.17 8.24 81.0 9 9.71 6.99 81.6

11 7.37 6.19 84.0 12 9.12 7.55 82.8 13 8.63 7.32 84.8

15 7.75 6. 66 85.9 16 9.17 7.68 83.8

Wt. Av. 9.01 7.67 85.1

Golden Del

1 12.92 11 .34 87.8 2 14.76 12.15 82.3 3 11 . 09 9.83 88 .6

4 11.89 10.14 85.3 5 20.31 14.97 73.7 6 12.43 9.45 76.0

10 15.35 13.58 88.5 12 11.66 8.92 76.5

Wt. Av. 13.89 10.92 78.6

of Golden Delicious than Red Delicious. Average grader work time is slightly over 60% longer (reflecting greater cullage, more Fancy and C-grade fruit and the need to separate fruit by color). Average packer work time is over 50o/0 longer, since Golden Delicious tend to be han­dled more carefully and packed in more elaborate packs.

Our analysis went one step further to probe the under­lying factors such as quality of fruit, type of packs, deploy­ment of workers, etc. that most affected grader, packer, or miscellaneous work time. From a mass of observations we isolated the most significant cost-influencing factors and developed simple formulae that quantify the average effect a change in any factor will have on work time per packed box (table 17).

The first column of table 17 names the type of work time to be explained. The next eight column headings give the variables or factors that regression analysis showed best explain the different types of work time. The last column, statistical fit, uses a standard measure of how much of the variation in the variable to be explained has been accounted for by the factors in the formula. All but one of the formulae have an R2 greater than .5, meaning that more than half of the variation is explained by factors in the formula.

For example, grader time of Red Delicious apples is explained by a constant factor of .9727 man minutes, plus . 0305 times the cull percentage and .3047 times the number of graders per side, minus .0067 times the Extra Fancy

16

percentage and .0022 times the average number of apples per packed box. For a high quality run with:

1. 800/0 of the packed apples Extra Fancy 2. 10o/0 of all fruit dumped were culls 3. 4 graders on each side of the line 4. average apple size = 100, then

Red Delicious grader work time in man minutes would be expected to be: .9727 - (.0067 X 80) + (.0305 X 10) + (.3047 X 4)

(.0022 X 100) .9727 - .5360 + .3050 + 1.2188 - .2200 2.4965 - . 7560 1.7405 man minutes In contrast, for a poor quality run with: 1. 40o/0 Extra Fancy, 2. 20o/0 culls 3. 6 graders on each side of the line 4. average apple size = 125, then

Red Delicious graders work time would be expected to be: .9727 - (.0067 X 40) + (.0305 X 20) + (.3047 X 6) -

(.0022 X 125) = .9727 - .2680 + .6100 + 1.8282 - .2750 = 2.3109- .5430 = 2.8679 man minutes.

The t-statistic was used to test the hypothesis that the true value of each coefficient could be zero. A second major test of each formula is the reasonableness of the sign on each coefficient. The decision to include a variable in a formula was based both on economic and statistical cri­teria. For example, the minus sign on the Extra Fancy coefficient implies that the higher the proportion of Extra Fancy apples run, the less should be work time per packed box. This appears logical.

In general, work time per packed box of Golden De­licious appeared to be sensitive to more factors and to a greater degree than work time per packed box of Red Delicious. Grader work time for both Red Delicious and Golden Delicious tended to be less when there was a higher proportion of Extra Fancy apples in a run. Num­ber of graders per side, which tended to increase Red grader work time, tended to decrease Golden grader work time. This finding implies that the plants studied could re­duce costs by cutting the number of Red graders per side and increasing the number of Golden graders. Goldens, in general, require a greater input of grader effort. In­creasing average apple count per box had a negligible influence on Red grader work time but a large and posi­tive influence on Golden grader work time. Plants ap­peared capable of handling a wide range of qualities of Red with little alteration in grader work time.

Packer work time for Reds was affected by two main factors, the ratio of number of graders to number of pack­ers and the pack time of the main pack being handled in each run. Packer work time for Goldens was affected by these and one additional factor, the percentage of fruit culled per run .

The grader-packer ratio is an approximate indicator of relative line capacity for these two functions. If there are

TABLE 16. Actual work time per packed box and estimated work time at average level of efficiency for the industry, 16 selected fresh apple packing houses, Washington, 1971

Plant

Red Delicious

1 2 3

6 8 9

11 12 13

15 16

Weighted average

Golden Delicious

1 2 3

4 5 6

10 12

Weighted average

Graders

3.23 1.83 2.14

2.09 3.10 2.03

2.01 2.52 2.35

2.26 3.46

2. 51

4.69 3. 75 3.94

4.24 5.83 3.34

4.21 2.53

4.02

Actual work time per 11acked box for

Packers Misc. 1 ine workers

(man-minutes)

3.79 1. 26 5.66 1. 78 3.10 1. 73

3.11 1. 74 3. 34 1.80 2.55 2.41

2.45 1. 73 2.95 2.08 2.69 2.38

2. 13 2.27 2.06 2.16

3.06 2.10

5.06 1. 59 6.17 2.23 3.52 2.37

3.93 1. 97 5. 57 3. 57 3.43 2.68

5.12 4.25 4.11 2.28

4.66 2.24

too few graders relative to packers, the flow of graded fruit is too slow to keep packers fully active. The nega­tive sign on this coefficient suggests that both Red and Golden lines could increase efficiency by having a higher ratio of graders to packers. Pack time refers to the packer time specifically used putting apples in the carton. As one might expect, the type of pack and size of apples is the main influence on pack time (table 18) and on total packer work time.

Miscellaneous work time of Red Delicious was sensi­tive only to volume, or rate of output. Golden miscel­laneous work time was even more sensitive to volume. It was also reduced by an increase in the percentage of Extra Fancy apples or increased by a rise in the percentage of fruit culled or in the number of apples per box. While Golden miscellaneous work time reacted as expected to quality factors, Red miscellaneous work time was not af­fected by very wide changes in fruit quality.

The equations in table 17 are average relationships for the industry. It is thus simple to plug into these equations for any run in any plant, the specific values for such variables as Extra Fancy percentage or Grader-Packer ratio. Then one can estimate what the work time for that plant would have been were it working at the average level of efficiency in the sample plants. A manager could use these equations thus to estimate beforehand the produc-

Estimated work time per packed box at average level of

efficienc~ for the industr~

Total Graders Packers Misc. line Total workers

(man-minutes)

8.28 2.49 2.63 1. 57 6.69 9.27 1. 69 5.00 1. 79 8.48 6.97 2.37 3.68 1. 59 7.64

6.94 2.17 3. 51 1. 94 7.62 8.24 3.12 2.28 2.07 7.47 6.99 2.11 2.76 2.05 6. 92

6.19 2.01 2. 91 2.11 7.03 7.55 2. 21 2.77 2.11 7.09 7.32 2.30 2.86 2.09 7.25

6. 66 2.18 2.41 2.06 6.65 7.68 2.44 2.01 1.86 6.31

7.67 2. 27 3.02 1. 98 7.27

11 . 34 4.22 4.79 1. 64 10.65 12.15 3.78 5.72 1. 91 11.41 9.83 4.28 3.54 2. 21 10.03

10.14 4.17 3.92 2.08 10.17 14.97 5.85 5.86 3.67 15 . 38 9.45 3.42 3.23 2.76 9.41

13.58 4. 98 4.89 3.39 13.26 8.92 2. 59 4.34 2.42 9.35

10.92 4.03 4.61 2. 14 10.78

tivity he might expect from a given crew handling a given quality of fruit.

We estimated what the grader, packer and miscellane­ous work time would be at average operating efficiency in each of the runs studied. The average results are sum­marized by plant on the right side of table 16. It is clear that some plants have a more efficient operation than the sample average. However, this study looks only at the cost of the warehousing operation. It is possible that some plants deliberately pack slower in order to maintain quality standards and merit a higher price.

Table 18 summarizes the formulae that relate actual pack time to the size of apple packed for eight of the main packs studied. In all cases, size of apple was highly significant. In general, pack time was longer for Golden Delicious than for Red Delicious in identical packs, and pack time lengthened faster with size the more wraps the pack involved. This is shown clearly in figures 4, 5, and 6. Table 19 has estimated average pack time for both varieties for selected sizes of apple. The reader can use the equations in table 18 to develop a comparable table for other sizes.

Finally, tables 20 and 21 show how Red Delicious and Golden Delicious total work times at average sample ef­ficiency vary as a number of factors are allowed to vary from their average value.

17

TABLE 17. Estimated relationships, grader, packer and miscellaneous work time per packed box, 16 selected fresh apple packing houses, Washington, 1971

Variable to be explained Explanatory variables and their coefficients 1

Statistical fit

Red Delicious Man-minutes per packed box of--

Grader time

Packer time

Miscellaneous time

Golden Delicious Grader time

Packer time

Miscellaneous time

Constant XF/tota l packout

%

.9727 -.0067 (1.011) (1.292)

4.8122 (5.676)**

2.5107 (15.706)**

-.8999 -.0204 (.348) (2.550)*

-1.2447 (.808)

1.2962 -.0097 (l.994)x (2.165)*

Culls/total dumped

%

Graders per side

No.

+.0305 +.3047 (4.904)** (4.150)**

+.0575 -.5698 (4.468)** (1.375)

+.0537 (6.498)**

+.0277 (6.096)**

Apple size No/box

-.0022 (. 550)

+.0633 (5.929)**

+.0209 (3.271)**

No. graders/ no. packers

Ratio

Pack time2

mins.

Packout per minute No. boxes

.546

-4. l 908 +. 6523 . 552 (7.481)** (2.5g4)**

-.1013 . 148 (3.389)**

.730

-3.3853 +1.7660 .667 (6.093)** (5.106)**

-. 3383 . 804 (9.302)**

1T-test of significance of each coefficient is shown in parentheses. Level of significance is shown by small x (10%), asterisk * (5%) and double asterisk ** (1 %).

2 Refers to packer time specifically involved in placing apples in carton. This variable was estimated for each plant and run for the average size of apple and principal pack handled during that run, using the equations in table 18.

TABLE 18. Estimated relationship between packer time to place apples in carton and size of apple for various types of pack, 16 selected fresh apple packing houses, Washington, 1971

Variable to be explained Explanatory variables 1 Statistical

Packer time Apple size R2 to pack-- Variety Pack Wrap Constant (no./box)

Red Delicious Tray Full 53.6239 +1.0013 .697 (3.557)** (6.945)**

Red Delicious Tray Top 46.6887 +.6413 .734 (4.195)** (7.044)**

Golden Delicious Tray Full 79.8552 +1.4166 .598 (3.463)** (6.791)**

Red Delicious Pocket Top 56.7577 +.5659 .631 cell (3.817)** (4.13g)**

Golden Delicious Pocket Full ll 0. 6384 +1.3487 . 717 cell (4.215)** (5.742)**

Red Delicious True Full 62.7043 +1.2885 .674 cell (1.427) (2.876)**

Red Delicious True None 80.0716 +.3080 .787 cell (8.278)** (3.333)**

Golden Delicious True Full 53.6785 +1.8208 .886 cell (l.809)x (6.836)**

1T-test of significance of each coefficient is shown in parentheses. Level of significance is shown by small x (10%), asterisk * (5%) and double asterisk ** (1 %).

18

fit

.I

PACK TIME IN SECONDS

300

280

260

240 GO LDEN, FULL WRAP

220

200

180

160

140

80

60

40

20

0 ~~~_.--~ __ ._._ __ ~~~------~----._ __ _ 64 72 80 88 96 100 113 120 125 138 150 160

SIZE OF APPLE

4. Tray packs: relationship of pack time to size of apple, 16 fresh apple packing houses, Washington, 1971.

TABLE 19. Estimated packer time to place apples in carton by variety, pack and type of wrap for selected sizes, 16 se-lected fresh apple packing houses, Washington, 1971

Pack Wrap Size Red Delicious Golden Delicious

Tray pack Full 100 153.8 221.5 Top 100 ll0.8

Pocket cell Full 100 245.5 Top 100 ll3. 3

True cell Full 100 191 .6 235.8 None 100 llO. 9

Loose bushel Full 150 ll 0.0 163 ll6.0

l/2 bushel Full 150 65.0 163 65.0

l/3 bushel Full 150 67.2 163 ] 3.0

12 3-lb bags 150 225.3 299.0 163 213.8

9 4-lb bags 150 202.4 163 184.5

8 5-lb bags 150 218.5

TABLE 20. How total work time per packed box varies - Red Delicious, 16 selected fresh apple packing houses, Washington, 1971. Time in man-minutes

4 graders per side 5 graders per side 6 graders per side 10% 15% 20% 10% 15% 20% 10% 15% 20%

culls culls culls culls culls culls culls culls culls

40% XF 6.96 7.12 7.27 7.27 7.42 7.57 7. 57 7.73 7.88 60% XF 6.83 6.99 7.14 7.15 7.28 7.44 7.44 7.60 7.75 80% XF 6.68 6.85 7.01 7.01 7.15 7.30 7.30 7.46 7.62

Pack time Pack time Pack time Pack time Pack time Pack time Pack time Pack time Pack time 2.0 min 2.4 min 2.8 min 2.0 min 2.4 min 2. 8 min 2.0 min 2.4 min 2.8 min

Grader I packer ratio- .60 7.59 7.85 8.11 7.90 8.16 8.42 8.20 8.46 8.72

.80 6.75 7. 02 7.28 7.06 7.32 7.58 7.36 7.62 7.89 1.00 5.92 6. 18 6.44 6.22 6.48 6.74 6. 53 6.78 7.05

3 packed 5 packed 7 packed 3 packed 5 packed 7 packed 3 packed 5 packed 7 packed boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min

Size 100 7.29 7.09 6. 89 7.60 7.39 7.19 7. 90 7.70 7.49 120 7. 25 7. 05 6.84 7. 55 7.35 7.15 7. 85 7.65 7.45 140 7.20 7. 00 6.80 7. 51 7.30 7.10 7.81 7.60 7.40

19

PACK TIME IN SECONDS

300

280

260

240

220

I80

160

100

80

60

40

20

0 6~4 -~7~2 -~80~~88~~96~10~0 ___ 1 ... 13,...-12 ... 0--1 .... 25 ___ 13._8 ___ 15,_0 __ 1 .... 6Q

SI ZE OF AP PLE

5. Pocket cell packs: relationship of pack time to size of apple, 16 fresh apple packing houses, Washington, 1971.

PACK TIME IN SECONDS

300

280

260

240

220

200

180

160

140

120

100

80

60

40

20

GOLDEN FULL WRAP

0 ~~--~--~--~~--~--~_. ____ ~ ____ ._ __ . 64 72 80 88 96 100 113 120 125 I38 150 160

SIZE OF APPLE

6. True cell packs: relationship of pack time to size of apple, 16 fresh apple packing houses, Washington, 1971.

TABLE 21. How total work time per packed box varies - Golden Delicious, 16 selected fresh apple packing houses, Washington, 1971. Time in man-minutes

4 graders per side 5 graders per side 6 graders per side 20% 30% 40% 20% 30% 40% 20% 30% 40%

culls culls culls culls culls culls culls culls culls

40% XF 10.66 12.05 13.43 10.09 11.48 12. 86 9.52 10.91 12 .29 50% XF 10.36 11.74 13.13 9.79 11.17 12.56 9.22 10.60 11.99 60% XF 10 . 05 11.44 12.83 9.48 10.87 12.26 8. 91 10.30 11.69

Pack time Pack time Pack time Pack time Pack time Pack time Pack time Pack time Pack time 3.7 min 4.1 min 4.5 min 3.7 min 4.1 min 4.5 min 3.7 min 4.1 min 4.5 min

Grader/packer ratio- .70 11.26 11.97 12.68 10.69 11.40 12.ll 10.12 10.83 11.54

.90 10.59 11.29 12 . 00 10.02 ,.0.72 11.43 9.45 10.15 10. 86 1 .10 9. 91 10 . 62 11.32 9.34 10.05 10.75 8.77 9.48 10.18

3 packed 4.5 packed 6 packed 3 packed 4.5 packed 6 packed 3 packed 4.5 packed 6 packed boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min boxes/min

Size 90 9.98 9.47 8.97 9.41 8.90 8.40 8.84 8.33 7.83 llO 11.66 11.16 10.65 11.09 10.59 10.08 10.52 10.02 9. 51 130 13.35 12.84 12.33 12 . 78 12.27 11.76 12.21 11.70 11.19

20

J

For example, in table 20, with 5 graders per side, 15o/0

culls and 60o/0 Extra-Fancy, total work time is 7-25 man­minutes, about the estimated average shown in table 16. With 6 graders per side, a pack time of 2.8 minutes and a grader-packer ratio of .60, total work time is 8.72 man­minutes, almost 20o/0 above average.

Table 21 can be read in the same way, comparing each entry with the overall average work time for Golden Delicious of 10.78 man-minutes. These estimates in tables 20 and 21 are well within the range of values actually observed. We found Red Delicious runs where work time per packed box varied from 4.67 to 13.98 man-minutes, and Golden Delicious runs ranged from 8.38 to 19.36 man­minutes.

Packaging materials Costs of packaging materials may vary considerably

between and within seasons and may vary widely, depend­ing on quantities bought. Cost of individual segments of packaging materials were obtained from suppliers and from some principal users. The basic materials cost list for the 1970-71 season is in table 22. Further, the com­binations of methods and materials, tray pack, tray cells and true cells with full wrap, top wrap or naked fruit, plus cushion pads or chipboard pads plus the option of poly liners, cause a wide range in cost of packaging materi­als for a given size of fruit. As the size decreases, the cost of wraps, trays, and pads increases.

Possibilities exist for an almost unlimited number of

packaging methods or packaging variations with associated cost differences. For simplicity we calculated basic costs for tray pack, pocket cell and true cell for Reds and Goldens with top wrapped and full wrapped fruit. We also estimated costs for 3-lb and 4-lb bags.

The costs of several sizes of wrapping paper in use are:

Loss Cost per Cost/bundle and apple

Size (15,000 wraps) waste wrapped

12 X 12 $15.55 3% $.001067 11x11 13.32 3% .000914 10 X 10 10.79 3% .000740

The sizes of wraps used with different sizes of fruit:

Wrap size

Size 12x12 Size 11x11 Size 10x10

Apple size

Goldens-cell pack 80s & lgr. 96-120 140-160 Goldens--tray pack 80s & lgr. 88-113 125-163 Reds-tray 72s & lgr. 80-100 113-163

Still further, one must know the number of layers (to calculate pad costs) and the number of apples on the top layer in calculating costs of top wrapped fruit.

TABLE 22. Cost list of apple packing house supplies, November 19701

Material

Moldicide or Steri Seal, 30 gal. drum

20 lb D. P. A.

Apple wax Johnson, 55-gal. drum

Apple cleaner

Glue for sealer, 9 lb/gal. Paxton staples, 20M ea. Kwik Locks, lOM/ctn (500/string)

Polybags Polyliners 19-1/2 x 14 x 32 Chipboard pads, 500 each

Excelsior recushion pads, 75 each 3-lb Polybags 4-1 b Po 1 ybag s

10 x 10 white wrap (Bundle = 15,000) 11 x 11 white wrap 12 x 12 white wrap

10 x 10 golden wrap 11 x 11 golden wrap 12 x 12 golden wrap

10 x 10 Hartman pear wrap 11 x 11 Hartman pear wrap

Unit cost1

$ 3.35/gal

4. 38/l b powder 17.09/5 gal

3.40/gal

.25/lb powder 5.50/gal 55-gal drum

. 29/1 b

.82/M 4.87/M

23.59/M 27 .01/M 8.91/M

24.75/M 9.78/M 9.78/M

10. 79/bundl e 13.32/bundle 15. 55/bundle

11. 06/bundl e 13.32/bundle 15. 55/bundle

11.42/bundle 13.71/bundle

Material

12 x 12 Hartman pear wrap Mapes trays, 125/bundle #6146 tray pack bottoms

#6141 tray pack tops (XF-Blue) #6141 tray pack tops (FCY-Red) #6141 tray pack golden tops (XF-Blue)

#6141 tray pack golden tops (FCY-Red) #5836 bushel carton bottoms (K-39) #5836 bushel carton tops (K-39)

l/2 cartons, tops & bottoms complete l/3 cartons, tops & bottoms complete #6146 pear tops

#6146 pear bottoms Export top cartons Divided bag carton only

Tubes for bag cartons Partitions for bag cartons Keyes tray - spring cushion

Keyes tray - deep pocket

Partition cell pack Sizes - 60-72-80-80S-96

120-140-160

Price includes pads, cells and cartons range, size 60 to 160

1All prices listed are from suppliers in Yakima and Wenatchee area, November 1970.

Unit cost

$ 15.55/bdl 38.00/M

210.05/M

160. 45/M 160. 45/M 160.45/M

160. 45/M 185. 25/M 142.50/M

210.80/M 135.45/M 154.42/M

144.83/M 154. 40/M 241.20/M

60.60/M 18.30/M 38.00/M

44.00/M

$740.50/M to 975. 90/M

21

True cell Pocket cell Tray cell

Apple size Layers Apple size Layers Apple size Layers

64 4 64 4 64 4 72 4 72 4 72 4 80 4 80 5 80 4

84 4 88 5 88 4 96 5 100 5 100 5

120 5 113 5 113 5

140 5 125 5 125 5 160 5 150 5 138 5 180 5 150 5

163 5 175 5

With the basic material in table 23 and 24, many

costs can be determined. The tray pack and cell pocket pack usually (but not necessarily) have one top pad. With the true cell, a pad may sandwich each layer; thus for 4 layers there are 5 pads and for 5 layers, 6 pads. Poly liners may or may not be used on Goldens, but typically are not used on Reds.

The approximate costs of packaging materials are given for tray packed boxes in table 23, pocket cells in table 24, true cells in table 25, and for poly bagged apples in table 26.

The cost of packaging materials per packed box (from tables 23, 24, 25, and 26) for the 1970-71 season ranged from 42.8¢ for 10 4-pack poly bags, to 99.4¢ for true cell, full wrap, poly lined, Golden Delicious, size 160. And, literally, the cost of materials could be at nearly any point between these ranges, depending on type of container, style of pack, degree of wrap, size of fruit and whether or not a poly liner is used.

TABLE 23. Approximate packaging materials costs to tray pack a box of apples of various sizes, 1970-71

Size of apple

Top wrap Red Delicious 64 72 80 88 100 113 125 138 150 163

($/packed box)

Paper .017 . 019 .018 .016 .018 .017 .019 .020 .022 .024 Trays .152 .152 .152 .152 .190 .190 .190 .1 go .190 .190

Pads .009 .009 .009 .009 .oog .009 . 009 .009 .009 .009 Box .380 .380 .380 .380 .380 .380 .380 .380 .380 .380

Total top wrap . 558 .560 .559 . 557 .597 .596 .598 .599 .601 .603

Full wrap Red Delicious

($/packed box)

Paper .068 .077 .073 .080 .091 .084 .093 .102 .110 . 121 Total full wrap .609 .618 .614 .621 .670 .663 .672 . 681 .68g .700

Top wrap Goldens 1 . 601 .603 .602 .600 .640 . 639 .641 .642 .644 .646 Full wrap Goldens .652 . 661 .657 .664 .713 .706 . 715 .724 .732 .743

1For Golden Delicious, the cost would be an additional $.0158 for a cushion pad and an additional $.027 for a poly liner, or we will round off the additional costs at $.043 cents.

TABLE 24. Approximate packaging material cost to pocket cell pack a box of apples of various sizes, 1970-71

Size of apple

64 72 80 88 100 113 125 135 150 Top wrap Red Delicious

($/packed box) Paper .017 . 019 .018 . 016 .018 .017 .019 .020 .022 Trays .176 .176 .220 .220 . .220 .220 .220 .220 . 220

Pads .028 .028 .028 .028 .028 .028 .028 .028 .028 Box .380 .380 .380 .380 .380 .380 .380 .380 .380

Total .601 .603 .646 .644 .646 .645 .647 .648 .650

Full wrap Red Delicious .652 .661 . 701 .708 . 719 . 712 . 721 .730 .739

Top wrap Golden Delicious 1 .628 .630 .673 . 671 .673 .672 .674 .675 .677

Full wrap Golden Delicious 1 .679 .688 .728 . 735 .746 .739 .748 . 757 .766

1A poly liner costing approximately $.027 is used on Golden Delicious.

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TABLE 25. Approximate packaging material cost to true cell pack a box of apples of various sizes, 1970-71

Size of apple

60 72 80 96 120 140 160

Top wrap Red Delicious

Paper .016 .019 .021 . 018 . 022 .021 .024 Dividers .330 .330 .330 .330 .380 .380 .380

Pads .124 .124 .124 .124 .149 . 149 .149 Box .320 .320 .320 .320 .320 .320 .320

Total top wrap . 790 .793 .795 .792 .871 .870 .873

Full wrap Red Delicious .838 .851 .859 .862 .959 .953 .967

Top wrap Golden Delicious 1 .817 .B20 .822 .819 .898 .897 .900

Full wrap Golden Delicious 1 .865 .878 .886 .889 .986 .980 .994

1A poly liner costing approximately $.027 is used on Golden Delicious.

TABLE 26. Approximate packaging material costs for a box of poly-bagged apples, Washington, 1970-71

Bags Dividers

Pads Boxes

Total

Costs to pack a box

12 3-lb bags

$.117 .030

.049

.250

$.446

10 4-lb bags

$.099 .030

.049

.250

$.428

The estimated costs to pack a box of Washington ap­ples for the 1970-71 season are in table 27. This tabula­tion does not include the general manager's salary or any costs of selling and brokerage. The building and equipment costs are based on data in table 9, for a plant operating at BOo/0 annual capacity. The data are adjusted to reflect 15o/0 cull age of Red Delicious and 2 5o/0 cullage of Golden Delicious. Overhead management costs are based on table 10, again adjusted to reflect differences in cullage.

Operating costs of electricity are based primarily on engineering estimates but also on records from several firms in the sample. The principal cost is electricity for refrigerated storage. We estimated these costs to be 1 ¢ per packed box equivalent per month of average storage for 4.5 months.

In our study, direct packing labor averaged 9.54 man­minutes per packed box for Red Delicious and 13.89 man­minutes for Goldens. These are billed at a cost of $2.25/ hr. (Actually all plants in the study had specific piece rates for packers but paid most other workers on an hourly basis.) We will not argue whether $2.00, $2.25, or $2.50 is most representative. Each operator can adjust our time requirements to his own hourly costs.

Container costs are derived from tables 24, 25, and 26. Wax and fungicide were rough industry estimates. Federal­state inspection, Apple Advertising Commission fees and Tree Fruit Commission fees are included at prevailing standard rates.

The estimated costs for the sizes and packs specified were around $2.03 for Red Delicious and around $2.57 for Goldens. Again, general manager costs and selling costs or fees and brokerage fees are not included in these costs. Are these average costs in Washington? Absolutely not! These are the costs obtained under very specific assumptions and conditions. Actual costs in individual plants or the average for the industry may vary substan­tially from these figures.

The differences between Red Delicious and Golden Delicious for overhead storage costs and bulk bin costs are purely a function of the cullage rate. Differences in cost for packing shed and equipment are based on time differences to produce a packed box-on the average it required half again as much time for Goldens as for Reds. Our assumption here that a house packing at maximum capacity for the whole season could pack half again as many Reds as Goldens. Differences in labor time per packed box are self explanatory. Concerning con­tainer costs, generally the Goldens are normally full wrap­ped and have more expensive trays than Reds and more often have a poly liner.

A preliminary view of pregrading and sizing A limited number of runs in a presizing and grading

operation were observed. At harvest time the fruit was graded into Extra Fancy and Fancy grades, and each grade was sorted into 12 size classifications. Each size and grade was placed into field ·bins; lots of each specific size and grade from different growers might be mixed. The presized and graded fruit were then stored in field bins. Later, only one specific size and grade was packed at a time.

The advantages are inventory controls, rapid filling of orders for a specific size and grade, mixing of fruit from different growers, early accounting to growers of grade out, and facilitating the setting up of automated packaging lines for specific sizes of fruit.

The disadvantages are higher overhead costs of build­ing and equipment, a slight increase in cullage (due to an additional handling) and at the current stage of tech-

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TABLE 27. Estimated 1970-71 costs to pack a box of Washington apples 1

Reds Goldens (Dollars)

Storage buildings and bulk bin overhead (depreciation, interest, taxes, insurance, repairs and a "normal" profit of 8% on equity). Plant operating at 80% utilization of capacity. Red Delicious 15% culls, Golden Delicious 25% cull--cost differences based on cullage. . 531 .603

Packing shed and packing equipment overhead. Plant operating at 80% utilization of capacity. Cost differences based on time requirement--Goldens one-half more time than Reds. .267 .401

Overhead management costs. (Excluding the salaries of owners or managers and sales personnel).

Operating costs (electricity, water, gas, telephone, etc.) .. 7¢ to 1.5¢ box/month for 4.5 months.

Direct labor in packing:

.122

.045

.143

.045

Reds (average size 122, average 1970-71 grade) 2 9.54 man minutes per packed box @ $2.25/hour. .358

Goldens (average size 113, average 1970-71 grade) 2 13.89 man minutes per packed box @ $2.25/hour. .521

Container: Reds: top wrap, tray pack (Size 100) Goldens: full wrap, tray-cell pack, poly liner (Size 100)

Wax and fungicide

Federal-State inspection (approximate)

Apple Commission fees (approximate)

Tree Fruit Research Commission fees (approximate)

Totals

.600 .750

.030 .030

.028 .028

.050 .050

.002 .002

$2.03 $2.57

1Not included: General Managers Salary Any selling or brokerage fees Voluntary fees to Washington Growers Clearing House or to the Traffic Association Hauling into original storage and truck or car loading

2Average grade in the cost study.

3Compliance inspection 1 .87¢/box.

nology, perhaps slightly higher labor requirements on some standard packages. Another advantage or disad­vantage, depending upon one's viewpoint, is that capital requirements are increased; thus, an efficient sized plant would probably be larger than for the technology now standard.

Our limited observations included an automatic loose box fill, a semiautomatic tray fill, and other semiautomatic consumer packaging equipment. These observations sug­gest further automatic or semiautomatic packaging equip­ment and we have been informed that equipment is being

developed. As with any new technology, improvements will continuously be made. Certainly, opportunities to decrease the time required to pack a box of apples exist. Probably this can be done in many cases with relatively untrained labor by use of automatic or semiautomatic equipment. The savings automation achieves may offset the added labor and equipment costs of double handling and re-sort cullage. The main advantages will not be in cost reduction but in marketing; i.e., inventory control, rapid order filling, and the ability to pack specific pack­ages of presized and graded fruit to order.

REFERENCES 1. Barnes, Ralph M. 1949. Motion and time study.

John Wiley & Sons. New York, N.Y. 2. Bressler, R. G. 1952. City milk distribution. Har­

vard University Press. 3. Carman, H. C. 1967. An analysis of apple packing

costs in Michigan. USDA ERS, MRR 786. 4. Franklin, E. R. 1966. Factors affecting performance

rates of apple packing lines. Unpublished M.S. thesis, Dept. of Agr. Econ., Washington State University.

5. French, B. C., L. I. Sammet, and R. G. Bressler, 1956. Economic efficiency in plant operations with special reference to the marketing of California pears. Hilgardia. 24 ( 9) .

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6. Gillette, D. G. and French, B. C. 1957. Costs of packing apples in Michigan. Mich. Agr. Exp. Sta. Quarterly Bull. 40:286-299.

7. Sax, L. A. 1960. The economies of scale of fruit packing warehouses in the Oroville area. Unpublished M.S. thesis, Dept. of Agr. Econ., Washington State University.

R. Tukey, R. B. 1969. Data related to Washington apple production and utilization. Wash. Coop. Ext. Service. EM 3282.

9. 1971. The big fruit tree. Unnumber-ed mimeograph, Department of Horticulture, Wash­ington State University.