APPENDIX 2 REPORT ON COST STUDY OF COFFEE ROASTING PLANT, NAVAL SUPPLY CENTER, OAKLAND, CALIFORNIA, JULY 16, 1951 CONTENTS Comments. 1951 Cost of warehousing and processing coffee by type of package, exclusive of cost of coffee and containers, for period Jan. 1, 1951, to Apr. 30, 1951___ Cost per 100 pounds of roasted coffee of warehousing and processing, exclusive of coffee and container costs, for period Jan. 1, 1951, to Apr. 30, 1951___ Cost of bag, carton, and tin containers, and green coffee, exclusive of warehousing costs, for period Jan. 1, 1951, to Apr. 30, 1951---A graphic presentation of the coffee roasting process, showing cost centers Comparative statement of packaged coffee costs and issue prices_-_. COMMENTS PURPOSE AND SCOPE OF STUDY Exhibit A and schedules 1-2. Exhibit B and schedules 1-8. Exhibit C and schedules 1-7. Exhibit D. Exhibit E. 1. In accordance with the request of the Chief of the Bureau of Supplies and Accounts, the supervisory cost inspector, western area, has conducted a cost study of the operations of the coffee roasting plant, Naval Supply Center, Oakland, Calif., for the purpose of determining the cost of producing each of the standard units of issue of roasted coffee, packaged ready for shipment from the plant. Constructive costs for cost elements which are not normally taken into account in determining costs of a Government productive operation have been included in order that the costs developed can be compared with similar commercial operations. 2. The costs developed by the supervisory cost inspector, based on operations during the period January 1, 1951, to April 30, 1951, are summarized in exhibit A and detailed in the accompanying exhibits and schedules. 3. Subsequent to April 30, 1951, the productive capacity of the coffee roasting plant has been increased by the installation of additional equipment comprised of two roasters, a green coffee mixer and a granulator and the leasing of one additional vacuum tinning machine. Due to the recency of these installations it was not possible to measure accurately their effect upon costs. However, this expanded productive capacity should result in decreased unit costs as compared to unit costs during the period of this study for the following cost elements: (a) Labor and supervision and payroll burden: (1) Proportionate increases in the number of men for the increased (2) Supervision costs will be spread over increased production. (b) Fixed costs applicable to buildings and land such as taxes, fire insur- These decreased costs will be partially offset by additional depreciation applicable to the new facilities, the acquisition costs of which were considerably higher than the acquisition cost of similar facilities which were part of the orginal installation. COST CENTERS 4. Roasted coffee is packaged in three standard units of issue: (a) Bagged-whole bean, in 50-pound bags (b) Bagged-ground, in 50-pound bags (c) Tinned-ground, in two 20-pound tins to a carton To determine costs for these standard units of issue, operations were segregated into the following cost centers: (a) Warehousing: (1) Green coffee (see par. 5) (2) Empty tins and cartons (3) Packaged roasted coffee (temporary storage) (b) Processing: (1) Cleaning and roasting (2) Grinding (3) Bagging (4) Tinning and cartoning The establishment of these cost centers made it possible to effectively accumulate costs from the time the green coffee was received at the plant until the packaged roasted coffee was ready for shipment-see exhibit B and supporting schedules. As will be noted therefrom, no warehousing costs for empty bags have been set out separately for the reason that such costs were so inconsequential. Attention is invited to exhibit E for an indication of the processing operations within each cost center. 5. No consideration has been given in this report to any warehousing and transportation costs which are incurred or applicable to permanent storage facilities for green coffee at the Naval Supply Annex, Stockton, Calif. The reason for this omission is that, in the case of an independent commercial concern, the green coffee would be received at the commercial concern's plant in no greater quantities than plant storage facilities would permit. Furthermore, the supervisory cost inspector was informed that the inventory of green coffee maintained at the Naval Supply Annex, Stockton, Calif., was in the nature of a reserve which, although requiring periodic turn-overs to prevent deterioration, was not, in the aggregate, to be depleted except in a case of emergency. DEVELOPMENT OF COST DATA 6. The costs developed are composed of (a) costs payable from current naval appropriations, and (b) constructive costs not normally taken into account in determining costs under a Government operation. The costs payable from current naval appropriations as well as production volume data were obtained from fiscal records maintained at the Naval Supply Center, Oakland, Calif., and from information furnished by cognizant personnel attached thereto. 7. Constructive costs include allowances for depreciation, property taxes, insurance, the Government's contribution to the retirement fund, and the excess of utility costs occasioned by the difference in rates quoted by supplying utility companies for independent plants of a similar size and the rates used by the Naval Supply Center in billing its component activities. Attention is invited to exhibit B, schedule 8, wherein is contained a detailed elaboration of the constructive cost elements. 8. The costs of green coffee, bags, tins, and cartons as shown in exhibit D, were determined by applying the first-in first-out method based on invoices (S & A Form 127) prepared by the General Supply Depot, Naval Supply Center, Oakland, Calif., for issues to the coffee roasting plant. Acquisition costs of the materials, net of cash discounts, were developed by reference to vendors' invoices and the related contracts. All the materials were purchased f. o. b. center and no incoming freight charges were involved. The cost of green coffee was reduced by revenue receivable from the sale of the bags in which the green coffee was received (5 cents per bag). Prior to December 31, 1950, the plant was processing green coffee for the Department of the Army. This green coffee was furnished to the plant without charge and the center's only accountability therefor was on a quantity basis. For the processing and packaging service the center made charges against the Department of the Army to cover estimated processing and packaging costs. Subsequent to December 31, 1950, this practice of furnishing the green coffee was discontinued, and the Department of the Army requisitions roasted coffee from the Department of the Navy, as needed. 9. In view of the multitudinous operations of the Naval Supply Center, Oakland, Calif., it is questionable whether any reduction in general overhead would inure to the Government should be the Government procure its requirements of roasted coffee from commercial sources. However, and since cost data relative to general overhead costs incurred by commercial coffee processors could not be obtained, as a conservative measure an allowance of 5 percent of total warehousing and processing costs (costs payable from current naval appropriations and constructive costs--see exhibit B) has been included as general overhead expense. GENERAL COMMENTS 10. The supervisory cost inspector was informed that the blends of Santos and Milds green coffee used in the production of roasted coffee are established by the Bureau of Supplies and Accounts, and that during the period January 1 to April 30, 1951, the prescribed blend was 70 percent Santos and 30 percent Milds. Conformance to this prescribed blend can be noted by reference to exhibit A, schedule 2. 11. For informational purposes there has been included as exhibit F a comparison of the 100-pound unit costs of packaged coffee developed by the supervisory cost inspector with the general supply depot issue prices therefor in effect during the period of the cost study. IN CONCLUSION 12. It is the opinion of the supervisory cost inspector, that the accompanying exhibits and schedules present fairly the operating costs plus applicable constructive costs of the coffee roasting plant, Naval Supply Center, Oakland, Calif., during the periods indicated thereon. W. H. HOWLAND, Commander (SC), USN, EXHIBIT A Summary of total cost by type of package per 100 pounds of coffee packed ready for shipment for period Jan. 1 to Apr. 30, 1951 Bagged coffee, whole bean in 50-pound bags: Total cost per 100 pounds of coffee packed ready for shipment_- 66. 636402 Total cost per 100 pounds of coffee packed ready for shipment_- 66. 666429 Total cost per 100 pounds of coffe packed ready for shipment_ 68. 711600 |