Comment on arecanut fixed production cost and calculations

Source:
http://www.thehindubusinessline.com/2010/09/08/stories/2010090853261900.htm

The fixed production cost report has some mistakes.

The major problem the committee appointed by the Arecanut Research Development Foundation made is that they took interest expenses and establishment costs into account to calculate the fixed production costs(as what is shown in the second paragraph). Interest expenses is a financial charge and should not be considered. And the establishment cost is a sunk cost so it should be capitalized instead of being included in the fixed cost every year.

Also, it is improper to treat fixed production cost per kilo of white or red arecanut as a indicator of the effieciency of fixed production cost control. Arecanut is an argriculture product. How good the harvest is unpredictable because the amount of harvest is much depand on the uncontrollable weather and temperatures of the year. Therefore, fixed cost per kilo can experience an unfavourable increase even it is better managed. I would say fixed production cost per acre is a better indicator for judging the fixed cost control performance after expansion if arecanut trees were planted at the same density. By avoiding distractive variables, this allows fairer comparisons to judge——whether the expansion is beneficial on controlling production fixed cost.