The business model of an agricultural company

Agricultural company are set up in traditional manner of growing the agricultural produces and selling them at appropriate margin to the customers. While growing the agricultural produces, the crops are value added by way of direct labor.

The agricultural company may also involve itself in the direct selling of seeds and saplings to direct customers. After growing the saplings for a few weeks, these are readily made available for sale, and after the addition of margin, these are sold to the customers.

Cost of goods sold for the landscaping business

These are also called variable costs. The cost of goods sold is operating expenses directly related to the production of the products i.e. agricultural produce such as vegetables, seeds, and saplings the business sells. COGS should include the cost of labor, inputs, and materials used and the portions of overhead related to production.

Small farms are complicated businesses for COGS calculations since there are few clear distinctions between production, sales, management, etc. The labor cost is generally split between harvesting, selling at the market, and bookkeeping.

However, the cost of harvesting labor is only included in COGS. It becomes difficult to allocate overhead costs between production and other business functions. The various costs in agriculture company are as follows:

Field Costs By acre

These are seasonal costs meaning these are irregular in nature and occur only in particular months of the year preferably before the seeds are harvested:

  • Cost of regular labor as starting seeds, watering, transplanting, staking and weeding
  • Cost of potting soil and trays
  • Cost of seeds
  • Cost of black plastics or amendments
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All the above costs are also considered as cost of supplies or cost of direct labor for agriculture company

Field costs by the case

These costs are incurred in each of the vegetable cases wisely. Suppose, the company is growing cauliflower then, the cost would be all those components of the cost that are related to the growth of cauliflower. These are

  • Cost of labor such as harvesting, sorting, and packaging
  • Cost of supplies

Item wise cost of goods sold

Costs of Goods Sold are expenses that are directly attributed to the amount of production. COGS are reported on the Income Statement and are segregated from Operating Expenses, which are expenses that are not directly tied to production. These include:

  • Animal Feed & Minerals Expense
  • Vet & Medical
  • Replacement Animals
  • USDA Processing Cost
  • Packaging

Statement of Cost of Services Rendered

Agricultural Company

ParticularsAmount ($)Amount ($)
Beginning inventory of suppliesX 
+ Purchases (Direct materials)X 
-Purchases returnsX 
+ Direct labor (Cost by field wise either by acre or by each case)X 
Cost of goods and services XX
-Ending inventory (X)
Cost of services rendered/ COGS XX

Knowing COGS is very important to analyze the profitability of the business.  Different products within a farm business have different COGS, and as such, different levels of gross profit. Labor associated with production is added to COGS while linked with marketing and sales is added to operating expenses.