Cost of an Egg Assignment

November 27th 2013
Kathleen LaRue

Mary Oxner
BSAD 321:11

When determining the selling price of a product or service, there is often times much more that goes into the making of a good or the delivery of a service than one might think. This paper will explore the cost of an egg, and will investigate which factors contribute to the cost of an egg, from raising laying hens to transportation of the final product to retailers.
Costs Associated with the Production of an Egg: 1. Purchasing first chicks a. Variable cost - This cost is variable because the amount you spend on purchasing your first hens is dependent on how many you purchase. b. Direct cost - Costs are direct because the cost can be easily traced back to the chick 2. Price of raising pullets c. Variable cost - This cost is variable because the amount of food and water required depends on the number of pullets being raised. d. Indirect cost - This cost is indirect because tracing specific amounts of feed and water to a specific pullet is quite difficult. 3. Price of feed, water for laying hens e. Variable cost - This cost is variable because the amount of food and water required depends on the number of hens being housed. f. Indirect cost - because it would be very difficult to trace food and water to a specific hen. 4. Purchase of hen house g. Fixed cost - This is a fixed cost because it is a one-time cost to be divided among all eggs produced h. Indirect cost – It is next to impossible to trace the use of a building to a specific egg 5. *Grading equipment and electricity used to run this equipment i. Mixed cost – The cost of the equipment is a one time sunk cost to be divided among the eggs it produces. The electricity used however is dependant on the running time of the machine. j. Indirect cost – It is difficult to trace the amount of electricity used in the grading of an egg back to one egg. The sunk cost of the equipment is divided over time by the number of eggs it grades. 6. Electrical costs for storage of inventory waiting to be shipped k. Fixed cost - The cost of temperature regulation in a storage room will be the same if there is one egg in that room or many. l. Indirect cost – Another manufacturing overhead cost 7. *Transportation of eggs from farm to grading facility or to retailer m. Variable cost - Cost of transportation depends on the number of eggs being produced. n. Direct cost - Costs can be traced to a specific shipment of eggs then divided amongst these eggs. This assignment displays that the nature of costs in the egg industry are often indirect, as with many other high volumes of products. It can be difficult to allocate infrastructure costs (such as indirect costs) to the cost of an egg. Much machinery as well as electrical equipment is used in the production of eggs, which can make it difficult for farmers to narrow down these overhead costs to the cost of an egg. Costs such as depreciation also come into play when a lot of machinery is used, as this equipment cannot last forever. Other costs include the raising of pullets and the feed and water for laying hens. The price of feed and water is dependent on the number of laying hens or pullets being fed, however these costs are very difficult to trace back to a specific hen or pullet (though average consumption does help the farmers gauge how much a hen/pullet eats throughout its time). A rise in the price of a product often indicates that the cost of production of that product has also risen. This has been displayed in the egg industry, as eggs are now commonly sold in a package of 1 dozen for an average price of $3. 25 in the current year. This is much higher than the 2011 price of $2.67, which can be explained by a rise in prices associated with the production of eggs. Oil prices can greatly affect the price of an egg, because oil in turn increases the price of gas which is used in the transportation of feed and other supplies to the farms, but also the transportation of eggs to grading facilities and retailers. Another contributor to the rise in the price in eggs and an increase in feed prices, making it more expensive to raise pullets and hens compared to the year 2011. Feed prices can fluctuate when the grains (or other sources) used in feed become more expensive. This can often times be due to weather, as crops are not always consistent from year to year. It is very evident that a number of factors outside of the farm play a big role in determining the cost of an egg. Things such as weather or even political disputes (for imported oil) can be huge contributors in the cost of producing an egg.

All egg producers in Canada use the supply management system. This is a system that restricts the supply of eggs by controlling the number of eggs produced, as well as limits the amount of imported eggs by imposing high tariffs on foreign sellers. The best example of the use of supply management in the egg industry is the enforcement of quotas; strict guidelines that tell a farmer their maximum (and minimum) production for a year. In order to become a registered egg farmer, a farmer must obtain a transfer of quota, which is the share of the total eggs produced in that province which they must produce. The quota impacts production so that there is a steady supply of eggs, with less risk of over or under production. High tariffs are imposed on eggs being imported from other countries, in order to encourage Canadians to purchase Canadian raised eggs. It is clear that the egg industry has many challenges to face when it comes to allocating costs to an egg. The industry has many indirect costs, such as electricity for hen houses which can be difficult to trace back to a specific egg. The industry also faces challenges when prices rise for things essential to the production of eggs such as the price of gas and feed. The rise in these prices in turn raises the cost of production, which then requires an increase in the price of eggs to consumers. References: "Canadian Food Prices." Living in Canada. N.p., n.d. Web. 27 Nov. 2013. <http://www.livingin canada.com/food-prices-canada.html>.

"Regulations - Natural Products - Nova Scotia Egg Producers' Egg Regulations." Regulations – Natural Products - Nova Scotia Egg Producers' Egg Regulations. N.p., n.d. Web. 26 Nov. 2013. <http://novascotia.ca/just/regulations/regs/npeggreg.htm>.

"Terence Corcoran: Why is the price of eggs not an election issue?." Financial Post Opinion Terence Corcoran Why is the price of eggs not an electionissue Comments. N.p., n.d. Web. 27 Nov. 2013. <http://opinion.financialpost.com/2011/04/27/terence corcoran-why-is-the-price-of-eggs-not-an-election-issue/>.