Farm, Management System

Costs are major element in managerial decisions mainly in many production based organizations. Allocation of general costs to products is very important decisions in which products’ economic performance can be interpreted and reported. Therefore, this model of Farm Management Information System (FMIS) introduces approaches to manage costs in business firms, namely Direct Costing (DC) and Activity Based Costing (ABC) approaches. And this paper helps to identify the information requirement for the development of a DC and ABC in a FMIS.

Farm Management Information Systems has enhanced a growing interest in recent years, for agricultural activities have become more and more complex and decision-making activities need to be supported by a larger amount of information. A strong pressure on farm managers to adopt IT solutions solutions has been very important process because  analytical activities by using pen and pencil, the information processing workload is very complicated now a days. Moreover, the management of information and decision making are now core issues in developing successful PA applications (Precision Agriculture). Research about FMIS has developed rich framework to address the data management issues of modern agriculture and PA applications. This will focus on the specific applications of DC and ABC in agriculture, depicting the open questions in research and the subject of this study.

This paper focuses on the data processing systems oriented at decision making support with specific cost analysis approaches. Many information flows can become the input sources for specific cost analyses and support a more conscious decision making process. The development of an FMIS model focused on managerial decisions is a particularly relevant area of investigation, because there is a growing interest in increasing the level of cost control on farm activities. However, currently, the managerial approaches oriented towards this goal developed in other industries have not really gained ground in the agricultural context.

In many cases general costs (e.g.: depreciation of machinery) are not correctly allocated to crops. They are usually allocated considering only the extension of the plots. Although this approach may be useful to evaluate costs where land is the main cost driver and production constraint, nevertheless this approach may lead to significant evaluation errors in managerial choice, for instance favoring complex products realized in small quantities, and disfavoring simpler products realized in large quantities. The solution for this matter is the DC and ABC. DC is an accounting practice that is oriented at charging variable costs directly to products. ABC is a methodology developed to face the increasing level of fixed costs in the modern companies. ABC “measures costs and performances ofactivities, resources and cost objects, assigns resources to activities and activities to cost objects based on their use, and recognizes causal relationships of cost drivers to activities”. This way is possible to assign overheads to products in a more accurate and precise way. Managers can have access to a deeper level of information that enables corrective actions directed to the enhancement of revenues, profitability and cost reduction.

ABC prevents some distortions related to product cost information that arise from traditional accounting systems where the overheads (indirect costs) are arbitrarily attributed, usually in proportion to an activity’s direct cost. Traditional systems create higher distortions when there are sophisticated production structures, with a wide range of products or services that require the assignment of large amount of general costs. The combination of DC and ABC enables to analyze cost supporting detailed managerial analysis based on a precise view of the cost of the single crop, considering its relative use of machinery and human resources. In agricultural and food literature there is only sparse evidence on cases of application of DC and ABC to farm management.