Previous Page Table of Contents Next Page


5.1 Cost of auxiliary centres

A number of “cost centres”, corresponding to real and natural divisions, are grouped under the name auxiliary centres. These are the dairy services which, though not essential to dairy plant operations, do nonetheless constitute different production activities.

In a dairy plant these services may be:

These sections can be run by a single person who will be considered “the officer-in-charge of general services”.

Auxiliary centre costs should then be broken down for the different user sections. The discharge operations of the auxiliary sections within the main sections take place among “consumer sections”:

5.1.1 “Steam production” centre

In many plants the steam production station is a single cost centre. Larger plants, however, or plants with very poor-quality water may wish to divide this into two sub-sections:

This work station most often has a dual responsibility: it produces steam and distributes it to user stations. The work unit retained for this section is 1 kg of steam, and usually two costs are calculated:

  1. Average cost for 1 kg of steam;

  2. Average cost for 1 kg of steam at work station. Steam produced

Daily fuel consumption is monitored to ascertain average daily consumption.

The specific weight of the fuel (diesel oil has a specific weight of some 0.85 kg/1) and lowest calorific value (LCV), i.e. the number of kilo-calories given off by the combustion of 1 kg of fuel needs to be known. These specifications are furnished by the supplier and checked by the dairy plant. They are the data which make it possible to show how fuel costs affect the cost of one kilo of steam.

Example: Monthly fuel consumption: 7 200 l

For a fuel with a specific weight of 0.85 kg/1, monthly fuel consumption equals: 7 200 × 0.85 = 6 120 kg.

If the lowest calorific value of the fuel is 10 000 kcal/kg, it will supply the following kilocalories:

10 000 × 6 120 = 61 200 000 kcal

The yield of each steam generator indicates the percentage of calories produced by burning and recovered as steam. With an 80 percent yield, the kilocalories actually available for steam production are:

The total heat produced by vaporization of one kg of steam at 170°C at a pressure of 8 kg/cm2 is 660 kcal. However, assuming the water comes into the boiler at a temperature of 20°C, the amount of heat needed to get 1 kg of steam from 1 kg of water would be:

660 kcal - 20 kcal = 640 kcal

and the monthly steam production would be: Water consumption

In the above example, 75 500 1 of water are needed to produce 76 500 kg of steam. In virtually all dairies, however, a certain percentage of the water is recycled and so real consumption is lower.

The percentage of recycled water is determined by comparing real consumption (where a counter is available) with the above figure.

Where no counter is available, one of the following methods should be used to estimate the amount of water recycled:

  1. measuring the water in the condensing tray;

  2. checking the operating time (clock counter) of the condensed water pump;

  3. theoretical calculation;

any other method compatible with plant equipment.

Condensate recovery, in addition to reducing water consumption, can also reduce fuel consumption as condensates are usually quite a lot warmer than the generator intake water. Amount of steam available at work stations

Not all the steam produced is used by the manufacturing stations. There are two main reasons for this: Heat balance

Heat balance, determined on the basis of estimated theoretical amounts of steam available at the work stations, will show as negative when compared to the heat balance of the boiler.

This difference is explained by the fact that the different heat cycles of different machines are not usually reckoned into the theoretical calculation. This may include:

It is not feasible to reckon all these factors into the theoretical estimate. But in the interests of getting as true a picture as possible and minimizing the percentage of error, it is a good idea to measure the condensed water used by specific equipment such as pasteurizers, vats, etc.

This is checked in the following way:

The method selected for estimating the average margin of error will be worked out in detail based on a given heat treatment. This method will be repeated for each treatment. Sample margin of error estimate

Milk pasteurization:

The temperature of the milk is raised by: 82°C – 5°C = 77°C

If heat recovery at the “regeneration” section of the heat exchanger is 75 percent, heating will equal:

Taking 0.93 kcal/kg as the specific heat of the milk, the number of kcals needed for pasteurization will be:

0.93 × 2 060 × 19.25 = 36 879.15 kcal

The number of kcals from 1 kg of steam is:

Total heat of 1 kg of condensed water 660 kcal

Total heat of 1 kg of condensed water (recovered at 70°C) 70 kcal

Total heat supplied: 590 kcal

Theoretical steam consumption:

True steam consumption is equal to the condensed water recovered in the course of this treatment, e.g. 74 kg at 70°C.

The margin of error is:

By determining this margin of error for each type of apparatus, and adding it, we should get a work station heat balance which is very close to the heat balance of the boiler.

It would be extremely expensive and probably pointless to further refine this method.

Table 1

- Equipment depreciation: - fuel vats &hellip&hellip
    - steam generator &hellip&hellip
    - condensate recovery tray &hellip&hellip
    - water treatment equipment &hellip&hellip
- Building depreciation &hellip&hellip
- Personnel costs &hellip&hellip
- Share of structural costs  
TOTAL FIXED COSTS &hellip&hellip
- Fuel consumption &hellip&hellip
- Water consumption: - boiler &hellip&hellip
    - water treatment &hellip&hellip
- Power consumption: - burners &hellip&hellip
    - water pump &hellip&hellip
    - condensed water pump &hellip&hellip
    - lighting &hellip&hellip
    - water treatment regulator pumps &hellip&hellip
- Chemical agents for water treatment &hellip&hellip
- Spare parts &hellip&hellip
- Costs charged to maintenance service &hellip&hellip
- Staff costs (extra hours not in fixed costs) &hellip&hellip

5.1.2 “Cold production” work station

Cold production includes two components:

  1. Cold production for plant premises.

    There may be a principal cold production unit which distributes cold to the different user points, which act as evaporators. This requires a cost centre.

    More commonly, cold is produced by small independent units, each cooling one room. In this case the cold unit is considered a machine belonging to that work station.

  2. Production of chilled water.

    Chilled water is always produced by a centralized unit.

    Negative kcal losses from the chilled water tray or tubing are not generally reckoned. True power consumption and theoretical need are already known. It is therefore sufficient to share the losses, which are already known, equitably among the different users.

As is true for the steam cost centre, the cold station is usually responsible for both production and distribution of cold.

The negative kilocalorie is the unit of work retained.

5.1.3 Power transformer

Transformer section costs will be shared among the different work stations which get generator-produced power in the case of a sector power cut.

The power supplied by the public sector is not counted under this cost centre. Each user section is invoiced in line with installed power and number of running hours.

5.1.4 Maintenance station

The maintenance station is used to store maintenance material and perhaps for certain equipment maintenance operations.

Listed under this cost centre are:

Table 2

- Depreciation of buildings &hellip&hellip
- Depreciation of equipment &hellip&hellip
- Remuneration of upper-level staff &hellip&hellip
- Share of structural costs &hellip&hellip
TOTAL FIXED COSTS &hellip&hellip
VARIABLE COSTS &hellip&hellip
- Personnel costs &hellip&hellip
- Consumption: - water &hellip&hellip
    - power &hellip&hellip
    - steam &hellip&hellip
    - chemical agents &hellip&hellip
- Worn or spare parts &hellip&hellip

The cost price for one hour of maintenance service should be compared on a regular basis with the invoicing costs of any external firms providing services to the plant. The maintenance service always has a hard time striking a balance between two extremes:

  1. A highly developed maintenance service (well-staffed and well-equipped) able to intervene very rapidly to solve almost any problem but with very high servicing costs with respect to working hours which reflects heavily on the cost price of manufactured products.

  2. A very slim maintenance service, with the plant calling on outside services in most instances with the following risks:

Some of the staffing and equipment investment decisions for this cost centre should be made jointly with the person in charge of processing. This person is in a position to calculate losses from a halt in manufacturing and decide which is preferable: to pay more for the intervention time of the maintenance service or to take the risk of temporary halts in production lines.

For a large dairy plant, intervention time can be invoiced to the user service at differential rates depending on the qualifications of the service person and the equipment or supplies necessary.


The costs of auxiliary centres should subsequently be distributed among major sections, but some auxiliary centres exchange services. This is often true of the maintenance service which does use steam and may use transformer power, etc. The problem with these “reciprocal services”, is that determination of “maintenance” costs requires foreknowledge of “steam production” and “power production” costs, but steam and power depend on the “maintenance” centre.

There are several ways of solving the problem of reciprocal services:

  1. Cancelling out reciprocal services which may be justifiable when only small amounts are at stake.

  2. Algebraic resolution.

    This consists of taking the total costs of each section as an unknown quantity as to reciprocal services.

    For example, let us take the “maintenance” and “steam production” sections, of which the costs minus reciprocal services were:

    Maintenance 1 200 Steam production 3 500

    Sections Cost to be shared Maintenance Steam Workstation 1 Workstation 2
    Maintenance 1 200 - 20% 60% 20%
    Steam 3 500 10% - 50% 40%

    x and y are the total respective costs of the “maintenance” and “steam” sections. After taking reciprocal services into account we get:

    x = 1 200 + 0.1y

    y = 3 500 + 0.2x

    In solving the system of two equations with two unknowns we find:

    x = 1 200 + 0.1 (3 500 + 0.2x)

    x = 1 200 + 350 + 0.02x or 0.98x = 1 550

    x = 1 581.6

    and y = 3 500 + 0.2 × 1 581.6 = 3 816.3

    Giving the distribution shown in the following table which will be one segment of the table of distribution.

    Sections Cost to be shared Maintenance Steam Workstation 1 Workstation 2
    Maintenance 1 581.6 - 316.3 949.0 316.3
    Steam 3 816.3 381.6 - 1 908.2 1 526.5
          TOTAL 2 857.2 1 842.8
            4 700.00  

    The total costs invoiced to the major sections (2 857.2 + 1 842.8) are in fact equal to the initial total of the costs to be shared (1 200 + 3 500).

  3. Approximate costs method.

    Inter-section cost exchanges often use conventional rates which approximate distributions and sub-distributions.

    The use of such rates is only reasonable where they are reckoned on the basis of workstation budget estimates.

5.1.5 “Waste water treatment”

Treatment involves the entire waste water purification apparatus, including construction, equipment, filtration and release into the environment.

A comparison is made between water volumes consumed and those returned to the environment, although for the reconstitution units the volume of water in liquid milk is taken into account.

The dairy industry is a major water user. A figure of 7–8 litres of water per litre of milk treated is frequently considered average and most plants pay for water twice: once for intake and once again for waste water treatment.

There is a very close connection between water saving and pollution control at the plant level in that lower water consumption inevitably entails higher concentrations of polluted effluents in smaller volumes of waste water, making it easier and cheaper to treat waste water prior to disposal.

The pollutant load varies greatly from one plant to the next and so average values will have to be used. As a simplified hypothesis, the extent to which waste waters are polluted can be estimated in g of BOD × 5 per litre of milk.

(The BOD × 5 is the biological oxygen consumption demand for five days at 20°C. Biological oxygen demand is the amount of oxygen needed to destroy or break down biodegradable organic matter in water).

Using this simplified hypothesis, the following figures may be retained:

PRODUCT Gross daily pollution charge in effluent expressed as g of BOD 5 per litre of milk treated
Liquid milk for consumption 1 to 4
Butter 1 to 2
Yoghurt 2 to 3
Cheese 3 to 10
Powdered milk 0.5 to 2
Multi-purpose dairy plant 2.5 to 5

Using these average values, costs of the “waste water treatment” centre can be divided among the major sub-centres.

A detailed cost breakdown of this section will not be given, as effluent treatment procedures are totally different from one plant to the next depending on plant size, the different kinds of milk processing, the quality of waste waters, the geological configuration of the land and climatic factors.

Water saving is of special interest to plants with a high expenditure for water intake or waste water treatment. Recycling or re-using heat exchange water, which represents some 70 percent of the intake volume, has great potential for reducing water intake costs for the plant.

Water saving is usually measured by the rate of use, which is the ratio between the total amount of water used and the water intake. As chilled water is recycled in almost all plants, it should always be specified whether or not the rate of use reckons chilled water or not.

5.1.6 “Site development” section

This section concerns:

The costs for this section are generally divided among the user sections, depending on the number of litres of milk processed, or by plant area.

This section may also be classified under structural costs.

5.1.7 “Staff premises” section

By staff premises is meant the changing rooms, W.C. and linen rooms, and social facilities such as the medical unit, cafeteria, and so forth.

A laundry within the dairy plant is essential to maintain the highest standards of hygiene. This service may be provided by the plant through a linen service which will comprise a separate cost centre using the cost/worker/year as a reference unit. Otherwise this service may be contracted to an independent firm in which case the cost will be added on to personnel costs.

If the plant has its own linen section, its costs will include:

Table 3

- Depreciation of buildings &hellip&hellip
- Depreciation of equipment &hellip&hellip
- Share of structural cost &hellip&hellip
- Purchase of new uniforms &hellip&hellip
TOTAL FIXED COSTS &hellip&hellip
VARIABLE COSTS &hellip&hellip
- Personnel costs &hellip&hellip
- Consumption: - water &hellip&hellip
    - power &hellip&hellip
    - steam &hellip&hellip
    - detergents &hellip&hellip
COSTS PER UNIT OF WORK &hellip&hellip

5.2 Structural cost centres

Structural costs can be broken down into two categories:

  1. Specific structural costs for a specific department or function of the plant.


  2. General plant-wide structural costs: general administration.

Structural costs specific to one function of the plant such as processing are shared among the centres concerned - the various production stations. General structural costs are divided among all plant cost centres.

The rules governing distribution are, of course, conventions.

Structural costs which tend to increase with plant size, represent a considerable component of cost price and need to be closely monitored.

5.2.1 The laboratory

Depending on the plant, a laboratory may perform very different functions. At its simplest, the laboratory may merely analyse dairy products at the various stages of processing.

In other plants the laboratory may play a much larger role, including the following possible duties:

Some plants have even decided to separate the laboratory into two sub-sections. One carries out routine analyses and the other is responsible for all other tasks.

For routine laboratory analyses, the general procedure is to work out the cost of the analysis (depreciation of specific equipment, share in building depreciation, share of laboratory executive staffing costs, laboratory testing, time) and the corresponding costs are invoiced to the user service. The customary practice is to invoice the remaining laboratory costs among the principal sections affected.

Some plants consider the laboratory an auxiliary cost centre, while others, usually small ones, include this item under general structural costs.

Table 4

- equipment &hellip&hellip
- buildings &hellip&hellip
- furnishings &hellip&hellip
Indirect labour costs &hellip&hellip
TOTAL FIXED COSTS &hellip&hellip
VARIABLE COSTS &hellip&hellip
Chemical reagents (testing) &hellip&hellip
Water &hellip&hellip
Power &hellip&hellip
- lighting &hellip&hellip
- machinery &hellip&hellip
Cleaning agents &hellip&hellip
Administrative costs (forms, office materials, etc.) &hellip&hellip
Direct labour costs &hellip&hellip

5.2.2 Storage section

Storage costs are generally invoiced to the different user centres in accordance with the ground area occupied by the various packaging materials.

The various storage areas in a dairy plant are usually considered structural cost centres and classified as specific to some department or function of the plant. In some instances, storage may appear as an auxiliary cost centre.

There is a close connection between purchasing costs and storage costs. We need to remember that purchase costs go up as we increase the number of orders, but, conversely, the carrying charges go down, because of the accelerated stock rotation which accompanies more frequent stock inflows. As we know, the optimum figure is obtained when the sum of purchase costs and carrying charges is minimal for the needs of a given period.

Carrying charges have the following main components:

Figure 1

Figure 1. Variation of storage costs in accordance with number of orders.

In many enterprises carrying or storage costs are some 10 percent, even as much as 25 percent, of the purchase cost.

Logic tells us that carrying charges should be invoiced to the components stored, on an individual basis, in accordance with storage time. The advantage of invoicing the carrying charges to stocks in storage would be to show the gradual cost increase of goods kept in storage for long periods. Actual practice, however, is quite different in that:

5.3 “Pre-workstation” processing costs

Let us consider a plant in which milk reception and pasteurization follow the pattern outlined in principle No. 1.

In this case cost accounting should be able to provide the head of the undertaking with the following data:

5.3.1 Division into sub-sections

The category “pre-workstation” might be divided into the following sub-sections: - “Tank reception” - “Can reception” - “Cooling” - “Cooled milk storage” - “Pasteurization - Standardization” - “Homogenization” - “Storage and distribution” “Tank reception” sub-section

The only equipment under this section will be the number 1 centrifugal pump.

The costs of this sub-sector will be added to those of the tank collection sub-sector for comparison of overall costs for bulk collection with overall costs for can collection.

The costs of this sub-sector may be broken down as indicated in Table 5 below.

Table 5

- Depreciations: - centrifugal pump &hellip&hellip
    - engineering &hellip&hellip
    - fixtures &hellip&hellip
- Supervisory and executive staff &hellip&hellip
- Invoicing structural costs &hellip&hellip
TOTAL FIXED COSTS &hellip&hellip
- Direct labour costs &hellip&hellip
- Maintenance costs &hellip&hellip
- Office supplies and miscellaneous &hellip&hellip
- Power &hellip&hellip
- Stationary cleaning apparatus &hellip&hellip
SUB-SECTION COST OF ONE LITRE OF MILK &hellip&hellip “Can reception” sub-section

Included in this sub-section are depreciation on the following equipment:

Can depreciation generally tends to be included under collection costs rather than under this sub-sector.

The costs of this sub-sector can be broken down as indicated in Table 6 below.

Table 6

Depreciation: - equipment &hellip&hellip
  - engineering &hellip&hellip
  - fixtures &hellip&hellip
Supervisory and executive &hellip&hellip
Invoicing for structural costs &hellip&hellip
TOTAL FIXED COSTS &hellip&hellip
Direct labour costs &hellip&hellip
Regular maintenance &hellip&hellip
Consumption: - water &hellip&hellip
  - power &hellip&hellip
  - steam &hellip&hellip
Cleaning agents &hellip&hellip
Office materials and miscellaneous &hellip&hellip
Table 7


  Can reception Tank reception
Refrigeration &hellip&hellip &hellip&hellip
Collection &hellip&hellip &hellip&hellip
Reception &hellip&hellip &hellip&hellip
TOTAL FIXED COSTS &hellip&hellip &hellip&hellip
Refrigeration &hellip&hellip &hellip&hellip
Collection &hellip&hellip &hellip&hellip
Reception &hellip&hellip &hellip&hellip
TOTAL VARIABLE COSTS &hellip&hellip &hellip&hellip
COSTS (FIXED + VARIABLE) &hellip&hellip &hellip&hellip
COSTS OF ONE LITRE OF MILK &hellip&hellip &hellip&hellip
TOTAL COSTS &hellip&hellip &hellip&hellip
COST OF LITRE OF MILK &hellip&hellip &hellip&hellip “Cooling sub-section”

The only equipment included in this sub-section is the plate exchanger 7.

If conditions are good for tank pick-up and the milk reaches the plant at the right temperature it will be delivered directly to the storage tanks 8. In this case the cooler will be used only for milk received in cans and there is no point in having a “cooling” sub-section. The plate exchanger will be included under the equipment of the “can reception” sub-section.

If instead all of the milk is received warm it is put through the cooler which will then be included under the section “milk cooling and storage”. “Cooled milk storage” sub-section

The equipment in this sub-section will include:

The storage tanks may also be used for reconstituted milk before heat treatment, which would necessitate a cost breakdown for this sub-section. “Pasteurization - standardization” sub-section


Fixed costs basically include:


These include:

The cost of each item should be calculated for 1 000 litres of processed milk and compared to the cost estimates.

The consumption of steam, chilled water or water with glycol will be costed for each litre of milk in accordance with treatment. Bearing in mind the regeneration rate of the pasteurizer, theoretical steam consumption will be determined in accordance with the milk heating temperature:

72 – 75°C for pasteurization;

62 – 65°C for heating milk used in cheese-making.

This theoretical consumption figure is compared to true consumption to give the real cost of steam for each treatment of the different kinds of milk.

The same procedure will be followed for chilled water or water with glycol as the milk intended for some of the work stations (cheese, yoghurt) does not go through the final cooling section of the plate exchanger.

All the milk is considered to go through the centrifugal separator for cleaning and it is accepted that standardization and full skimming involve the same costs.

Within the pasteurized milk production unit, the centrifuge separates whole milk into standardized milk and cream. The problem is therefore to share the original milk cost commitments for cooling, collection, reception and storage between these two components. If 1 000 litres of whole milk produces 975 1 of standardized milk and 25 1 of cream, the usual procedure is to invoice 2.5 percent of the above costs to cream and 97.5 percent for milk.

In other words, costs are distributed according to the volume of each of the phases obtained. However, a plant which skims off all the cream for sale, considering the skim milk to be a by-product, may wish to calculate costs per kg of fat as it leaves the cream separator.

The costs of the “pasteurization - standardization” sub-section cover only the standardized or skim milk obtained, without counting the cream, which has not been pasteurized in the milk pasteurizer. It may be of interest in some cases to have two cost centres, one for “pasteurization” and the other for “skimming - standardization”.

In this case, only the costs corresponding to centrifugal equipment (skimming or standardization) will be itemized for milk and cream. “Homogenization” sub-sector

This sub-sector includes all homogenization costs, which are to be invoiced among the various milks so treated:

If the plant produces flavoured milks, particularly chocolate-flavoured milks, which cause a great deal of wear on the homogenizer, these may assume a larger share of sub-section costs in proportion to the total amount of homogenized milk produced. “Storage and distribution” sub-sector

Depreciation in this sub-section concerns the following equipment, fixtures or tools:

5.3.2 Calculating average milk prices

Milk collected in cans and bulk-collected milk are mixed in the storage tanks 8. At this stage, the next step is to determine the cost price of one litre of milk.

The cost price of stored milk will be the sum of the following costs:

The sum of these costs divided by the number of litres of stored milk will give the average cost of one litre of milk. This average per litre cost should be indicated together with milk quality, which may be defined, for example in terms of:

Quantitative control is also necessary at this point in processing procedures; i.e. amounts paid to producers and amounts actually stored need to be compared.

For bulk collection, the quantities of milk paid to the producer will be worked out by the milk collector at pick-up. The volume of milk will be indicated by:

The total amount of milk collected during the day by the milk collector will be that coming into the reception platform when the tank truck is emptied.

With conventional can collection where the milk from the various producers is unmixed, each producer's milk is weighed at the plant at delivery. A platform receipt is issued, with a copy to be given the producer by the milk collector.

In the case of a collection centre, a receipt is given to each producer by the person in charge of the centre. This person then totals up all milk received during the day for comparison to the amount of milk delivered to the tank truck making the pick-up for the plant.

No matter what collection system and method of payment is used, a control needs to be set up for a daily comparison of the amounts of milk paid for with amounts stored in the tanks 8 . This control system should be designed to rapidly identify at what point in the process milk losses have occurred.

The control slips should also show how much sour milk was rejected at the platform.

The sum of the costs of the preceding sub-sections, together with the corresponding invoice of the costs of the auxiliary centres and the structural costs, are used to tot up the overall cost (goods + processing) of all dairy products coming into all work stations.

At the “pre-work station” level, in addition to the reception slip, a distribution slip is also filled out, indicating the amounts and characteristics of all dairy products going to each work station.

An internal transfer receipt for all milk delivered to a work station is to be filled in and signed by the person in charge of pasteurization and the person in charge of the specific work station. This will be used to double-check the information on the distribution slip.

5.3.3 “Pre-work station” organization

There are two possible approaches, depending on the type of plant:

  1. The “pre-work station” complex comprises a single section under a single supervisor working under the head of production.

  2. The“pre-work station” section is divided into two sub-sections: The first is the reception area combining the various milk handling operations from reception to milk storage 8. This section will be supervised by someone from the collection service.

    The second is the “pasteurization” section, supervised by someone from the processing service.

The first approach is chosen in many developing countries, basically for the following two reasons :

  1. A small plant does not need two section supervisors.

  2. Frequently, much of the milk is picked up by independent truckers and so the “collection” or “producer relations” service is quite small and it is simpler, in terms of organization, to consider the reception staff as working for the plant rather than for this small service.

We should remember, however, that having two sub-sections does facilitate cost comparison among the different collection systems.

1. Centrifugal pump

2. Can conveyor

3. Scales

4. Buffer tray

5. Milk filter

6. Centrifugal pump

7. Heat exchanger

8. Storage tanks

9. Centrifugal pump

10. Can washer

11. Delivery tank

12. Centrifugal pump

13. Flow meter

14. Centrifugal separator

15. Homogenizer

16. Pasteuzier

17. Storage tanks

18. Centrifugal pump

“PRE-WORK STATIONS” PROCESS Digram of Principle 1

5.4 Evaluation of milk content - yields and costs

5.4.1 Evaluation of milk content

The main reason for a quantitative control is to improve the performance of all sections of the dairy organization - or to at least maintain high standards. In the final analysis, milk losses mean a loss of income for the dairy organization - income which might have been used to pay a better price to producers, to lower consumer prices or to re-invest in the firm. It is even more important to avoid wasting milk in countries where food supplies are short.

The evaluation of milk content consists of comparing the amount of milk fat and milk solids in the milk delivered to the section or work station under consideration (the composition is known), with the amounts contained in goods coming out of the work station or section.

The evaluation of content (even for milk) cannot consider volume alone as there is a constant risk of adulteration of milk with water, in which case the volume is unchanged but some of the value is lost.

In a butter factory the evaluation of composition is often limited to fat content alone. Such an evaluation gives exact data on the fat content of cream, butter and buttermilk.

The equation:

cream fat - butter fat = buttermilk fat + fat losses through processing is a differential equation showing the fat which is lost during processing. The evaluation of the contents of milk is a quick way of identifying these losses, which are due primarily to:

With the evaluation of the contents in hand, we can work out the ratio of:

The evaluation of the contents of milk allow the cheese factory to identify the valuable portion of milk delivered for processing and which reappears neither in the cheese nor in the whey. The information also makes it possible to check the constancy of the composition of the final product.

Cheeses are usually defined in terms of their total milk solids content which can range from 15 to 70 percent depending on the kind of cheese. Given this considerable range of variation the composition of cheese is usually expressed in terms of 100 g of total milk solids (TMS).

Example: A cottage cheese said to have a butterfat content of 20 percent with a total milk solids content of 18 percent will actually contain 0.2 × 18 = 3.6 g of butterfat per 100 g of cheese.

5.4.2 Yields

The determination of yield is done by the specific sector involved. Liquid milk for consumption station

If the work station receives standardized milk, yield is generally considered to be the ratio between the amount of milk produced and that delivered to the processing sector.

Example: A work station receives 1 000 l of milk and produces 950 packages, theoretically each containing 1 litre but in fact containing 102 cm3.

If the milk has not been diluted, the evaluation of the contents of the milk reveal a loss of:

1 000 - 950 × 1.02 = 31 l or 3.1 percent

In terms of yield, on the day in question yield is considered to have been:

and most of the responsibility for this poor yield will be due to a failure to check the milk packaging machinery.

If the plant receives whole milk, which it standardizes, yield can only be calculated in terms of butterfat content.

Example: The plant receives 1 000 l of milk with 38 g/l of butterfat and produces 970 l of milk (true content 995 ml) which should contain 30 g/l of butterfat (but which actually contains 30.4 g/l), and 24 l of cream with 350 g/l of butterfat, in which case the butterfat content evaluation shows a loss of:

38 × 1 000 - (970 × 0.995 × 30.4 + 24 × 350) g of butterfat

or 38 000 - (29 340 + 8 400) = 38 000 - 37 740 = 260 g

In this particular case yield is raised because true content is less than theoretical content. In practice, however, true content varies over time. Statistical controls indicate the average volume of containers filled in a working day and the shortfall in terms of theoretical volume has to be minimal, the limits being set by law.

The two preceding examples are an excellent illustration of the differences between evaluation of contents and plant output.

A technician needs an evaluation of contents but a manager will only work with the concept of output. Butter work station

In butter-making, the output is expressed in terms of amounts of butter produced from 100 kg of worked butterfat.

Butter composition is regulated in each country by exact standards. In France, for example, these are:

a maximum tolerance of 18 percent non-fat materials of which no more than 16 percent can be water

Ideally, then, 820 g of butterfat should produce one kg of butter (82 percent butterfat, 16 percent water, 2 percent non-fat milk solids).

Theoretical yield is therefore:

True yield will be lower and will count:

The butterfat content of buttermilk is considered a loss if the transfer value of buttermilk remains constant, irregardless of its butterfat content. However, this is not the case if the butterfat is used to obtain the minimum butterfat content of the finished product obtained from buttermilk. In this latter case the output will be:

Two yields are usually considered in a butter-making work station: the first is the ratio between the weight of the freshly churned butter and the weight of the butterfat coming into the work station. The second is the ratio between the weight of the butter delivered to the finished products storage sector and the weight of the freshly-churned butter. The purpose of working out this second yield is to check the performance of the cold chamber, particularly losses during packaging.

Output controls should not be just a simple check of no intrinsic value, but should rather lead to certain conclusions. The culprit in lower yields is often processing, which is something only the technical data sheet will show.

Example of a typical butter-making technical data sheet:

Churning batch numberCREAMDURATIONButter moisture contentButtermilk butterfatObservations
  Cheese-making station

In cheese-making, yields are expressed in terms of kg or blocks of cheese obtained from 100 l of processed milk.

Many cheese-makers use the G coefficient (named after its inventor, GUERAULT), representing the quantity of defatted milk solids found in the cheese corresponding to one litre of processed milk. The G coefficient is usually reckoned for the fresh cheese “salted curd” but can also be calculated for ready-to-eat cheese. In this case the value is slightly lower as there is a loss of non-fat milk solids during ripening. In practice this coefficient varies from 27 to 34. It is higher for soft cheeses (30 – 32) than for cooked cheeses (27 – 28). Losses in cooked cheeses are greater for whey and waste products.

Yields expressed in kg of cheese per 100 l coagulated milk for cheeses with 40 percent butterfat in the milk solids are approximately:

Type of cheeseYield
Fresh cheeses19
Soft cheeses- flavoured13 – 14
- washed12 – 13
Blue cheeses11 – 12
Pressed cheeses- semi-soft11.5
- hard10.5
Cooked cheeses8 – 9

The important thing is for each plant to know exactly what is the yield proper to each cheese product in order to determine how the modification of any parameter of the cheese-making process may affect yield.

Whey analysis (dry matter and fat) should be made for each cheese product. Casein work station

Considering that processed skimmed milk contains 2.7 percent casein, and assuming that rennet casein and acid casein have the following compositions by percentage:

 Rennet caseinAcid casein
Fat + lactose22

the theoretical estimated needs are:

Of course the theoretical yields vary with the composition of the skimmed milk used for processing.

5.4.3 Costs

Dairy plants could pay all milk at a fixed price independently of its quality. This practice would tip the balance in favour of adulterated milk and make it impossible to remunerate milk producers in accordance with the quality of their product. Most dairy plants follow one or more of the following criteria in paying milk:

The head of the dairy plant thus knows the price of his milk and its characteristics for any given period. The different work stations within the dairy plant will not, however, use whole milk, but rather standardized or skim milk or cream. The price of the milk coming into each work station therefore needs to be determined.

Example 1

A dairy receives milk with the following average characteristics:

- Fat38 g/l
- Protein32.5 g/l
- Lactose50 g/l

This milk has an average cost price of 100 at the cream separator where it is transformed into:

The next problem which arises is to cost the price of the two dairy products obtained by centrifugation, i.e. standardized milk and cream.

The first thing is to make an evaluation of milk content to calculate the amounts of milk and cream obtained:

Let us now evaluate the "fat":

Fat contained in milk before centrifuging= fat in standardized milk+ cream fat
1 000 × 38= × 30x+ (1 000 - x) × 350
38 000= 30x + 350 000 - 350x
or 350x=312 000 
or x= 975 1 
Diagram 2

Standardized milk is pasteurized ad packed for sale as liquid milk for consumption and the cream used as the raw material in the butter sector. In this case, a value needs to be set on each gram of fat to provide a basis for reckoning the respective prices of standardized milk and cream.

Several methods can be used to estimate the cost of one gram of fat. They are all fairly approximative and so the dairy may choose to use a cost average based on these different methods.

  1. If the plant is already producing butter, it knows its butter output, i.e. the weight of butter from 1 000 g of fat. It also knows the sale price of the butter at the plant and its processing cost as well as the profit it wishes to maintain on this product.

    The plant can accordingly determine the cost price of one litre of cream entering the butter section to get the desired margin and, from there, work out the price of one gram of fat.

  2. Even if the dairy is not yet turning out butter, it may wish to find out the price of one kg of ex-plant butter. By establishing the cost estimates of a butter work station, and bearing in mind the desired profit, it can at the same time work out the cost price of one litre of cream.

    There is a theoretical way of calculating the number of litres of cream necessary to get one kg of butter. If, for example, the national law stipulates the following butter characteristic requirements:

    minimum fat content 82 percent and maximum non-fat solids 2 percent;

    then 1 kg of butter will require

    of cream at 350g/1 of fat.

    In practice, the following factors need to be kept in mind:

    1. There are buttermilk losses.

    2. It certainly will not be possible to obtain 2 percent non-fat milk solids and therefore the percentage of fat will need to be increased accordingly.

    3. There are fat losses during processing and packaging.

  3. The plant can also find out at what price the cream can be purchased from other dairies or milk producers who skim off a portion of their output. The plant will then work out the price of one gram of fat.

  4. Where imports are allowed, the plant can reckon the price of one gram of fat and one gram of non-fat milk solids based on the national price for anhydrous milk fat and the price of one gram of non-fat dry extract. By national price is meant the price which the plant would pay for anhydrous milk fat and skimmed milk powder. This is equal to the international price for these items plus taxes and fees.

  5. Generally speaking, fat represents some 50 to 55 percent of the total value of milk in most countries and the plant can take the figure it finds most suitable within this range.

    If in our example we consider the value of fat to be 52 percent of the total price of the milk, one gram of fat will be worth:

    The price of one standardized litre of milk will then be:

    Diagram 2

    Price of 975 l of standardized milk 89.052 × 975 = 86 825

    The price of one litre of cream with 350 g of milk fat will be:

    Diagram 2

    Price of 25 litres of cream 25 × 527 = 13 175

    Adding the prices of 975 litres of standardized milk and 25 litres of cream, we do get the total of 100 000 which tallies with the price of 1 000 litres of whole milk.

Example 2

A butter-making sector processes 1 000 kg of cream and the laboratory has proceeded to the following analyses:

- cream fat350 g/kg
- buttermilk fat2 g/kg
- butterfat830 g/kg (16 percent water and 1 percent non-fat milk solids)

cream fat = butterfat + buttermilk fat

1 000 × 350 x × 830 + (1 000 - x) 2

which represents the weight of the butter

350 000 = 830 x + 2 000 - 2 x


Weight of buttermilk obtained 1 000 - 420.3 = 579.7 kg

In the preceding example we have said that one litre of cream was worth 526.950. We shall consider one litre to be the same as one kilo and therefore one kilo of cream is worth 526.950.

The price of 1 000 kg of cream will therefore be 526.950.

We can estimate the price of butter in the following way using the figures from the previous example:

Diagram 2

This is of course a very approximative estimate, assuming as it does that the non-fat milk solids in the cream are equally distributed between one kilo of butter and one kilo of buttermilk, which is not quite exact. Nor does the equation take into account milk solid losses which occur during the butter washing. But it does offer a simple equation giving the approximate cost of butter and buttermilk.

In many small dairy plants the buttermilk instead of being processed is resold to milk producers who may also raise hogs. In this case the base price of butter is determined by subtracting the cost price of the cream from the sale price of the buttermilk. As in the preceding example, if the plant resells its buttermilk at 50 per kg, the price of butter will be reckoned as follows:

Price of 1 000 kg of cream: 526 950

Price of 579.7 kg of buttermilk: 50 × 579.7 = 28 985

Price of one kg of butter:

The preceding equations assume no losses of fat in the butter-making sector.

In practice, yields must be taken into account and the base price is accordingly higher.

Example 3

Under good conditions the cheese-making sector uses two of the main elements in milk - milk fat and casein, but it generates large amounts of whey.

The whey produced by the cheese-making sector consists of highly fermentable, fast-changing liquids with pHs of 6.6 to 4 and dry extracts of some 60 to 70 g/l.

The composition of the dry matter in these wheys ranges as follows per 100 g:

- Proteins11 – 13
- Lactose69 – 75
- Fat0.5 – 1.2
- Minerals8 – 10.5

Whey is rich in B-group vitamins. 100 g of dry matter has the following average Vitamin B content, expressed in mg per 1 000 g of product:

- Vitamin B 14mg
- Vitamin B 2 (riboflavin)43mg
- Vitamin B 6(pyridoxin)5.3mg
- Vitamin B 512.5mg
- Vitamin B 120.159mg
- Pantothenic acid45mg
- Folic acid0.03mg
- Biotin116mg

If the whey goes down the drain the lactose is not used and proteins, fat and minerals are lost as well.

In the developing countries the cheese sector of the dairy plant is often quite small, and the whey it produces is redistributed untreated for animal feed, mainly for pigs. The whey is sold at a very low price irregardless of its high nutritional value.

In this case whey sales are subtracted from the cost price of the milk coming in to the cheese-making sector to determine the base cost of each unit produced or each kg of cheese.

On the other hand, if the whey is processed in the plant the milk cost will have to be shared between the cheese and the whey.

Modern ultrafiltration and reverse osmosis techniques have lowered the cost of whey processing operations and so its use as a high-value product should be developed in all countries who have to contend with malnutrition, provided several cheese factories are willing to get together to form a joint whey processing centre.

5.5 Dairy product distribution and marketing costs

Many dairy plants sell their entire output right from the plant, using independent carriers to transport their products and retailers to sell them. This is the simplest system but it does have serious drawbacks for the dairy which loses all control over distribution and marketing and hence over the quality of the product and thus its own image or reputation.

In a situation where dairy products are short these drawbacks may be considered minor by the dairy plant managers. On the other hand, when management wishes to boost the production of one of its lines or develop a new one it becomes apparent that the plant has no links to consumers and distribution centres, and market studies are a problem.

Cost prices are heavily influenced by the quantity of articles produced. A great many firms who had based their profit estimates on potential output, thinking solely in terms of increasing installed capacity or the capacity of a new manufacturing line, have been severely disillusioned. Competing firms already in place within the country had in fact virtually saturated the market and the new product did not attract customers as had been hoped. Once this has happened, sales are slow and sale prices drop, as do profits.

A situation of this kind illustrates the importance of cost price estimates for different levels of activity as well as the need for a commercial expert to do market studies on the size of potential markets and feasible sale prices for the levels of production contemplated.

For the so-called “de luxe” dairy products, market studies may conclude that sales and prices are relatively unrelated but that prices may well be influenced by a series of subjective considerations such as the novelty of the product, fashion and its influence, nutritional arguments, the packaging angle, and so forth. In this case marketing costs must be added to manufacturing costs in addition to the usual marketing and distribution costs.

In many dairy industries, gross profits can be raised simply by acting on the marketing service to foster sales of the most profitable products.

Dairy products are almost always distributed by road. Distribution costs will therefore be reckoned like collection costs for bulk collection. In addition, dairies with a collection service and distribution system can join the two services under the authority of one person who will be responsible for “logistics” and who will be in charge of the fleet of trucks.

It is easy to calculate marketing costs globally. They will not be described in detail in this study because they vary greatly depending on the marketing service of the dairy plant and on its marketing operations.

The important thing is to use a distribution key for a cost breakdown of the various products produced by the dairy plant.

Previous Page Top of Page Next Page