The continuous upward pressure of costs is forcing Virginia dairy farmers to adjust their operations in order to meet changing economic conditions, and to maintain acceptable income levels. The individual milk producer has little or no control over the price he receives for his product, whereas he does have considerable control over his costs of production. Efforts to reduce costs often offer the most practical method of improving net income levels.

The objectives of this study were to identify those factors that are associated with variation in costs of producing a unit of milk output, and to estimate the individual effects of these variables on costs.

Cost and other production data from 39 Grade A dairy farms for a five-year period, 1963-67, were obtained from the V.P.I. Farm Accounts System files. The average sample farm had 48 dairy cows, 2.5 full-time man equivalents of labor, $53,748 average investment, and 238 acres of crop and pasture land.

The multiple regression procedure was used to determine the importance of each independent variable used in the study. Both linear and quadratic functions were used. The dependent variable was average total cost of producing a hundredweight of milk, and independent variables were those which were hypothesized to affect average total costs.

Eight variables associated with variation in average costs of producing a hundredweight of milk were identified, and the effect of each on costs was estimated.