Process for Annual Statement Preparation and Distribution for Fiber Submission

Introduction

For purposes of this document, it is helpful to understand that members earn money in two ways through its participation in AFCNA.  This is because AFCNA is comprised of two divisions.  The first, which we are required for Internal Revenue Service purposes to call "Marketing" would be more logically, for internal purposes, be called "Manufacturing" since it is the division that receives member fiber and has it processed into end product to be sold.  The second division, which the IRS requires us to call the "Purchasing" Division would be far better called "Sales" since this is the division that sells or markets the end products produced by the Manufacturing Division.  

Therefore, for purposes of clarity in this explanation only, we are going to call the Marketing Division by its logical name, "Manufacturing," and the Purchasing Division by its logical name, "Sales."  Despite an inclination to the contrary, we shall continue to call the IRS simply IRS.

"Manufacturing" Division

The Manufacturing (or IRS-designated "Marketing") Division is the division which receives members' fiber, sorts and grades it into appropriate categories, and sends it for processing.  Fiber is first scoured, then spun and then manufactured into product.  Members are paid for their fleece submissions in direct proportion to the amount of fiber they submit in relation to the amount of fiber submitted by all other participating members.  The following paragraphs outline the process by which AFCNA calculates the relative proportion of value to be assigned to members' fiber.

• 1) Submitted fiber is sorted by grade and color. Information is entered onto the submitted clip report by the Sorter.
• a) At end of day the clip report is either faxed or emailed to the member for their records. At this time the member has the opportunity to question any concerns
• b) The annual Excel worksheet is updated which is used to summarize submission by member. The information captured is as follows:
• i) Member Number
• ii) Name
• iii) Farm Name
• iv) Type of fiber Suri or Huacaya
• v) Color of fiber
• vi) Total weight of "box" - in ounces
• vii) Total weight of fiber - in ounces
• viii)Grade of the fiber - in ounces
• ix) Comments listed as on the Clip Report, i.e., great fleece, moths, etc.
• 2) After the conclusion of the sorting process for the year the Excel worksheet is summarized by member to arrive at a total submission for the year by ‘Total weight of fiber - in ounces' and ‘Grade of the fiber - in ounces'.
• 3) The quality value (not in terms of "cash value" but in terms of relative quality), as determined by the Board for the current year, is then applied to the summarized report by member. For the last two years the following values were given:

• 4) The weighted value is totaled for each member and a percentage to total useable is determined.
• 5) Based on the current Board directive for the number of years to be used in the profit distribution, the years are combined and a weighted average is determined. For the 12/15/10 statement two years were used -2008 and 2009. For the statement to be generated in 2012 for 2011 activity we will be using the 2009 and 2010 clip. The determination which years to include is based on the actual fiber used to generate products. This value is considered the "Net Income" for a members' contribution to the Manufacturing Division.

Sales Division

The Sales Division (or IRS-designated "Purchasing" Division) is the division of AFCNA that maintains and operates an e-commerce site where finished product is offered for sale.  In addition to products manufactured from member-submitted fiber, AFCNA maintains a stock of finished product imported from South America.  We do so not because it is necessary to have available a variety of items to entice buyers to the site, which increases the amount of sales we are able to make from which members profit.  Members profit from the Sales Division in two ways.  The first is that they are able to purchase product at below wholesale prices (50% discount to members, as opposed to a 40% discount for wholesalers).  This gives purchasing members an immediate 50% return on their purchase when the item is retailed by them.  A member's decision to participate through retailing finished product is entirely voluntary but is a significantly profitable aspect of membership in AFCNA.  It is also noteworthy that members who prefer not to staff and maintain a retail outlet can still participate in the profitability of the Sales Division by linking the America's Alpaca website to their own website, and taking advantage of the commission earned on sales generated through that link.  The second way in which members profit is through a return of profit based upon their proportionate percentage of sales.  The process for calculating this second mode of profit is outlined as follows:

• 6) Obtain list of all Member purchases for the year. Determine each member's percentage of the total sales. This percentage would be used for all Purchasing Division profits if the Board votes on a distribution. For the 12/15/10 Statement sales made from 9/1/09 to 8/30/10 were included in this average. For the statements to be generated in 2012 for the 2011 activity we will be including sales from 9/1/10 to 12/31/11, or an 18 month time period due to the change in the Co-Op's fiscal year end.

Putting it All Together:  Current Year Income and Expense Allocation

• 7) Upon conclusion of the fiscal year in which the Net Income (the amount of income computed based upon fiber submitted to the Manufacturing Division and income generated as a result of sales made through the Sales Division - America's Alpaca) is finalized, income and expenses are allocated between Members, Wholesale, Retail and Unallocated. Sales and Cost of Goods Sold Is associated with and allocated to Members (e.g., member purchases from America's Alpaca at 50% discount), Wholesale (purchases from the America's Alpaca site by wholesalers at 40%) and Retail (purchases from the America's Alpaca site by individuals buying at full price). Some expenses, such as member fiber shipping expense and Credit card fees can also be specifically identified. Other expenses, such as rent, utilities, salaries, etc. fall into the Unallocated category. For the 12/15/10 statement, the time period was 9/1/09 to 8/31/10. For the statements to be generated in 2012 for the 2011 activity we will be including all activities from 9/1/10 to 12/31/11, or an 18 month time period due to the change in the Co-Op's fiscal year end.

• 8) Revenue and Expenses are than broken out into the following divisions:

• 9) Allocate the Marketing Divisions net profit or loss for the year (as identified in item 8) based on the member's fiber submission percentage (as identified in item 5).
• 10) Allocate the Purchasing Division net profit or loss (as identified in item 8) based on the member's percentage of total members sales (as identified in item 6).
• 11) Generate and mail summary statements for members and applicable checks.