enterprise budgets key questionschap. 10
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ENTERPRISE BUDGETS Key QuestionsChap. 10. 1. What are enterprise budgets used for? 2. What are the typical parts of an enterprise budget? 3. How are the various types of costs and returns calculated?. Purpose: summarize all expected revenue & costs of an enterprise. - PowerPoint PPT PresentationTRANSCRIPT
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ENTERPRISE BUDGETS Key Questions Chap. 101. What are enterprise budgets used for?2. What are the typical parts of an
enterprise budget?3. How are the various types of costs
and returns calculated?
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Purpose: summarize all expected revenue & costs of an enterpriseDecide to produce or notCompare profits among
enterprisesSet marketing goalsProvide data for other budgets
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Parts of an Enterprise Budget
Name of the enterpriseBudgeting unitTime period
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Crop Enterprise Budgets
RevenueExpected yield x expected priceSecondary products (straw, etc.)Government payments= Gross Revenue
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Variable (operating) costsInputs (seed, fertilizer, pesticides, etc.)
quantity applied x price per unit assume a certain technology
Machinery operating fuel and lubrication repairs custom hire payments
Labor (hours x wage rate)Miscellaneous (insurance, checkoffs, fees)Interest (preharvest costs x int.rate x prod.
period)
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Fixed (ownership) CostsMachinery ownership
depreciation interest insurance and housing lease payments
Land cash rent payment land market value x % rate of return plus upkeep and property taxes
Storage bins, silos, dryers, etc.
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SummaryTotal costs =
variable costs + fixed costsGross margin =
gross revenue – variable costsProfit (return to management) =
gross revenue – total costs or, gross margin – fixed costs
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Breakeven PricesTo cover Total Costs
= (total costs - other income) / yield
To cover Variable Costs = (variable costs - other income) / yield
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Special Considerations in Crop BudgetsIf an after-harvest time selling price is
used, include costs of storage, too.Double-cropping: allocate annual fixed
costs (land, machinery) between 2 cropsIntercropping: some variable costs may
have to be divided, also (e.g. weeding, spraying)
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Perennial CropsMay have separate
budgets for establishment period, development period, and production period.
May have to allocate establishment costs over the years in production.
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Livestock Enterprise Budgets
Enterprise Species, phase, technology
Unit One head One litter One cow/calf unit
Budget period Annual Production cycle
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Gross RevenueNo. head x weight x price
per lb. Adjust no. sold for death loss,
replacement breeding stockInclude cull breeding stockInclude livestock products
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Variable CostsPurchase cost of feeder livestock
plus interest on $ investedFeed: quantity fed x price
use market price for homegrown feedsVeterinary and healthFuel, repairs, utilitiesMarketing, breeding fees, misc.Labor: hours per unit x cost per hourInterest on variable costs (one-half of
production period)
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Fixed CostsLand (pasture may be included in
feed costs)Equipment and buildings
Depreciation Interest Taxes and insurance
Breeding livestock Interest and insurance Sire replacement
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Farrow – finish Example7.8 pigs weaned per litter- .4 pigs for death loss (7%)- .6 pigs for replacement gilts=6.8 pigs sold per litter.57 cull sows sold per litter
(.60 replacement - .03 death loss)
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Cost of Breeding Livestock
A.Raise ReplacementsInclude cost of
raising replacements in feed and health costs
Reduce number of offspring to sell
B.Buy replacements
Include purchase cost of female
Reduce feed and health costs
Assume all offspring are sold
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Analyzing Livestock Budgets
Gross Margin = Gross Revenue minus Variable Costs
Profit = Gross Revenue minus Total Costs
Cost per unit = total costs / units produced
Breakeven selling price = (total costs minus other income) units to sell