![]() ![]() Make informed decisions about equipment upgrades and repairs.Determine your fixed costs and whether they can be reduced.Compare different cropping options for profitability.Understand how much cash to withdraw from the business for personal use.Know what’s a profitable price for appropriate marketing decisions.However, costs and returns from the previous year can help make this easier.Įven if you can’t always be precise, calculating cost of production is essential because it helps you: You must estimate production, related expenses and what prices you expect for commodities. You could allocate based on the gross margin percentage that an enterprise contributes or use a percentage of total expenses.ĭetermining cost of production is even more challenging if you’re projecting for the future. Some are easy to pin down - you know what they are. Others are open to interpretation, like the full cost of machinery ownership or a land investment cost.įor farms with multiple enterprises (like grain and livestock), it’s often necessary to allocate fixed costs between enterprises. They include the expenses you pay, regardless of putting in a crop or calving cows. These include interest on land loans, property taxes and machinery depreciation. ![]() Often the cost of these per acre will be assigned to all crops equally.įixed costs are expenses that stay the same, regardless of your level of production. ![]() Examples include fuel, labour and utility costs. Indirect variable costs change depending on the level of production, but it may be difficult to assign different amounts to different crops. On a grain farm, direct variable costs are likely to change for each crop since the cost of seed, fertilizer and crop protection products will be different for each. Variable costs can be divided into two types - direct and indirect. ![]()
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