FBM Chapter 4 - Budget Analysis

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Questions and Answers

What is the estimated cost per acre for diesel fuel used by harvesters?

$2.90

$1.20

$8.90

$3.49 (correct)

What is the cost per bushel for hauling soybeans?

$40.00

$33.00

$8.00

$0.20 (correct)

What is the estimated total cost for harvesting soybeans per hour?

$18.88

$16.68 (correct)

$20.70

$15.30

What is the total estimated cost of using soybean seed per acre, if 50 pounds are used per acre?

$33.00 (C) Signup and view all the answers

Based on the data provided, what is the estimated cost per acre for using an implement for one hour of operation?

$10.78 (A) Signup and view all the answers

What is the total cost of harvesting 150 bushels of corn, including labor, diesel fuel, and repair & maintenance?

$71.86 (A) Signup and view all the answers

What is the breakeven price above total expenses for corn?

$2.49 (A) Signup and view all the answers

What is the total cost of operating the tractors?

$11.82 (B) Signup and view all the answers

What is the total cost of operating the implements?

$5.88 (C) Signup and view all the answers

What is the total operating cost per bushel of corn?

$1.14 (A) Signup and view all the answers

What is the total cost of labor associated with corn production?

$8.83 (A) Signup and view all the answers

What is the total fixed cost for corn production?

$33.96 (A) Signup and view all the answers

What is the difference in cost between the lowest cost and the highest cost of operating each type of equipment?

$2.46 (B) Signup and view all the answers

What is the total cost of operating harvesters in corn production?

$10.06 (D) Signup and view all the answers

What is the profit generated before considering fixed costs?

$230.12 (B) Signup and view all the answers

In the provided text, what is the primary goal of a partial budget analysis?

To analyze the economic consequences of specific changes within a farming or ranching operation. (B) Signup and view all the answers

What does a positive net change in income indicate in the context of a partial budget?

The proposed change is more profitable than the current practice. (B) Signup and view all the answers

What is the significance of the price of steers being $0.92 per pound in the context of the text?

It represents the minimum price required for Bob to break even with the graze-out option. (C) Signup and view all the answers

What is the most crucial factor that needs to be considered when making an informed decision based on a partial budget analysis?

The quality of the available data. (C) Signup and view all the answers

Which of the following is NOT a step involved in the partial budgeting process?

Estimating future market prices for all agricultural products. (D) Signup and view all the answers

What is the purpose of substituting $0.92 for the ending price of steers in the partial budget analysis?

To illustrate the break-even point for the graze-out option. (A) Signup and view all the answers

Based on the text, what is the primary conclusion regarding Bob's decision to switch to the graze-out option?

The graze-out option is only profitable if the ending price of steers surpasses a certain threshold. (C) Signup and view all the answers

What is the significance of the statement: "The results can only be as good as the data" in relation to partial budgeting?

The analysis is susceptible to inaccuracies if poor data is used. (C) Signup and view all the answers

What is the yield dependent operating cost for broccoli, according to Figure 5?

$23.20 (B) Signup and view all the answers

Why is the calculation of break-even prices more difficult when yield dependent operating costs are present?

Because the quantity of the input is not fixed. (A) Signup and view all the answers

What is the unit of the operating cost for herbicide in Figure 5?

acre (A) Signup and view all the answers

What is the total revenue for broccoli production in Figure 5?

$3,150.00 (A) Signup and view all the answers

If the projected yield of broccoli were to decrease, what impact would this have on the amount of phosphate needed?

The amount of phosphate needed would decrease. (B) Signup and view all the answers

How is the break-even price for corn determined in Figure 4, for a given soybean price?

By substituting the soybean price into equation 9. (B) Signup and view all the answers

Why is it more difficult to calculate the break-even price for a crop with yield dependent operating costs?

Because the yield is not fixed and needs to be factored into the equation. (D) Signup and view all the answers

What information is needed to calculate the break-even price of a crop with yield dependent operating costs?

The price and yield of the crop, plus the yield dependent operating costs. (A) Signup and view all the answers

What is a primary benefit of budgeting for farmers or ranchers?

It helps plan for the useful life of assets. (C) Signup and view all the answers

What does budgeting allow farmers to do before committing resources?

Conduct a 'what if' analysis. (A) Signup and view all the answers

Which type of budget focuses on projected costs and returns for a specific production process?

Enterprise budget (C) Signup and view all the answers

What is a common challenge when creating budgets?

Accurately predicting prices and yields. (A) Signup and view all the answers

What potential problem might occur when estimating budget figures?

Cost estimates can be underestimated. (B) Signup and view all the answers

Which of the following statements about risks and budgeting is true?

Considering risk is essential when making future decisions. (C) Signup and view all the answers

Why might budgeting require significant time investment?

You need to search data sources for profitability information. (A) Signup and view all the answers

What can budgeting help identify that might be overlooked otherwise?

Potential costs and income items. (B) Signup and view all the answers

What is the projected gross revenue for soybean production per acre?

$370 (D) Signup and view all the answers

What are the total operating expenses for soybean production per acre?

$140.73 (C) Signup and view all the answers

What equation represents the calculation for returns above total expenses?

Yield * Price - Total Expenses (D) Signup and view all the answers

If the returns above operating expenses are $229.27 per acre, what are the returns above total expenses?

$207.65 (C) Signup and view all the answers

How is the net return calculated for the soybean enterprise budget?

Price multiplied by yield minus total expenses (C) Signup and view all the answers

What are the total expenses for soybean production per acre?

$207.65 (B) Signup and view all the answers

Which of the following is a component of the total operating expenses for soybean production?

Custom Spray Costs (B) Signup and view all the answers

What does the equation for equal net returns imply?

Returns above total expenses are adjusted equally. (B) Signup and view all the answers

Study Notes

Farm Business Management

Farm business management is challenging due to changing production and economic conditions
Budgeting is a crucial management tool for farm and ranch businesses

Planning a Budget

Farmers and ranchers need to understand the four factors of production (capital, labor, land, and management)
Available production factors, best use of factors, possible enterprises, land use proportion, necessary labor, capital needs, and production practices are important considerations

What is Budgeting?

A budget is a plan for a business, projecting income and expenses for all or part of the business.
Budgets help with asset lifespan planning, organization, estimating credit needs, experimenting with potential outcomes before committing to resources, and identifying costs and income items.
Three budget types are discussed: enterprise budgets, partial budgets, and cash flow budgets.

Budget Information Sources

Information from actual farm records, area/state summaries, sample budgets, county averages, industry publications, meetings, colleagues, and online resources
Data quantity, price, and timing are essential for preparing accurate budgets

Limitations of Budgeting

Budgeting requires time and effort to collect data.
Accurately predicting prices and yields is difficult.
Historical data and risk assessment (production and financial) influence budget reliability

Guidelines for Farm and Ranch Budgeting

Analyze the specific area of the business with the budget.
Consider using enterprise or partial budgets.
Set a timeframe for the budget (month, quarter, or year).
Gather and review necessary data.
Plan for a feasible number of alternatives

Understanding Budgeting Process

Budgets are essential for future farm and ranch business direction.
Consider business/family goals and objectives, resources (land, labor, capital, management), inputs and outputs, prices, and estimated costs and returns when developing a budget.

Enterprise Budgets

Enterprise budgets project costs and returns for a specific production process, typically for one production period
Income or returns section shows projected revenue
Operating expenses section details cost categories like custom spray, fertilizers, etc.
Projected expenses are categorized for accurate budget creation and analysis
Illustrative budget examples provided for crops and livestock

Partial Budgeting

Tracks costs and returns associated with changes in farm business operations
Focuses on specific business changes, assuming other elements remain constant
Positive and negative effects (reduced costs, additional returns, additional costs, reduced returns) are considered
Used to evaluate different choices for improving efficiency

Cash Flow Budgeting

Tracks cash inflows and outflows for a specific timeframe (usually a year, month, quarter, or day)
Crucial for managing funds, estimating cash surpluses/deficits, and planning for borrowed funds
Cash flow is different from other aspects like accrual accounting
Essential for making financial decisions and for lenders when making loan terms.

Interpreting Projected Cash Flow

Key elements in understanding a projected cash flow include items like livestock sales, capital sales, fertilizer purchases, large fuel purchases, and term/debt payments.
Includes items for calculating repayment capacity, term debt, and capital lease ratios
Focuses on how sufficient funds will be available to cover debt payments and capital replacement needs

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Description

Explore the essential principles of farm business management, focusing on the critical role of budgeting. This quiz covers the different types of budgets, factors of production, and vital information sources that farmers and ranchers need to effectively manage their businesses. Test your knowledge on these vital topics!