Farm Management - Basic Concepts

Resources used to create goods and services. They are the building blocks of any economy.

Gifts from nature used for production, not created by humans. Examples include land, water, minerals, and vegetation.

The original soil, its properties, and the way it is used for farming. Can be classified by ownership, suitability, or dryness.

Human effort used for production, including physical work, skills, and mental power.

Labour can be classified by source (family, hired, communal) or skill level (skilled, unskilled).

The amount of work an average person does in a day, affected by the number of workers, days worked, and their work rate.

Factors like sex, age, health, nutrition, task complexity, plot size, tools, and methods impact how quickly work is done.

A costing method that allocates both variable and fixed costs (including common costs) to products or services. It uses total costs to determine profit per unit.

Women often specialize in harvesting, processing, marketing crops and caring for small livestock, while men may be faster at other tasks.

Costs that are shared across multiple enterprises or products and cannot be directly traced to a single source, e.g., rent, utilities.

Costs that change directly with the level of production or activity, e.g., raw materials, direct labor.

The sum of all variable and fixed costs associated with a product or service.

The difference between total revenue and total costs. A positive value indicates profit, while a negative value indicates a loss.

An example of an enterprise within a farm that may be analyzed using absorption costing.

Absorption costing can sometimes present a misleading picture of profitability, especially if fixed costs are allocated unevenly.

It's possible for an enterprise to appear unprofitable using absorption costing, but still contribute to overall farm profit.

The difference between an enterprise's gross income and its total variable costs. It represents the amount available to cover common costs and generate profit.

An approach to accounting that uses only variable costs to calculate an enterprise's contribution. It aims to maximize total contribution by focusing on the most profitable products or activities.

The total revenue generated by an enterprise from the sale of its products.

The difference between an enterprise's total income and its total costs, including both variable and common costs.

Marginal Costing helps businesses make better decisions by showing which products or activities contribute the most to profit. It facilitates resource allocation and helps maximize earnings.

The profit of a single crop or livestock enterprise after deducting variable costs.

The total profit of all the farm enterprises combined, after deducting their variable costs.

Gross margin is useful for comparing the efficiency of different farms or the performance of the same farm over time.

Gross margin does not account for fixed costs (like land or machinery) and can be misleading when comparing farms with different levels of these costs.

A higher gross margin per unit of resource (like land or labor) generally indicates greater efficiency in using those resources.

Gross margin analysis does not take into account fixed costs, such as land, machinery, or administrative expenses. This can create a misleading picture of profitability, especially when comparing farms with different overhead structures.

The difference between the total revenue from an enterprise and its variable costs. It represents the profit generated by the enterprise before considering fixed costs.

The sum of the gross margins of all enterprises on a farm. It represents the total profit generated by the farm before considering fixed costs.

The profit remaining after subtracting common costs (shared expenses) from the whole farm gross margin.

A technique used to assess the impact of small changes (marginal changes) in inputs or outputs on other economic variables, such as total production, revenue, or costs.

The additional output (production) gained by increasing one input (like fertilizer) by one unit. It indicates how much extra you get from adding a little more.

The additional revenue gained by increasing one input by one unit.

The cost of adding one unit of an input. It is the cost associated with adding a small amount of input.

Variable costs are influenced by the level of activity. The more you produce, the higher the variable costs. The less you produce, the lower the variable costs.

Variable costs are specific to a certain enterprise. This means they are not shared between different production activities.

The circular flow diagram demonstrates the relationship between households and firms in an economy. It shows how goods and services flow between them, along with the flow of income and spending.

The inputs used by firms to produce goods and services. These include labor, land, and capital.

The circular flow diagram shows two main markets: the goods and services market and the factors of production market.

Income earned by households from selling factors of production (labor, land, capital) is used to buy goods and services from firms. This spending by households becomes revenue for firms.