Budget Analysis

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Budget Analysis

• Chapter 3

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Bellwork

• What is budgeting?
• What are some benefits of budgeting?
• How can you use budgeting in the future?

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Four Factors in Productions

• Capital
• Labor
• Land
• Management

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Reasons for Budgeting

• Plan for useful life of assets
• Organization
• Needed credit from lending agencies
• Experiment with possible outcomes without
  actually committing
• Identifies cost and income items
• Refine an organization

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Types of Budgets

• Enterprise budgets
• Partial budgets
• Whole farm budgets

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Budgeting Principles

• Invest more if the returns increase
• Invest as little as possible in costs
• Invest in a different product if the return is
  greater
• Invest money where it will earn the highest
  returns
• Discount for time and risk

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Sources of information

• Actual farm or rnach records
• Area or state summary analysis
• Sample budgets
• County averages and production data
• Magazines and literature
• Meetings and classes
• Neighbors
• Computer networks

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Limitations to budgeting

• Takes time
• Constructed to show future actions
• Risks can limit the effectiveness
• Income maybe underestimated or overestimated
• Overestimate production

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Guidelines for Budgeting

• Decide what is to be budgeted
• Decide what type of budgeting
• Choose a period of time to budget
• What data will be needed
• Decide how many alternatives will be evaluated or
  analyzed

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Steps in Developing a Budget

• Appraise the business and family goals
• Inventory the resources
• Select the physical data for inputs and outputs
• Select the market prices
• Calculate the expected costs and returns

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Enterprise Budgeting

• Limitations include reliable information and
  prices are difficult to estimate
• Advantages are organized information is available

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Components of an Enterprise Budget

• Income is an estimate of yields and prices
• Expense are the costs of producing the product
• Returns are income remaining after selected costs
  are subtracted

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Cost Categories

• Variable or operating costs
• Seed, fertilizer, repairs, wages
• Fixed costs
• Depreciation, interest, insurance, taxes

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Enterprise Budget Analysis

• Returns above variable operating costs
• BE Pricevariable operating costs/yield
• Returns above all costs
• BE Pricetotal costs/yield

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Whole Farm Budgeting

• Plan of the entire farm or ranch
• Limits include the amount of land and operating
  capital
• Outcomes helps to maximize returns to resources

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Partial Budgeting

• Expanding an enterprise
• Alternative enterprises
• Changing production practices
• Buying new equipment or machinery

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Estimating Cost and Returns

• Positive effects
• Change will eliminate or reduce some costs
• Additional returns to be received
• Negative effects
• Some additional costs will occurred
• Eliminate or e reduce some returns

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