Farm Management

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Farm Management

• Chapter 10
• Enterprise Budgeting

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Enterprise Budgets

• An enterprise budget provides an estimate of
  potential revenue, expenses, and profit for a
  single enterprise
• Each type of crop or livestock is an enterprise
• The base unit for crops is usually one acre
• The base unit for livestock may be one head or
  some other convenient size

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Table 10-1Example Enterprise Budget for
Watermelons (1 acre)
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Constructing a Crop Enterprise Budget

• Revenue all cash and noncash revenue from the
  crop
• Operating or variable expenses all costs that
  would be incurred only if the crop is produced
• Ownership or fixed expenses costs that must be
  paid even if no crop is produced
• Profit represents a return to all resources
  that were not charged in the budget (usually
  management)

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Table 10-2 Enterprise Budget for Wheat (1 acre)
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Constructing a Livestock Enterprise Budget

• The unit may be one head, one cow unit for
  cattle, one litter for swine, or 100 birds for
  poultry
• Several enterprise budgets can be constructed for
  different sizes of the same enterprise, such as
  30 head, 50 head, and so on to reflect economies
  of size
• The time period is usually one year but may be
  longer in some cases

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Table 10-3 Example Cow/Calf Budget for One Cow
Unit
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General Comments on Enterprise Budgets

• Economic principles of MVPMIC and least-cost
  combinations should be considered when selecting
  input levels
• Third-party budgets should be used with caution
  as they may not reflect conditions on a
  particular farm
• Past farm records or state data can provide
  information for enterprise budgets

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Prices and Yields
The appropriate price and yield data used in an
enterprise budget will depend on its use. A
budget to be used for next years planning will
require the best estimate of next years price
and yield. Budgets used for long-run
planning require estimates of average prices
and yields over the long run.
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Interpreting and Analyzing Enterprise Budgets
An economic enterprise budget includes information
on opportunity costs of labor, capital, land and
perhaps management. The profit (or loss) is
what remains after covering all expenses,
including opportunity costs. A projected
economic profit of zero means labor, land, and
capital are earning exactly their opportunity
costs.
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Cost of Production
total cost
Cost of production
yield
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Break-Even Analysis
The data in an enterprise budget can be used to
do a break-even analysis. Break-even yield and
break-even prices can be computed.
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Break-Even Yield
total cost output price
Break-even yield
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Break-Even Price
total cost expected yield
Break-even price
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Summary
Enterprise budgets organize projected income and
expenses for a single enterprise. Most
enterprise budgets are economic budgets and
will include opportunity costs in addition to
cash costs and depreciation. Enterprise budgets
can be used to compare the profitability of
different enterprises and are useful for
developing a whole-farm plan.