1. Think Break #20
Suppose you are a corn-soybean farmer who currently custom hires all combining. You are thinking of buying a combine.
Do a partial budget analysis of a Combine Purchase vs. Custom Hire decision
Needed assumptions/information and questions are given in the next slide

2. Think Break #20 Combine Purchase vs. Custom Hire
Corn acres = 2,000; Farm acres 4,000
Custom Rate = $25/ac
Scale Factor = (33.026/acres)
1% yield increase with more timely harvest
Average yield = 150 bu/ac; Price = $4/bu
1) What will be the new or added revenues?
2) What costs will be reduced or eliminated?
3) What will be the new or added costs?
4) What revenues will be reduced or lost?
5) What’s the net benefit?

3. Think Break #20: Answer 1) What will be the new or added revenues?
0.01 x 150 bu/ac x $4/bu x 2,000 ac = $12,000
2) What costs will be reduced or eliminated?
$25/ac x 2,000 ac = $50,000
3) What will be the new or added costs?
Scale Factor: (33.026/4000) = 1.249
1.249 x $25/ac x 2,000 ac = $62,450
4) What revenues will be reduced or lost? None
5) What’s the net benefit?
$12,000 + $50,000 – $62,450 = – $450

4. Partial Budget: Think Break # 20: Combine Purchase vs Custom Hire
Benefits
Costs
Additional Revenues
0.01 x 150 bu/ac x $4/bu x 2,000 ac = $12,000
Additional Costs
Scale Factor: (33.026/4000) = 1.249
1.249 x $25/ac x 2,000 ac = $62,450
Costs Reduced
$25/ac x 2,000 ac = $50,000
Revenues Reduced
none
Total Benefits
$62,000
Total Costs
$62,450
Net Benefit
– $450