1. Chapter 10 Enterprise Budgeting
Farm Management
Chapter 10
Enterprise Budgeting
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Chapter Outline
Enterprise Budgets
Constructing a Crop Enterprise Budget
Constructing a Livestock Enterprise Budget
General Comments on Enterprise Budgets
Interpreting and Analyzing Enterprise Budgets
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Chapter Objectives
Define an enterprise budget and discuss its purpose and use
Illustrate the different sections of an enterprise budget
Learn how to construct a crop enterprise budge
Outline additional problems and steps to consider when constructing a livestock enterprise budget
Show how data from an enterprise budget can be analyzed and used for computing cost of production and break-even prices and yields
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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 10-1 Example Enterprise Budget for Watermelon Production (One Acre)
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6. 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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7. Table 10-2 Enterprise Budget for Wheat (One Acre)
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8. 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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9. Table 10-3 Example Cow/Calf Budget for One Cow Unit*
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10. General Comments on Enterprise Budgets
Economic principles of MVP = MIC 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 year’s planning will require the
best estimate of next year’s price and
yield. Budgets used for long-run planning
require estimates of average prices and
yields over the long run.
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12. 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 =
For our example wheat budget, total cost is $
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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.
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