Presentation on theme: "Cost of Production. There is money in the chequing account. The accountant says so. The taxman wants money. The farm debt is decreasing. Your assets are."— Presentation transcript:
Cost of Production
There is money in the chequing account. The accountant says so. The taxman wants money. The farm debt is decreasing. Your assets are being improved or increased. Expansion or major change to the operation seems quite possible.
Having a tax bill does not mean that your operation is profitable on a continuing basis. Decreasing debt and expanding assets may come from money earned outside of the farm. Money in the chequing account might just be an abused line of credit. All of these viewpoints are rear-facing; they are looking at things that have occurred in the past.
Conduct an annual fall pre-tax meeting with your accountant. Conduct annual statistical trend analysis with your accountant. Challenges of This Type of Program This requires disciplined record-keeping. It costs a bit of money to do this analysis. Like a personal physical, the benefits may not be immediately apparent.
Knowing your farms cost of production gives you quality information. Calculating cost of production gives an insight into where the trouble spots may lie. It is a forward-facing tool which allows the owner/operator to compare revenue and expense scenarios ahead of time.
Land cost: Avg. cash rent x Total cultivated acres = $60 Saleable Crop Acres Fuel Costs: Total Farm use fuel = $20 Saleable crop acres
Machinery capital cost: Total machinery cash value X 12% = $36 Saleable crop acres Building capital cost: Granaries and farm buildings (cash value) = $5 Saleable crop acres Seed costs (including ploughdowns) Total value of seed used = $22 Total saleable acres
Insurance cost (crops only): Total insurance cost = $10 Saleable crop acres Maintenance and repair cost: Total repair cost = $25 Total saleable acres Professional fee costs Total professional fees = $2 Total saleable acres
Wages: Total wages = $10 Total saleable acres Utilities (farm share only): Total utility cost (only farm share) = $2 Total saleable acres Office, license, memberships, etc.: Total cost of above = $1 Total saleable acres
Organic certification and inspection Total cert and inspection costs = $3 Total saleable acres Total $195
Compare your C of P to each potential crop. If a crop doesnt exceed your number, ask yourself why you grow this crop. (there may be good reasons) If a crop is a strong performer, ask yourself how much of that crop you can reasonably handle. Do an aggregate summary. Add all your reasonable revenue projections together and divide by your saleable acres, and that number should still be above your CoP. Dont feel chained or restrained by your cost of production number.
Ignorance can hurt you. Ignorance can cause you heartache. Ignorance can cost YOU money. Get good information and use your own good judgment to succeed.