1. Budgeting Tools Enterprise Budgeting Partial Budgeting
Whole-farm Budgeting
Cash Flow Budgeting
AGEC 407

2. Enterprise Budgeting What is an enterprise budget?
Estimate of revenues, costs and returns for an enterprise
What is an enterprise?
An individual crop or livestock activity
Farms often have several enterprises
AGEC 407

3. Enterprise Budgeting What is the purpose enterprise budget?
Identify the most profitable enterprises to be included in a whole-farm plan
To calculate cost of production for an output
Make decisions on production vs. purchase for intermediate products
AGEC 407

4. Enterprise Budgeting
Usually done on a per unit basis (i.e. per acre or per head)
Is an economic budget
Includes applicable opportunity costs
Should use profit maximizing input/output levels
Enterprise budget includes:
Revenue
Variable Costs
Fixed Costs
AGEC 407

5. Enterprise Budgeting Variable costs Fixed costs
A.k.a. Operating or Direct costs
Exist only as a result of production from this enterprise
Fixed costs
A.k.a. Ownership or Indirect costs
Would exist even if enterprise production was zero
Are allocated across enterprises
Must be related to enterprise production
include relevant opportunity costs
AGEC 407

6. Revenue Price x yield Product-specific payments
USDA program payments
Income from by-products
AGEC 407

7. Variable costs Supplies Other variable costs Machinery operating costs
Seed, fertilizer, herbicide (crop enterprise)
Feeds, vet., breeding, bedding (livestock)
Other variable costs
Marketing expenses, utilities
Machinery operating costs
Fuel, repairs
AGEC 407

8. Fixed costs Labor Investment ownership costs Hours x wage rate
Use opportunity cost for unpaid labor
Investment ownership costs
Depreciation, interest, housing
Land charge (two methods)
Interest rate x value of land
Rental rate
AGEC 407

9. Enterprise Budgeting What does the E.B. calculate?
Income over variable costs
A.k.a. gross margin
Contribution of enterprise toward payment of fixed costs
Estimated “economic” profit
Total revenue less total expenses
Are land, labor, and capital earning their opportunity cost in this use?
AGEC 407

10. Break-Even Analysis Break-even yield Break-even price
Yield necessary to cover all costs, for a given output price
equals total cost/output price
Break-even price
Output price required to cover all costs, for a given yield
equals total cost/expected yield
AGEC 407