Chapter 10
Provides an estimate of the potential revenue, expense, and profit for a single enterprise
What is enterprise budget
Is an outline or summary of the production to be carried out on the entire farm and the resources needed to do it.
What is a Whole Farm plan
What is a partial budget
The summary of the projected cash inflows and outflows over a given business period
What is a cash flow budget
Break-even price
What is the output price needed to just cover all costs at a given output level
What can a whole farm budget analyze?
What is Liquidity and profitability
The partial budget format
What is
Additional costs
Reduced revenue
Additional revenue
Reduced costs
The time period(s) in which cash flow budgets are constructed
What is quarterly or monthly
Operating or variable expenses that would be included in an enterprise budge
What is Seed, fertilizer, lime, pesticides, machinery variable costs, labor, hauling and drying, crop insurance, interest
Examples of Inventory Available resources?
What is Land, buildings, machinery, capital, labor, management and other resources.
Sensitivity analysis
What is assessing for risk of a decision by using several possible price and/or production outcomes to budget the results and then compare them
What is to project the timing and amount of new borrowing the business will need during the year and amount of loan repayments
The difference between economic profit and accounting profit
What is economic profit includes opportunity cost and accounting profit does not.
The six steps for developing a whole farm plan
What is
Determine objectives and specific goals
Inventory available resources
Identify possible enterprises and technical coefficients
Estimate gross margins
Choose a combination of enterprises
Prepare a whole farm budget
What are limitations to a partial budget
What is you can only look at one alternative at a time, they are time consuming, and data is only average numbers.
The 10 step process to constructing a cash flow budget
1. Develop a whole farm plan
2. Take inventory
3. Estimate crop production and feed requirements
4. Estimate cash receipts from livestock enterprises
5. Estimate cash receipts from crop sales
6. Estimate other cash income
7. Estimate cash farm operating expenses
8.Estimate personal and nonfarm expenses
9. Estimate purchase and sale of capital assets
10. Find and record the scheduled principal and interest payments on existing debt
The opportunity cost that are considered on an economic budget
What is labor, capital, land and management
How can Linear Programming be used?
What is to select the combination of enterprises that maximizes gross margins without exceeding the supply of resources available
Items that are easily overlooked on a partial budget
What is opportunity costs
The five sources of cash on cash flow budget
What is beginning cash balance, farm product sales, Capital sales, Nonbusiness cash receipts, and New borrowed capital or loans received