Think Break 23 - Think Break#23 Suppose you are a...

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Unformatted text preview: Think Break #23 Suppose you are a cornsoybean 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 Corn acres = 2,000; Farm acres 4,000 Custom Rate = $25/ac Scale Factor = 1.241 + (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? Think Break #23 Combine Purchase vs. Custom Hire Think Break #23: 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: 1.241 + (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 Partial Budget: Think Break # 18: Combine Purchase vs Custom Hire Benefits Costs Additional Revenues Additional Costs 0.01 x 150 bu/ac x $4/bu x 2,000 ac = $12,000 Costs Reduced Total Benefits Scale Factor: 1.241 + (33.026/4000) = 1.249 1.249 x $25/ac x 2,000 ac = $62,450 $25/ac x 2,000 ac = $50,000 Revenues Reduced none $62,000 Total Costs Net Benefit $62,450 $450 ...
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This note was uploaded on 08/08/2008 for the course AAE 320 taught by Professor Mitchell during the Spring '08 term at University of Wisconsin.

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