partial-budget-homework-key

# partial-budget-homework-key - PARTIAL BUDGET I The decision...

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PARTIAL BUDGET I. The decision to participate in a government farm program can be analyzed with a partial budget. Assume a cotton grower wants to know if participation would increase profit. Assume it requires not planting 10% of the normal cotton acreage and in return the grower is guaranteed a price of \$0.70 per lb. on 60% of normal acres. The government pays the grower the difference between \$0.70 and the average market price on these acres. Use the following information to develop a partial budget for the decision. A. Acreage, Yield and Price Information Cotton Acres Idle Acres Cotton Yield (lb. Per acre) Estimated Market Price No Participation 500 0 600 \$0.64 With 10% Participation 450 50 600 \$0.64 B. Other Information 1) Participating will result in a cash government payment of: 300.0 acres X 600 lb. X (0.70 - 0.64) = \$10,800.00 2) By not planting the 50 acres the grower will save the following expenses: Seed \$6.00 per acre Fertilizer & chemicals \$110.00 per acre Machinery expense \$17.50 per acre Labor \$18.00 per acre Harvesting and hauling \$70.00 per acre 3) There will be the following expense on the 50 idled acres: Seed \$ 7.50 per acre Machinery expense \$11.00 per acre Labor \$ 8.00 per acre 4) Figure opportunity cost on all preharvest variable costs at 8% for 6 months. C. Work out a partial budget on the form and answer the questions that follow.

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Additional Costs: Additional Revenue: Seed 375 Cash government payment 10,800 Machinery Expense 550 Labor 400 Opportunity cost capital 53 Reduced Costs: Total Additional Costs 1,378 Seed 300 Fertilizer and chemicals 5500 Reduced Revenue: Labor 900 Market returns 50 acres 19,200 Harvesting and hauling 3500 Machinery expense 875 Opportunity cost capital 303 Total Reduced Costs 11,378 A. Total additional costs
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## This note was uploaded on 11/15/2011 for the course AGEC 7100 taught by Professor Duffy,p during the Fall '08 term at Auburn University.

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partial-budget-homework-key - PARTIAL BUDGET I The decision...

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