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Cheat Sheet for Calculating Fixed and Other Costs

Keep in mind because this is an example the figures

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Unformatted text preview: at which time it will be worth $5,000, the annual depreciation is $1,429 ($10,000/7). In our example below, the total fixed machinery fixed cost for new equipment is $7,828. So, if we have 50 acres of hay producing 5 tons of hay, our total fixed cost per ton is $31 per ton (7828/(5*50)). Add that to our VC per ton of $55.33 and the other fixed costs and you see that our total cost of producing hay is more than $96 per ton. Honestly, most people will probably not have this much investment for their operation but the principle is the same. To look at the impacts of investment and production, I prepared Table 1 that shows the fixed cost of machinery per ton at different investment levels and acreages. Keep in mind, because this is an example, the figures should NOT be used to compare new equipment to used, but rather to look at the impact of total investment on annual fixed costs. As always, you should do the calculations for your farm or ranch. Table 1 Machinery Complement Used in Hay Example Item % Used in This Enterprise Item Cost $Cost to This Enterprise D=(B*C) (B) Item Salvage Value $SV This Enterprise Useful Life Calculated Depreciation Average Investment (E) Interest on Average Investment Insur. & Taxes J=Int. rate...
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