By Becca Weir
What does it cost you to produce a bushel of corn, a hundred pounds of milk, or a pound of mushrooms? It may sound like a simple question, but the answer is one of the most valuable pieces of information a farmer can have. Knowing your cost of production helps you understand where your farm is making money, where costs are getting out of hand, and how to improve marketing decisions.
Calculating your cost of production takes some time, but it doesn't have to be complicated. Each enterprise, or commodity, will have its own cost of production. The first step is to total all the expenses required to produce each product. For livestock, that includes costs such as feed, breeding, veterinary care, bedding, and supplies. For crops, expenses may include seed, fertilizer, chemicals, and fuel. Don't forget to account for overhead expenses, such as insurance, utilities, taxes, and depreciation. While depreciation isn't a cash expense, it reflects the wear and tear on your assets and is an important part of the true cost of production.
Many farms have multiple enterprises and produce a range of products, including dairy, grains, forages, vegetables, and others. In those cases, expenses need to be assigned to the appropriate enterprise. Some costs are easy to assign. For example, milk hauling charges belong to the dairy enterprise, while mushroom packaging costs belong to mushroom production. Other expenses, such as fuel, machinery repairs, insurance, and utilities, are incurred across multiple enterprises on the farm. These costs should be divided among enterprises using a method that makes sense for your operation, such as acreage, labor hours, or another reasonable measure. Good recordkeeping makes this process much easier and leads to more accurate results.
Source : psu.edu