Following on from our previous article on separating the farming operational cost from production cost, we found it necessary to state the records required to be able to measure the production cost per unit (direct and indirect).
We reiterate the importance of understanding the costs of production to set the correct price for your products, and for the prices that are set by the market you can determine whether you making losses on your products, and how else to rectify that by at least controlling your production costs, and consequently controlling your total farming operational costs.
These costs can be used as a base for creating your annual budget for the farm.
So, where do we get the costs from, and what does it entail?
So, considering the different cycles of products, you want to ask yourself a question ‘How much does it cost me to produce one calf, e.g., from the point of calving to when it is ready to be sold?’
The point at which you wean off the calf, and get it ready for auction may differ – say seven months or nine months or longer.
For the females, you may hold them a little longer as a means of production as opposed to the males, so consider all the different cycles for products.
Below are some of the records and costs that are necessary in calculating your production per unit.
Land costs, which include purchase or lease costs and property taxes.
Labour costs, including farm workers’ salaries, employee benefits (health insurance and retirement) and costs for outsourced labour.
Transportation and storage costs
Animal husbandry costs, including feeding costs, veterinary care and breeding costs.
Costs for processing products, packaging materials and labour.
Marketing and sales costs of farming products.
Insurance costs, if any, related to farming.
Overhead costs, including general administration (office supplies, accounting and other administrative expenses), permits and licenses related to farming.
Seed and planting, fertiliser and soil amendment costs.
Harvesting costs.
Weed control chemicals, pesticides and herbicides.
Water and irrigation costs.
Machinery and equipment costs, including depreciation, maintenance and repairs as well as lubricants.
Utility costs, such as electricity and gas – these are costs related to running equipment, lighting, etc.
Any other unforeseen costs that arise during the farming cycle.
After collecting all the records for these costs and you have recorded as per-month totals, you can now calculate the total production cost by adding them up altogether.
To determine the actual production cost per unit, divide the total production cost by the total number of units produced (e.g., kilogrammes of a specific product, litres of milk, etc.) per month, which you can then multiply by 12 to get the total annual costs per unit.
We will continue with this topic in our next article.
*Mekupi Kambatuku is a managing consultant at Simpli Business Advisory. She can be reached at admin@simpliadvisory.com.Following on from our previous article on separating the farming operational cost from production cost, we found it necessary to state the records required to be able to measure the production cost per unit (direct and indirect).
We reiterate the importance of understanding the costs of production to set the correct price for your products, and for the prices that are set by the market you can determine whether you making losses on your products, and how else to rectify that by at least controlling your production costs, and consequently controlling your total farming operational costs.
These costs can be used as a base for creating your annual budget for the farm.
So, where do we get the costs from, and what does it entail?
So, considering the different cycles of products, you want to ask yourself a question ‘How much does it cost me to produce one calf, e.g., from the point of calving to when it is ready to be sold?’
The point at which you wean off the calf, and get it ready for auction may differ – say seven months or nine months or longer.
For the females, you may hold them a little longer as a means of production as opposed to the males, so consider all the different cycles for products.
Below are some of the records and costs that are necessary in calculating your production per unit.
Land costs, which include purchase or lease costs and property taxes.
Labour costs, including farm workers’ salaries, employee benefits (health insurance and retirement) and costs for outsourced labour.
Transportation and storage costs
Animal husbandry costs, including feeding costs, veterinary care and breeding costs.
Costs for processing products, packaging materials and labour.
Marketing and sales costs of farming products.
Insurance costs, if any, related to farming.
Overhead costs, including general administration (office supplies, accounting and other administrative expenses), permits and licenses related to farming.
Seed and planting, fertiliser and soil amendment costs.
Harvesting costs.
Weed control chemicals, pesticides and herbicides.
Water and irrigation costs.
Machinery and equipment costs, including depreciation, maintenance and repairs as well as lubricants.
Utility costs, such as electricity and gas – these are costs related to running equipment, lighting, etc.
Any other unforeseen costs that arise during the farming cycle.
After collecting all the records for these costs and you have recorded as per-month totals, you can now calculate the total production cost by adding them up altogether.
To determine the actual production cost per unit, divide the total production cost by the total number of units produced (e.g., kilogrammes of a specific product, litres of milk, etc.) per month, which you can then multiply by 12 to get the total annual costs per unit.
We will continue with this topic in our next article.
*Mekupi Kambatuku is a managing consultant at Simpli Business Advisory. She can be reached at admin@simpliadvisory.com.