Calculating the farming cost per unit has been a question for many farmers, and perhaps one of the key topics we plan at the 2nd Edition Strategic Farming Seminar coming this October.
The Unit Cost of Production is measured as a ratio that looks at both the products produced and input costs. Understanding the cost per unit of farming allows for better planning, determines input and output costs, and generally helps you control costs – as this impacts the profitability of any business.
Below are the expenses and production quantities information you need to compute the farming cost per unit monthly.
Firstly, define the period: determine what specific duration you would like to use for your monthly calculation (e.g., 30 days, 4 weeks).
Secondly, collect all expenses information: ensure that you have collected all the costs related to injections, labour, animal health, fodder, equipment, maintenance, utilities, transport costs and any other overhead costs for each month.
Thirdly, find the total monthly costs: sum up all the expenses for each cost category (animal health, fodder, injections, labour, etc.) of that month.
Moreover, find the unit of production: determine the unit of production for your farming business, for example, the total number of animals, the weight of produce and all other applicable measures. Remember, if you have several enterprises, the unit of production should be per enterprise, and their costs should be separated accordingly, e.g., crops, poultry and livestock may not be calculated under one unit of production.
Furthermore, calculate the production quantity: find how many units were produced that month. This refers to items such as the number of animals raised, the weight of harvested produce and all other relevant metrics.
Lastly, compute the total cost per unit: as presented above herein, the formula is the cost per unit, which is total costs divided by the quantity produced or the current quantity at hand – the closing balance.
This will give you the farming cost per unit for that month, which will help determine the total cost of farming in totality. It is imperative to modify the calculations based on any changes in production, expenses or other factors that will have an impact on the costs from month to month.
We will showcase how you calculate the costs in real terms with an example in the next column.