Agriculture Reference
In-Depth Information
$5,000 from that particular operation. It will cost you $10,000 to produce
the nectarines. To make the $5,000, you add the cost of production to the
desired profit, then you divide the required sales by the amount of product
you estimate you can sell. In this example:
Desired Profit + Cost of Production = Required Sales
$5,000 + $10,000 = $15,000 required sales
$15,000 ÷ 10,000 pounds = $1.50 per pound selling price
Creating an Enterprise Budget
Whether you use the cost-plus or the set profit approach, you must know
how much your goods cost you to produce. Enterprise budgets help you
identify your costs and prospective returns and design and refine your pro-
duction and marketing programs accordingly.
An enterprise budget is simply an estimate of all of the income and ex-
penses associated with a business. By calculating how much it will cost you
to produce a ton of plums, for example, and estimating how much money you
will receive for the plums when you sell them, you can estimate how profit-
able your orchard business will be.
If the enterprise budget shows your profit will be lower than you want or
need, you can start playing the “what if” game with production and market-
ing practices. “What if I change to a higher-density planting? What will that
do to my profits?” you might also ask, or “What if I sell some fresh plums
at a roadside stand, instead of selling all of my fruit to the packing house?”
These changes can be done in minutes with no cost but a little time.
Many computerized budgets are available online or in spreadsheet form
that allow you to change a single figure and look at the effect on profit. It
is much easier and less costly to change your operation during the planning
stage than it is to change your actual operation after you've established an
orchard.
