An accurate estimate of the costs related to owing and using farm implements from the basis for making rational decisions about many matters concerning mechanization. It is therefore important for a farmer to be able to make reasonably accurate estimate of the costs of mechanization.
Example 9.1:
The influence of the more intensive use of an 80-kW tractor (high fixed cost) on the unit cost.
- Available information
- Annual fixed cost tractor = R20 000
- Variable cost of tractor per hectare = R30
- Hectares cultivated per year = 100, 500, 1 000, 1500, 2 000 respectively
- Calculations
|
Hectares cultivated |
Fixed cost per year (Rand) |
Fixed cost per hectare (Rand/Ha) |
Variable cost per hectare (Rand/Ha) |
Total cost per hectare (Rand/Ha) |
|
100 500 1 000 1 500 2 000 |
20 000 20 000 20 000 20 000 20 000 |
200,00 40,00 20,00 13,33 10,00 |
30,00 30,00 30,00 30,00 30,00 |
230,00 70,00 50,00 43,33 40,00 |
- Graphical representations
- Conclusion
The total cost per hectare decreases at a diminishing rate as the area of cultivation becomes larger.
Example 9.2:
The influence of the more intensive use of a disc plough (low fixed cost) on the unit cost.
- Available information
- Annual fixed cost of disc plough = R1 000
- Variable cost of disc plough per hectare = R2
- Hectares cultivated per year = 100, 500, 1 000, 1 500, 2 000 respectively
- Calculation
|
Hectares cultivated |
Fixed cost per year (Rand) |
Fixed cost per hectare (Rand/Ha) |
Variable cost per hectare (Rand/Ha) |
Total cost per hectare (Rand/Ha) |
|
100 500 1 000 1 500 2 000 |
1 000 1 000 1 000 1 000 1 000 |
10,00 2,00 1,00 0,67 0,50 |
2,00 2,00 2,00 2,00 2,00 |
12,00 4,00 3,00 2,67 2,50 |
- Graphic representation
- Conclusion
The total cost per hectare decreases at a diminishing rate as the area of cultivation increase. The decrease in unit cost is, however, not as significant as in example 1.
Two techniques of cost comparison can be used to evaluate the economic desirability of replacing labour by farm implement, namely:
- partial budgets.
- break-even budgets.
The discounted cash-flow techniques can also be used for most decisions on investment in mechanical equipment and is recommended because it usually produces more accurate results than other techniques. However, in practice is difficult to estimate the annual net cash flow accurately over the life of the project. For that reason, the other techniques are preferred. The use of the two techniques for this purpose can be illustrated with the aid of an example:
- Partial budget.
A partial budget to determine whether it will be economically justifiable to replace manual picking of cotton with a mechanical picker.
Example 10.1:
- Available information
Area of cotton under cultivation = 200 ha
Cotton yield = 3 000 kg/ha
Price of cotton = R1,54/kg
Cost of manual picking (seasonal workers) = R0,15/kg
Price of mechanical cotton picker = R120 000
Salvage value = R60 000
Useful life = 5 years
Average investment [(120 000+ 60 000)/2] = R 90 000
Variable costs of mechanical picker with labour = R70 per ha
Reduction of yield and quality by mechanical picker = R300 per ha
Opportunity cost of capital = 18% per year
Insurance and licences as % of average investment = 2,5%
