Total Farm Cost
Understanding these simple and general cost input terms will help you to calculate exactly how much your farming enterprise costs you to run. Input costs include items needed in your production processes, such as labour, fertiliser, and tractor fuel.
Total farm costs illustration. (Elzaan – die image is oorgetik en as ‘n image gesave; sal net asb al die lyntjies inteken, asb en dankie.)
Imputed charges (or costs).
These represent the value of benefits enjoyed by the farm, or an enterprise on the farm, during a specific accounting period, but without incurring any real expenditure. They include the estimated rental value of land, or interest on own capital invested in land and fixed improvements owned by the operator, plus the value of unpaid labour and own management.
- Total cost (TC).
This is the total cost of all resources used in the farming enterprise during a specific year, including stock adjustments and non-cash items. TC consists of fixed costs and variable costs.
- Total factor costs (TFaC).
The term, ‘factor’, refers to an input such as raw material, labour or capital, used to produce something or provide a service. ‘External factor costs’ are interest, rent and wages. ‘Own factor costs’ include the farmer’s salary and the notional, or hypothetical, value of items that he or she owns, such as the wear and tear on a tractor. You will need to estimate how much it costs to use the item each year (depreciation).
- Total farm cost (TFC).
This is the total cost (TC) minus total factor costs (TFaC), excluding labour.
- Variable costs.
These are the portion of total costs in direct proportion to changes in the scale of the enterprise within the production system, or if the production farm intensity per unit changes. In other words, variable costs are costs that can be controlled or avoided in the short term.
- Fixed costs.
These are the portion of total costs that cannot be avoided or controlled in the short term, irrespective of the scale or intensity of production.
- Directly allocable costs.
These are the portion of variable or fixed costs that can be allocated to an enterprise without the need for detailed records.
- Not directly allocable costs.
Variable or fixed costs can only be realistically allocated to an enterprise that keeps detailed records.
- Unlocatable costs.
The portion of variable or fixed costs that cannot be logically allocated to a specific enterprise.
- Overhead costs.
The portion of the total cost that is not allocated to a specific enterprise, such as the rent paid for leased land.
- Interest or financing costs.
The amount the farm business has to pay on debts, loans, and overdraft accounts.
- Cost of hired management.
Includes the cost of a paid manager or management service the farm uses.
- Cost of regular labour.
Includes the cost of regular foremen and labourers but excludes work by hired management and the farmer and his or her family.
- Unpaid family labour costs.
Based on the time spent on manual work by family workers, including the farmer and his or her spouse, who do not receive a regular wage. They are based on the appropriate hourly wage paid to workers for similar work.
- Marketing costs.
All direct and indirect costs incurred in marketing a product.
Example of Beef Cattle Enterprise Income Statement
Income statement for a beef cattle enterprise.
| ENTERPRISE ANALYSIS: BEEF CATTLE / VERTAKKINGSONTLEDING: VLEISBEESTE | TOTAL / TOTAAL (RAND) | RAND/CATTLE / RAND/BEES | RAND/LSU / RAND/GVE | RAND/COW / RAND/KOEI | RAND/HA |
| 1. BRUTO PRODUKSIEWAARDE (BPW) / GROSS PRODUCTION VALUE (GPV) | |||||
| BPW TOTAAL / GPV TOTAL | R1,113,000 | R5,665 | R6,363.38 | R11,300 | R283.25 |
| 2. DIREK ALLOKKEERBARE VERANDERLIKEKOSTES (DAVK) / DIRECTLY ALLOCATBLE VARIABLE COSTS (DAVC) | |||||
| DAVK TOTAAL / DAVC TOTAL | R119,500 | R597.50 | R671.16 | R1,195 | R29.88 |
| BRUTO MARGE / GROSS MARGIN | R993,500 | R5,067.50 | R5,692.22 | R10,105 | R253.37 |
| 3. OORHOOFSE KOSTES / OVERHEAD COSTS | |||||
| 3.1 Permanente personeel / Permanent staff | R180,000 | R900 | R1,011.24 | R1,800 | R45 |
| 3.2 Brandstof / Fuel | R144,000 | R720 | R808.99 | R1,440 | R36 |
| 3.3 Telefoon / Phone | R12,000 | R60 | R67.42 | R120 | R3 |
| 3.4 Versekering / Insurance | R36,000 | R180 | R202.25 | R360 | R9 |
| 3.5 Mediese skema / Medical scheme | R80,000 | R400 | R449.44 | R800 | R20 |
| 3.6 Elektrisiteit / Electricity | R60,000 | R300 | R337.08 | R600 | R15 |
| 3.7 Belasting / Tax | R120,000 | R600 | R674.16 | R1,200 | R30 |
| OORHOOFSE KOSTES TOTAAL / OVERHEAD COST TOTAL | R632,000 | R3,160 | R3,550.58 | R6,320 | R158 |
| NET FARM INCOME (NFI) | R361,500 | R1,907.50 | R2,141.64 | R3,785 | R95.37 |