Estimating and

Tracking Production
Costs
SHANNON DILL , EXTENSION EDUCATOR
UNIVERSITY OF MARYLAND EXTENSION, TALBOT COUNTY
SDILL@UMD.EDU
410-822-1244

Good
Manager

Farm
Profitability
Good
Production

Overview
Estimating Production Costs
Creating Crop Budget
Using Cash Flow
Record Keeping
Tracking the Costs

What are enterprise budgets?

Enterprise budgets are a great way to estimate your production costs per crop
An organized listing of your estimated gross income and costs which can be
used to determine the expected net income for a particular enterprise
Budget on a per unit basis
ex 1 acre, 1 bushel, 1 ton, per 1,000 Square Foot
Sections include
Investment, Income, Expenses (variable and fixed), Profit

Estimating Production Costs

Itemize the receipts (income) received for a crop Yield and Price
List the inputs and production practices required by a crop
Evaluate the efficiency of farm enterprises
Estimate benefits and costs for major changes in production practices
Not an exact science it is an estimate drought, disease etc

Budget
Determine profitability of one enterprise versus another.
Understand breakeven cost and pricing points for that enterprise
Understand input structure such as labor inputs, chemical inputs, fixed
equipment cost per dollar returned.
Plan crop rotation schedules and product mix

What are enterprise budgets?

Traditional Crops and Livestock Production
Very detailed, more accurate
Examples
Field corn, soybeans, dairy, hay

Specialty crops
Less detailed, less accurate because of differences in regions and inputs
Examples
Organics, niche crops, rotational grazing, value added activities

There are great templates out there but use them only as a guide

6 Parts of a Budget
Investment/Establishment
Gross Income Yield and Price
Variable Costs Cost to Produce
Fixed Costs Cost of Overhead
Net Income - + or -

EXAMPLE
Iowa Vegetable Production Budgets
https://store.extension.iastate.edu/Prod
uct/Iowa-Vegetable-Production-Budgets

Variable Cost Estimations

Seed, Feed, Fertilizer, Pesticide
Prices will depend on plants per acre, varietal selections and quantity purchased
Example Sweet Corn Costs Per Acre Seed
Dealer 1

Dealer 2

Dealer 3

12 lbs $10.00

10 lbs $11.00

10lbs $7.50

Labor Keep a log of time. Assign a value to hourly rates

Fuel keep a log of fuel usage

Fixed Cost Estimations

You are paying these now DIRTI (Depreciation, Insurance, Repairs, Taxes, Interest)

Eggplant Example
per pound in a 100x40 bed
Variable Costs
per unit

$86.41/130lbs = $0.66
For every pound grown it costs
$.66 in variable costs

Fixed Costs per $10.57/130lbs = $0.08

unit
For every pound grown it costs
$.08 in fixed costs
Break even
price

($86.41+$10.57)/130lbs = $0.75
You must charge at least $0.75 to
break even. At $.76 you begin
your first profit

Break even
output

($86.41+$10.57)/$1.40 = 69lbs
You must grow and sell 69
pounds of eggplant to break
even. At 70 pounds you make
your first profit.

Net income
per unit

($182-$96.98)/130 = $0.65
You make $.65 per pound of
eggplant you sell

Financial Plan
Balance Sheet

Income Statement

Cash Flow

Financial Plan
Very important and necessary component of the business plan
Balance Sheet Solvency
Income Statement Profitability
Cash Flow Liquidity
Pro Forma Statements - projections

Cash Flow
Summarizes all cash in-flows and out-flows for a period of time
Checkbook Accounting

In-Flows product sales, receipts, sale of capital assets, borrowed money

Out-Flows production, capital expenditures, loan payments, living
expenses

Important because of seasonality. It will help you plan your

income and expenses over a year.
Does not take inventory or depreciation into account
Projected and Actual Cash Flow do this each year

Cash Flow Budget

Name>
Last year

Year 1 or
Year 2 or
Year 3 or
Year 4 or
1st quarter 2nd quarter 3rd quarter 4th quarter

Total

Cash inflow
1.
2.
3.
4.
5.
6.
7.

Beginning cash balance

Crop sales
Livestock sales
Other farm income
Capital sales
Non-farm receipts
Total cash inflow (total 1 to 6)

0.00

0.00

0.00

0.00

0.00

0
0
0
0
0
0
0.00

Cash outflow
8. Chemicals
9. Custom hire
10. Feed purchased
11. Fertilizer and lime
12. Freight and trucking
13. Gasoline, fuel, and oil
14. Insurance
15. Labor hired
16. Rent or lease
17. Repairs and maintenance
18. Seeds and plants purchased
19. Supplies purchased
20. Taxes
21. Utilities
22. Vet., breeding, medicine
23. Other farm expenses
24. Capital purchases
25. Family living or withdrawals
26. Term loan payments
27 Total cash outflow (total 8 to 26)

0.00

0.00

0.00

0.00

0.00

0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0.00

0.00

0.00

0.00

0.00

0.00

0.00

$0.00

$0.00

$0.00

$0.00

$0.00

$0.00

Cash flow summary

28. Inflow minus outflow (lines 7-27)
29. New borrowing: term
30. New borrowing: credit line
31. Credit line payments
32. Ending cash balance (28+29+30-31)
Comme nts:

Tracking Enterprise Costs

It is important to know the cost of each enterprise you have
Keep detailed records on activities for each enterprise
Include variable inputs
Include machinery time and labor

Make it manageable
This can easily be tracked in record keeping software
Could be excel, quickbooks or other systems

Farmers Need to . . .
Manage their business
Plan for profit:
monthly profit/loss statements
compare year to date profit/loss
monitor key expenses closely (i.e. feed. inputs)
monitor enterprise income/expenses
set annual budgets
look at financial statements
Pay down debts
Communicate with lenders/investors
Communicate with spouse/partners
Have a household budget

Farmers Manage Cash, Capital and People

Accounts payable (what you owe others)
Account receivable (what others owe you)
Cash flow (whats in the bank)
Structured debt (bank notes and loans)
Payroll

Recordkeeping
Proof The IRS may ask for revenue, expenses and inventory
items
Decision Aids Records help with making decisions on
purchases, enterprises etc.
Institutional Requirements Lending agencies, FSA, crop
insurance require production and acreage reports
Environmental Nutrient management, pesticides, bio-solids,
irrigation all require records.
Good records do not ensure

your farm will be successful;

however, success is unlikely
without them!

Keeping Farm Records

Three basic types of farm records:
1. Resource inventories
2. Production accounts or livestock and crop operations
3. Income and expense records

Resource Inventories
Count and assign value to your resources to inventory your farm
Resources include:
Assets: Items you own
Liabilities: indicate what you owe

Income and Expense Records

Transaction Journal (farm checkbook)
Includes:
Date, check receipt number, amount of check or deposit, and the payee or
income source use a memo so you know important info
General Ledger
1. Farm cash receipts
2. Farm cash disbursement

Summary of Records
Household Budget

Production Schedule

Enterprise Budgets

Production Records
Seed, Fertilizer, Pesticide, etc
Yield records for FSA, Crop
Insurance

Balance Sheet
Cash Flow
Projected
Actual

Sale Records

Other types of records??

Household Budget
Marketing, CSAs
Organic
Food safety (GAP)
Customers
Vendors
Lease agreements

Tracking Income and Expenses

Account Methods
Cash Method - record expenses in financial accounts when the cash is actually laid out, and they
book revenue when they actually hold the cash (most popular for farms)
Accrual Method - it records revenue/expenses when the actual transaction is completed not
when it receives the cash

Organizing Financial Information

General ledger Examples
Computer systems
Microsoft Templates
Excel
Quicken
QuickBooks
APPs

Templates http://office.microsoft.com/en-us/templates/

Excel

Advantages of QuickBooks
Ease of use

Generates financial statements

Will write checks

Creates invoices

Manages accounts payable/receivable

Maintains list of vendors and customers

Has QuickPay

Cash or Accrual Accounting

Has payroll features

Manages lines of credit and credit cards

Easy to reconcile & produce reports

An many more

Enterprise accounting

Other Advanced Features

Enterprise accounting
Raising and selling feed
Financial forms and estimated cash flow
Tax records
Financial ratios

Steps in Using QuickBooks

Install and create a company file
Decide on a start date
Review chart of accounts and modify for your farm business
Set up liability and fixed asset accounts
Create January account balances
Start entering checks and deposit sales
Start enterprise accounting
Organize financial statements

What you need to get started

Reconcile all bank accounts to your QuickBooks start date
Current bank statement
Cash balances
Create a detailed list (date, payee and amount) of transactions that have not cleared your bank
Complete a physical inventory and gather inventory information as well as fixed asset
information and credit card information

Tips
Purchase the physical product dont download from Intuit
Look at your previous year's tax return to get information on depreciation
amounts.
Have an accountant look over your QuickBooks setup after you gather all
required information but before you make any entries. Omissions and/or
incorrect entries can haunt you for a long time.
For fixed assets, such as property and equipment, you must know the
current value and accumulated depreciation.
Pay any unpaid payroll withholding amounts before your QuickBooks start
date to avoid having to enter them as an open liability. You will need the
current balance of all loans and mortgages.

Tips
RECONCILE monthly with your bank statement
Print a copy of your Chart of Accounts for reference
Be sure back up your accounts on flash drive or CD and store in a safe location
Consider having a separate computer for financials and business than a household computer
especially if you have teens in the household.
Save time - Print checks!

Which is Right for you?

There is a variety of products available depending on your platform and business needs

HELP!!
www.quickbooks.com
Have a great support page
Check with your accountant
they may have a QB Pro on staff