Assignment:
Partial Budgeting
Use a separate sheet of paper to answer the following questions. Personally, I used a spreadsheet to find the answers. And I showed the work on the Spreadsheet.
1. Assume a farmer is considering switching from conventional tillage on 200 acres of soybeans to using a no-till planter. Use the following information to analyze this decision using the partial budget format discussed in class.Show work.
a) Machinery (including fuel) variable costs for the tractor and no-till planter are expected to be $11.00 per acre.
b) Machinery variable costs for conventional tillage have averaged $16.00 per acre over the past several years.
c) Labor requirements for conventional tillage are 3.0 hours per acre with a value of $18.00/hour.
d) Labor requirements for no-till are 1.5 hours per acre at $18.00/hour
e) In recent years, conventional till soybean yields have averaged 55 bushels per acre
f) With no-till, the soybean yield is expected to drop 2 bushels per acre
g) Soybeans are expected to be worth $8.90/bushel during the year considered.
Should the farmer make this change? Why or why not?
2. If the yield decline is expected to be 4 bushels per acre, does this change the decision? What is the difference in profit? Use the partial budget format, show work.
3. (Extra Credit, show work) How many bushels per acre (when valued at $8.90/bushel) does the yield need to decline with no-till in order to make conventional tillage and no-till equal? The breakeven yield as an answer is acceptable. (Note that this is the break-even point where the farmer is indifferent between the 2 methods)
Reminder: no work, no credit, wrong format, less credit.