Lec 14 Flashcards
The costs associated with machinery and equipment in farming have increased significantly due to several factors, what are these?
-the use of larger machines
-the adoption of new technology
-rising prices for parts and new machinery
-higher energy prices
____ plays a vital role in agricultural machinery management.
Economics
Selection of the ____ of a machine for a particular job
requires careful evaluation of all cost items.
size and capacity
____ require higher investment and may be too large
for economical operation with the rest of the machines on the farm.
Oversized machines
____ may give a lower investment but the increased labor cost may offset the savings.
Undersized machines
The machine with lower total cost _____is recommended.
(investment + operating)
The final decision is influenced by the following:
-suitability of the machine to the crop, to the field, and to weather conditions
-timeliness of field operation which is governed by the capacity of the machine
-availability of capital
-cost and availability of labor and fuel
Benefits from agricultural machinery operation:
-time and cost savings
-income from custom work
-value of yields
-salvage value
costs of owning the machine
fixed costs
costs of electricity, fuel, oil, labor and other inputs
variable costs
Also called “Fixed Costs”
Ownership Costs
Also called “Fixed Costs”
Ownership Costs
Expenses incurred regardless of whether the machine is operated or
not.
Ownership Costs / Fixed Costs
Under fixed costs are the following:
1.Depreciation (D)
2. Interest on Investment (IOI)
3. Shelter
4. Insurance
5. Taxes
6. Repair and Maintenance
Reduction in the value of the machine as a result of use (wear
and tear) and obsolescence (availability of newer and better
models).
Depreciation
Value of the machine at the end of its useful life usually estimated at zero to 10 percent of initial cost.
Salvage value (SV)
Based on experience and similar machines
Useful life (L)
Factors of Depreciation
- Age
- Accumulated hours of use
The number of years over which costs are to be estimated. It is often
less than the machine’s service life
because most farmers trade a machine for a different one before it is completely worn out.
Economic Life
A good rule of thumb for farm machines
10-12 years
A good rule of thumb for tractors
15 years
Estimate sale value of the
machine at the end of its economic
life.
It is the amount you could
expect to receive as a trade-in
allowance, an estimate of the used
market value if you expect to sell the
machine outright, or zero if you plan
to keep the machine unit until it is
worn out.
Salvage Value
Change for the use of the money invested on the machine regardless of
whether the money was borrowed or not.
Interest on Investment
Provided to protect the machine from robbers and adverse weather conditions, for ease of making repairs, and for a better appearance of
the farm.
Shelter
Shelter and insurance are ____ of the average value of the machine.
0.5%
Protection of the machine and shelter against calamities and theft.
Insurance
Sometimes collected in some
places when machine is required to be registered with the local government.
Taxes
Taxes is ____ of the average value of the machine.
1%
Fixed allowance provided for the repair of machine and shelter.
Repair and maintenance
Repair and maintenance is usually estimated at ____ of the initial cost.
10%
Expenses incurred as a result of machine operation.
Variable costs
Under variable costs are the following:
Power costs (electricity, fuel and oil)
Labor
Other inputs
Usually the largest item of expense in operating powered machines.
Power costs (electricity, fuel and oil)
Required to operate and maintain machines. Use wage rates prevailing locally.
Labor
Include other items of cost needed for the operation of the machine.
Other inputs
Average fuel consumption (in gallons per hour) for
farm tractors on a year-round basis without reference
to any specific implement can also be estimated with
these equations:
0.060 x max. PTO horsepower for gasoline engines
0.044 x max. PTO horsepower for diesel engines
Fuel Cost
15% of fuel cost
Lubrication Cost
Do not take into consideration the change in the value of money over time.
Undiscounted measures of project appraisal
Length of time it takes to recover the invested capital or until the net benefits equal the investment cost.
Payback period (PBP)
Level of operation where it neither produces a profit nor incurs a loss.
Break-even point (BEP)
Time value of money is taken into account through the process of discounting.
Discounted measures of project worth
Process of translating future values in present worth by applying a set of discount factors.
Discounting
Present worth of benefits divided by the present worth of costs.
Benefit-cost ratio (BCR)
This is the current value of all the expected benefits from the project or investment, discounted at a given interest
rate.
Present Worth of Benefits
This is the current value of all the costs associated with the project or investment, also discounted at the
same interest rate
Present Worth of Costs
The benefits outweigh the costs, indicating a potentially profitable or feasible project.
If BCR > 1
The benefits are equal to the costs, indicating a break-even situation.
If BCR = 1
The costs outweigh the benefits, suggesting that the project may not be feasible or profitable.
If BCR < 1
