Question

A dairyman comes to you for some help. He says the average production per cow in his existing herd is 22,000 lbs per year. He says he has enough barn space, forage, and labor for 8 more cows. His neighbor has offered to sell him the cows for $1,400 each. He is estimating the cows will produce 20,000 pounds each. The value of milk is S16.75/cwt. He currently purchases all of his feed. The average cost to feed each cow per day is S6.75. The dairyman keeps accurate cost accounts and his records tell you the following: Housing and equipment costs: $275 per cow Overhead (general farm overhead, office expense, etc.): $175 per cow Vet, medicine and breeding costs: S100 per cow Labor: $225 per cow per year If he buys the cows he will have to borrow the money at a cost of 5%. Given the above information, calculate Break-Even Point and Net Profit per cow. Would you advise the dairyman to buy the cows? What, if any, other information should be considered?

Answer 1

First we will calcuate contribution per cow 3,350.00 <<16.75*200 Sale price of milk per cow Less: Cow feeding cost Contribution Less: Housing and Equipment cost Overhead Vet, Medicine, breeding cost Labour Contribution per cow (a) Less: Fixed borrowing cost Profit $ 2,463.75 <<6.75*365 $ 886.25 $ 275.00 $175.00 $ 100.00 $225.00 $ 111.25 70.00 <<1400*5% $ 41.25

Contribution in perentage 26.46% <<886.25/3350 Break even point per cow (in amount) Fixed cost percentage contribution 775+1400*5% 26.46% 845 26.46% 3193.50 Break even in pounds -(3193.60/16.75)*100 19066.2687 i.e. 19067 pounds Other information can be considered is dereciation is wroth of cow while reselling Also what is rent costlopportunity cost if cows not bought