Lab 6

AGB 322

Dr. Sean Hurley

Due: 10/19/17

50 Points

Introduction:

The primary purpose of today’s lab is to familiarize you with how to do partial budgeting. A partial budget is an estimate of the changes in expenses and revenues that would result from carrying out a proposed change in the current farm plan. Partial budgeting can be used to analyze whether you would want to change the level of production, input combinations, or output combinations. In essence, a partial budget is a way of doing the marginal analysis that was discussed in class. The fundamental aspect of a partial budget is that it examines change. Hence, when examining partial budgets, you want to only examine the changes in costs and revenues, not the total cost and revenues.

The table below gives you the general structure of a partial budget. At the top of a partial budget is a brief description of the alternative being examined. Typically on a partial budget, you will have the additional costs and reduced revenues in the first column. These represent all the incremental costs from making the change. These are also known as the detriments to making the change. In the second column, you will have the additional revenues and reduced costs from the change. These are known as the benefits of making the change. Also, in the second column at the bottom is the net change in the profit from making the change. If this number is positive, then you have increased profits by making the change, while if it is negative, you are worse off from making the change.

Alternative: Description of Alternative
Additional Costs: / Additional Revenue:
--List of Additional Cost Items / $______/ --List of Additional Revenue Items / $______
Reduced Revenue: / Reduced Cost:
--List of Reduced Revenue Items / $______/ --List of Reduced Cost Items / $______
A. Total of Additional Costs and Reduced Revenues / $______/ B. Total of Additional Revenue and Reduced Cost / $______
Net Change in Profit (B-A) / $______

When developing your partial budget, you need to answer four questions:

  • What new or additional costs will be incurred?
  • What current costs will be reduced or limited?
  • What new or additional revenue will be received?
  • What current revenues will be reduced or lost?

In today’s lab you will perform a partial budgeting analysis. You will need to examine if it is profitable for you to change 10 acres of Romaine Hearts into 10 acres of Broccoli. To do this, you will need to obtain the broccoli (2017) and cauliflower (2015) budgets from the following website:

Please select the cost studies that are associated with the Central Coast-Monterey/San Benito/Santa Cruz and use table two in each of the cost studies for the enterprise budgets to analyze. When doing the partial budget analysis for this activity, please assume that all overhead/fixed costs are not important, i.e., only examine the changes in variable cost. If you do not follow this assumption, you will only get half credit for the assignment.

To perform this partial budget analysis, create a similar structure given above in an Excel spreadsheet. Use Excel to make all your calculations. Once you have put together the partial budget, copy and paste it into a word document. Once you have done this, please answer the following questions:

  1. How much new cost was incurred due to the change?
  2. What was the biggest additional cost?
  3. How much cost was reduced due to the change?
  4. What was the biggest reduced cost?
  5. How much revenue was lost due to the change?
  6. How much revenue was gained due to the change?
  7. Would you change 10 acres of cauliflower into 10 acres of broccoli? Please explain using your partial budget you just put together.
  8. Are there any considerations besides profitability that you should take into account when deciding whether to make the change? Please explain.
  9. What do you think are the strengths and the weaknesses of the partial budgeting method? Please explain.

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Revised 9/12/17