Start Date
2-21-2019 9:00 AM
Description
When hay producers estimate cost of production they often focus exclusively on “cash costs” or variable cost of production such as fuel, repairs, supplies, fertilizer, labor (if hired), and rent (if leased). They all too often ignore their “fixed costs” of production such as depreciation, interest, labor (if family), insurance, and certain taxes. Although there are legitimate reasons to concentrate on cash costs in the short-run, it is a mistake in the long-run, as these are real costs. Fixed costs for equipment are often ignored because they are generally paid in lump sums, and thus there is a disconnect between equipment use and these costs. For example, each time you fill up the fuel tank you have a good estimate on the fuel cost for the running the tractor for the last ten hours. The same is not true for depreciation or interest on that tractor. You probably have no idea what that costs you.
Included in
Fixed Costs in Hay Production
When hay producers estimate cost of production they often focus exclusively on “cash costs” or variable cost of production such as fuel, repairs, supplies, fertilizer, labor (if hired), and rent (if leased). They all too often ignore their “fixed costs” of production such as depreciation, interest, labor (if family), insurance, and certain taxes. Although there are legitimate reasons to concentrate on cash costs in the short-run, it is a mistake in the long-run, as these are real costs. Fixed costs for equipment are often ignored because they are generally paid in lump sums, and thus there is a disconnect between equipment use and these costs. For example, each time you fill up the fuel tank you have a good estimate on the fuel cost for the running the tractor for the last ten hours. The same is not true for depreciation or interest on that tractor. You probably have no idea what that costs you.