FBS

Farm Business School

 Session 5
UNDERSTANDING
ENTERPRISE
PROFITABILITY
OBJECTIVES OF THE PRESENTATION:

• Explained the concepts of

enterprise profitability;
• Described how to develop a
Budget for a Farm Enterprise;
and
• Discussed fixed costs and
depreciation.
 BUDGET
• A list of income earned and
costs incurred in producing a
product.

• Tool to calculate expected

profit from one enterprise on a
per unit basis (i.e., per
hectare, head of live stocks)
for usually one year or one
product period.
Step-1: Enterprise _______________________________
Step-2: For the period: ___________ to ______________
Step-3: Area under cultivation (has): ________________
Step-4: Income
Item Quantity Unit Price Value

Step-5: Total Income

Step-6: Variable Costs

Item Quantity Unit Price Value

Step-7: Total Variable Costs

Step-8: Enterprise Profit

(income – variable costs)
 INCOME
• Is the value of your production.

• Money you receive when you sell the

products.

• Include also the value of the produce

you eat, use or give away.
Step-1: Enterprise _______________________________
Step-2: For the period: ___________ to ______________
Step-3: Area under cultivation (has): ________________
Step-4: Income
Item Quantity Unit Price Value

Step-5: Total Income

Step-6: Variable Costs

Item Quantity Unit Price Value

Step-7: Total Variable Costs

Step-8: Enterprise Profit

(income – variable costs)
 VARIABLE COST
Variable costs can be defined as
expenses which keep changing in
proportion to the activities of a business
or enterprise.
• Costs that vary depending on the production
volume.

• They rise as production increases and fall as

production decreases.
Step-1: Enterprise _______________________________
Step-2: For the period: ___________ to ______________
Step-3: Area under cultivation (has): ________________
Step-4: Income
Item Quantity Unit Price Value

Step-5: Total Income

Step-6: Variable Costs

Item Quantity Unit Price Value

Step-7: Total Variable Costs

Step-8: Enterprise Profit

(income – variable costs)
 Measuring the profit of my enterprise:

Income
Item Quantity Unit Price Value

Total Income

Variable Costs

Item Quantity Unit Cost Amount

Enterprise Profit
30 Minute Exercise
 HOW TO
INCREASE THE
PROFIT?
 HOW TO
INCREASE THE
PROFIT?
Getting a higher price for the
commodity

Increasing the yield

Reducing variable costs (through

alternative inputs, cheaper technologies
or labor saving mechanisms)
 DETERMINING THE
BREAK-EVEN PRICE
BREAK EVEN PRICE = TOTAL VARIABLE COST (ha)
YIELD (ha)
 CALCULATING THE
BREAK-EVEN YIELD

K EVEN YIELD = TOTAL VARIABLE COST (ha)

Unit Price
• Is the reducing value of an
asset.

• the allocation of the cost of

assets to periods in which the
assets are used.
DEPRECIATION (Straigth Line Method)

Year Year
10 1

Year Year
9 2

Year Year
8 3

Year Year
7 4

Year
Year 5
6
P/10,000 - 1000 - 1000

Year Year
10 1 - 1000
- 1000
Year Year
9 2

Year Year - 1000

- 1000 8 3

Year Year
7 4
Year - 1000
- 1000 Year 5
6

- 1000 - 1000
THANK
YOU!