Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 4

Cost per Bushel of Soybeans: United States and Brazil

The data is taken from an October 2001 Report of the Economic Research Service of the U.S. Department of Agriculture, based on 1998–1999 data. The report can be viewed at the following Web site: http://www.ers.usda.gov/Briefing/SoybeansOilcrops/pdf/SBProdExpCompOCS2001.pdf

Critically evaluate the cost information.

A number of potential questions arise about the way the data is collected and presented. Here are some ideas to start with. First, what about the size of the farm: should this affect the fixed cost-per-acre calculations, since fixed costs are driven in part by the number of acres farmed but also by the fact that certain pieces of equipment are necessary for a farm of any size. Farm equipment might be more of a step cost than a fixed cost. If this is the case, the relatively low equipment cost per acre might simply be due to the fact that farm sizes are larger in Brazil. Are the fixed costs computed annually or monthly? And if land can be rented by the acre, is it not a variable cost?

Step 1 of 2

Fixed costs are those costs which does not changes with change in level of production. Variable costs are those costs which changes with change in level of production. The sum of fixed and variable costs is total cost for the company.