1. Enterprise Budget
. Enterprise budget
An enterprise is defined as a single crop or livestock commodity being produced on the farm. An enterprise budget is an estimate of all income and expenses associated with a specific enterprise and estimate of its profitability.
Enterprise budget can be developed for each actual and potential enterprise in a farm plan such as paddy enterprise, wheat enterprise or a cow enterprise. Each is developed on the basis of small common unit such as one acre or one hectare for crops or one head for livestock. This permits easier comparison of the profit for alternative and competing enterprises.
Enterprise budget can be organized and presented in three sections income, variable costs and fixed costs.
The first step in developing an enterprise is to estimate the total production and expected output price. The estimated yield should be an average yield expected under normal weather conditions given the soil type and input levels to be used. The output price should be the manager’s best estimate of the average price expected during the next year or next several years.
Variable costs are estimated by knowing the quantities of inputs to be used (such as seed, fertilizer, labour, manures) and their prices.
The fixed costs in a crop enterprise budget are depreciation on machinery, equipment, implements, livestock, farm building etc., rental value of land, land revenue, interest on fixed capital.
Example: Enterprise budget for paddy production (one hectare)
I) INCOME
48 quintals @ Ksh 600 per quintal 28,800
II) VARIABLE COSTS
1. Human labour 9,000
a) Owned 3,000
b) Hired 6,000
2. Bullock labour 300
a) Owned 100
b) Hired 200
3. Tractor power 4,000
a) Owned 1,000
b) Hired 3,000
4. Seeds 1,200
5. F.Y.M. 1,800
6. Green leaf manures 700
7. Fertilizers 3,000
8. Plant protection chemicals 500
9. Irrigation charges 500
10. Interest on working capital 1,700
Total variable costs 22,700
III) FIXED COSTS
1. Land revenue 12
2. Depreciation 900
3. Rent on owned land 3,500
4. Interest on fixed capital 450
Total fixed costs 4,862
Total costs 27,562
Gross margin (T.R. - T.V.C.) 6,100
Profit (T.R.-T.C.) 1,238
2. Partial budget
It is used to calculate the expected change in profit for a proposed change in
the the farm business. Partial budget is best adopted to anlysing relatively small
change in the whole farm plan.
Changes in the farm plan or organization adopted to analysis by use of partial budget are of three types.
1. Enterprise substitution: This includes a complete or partial substitution of one enterprise for another. For example, substitution of sunflower for groundnut.
2. Input substitution : Example : Machinery for labour, changing livestock rations, owning a machine instead of hiring, increasing or decreasing fertilizers or chemicals.
3 . Size or scale of operation: This includes changing in total size of the farm business or in the size of the single enterprise, buying or renting of additional land , expanding or decreasing an enterprise.
Partial budget format
Proposed change
……………………………………………………………………………
Additional cost (Ksh.) Additional income (Ksh.)
Reduced income (Ksh.) Reduced costs (Ksh.)
A. Total of additional costs B. Total of additional
and reduced income ________________ income and reduced Costs_________
Net change in profit (B -A)
Kavungya answered the question on March 28, 2019 at 05:43