A Mississippi cotton farmer has a chance to rent 300 additional acres for $100 per...
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Finance
A Mississippi cotton farmer has a chance to rent 300 additional acres for $100 per acre this year, but he would have to give up his second job of driving a truck, which pays him $1,100 a month for 8 months of the year.
He will also save variable costs for the truck of $.50 per mile. He drives an average of 35 miles per day for 160 days each year.
He anticipates that his variable costs for growing cotton will be $300 per acre.
His expected cotton yield is 500 pounds per acre, and his expected selling price for it is $.75 per pound. There is also a government payment of $12 per acre.
Use the partial budgeting format below and analyze the net effect on his total profits if he would rent the extra land. Budget the total changes for the year on all 300 acres.
Proposed Change: Plant cotton on 300 acres of rented land instead of trucking
Reduced Costs
Reduced Revenue
Added Revenue
Added Costs
Net Change:
Should this farmer stop trucking and plant an additional 300 acres of cotton on rented land?
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