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Farm budgeting

A farm plan is a program of the total farm activity of a farmer drawn up in advance. The

expression of such a farm plan in monetary terms is called farm budgeting. Simply it is a process of estimating costs, returns and net profit of a farm or a particular enterprise.

Types of farm budgeting

1. Enterprise budgeting

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 organized and presented in three sections income, variable costs and

fixed costs ncome is estimated by expected the total production and output price.!ariable costs are estimated by knowing the "uantities 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, e"uipment,

implements, livestock, farm building etc., rental value of land, land revenue, interest on fixed

capital.

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2. Partial budgeting

%artial budgeting is a statement of anticipated # apekchhit$ changes in costs, returns and profitability for a

minor modification

This techni"ue is generally used to evaluate the profitability of

Input substitution: E.g. &achinery for labour, changing livestock rations, owning a machine instead of

hiring, increasing or decreasing fertilizers or chemicals.

Enterprises substitution: E.g. substitution of sunflower for groundnut.

Scale of operation: size of the farm business or in the size of the single enterprise, buying or renting of

additional land, expanding or decreasing an enterprise.

t consists of four important components like added costs, added returns, reduced returns, and reduced

costs.

'. Added costs: If proposed modification introduce the new enterprises or increase in size of

eisting enterprises

(. Added return: proposed change may cause an increase in total farm income if a new enterprise is being added, if an enterprise is being expanded or if the change will cause yield levels to increase.

!. "educed costs : )osts may be reduced if the change results in elimination of an enterprise, or

reduction in size of an enterprise or some change in technology which decreases the need for variable

resources

*. "educed income: ncome may be reduced if the proposed change would eliminate an enterprise,

reduce the size of an enterprise or cause a reduction in yield.

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#omplete $udgeting

t is statement of expected income, expenses, and profit of the firm as a whole.

#ash flow budget

t is summary of cash inflows and outflows for a business over a given time period. ts primary purpose isto estimate the future borrowing needs and loan repayment capacity of the farm business.

%ifference between complete budgeting and partial budgeting