First, use the Excel template to develop a partial budget spreadsheet model that examines whether the alternative scenario (rent out the land) is more profitable than the status quo scenario (grow their own pumpkins). A list of useful information is given in Appendix A. 

Appendix A

The information that we obtained on the parcel of land (20 acres) is as follows:                                                                                          

Earlier this year, Visit Us Farms installed drip-tape irrigation at a cost of $650 per acre.

Last year, without the drip-tape, they obtained a pumpkin yield of 22,500 pounds per acre.

This year, with the drip-tape, they expect a yield of 22,000 pounds per acre.

This year, they expect that it will cost $0.15 per pound to grow and pick the pumpkins.

The information that we obtained on the agritourism business is as follows:

Last year, Visit Us Farms gave away 50,000 pounds of pumpkins to school kids who visited on field trips and sold the rest at their farm stand for $0.42 per pound.

If they rent out the land to the neighbor this year, they would need to purchase 250,000 pounds of pumpkins elsewhere at $0.20 per pound plus a $0.05 per pound delivery fee.

They expect to give away the same quantity of pumpkins to school kids this year, and also to earn an identical amount of revenue from farm stand pumpkin sales.

The information that we obtained about the neighbor is as follows:

The neighbor is offering $250 per acre to rent the parcel of land.

The neighbor will use the drip-tape irrigation system the same way that it is used for pumpkin production and the costs to the farm will be identical in either scenario.

 

Second, use the partial budget spreadsheet model to analyze the following questions. Report your results in the spaces provided in the template:

What is the incremental profit for the baseline case

Which option do you recommend, the status quo or alternative scenario?

What is the incremental profit if transportation costs double?

What is the breakeven land rental price for the baseline case? (That is, at what land rental price would the incremental profit be zero?)