I know it's a lot of reading. I needed help on the third question of the decision. What were the drivers in a cow-calf operation? Is the revenue-expense calculation (see Exhibit 2) clear regarding drivers?The last picture is Exhibit 2. Please help thank you so much!

Revenues As a rule, cows produce one calf per year. Female calves are called heifers. Most male calves are castrated and are called steers; those that are not castrated become bulls and may be sold or used for future breeding. Weaned heifer and steer calves are sold at prices expressed as dollars per hundredweight (cwt), which is equivalent to dollars per 100 pounds (lbs). Thus, the sale price per pound can be determined by dividing the cwt price by 100. The average weaning weight of calves at Black River Farms in 2016 was 613 pounds. Weaned calves sold at an average price of $148 per cwt, as shown in Exhibit 3. Prices generally follow a cyclical pattern: high prices attract producers to raise more calves, but greater supply then leads to lower market prices and producers dropping out of the market. Prices at year-end 2016 were down significantly, the second decline since an unusual peak in 2014. Expenses The major expense associated with cow-calf operations is feeding the cow. A healthy cow requires a variety of forage (primarily grazed grasses), nutritional supplements and minerals so that she remains healthy and produces a healthy, marketable calf. Other expenses include veterinary fees and wages for labor, and the expenses of owning and operating the farm. Subtracting per cow expenses from per cow revenues yields the profit or loss per cow in the cow-calf operation. Exhibit 2 shows that Black River Farms lost $34.22 per cow on its cow-calf operations in 2016. HISTORY OF BLACK RIVER FARMS Black River Farms was established in the 1930s by George Shadle, Donna's grandfather, and had been in the family for more than eighty years. Although the farm was only marginally profitable during the Depression, profits increased in the 1950s and 1960s as world demand for beef increased. Donna and Jim Green had the misfortune of taking over the farm in the 1980s at a time when calf prices were in a cyclical decline. At the same time, costs of forage increased. With output prices falling and input costs increasing, profits began to decline and became losses around the turn of the century. In the face of the squeeze on profits, Donna was forced to sell some of the land inherited from her father to generate funds to cover the farm's operating losses. Black River Farms then rented pasturage from adjacent farms to feed the cows during the eight months per year they were turned out to pasture. Donna also did what most other cow-calf operators had done: she focused on producing heavier calves at weaning, which generated more revenue when they were sold. When breeding cows, Donna selected sires based on their ability to produce faster-growing calves. Because faster growth is positively correlated with mature weight and because breeding females came from these same sires, over the years the mature weight of the Black River herd had increased substantially. Donna's experience was part of a national trend that saw average mature cow weights increase to 1350 pounds in 2005 from 1050 pounds in 1975.2 Donna had taken other measures to improve efficiency at Black River. She gave cows and calves minerals and dietary supplements to maintain health and productivity. She matched the herd's forage needs with the grass growth cycle in the pastures so that the cows obtained the best possible nutrients at the appropriate time in the breeding cycle. She also incorporated legumes into the pastures and rotated the herd between pastures. Although these steps increased efficiency, they did not stem the losses at Black River. ATTENTION TO COW SIZE One day during the winter of 2015, Donna was cutting a round bale of hay to feed the herd when a thought occurred to her: some of the cows were bigger than others. There might be a relation between the weight of the cow and the weight of the calf it produced. Was it possible that a larger calf was not worth what it took to support a larger cow? Because of this idea, she decided to use the 2016 breeding cycle to measure the weight of each cow and the weaning weight of each calf it produced. Perhaps if she had numbers, she might be able to analyze the question of appropriate cow size and manage accordingly. Donna divided the herd into five weight groups. By coincidence, the 50 head fell into groups of ten around each weight group. The lightest group of cows averaged 1000 pounds, while the heaviest group averaged 1400 pounds. She prepared a table summarizing the average weaning weight of the calves produced by the cows in each weight group (see Exhibit 4). One night a few months later, Donna and Jim were watching The Cattle Show on RFDtv, which featured a discussion about cow size. Donna wrote down several points that she thought might be important: We expect a cow to wean a calf close to 50 per cent of her mature weight every 365 days. A key driver of direct costs is the mature weight of the cow. The heavier the cow, the higher the forage, supplement and mineral costs she incurs. Experiments at agricultural extension services had recently shown that, on a yearly basis, a heavier cow consumes 547.5 pounds of additional dry matter, 13.56 pounds of additional supplements, and 7.29 pounds of additional minerals for each 100 pounds of additional weight.? Over the next few weeks, Donna and Jim discussed the implications of what they learned from The Cattle Show. One point they were not certain about was the amount of dry matter that their cows consumed. Because cows were in pasture for a portion of the year, it was not possible to determine precisely the quantity of grass they consumed. However, Donna found that it was possible to estimate the amount of dry matter that would be equivalent to a number of acres of pasture. (Dry matter is feed, such as hay, without water. Because grasses consumed in pasture contain water, the weight of hay from pasture must be adjusted to remove the weight of the water. The result is dry matter equivalent. A round bale of dried hay is used to feed cattle during the periods when they cannot be fed sufficiently on pasture.) Donna recorded the amounts of dry matter (see Exhibit 5) and supplements and minerals (see Exhibit 6) consumed by each of the weight classes during the year. Donna and Jim also visited their accountant to find out what the terms driver and direct cost meant. Their accountant explained to them that drivers are the forces that determine revenues and expenses in the cow- calf operation. Direct costs are expenses that can be attributed to a specific driver, such as the number of cows or the weight of a cow. Thus, labor was a direct cost that was determined by the number of cows, which was the driver for that expense. According to the accountant, the driver for expenses is the number of cows. Consequently, financial statements such as Exhibit 2 are prepared by allocating expenses on a per cow basis. However, this interpretation did not make sense to the Greens because it did not include Donna's observation about cow size, which was mentioned as an absolutely critical driver on The Cattle Show. Donna and Jim wondered if it was possible to reconcile their observation about weight with the per cow financial statement. THE DECISION Now Donna and Jim were seated at the dinner table, discussing numerous issues: What was the appropriate cow size for their herd? Which approach best measured the appropriate size: weaning a calf that is 50 per cent of the mother's weight, or comparing the value of a calf to the cost of maintaining the cow? What were the drivers in a cow-calf operation? Is the revenue-expense calculation (see Exhibit 2) clear regarding drivers? Revenues per cow per year Sale of calves 907.24 122.72 Costs per cow per year Pasturage rental Dry matter Supplements Minerals Breeding Labor Veterinary Marketing Utilities & machinery Repairs Legal & accounting Miscellaneous Depreciation on facilities Interest on equipment Insurance 228.33 63.18 51.25 78.00 71.50 32.50 20.68 117.42 10.40 36.36 7.80 11.02 48.63 41.67 941.46 Net revenue per cow per year -34.22 Revenues As a rule, cows produce one calf per year. Female calves are called heifers. Most male calves are castrated and are called steers; those that are not castrated become bulls and may be sold or used for future breeding. Weaned heifer and steer calves are sold at prices expressed as dollars per hundredweight (cwt), which is equivalent to dollars per 100 pounds (lbs). Thus, the sale price per pound can be determined by dividing the cwt price by 100. The average weaning weight of calves at Black River Farms in 2016 was 613 pounds. Weaned calves sold at an average price of $148 per cwt, as shown in Exhibit 3. Prices generally follow a cyclical pattern: high prices attract producers to raise more calves, but greater supply then leads to lower market prices and producers dropping out of the market. Prices at year-end 2016 were down significantly, the second decline since an unusual peak in 2014. Expenses The major expense associated with cow-calf operations is feeding the cow. A healthy cow requires a variety of forage (primarily grazed grasses), nutritional supplements and minerals so that she remains healthy and produces a healthy, marketable calf. Other expenses include veterinary fees and wages for labor, and the expenses of owning and operating the farm. Subtracting per cow expenses from per cow revenues yields the profit or loss per cow in the cow-calf operation. Exhibit 2 shows that Black River Farms lost $34.22 per cow on its cow-calf operations in 2016. HISTORY OF BLACK RIVER FARMS Black River Farms was established in the 1930s by George Shadle, Donna's grandfather, and had been in the family for more than eighty years. Although the farm was only marginally profitable during the Depression, profits increased in the 1950s and 1960s as world demand for beef increased. Donna and Jim Green had the misfortune of taking over the farm in the 1980s at a time when calf prices were in a cyclical decline. At the same time, costs of forage increased. With output prices falling and input costs increasing, profits began to decline and became losses around the turn of the century. In the face of the squeeze on profits, Donna was forced to sell some of the land inherited from her father to generate funds to cover the farm's operating losses. Black River Farms then rented pasturage from adjacent farms to feed the cows during the eight months per year they were turned out to pasture. Donna also did what most other cow-calf operators had done: she focused on producing heavier calves at weaning, which generated more revenue when they were sold. When breeding cows, Donna selected sires based on their ability to produce faster-growing calves. Because faster growth is positively correlated with mature weight and because breeding females came from these same sires, over the years the mature weight of the Black River herd had increased substantially. Donna's experience was part of a national trend that saw average mature cow weights increase to 1350 pounds in 2005 from 1050 pounds in 1975.2 Donna had taken other measures to improve efficiency at Black River. She gave cows and calves minerals and dietary supplements to maintain health and productivity. She matched the herd's forage needs with the grass growth cycle in the pastures so that the cows obtained the best possible nutrients at the appropriate time in the breeding cycle. She also incorporated legumes into the pastures and rotated the herd between pastures. Although these steps increased efficiency, they did not stem the losses at Black River. ATTENTION TO COW SIZE One day during the winter of 2015, Donna was cutting a round bale of hay to feed the herd when a thought occurred to her: some of the cows were bigger than others. There might be a relation between the weight of the cow and the weight of the calf it produced. Was it possible that a larger calf was not worth what it took to support a larger cow? Because of this idea, she decided to use the 2016 breeding cycle to measure the weight of each cow and the weaning weight of each calf it produced. Perhaps if she had numbers, she might be able to analyze the question of appropriate cow size and manage accordingly. Donna divided the herd into five weight groups. By coincidence, the 50 head fell into groups of ten around each weight group. The lightest group of cows averaged 1000 pounds, while the heaviest group averaged 1400 pounds. She prepared a table summarizing the average weaning weight of the calves produced by the cows in each weight group (see Exhibit 4). One night a few months later, Donna and Jim were watching The Cattle Show on RFDtv, which featured a discussion about cow size. Donna wrote down several points that she thought might be important: We expect a cow to wean a calf close to 50 per cent of her mature weight every 365 days. A key driver of direct costs is the mature weight of the cow. The heavier the cow, the higher the forage, supplement and mineral costs she incurs. Experiments at agricultural extension services had recently shown that, on a yearly basis, a heavier cow consumes 547.5 pounds of additional dry matter, 13.56 pounds of additional supplements, and 7.29 pounds of additional minerals for each 100 pounds of additional weight.? Over the next few weeks, Donna and Jim discussed the implications of what they learned from The Cattle Show. One point they were not certain about was the amount of dry matter that their cows consumed. Because cows were in pasture for a portion of the year, it was not possible to determine precisely the quantity of grass they consumed. However, Donna found that it was possible to estimate the amount of dry matter that would be equivalent to a number of acres of pasture. (Dry matter is feed, such as hay, without water. Because grasses consumed in pasture contain water, the weight of hay from pasture must be adjusted to remove the weight of the water. The result is dry matter equivalent. A round bale of dried hay is used to feed cattle during the periods when they cannot be fed sufficiently on pasture.) Donna recorded the amounts of dry matter (see Exhibit 5) and supplements and minerals (see Exhibit 6) consumed by each of the weight classes during the year. Donna and Jim also visited their accountant to find out what the terms driver and direct cost meant. Their accountant explained to them that drivers are the forces that determine revenues and expenses in the cow- calf operation. Direct costs are expenses that can be attributed to a specific driver, such as the number of cows or the weight of a cow. Thus, labor was a direct cost that was determined by the number of cows, which was the driver for that expense. According to the accountant, the driver for expenses is the number of cows. Consequently, financial statements such as Exhibit 2 are prepared by allocating expenses on a per cow basis. However, this interpretation did not make sense to the Greens because it did not include Donna's observation about cow size, which was mentioned as an absolutely critical driver on The Cattle Show. Donna and Jim wondered if it was possible to reconcile their observation about weight with the per cow financial statement. THE DECISION Now Donna and Jim were seated at the dinner table, discussing numerous issues: What was the appropriate cow size for their herd? Which approach best measured the appropriate size: weaning a calf that is 50 per cent of the mother's weight, or comparing the value of a calf to the cost of maintaining the cow? What were the drivers in a cow-calf operation? Is the revenue-expense calculation (see Exhibit 2) clear regarding drivers? Revenues per cow per year Sale of calves 907.24 122.72 Costs per cow per year Pasturage rental Dry matter Supplements Minerals Breeding Labor Veterinary Marketing Utilities & machinery Repairs Legal & accounting Miscellaneous Depreciation on facilities Interest on equipment Insurance 228.33 63.18 51.25 78.00 71.50 32.50 20.68 117.42 10.40 36.36 7.80 11.02 48.63 41.67 941.46 Net revenue per cow per year -34.22