Partial Budgeting Cost Benefit Analysis

Your farm grows 800 acres of corn, which is custom harvested for $23 / acre. You believe that by owning your combine, harvest would be more efficient, and it would result in 5 more bushels /acre of corn. You can buy a used combine for about $110,000 from a local dealer, with residual economic life of 5 years. The combine can harvest 5 acres/hour for a fuel consumption of 9 gallons/hour. Assume price of fuel to be $1/gallon and the going rate for seasonal skilled operator labor to be $13/hour. Given an estimated price of corn of $2.50 / bushel, use a partial budget framework to determine whether you should buy the combine or continue to use hire labor.

What is the yearly cost savings?

What is the revenue foregone?