PROBLEM:

Analysis of Cost Information The following data are adopted from the cost of soybean production in the United States and Brazil released by the U.S. Department of Agriculture (USDA). For simplicity, original data (in dollars) are assumed at peso value, and foreign states are replaced with local provinces. Critically analyze and evaluate the cost competitiveness of soybean production between Nueva Ecija and Cagayan Valley. Cost per Acre and per Bucket of Soybeans Nueva Ecija Cagayan Valley Variable costs (per acre): Seed P 57.49 P 21.17 Fertilizers 16.88 91.88 Chemicals 16.64 37.07 Custom operations 6.10 25.38 Fuel, lube, and electricity 13.06 7.42 Repairs 11.69 4.62 Other 0.12 9.03 Total variable costs P 121.98 P 196.57 Allocated overhead costs (per acre): Hired labor P 47.99 P 1.17 Capital recovery of equipment 87.96 26.73 Taxes and insurance 9.29 23.32 Farm overhead 14.90 7.77 Total fixed costs P 160.14 P 58.99 Total production cost (per acre) P 282.12 P 255.57 Total cost per bucket Average yield per acre 48.00 46.40 Variable costs P 2.54 P 4.24 Fixed costs 3.34 1.27 Total costs per bucket LL88 l Requirements: (20 points) Analyze and interpret the cost behavior of production costs between Nueva Ecija and Cagayan Valley. Provide assumptions and cite basic considerations for assessing costs, if necessary. No need to conduct research to support your claims since the context of the case is based on a hypothetical scenario. Key points: For example, a relatively high cost of seeds can be observed in Nueva Ecija compared to Cagayan Valley. This data may indicate higher yield from the seeds (resulting in lower prices) in Cagayan Valley, or maybe lower seed costs in general. In assessing the fixed costs, the size of the farm must be considered since it affects the allocation of fixed costs per acre. The relatively high fixed costs of Nueva Ecija might be due to the fact that they have larger farm sizes compared to Cagayan Valley. In some cases, fixed costs are regarded as constant regardless of the level of activity (hence, despite a larger farm size)