Rhonda Rancher is currently running 230 stocker steers, which are purchased in the spring, run on pasture during the summer and sold in the fall. Rhonda is thinking about switching to a cow-calf operation with 100 beef cows replacing the 230 stocker steers. Use the following information to complete a partial budget so you can make a recommendation to Rhonda.

INFORMATION ON STOCKER STEERS (230 head)

Returns: 675 lb. steer @ $160.00/cwt. (Sell 226 head, assume 4 die)

Costs: 400 lb. steer @ $180.00/cwt.

Hauling expense: $7.00 per steer

Health expense: $12.00 per steer

Feed, salt and minerals: $9.50 per steer

Misc. expense: $4.00 per steer

Interest charge: should be charged on all costs for the 6-month period using an 8% opportunity cost.

BEEF COW-CALF INFORMATION (100 head)

Investment in cows, bulls and replacement herd averages $900 per cow. The calf crop is 92% (92 calves are weaned) and 12 heifer calves are kept for replacements.

Returns: 80 calves weighing 460 lbs., $170.00 per cwt.

12 cull cows weighing 1,050 lbs. @ $100.00 per cwt.

Costs: Hauling expense: 92 head @ $6.00/head

Health expense: 100 cows @ $8.00 cow

Purchased feed: 100 cows @ $14.00/cow

Hay expense 100 cows @ $18.00/cow

Bull cost: 100 cows @ $6.00/cow

Misc. expense: 100 cows @ $5.00/cow

Interest charge: 1) figure on the total investment in the herd at 8% for a full year (Cows are owned all year.) and

2) the total of all other costs at 8% for 6 months.

Proposed Change: _____________________________________________________________

A. Added Income C. Added Costs

B. Reduced Costs D. Reduced Income

Net Change = A+ B - C-D =

1. Would you recommend Rhonda make the switch to a cow-calf operation? WHY?

2. No depreciation on fences, working pens, water facilities, etc. was included in this partial budget. Why?

3. If all other values are held constant, what would the selling price of stockers must be to make this a breakeven decision (i.e., a $0 change in profit)?