You can have your crops harvested by a custom operator or you can buy your own combine to harvest them yourself. To make this decision you must calculate the ownership and operating costs for the combine and then compare them to the cost of custom hiring. Assume the combine will be used on 500 corn acres and 500 soybean acres (1,000 acres total). Use the following information to evaluate this decision:

New list price of combine

$161,000

Purchase cost of combine (10% discount from list price)

$145,000

Salvage value (29% of list price after 8 years)

$46,690

Ownership life of combine in years

8

Interest rate

6.1%

Diesel fuel price per gallon

$ 3.20

Labor cost per hour

$20.00

Custom combining rate per acre

$32.00

Combine hours required per acre for harvesting, average of corn and soybeans

0.30 hours/acre

Custom Hire Costs

Custom combining rate per acre $__________/acre

In addition, you have to provide 0.35 hours (average for corn and soybeans)

of labor per acre for hauling and storing, at $20 per hour. $__________/acre

Total cost of custom hiring, $ per acre $__________/acre

Which is cheaper, owning or custom hiring? ______________________________________

Calculate the breakeven number of crop acres you would need to justify owning a combine, that is, the number of acres for which costs of owning would be just equal to those for custom hire. Use acres (A) as your unknown value and solve for acres. Show your work.

Total ownership costs + (total operating costs per acre A) = (total cost of custom hiring per acre A)

Breakeven number of crop acres = ________________ + (___________ Acres) = (___________ Acres)

Breakeven number of crop acres = _________acres

If you have more acres than this, it is cheaper to own a combine or to custom hire? _____________________