Question
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 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 |
Operating costs (per acre). Round values to the near $0.01.
- Repairs: (assume repair costs are 0.5% of the list price, for each 100 hours of use)
Average repair cost per acre =
0.005 list price (0.30 hours/acre / 100 hours) __________/acre
b. Fuel costs: Assume fuel requirements are 1.25 gallons/acre __________/acre
(average of corn and soybeans)
c. Lubrication costs: Lubrication costs are usually
calculated as 15% of the fuel costs per acre. __________/acre
- Labor costs: Assume labor requirements for the size 1 combine, __________/acre
including travel, hauling and storing are 0.925 hours/acre
(average of corn and soybeans).
e. Total operating costs per acre $___________/acre
Total of ownership and operating costs per acre $___________/acre
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