Reference no: EM132697750

Cathy Cattlehand currently has a 100 cow cow-calf operation. She is considering switching to stocker steers. Based on information below, fill out the partial budget to see if this is a good idea, then make a recommendation to Cathy with clear and details explanations

Cow calf information: 90 surviving calves are born each year; 10 are held as replacements, and 80 are sold. Calves are sold at $620 each. Each year 9 cull cows are sold for $980 each. Variable costs of production total $40,000 per year, not counting variable interest. You should calculate interest on half the variable costs at 5%.

Cathy values her cows at $1,200 each. Use an interest rate of 5% on the full value of the cow herd as a fixed cost. (Since she raises her own cows, there is no depreciation.) She insures the cows at $4.00 per head. There are no property taxes on the cows.

Stocker information: Cathy would buy 200 weaned calves at $600 each and put them on pasture. At the end of six months, she would sell 198 of them for $1,100 each. (There is a 1% death loss.) Production expenses (other than purchasing the calves) for this operation would total $100,000, not counting the variable interest. Calculate the variable interest (5%) on all variable costs (initial stocker cost + production costs) for six months.