Better Accounting, Better Decisions
Management accounting gives you the power to cope with extreme volatility in costs and prices.
John Otte
Published: Dec 24, 2010
Ron Swanson believes that producers can no longer make 'shoot from hip' decisions. "Managerial accounting can give you the information you need to improve your 'aim,''' explains the Galt, Iowa, farmer.
Swanson expects agriculture will experience more volatility and wider variability in product prices, input costs and every other factor for some time to come. He believes farmers can use management accounting to more intensely focus on management decisions that support profitability.
Managerial accounting allocates every cost, both direct and indirect, to some segment of the business. It gives you more information to manage your business than accrual accounting provides. Plus, managerial accounting looks at profit centers, trends, benchmarking, individual enterprises, individual farms, individual fields and tracks inventories at cost.
With it, you're analyzing both production and financial data by segments of your operation to find information you can use to control your own future. It positions you to do 'what if' budget scenarios so you can plan business strategies and forecast their potential outcomes.
Once the crop goes in the bin, all of your production decisions are over. Past costs you paid to grow the crop no longer matter. That's why looking at crop production and storage as separate profit centers makes sense from both a management and a cost standpoint. Doing so helps you know how much money each segment earns. Plus making that separation helps guide marketing decisions.
Managerial accounting looks at how much growing corn costs on each farm or field taking into account specific seed, fertilizer, crop protection costs, farm program payments and lease expenses for the individual tract. The next step is allocating equipment owning and operating costs by machine to individual fields.
The tool allows you to calculate actual costs for individual farms or individual fields. That knowledge positions you to bid more intelligently on rent for each tract. Similar information on equipment costs helps you evaluate whether you can justify expanding your equipment line and options to do it. Managerial accounting gives you many internal decision points.
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Tagged: accounting, farm, fertilizer, input costs
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