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Gross Margins

A gross margin is a formula that indicates the percentage ratio of revenue kept after costs are deducted. Gross margins are useful for farms as they provide a solid percentage of profit that can be compared to other farms and used to maximize profit. An example is a dairy farm deciding to sell beef; a gross margin can evaluate if meat prices need to change to be profitable and cover costs. Fixed costs for a dairy farm include things like rent, electricity, and insurance while variable costs include things like feed, fertilizer, fuel, and labor.

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9 views2 pages

Gross Margins

A gross margin is a formula that indicates the percentage ratio of revenue kept after costs are deducted. Gross margins are useful for farms as they provide a solid percentage of profit that can be compared to other farms and used to maximize profit. An example is a dairy farm deciding to sell beef; a gross margin can evaluate if meat prices need to change to be profitable and cover costs. Fixed costs for a dairy farm include things like rent, electricity, and insurance while variable costs include things like feed, fertilizer, fuel, and labor.

Uploaded by

baileysmith8752
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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What is a gross margin?

A gross margin is a formula that indicates the percentage ratio of revenue you keep for
each sale after all costs are deducted. The gross profit margin percentage is
represented through this formula:
Gross Profit Margin = (Revenue – Cost of Goods Sold) / Revenue x 100.

Why are gross margins useful to farms?

 Gross profit margins are incredibly useful to a farm, as it gives a solid percentage on
their profit. This can be compared to other competitive farms and strategic alterations
may be implentted to maximize the farms profit.
 Gross profit margins are also vital to ensure that a farmer’s profit earned is enough to
cater for their needs.

Find an example of a gross margin for a dairy farm and describe

An example of a gross margin on a dairy farm is when deciding to sell beef cattle’s meat.
When selling, a farmer has many things to consider, including if customers will buy it over
other competitions, and if the profit earned would be enough to supply for themselves, their
potential family, and farm management bills. A gross profit margin would be able to solve
these issues, and by providing the simple percentage, a farmer can evaluate if the meat
prices need to change.

Create a table of FIXED COSTS and VARIABLE COSTS for a dairy farm?

Fixed Cost Variable Cost

 Water Bills  Fertilizer - nitrogens + other gaseous fertilizers


 Rent  Grains and pellets (for feeding)
 Electricity Bills  Hay, silage, other supplements, etc
 Animal Health  Other optimized food options
 Insurance  Pasture maintenance
 Taxes  Irrigation
 salaries payable  Machinery operating
 Lease costs  Casual labour
 Interest paid  Fuel
 Property taxes  Oil
 Vehicle Repairs
 Telephone Bills
 Casual labour
 Wifi Costs  Animal Vaccination
 Data Costs  Bug Spray
 Satelite Costs  Weed Spray

Costs - The total variable cost for $1 094 100, and gross profit margin costs to $1 492 310.
For more information about individual variable costs, view the image below.
Farm Management Terms

Capital – money. Assets, accumulated wealth

Management – administration of a business usually carried out by a manager

Total fixed costs – the sum of all fixed costs or overhead costs. Eg rates/taxes/administration costs.
They change with the operation size

Operator’s allowance – the manager salary or other perks

Total income – the income included from all produce sales

1st farm income – Total income – fixed costs – variable costs

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