Costs of Machinery

This section discusses those elements that contribute to the cost of owning and operating agricultural machinery. An understanding of the types of costs and their impact on the profitability of the enterprise improves our ability to make meaningful decisions regarding the management of agricultural equipment.

It is best to base decisions on the actual costs of the machine. Good managers will record the annual costs for machines, but unfortunately the total costs are not known until a machine has reached the end of its serviceable life, that is, until the machine wears out or is sold or traded in. Therefore, cost determinations must be based on estimations. To make these estimations realistic and reliable, they must be based on past machine performance and cost records. The following sections will discuss the typical costs of owning and operating machinery as well as methods that can be used to estimate the costs of agricultural equipment.

Generally, machinery costs are classified into two groups, ownership costs (fixed costs) and operating costs (variable costs). Fixed and variable costs are:

Fixed costs

1. Depreciation

2. Interest on investment

3. Taxes

4. Shelter

5.Insurance

Variable costs

6. Repair and maintenance

7. Fuel

9. Labor

10. Consumables

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