Currently you own and farm 950 acres of wheat. Your neighbor Frank has offered you the opportunity to rent 300 acres of his farm for $55 per acre. You expect Frank's operating costs to be 10% higher than the costs on your 950 acres of wheat. Your operating costs on your 950 acres of wheat is $165.00 per acre. Frank's land is somewhat better than yours and you expect to get a yield of 55 bushels per acre on Frank's land (the yield on your 950 acres of wheat is 33 bu per acre). Frank's land will also provide a small grain pasture benefit that you estimate at $38 per acre. Frank will only let you use 1/3 of the land for pasture. You will need to farm the land at night and on weekends and you estimate that this will cost you 500 hours of lost work from your job at the local mill where you earn a wage of $17.00 per hour. In this rental agreement, Frank will pay for 2/3 of the production costs and will take 3/5 of the grain revenue. The price of wheat is $5.00 per bu. NOTE: Ignore any changes in repair, depreciation or interest costs from increased equipment use
Currently you own and farm 950 acres of wheat. Your neighbor Frank has offered you the opportunity to rent 300 acres of his farm for $55 per acre. You expect Frank's operating costs to be 10% higher than the costs on your 950 acres of wheat. Your operating costs on your 950 acres of wheat is $165.00 per acre. Frank's land is somewhat better than yours and you expect to get a yield of 55 bushels per acre on Frank's land (the yield on your 950 acres of wheat is 33 bu per acre). Frank's land will also provide a small grain pasture benefit that you estimate at $38 per acre. Frank will only let you use 1/3 of the land for pasture. You will need to farm the land at night and on weekends and you estimate that this will cost you 500 hours of lost work from your job at the local mill where you earn a wage of $17.00 per hour. In this rental agreement, Frank will pay for 2/3 of the production costs and will take 3/5 of the grain revenue. The price of wheat is $5.00 per bu. NOTE: Ignore any changes in repair, depreciation or interest costs from increased equipment use
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
1
Transcribed Image Text:Currently you own and farm 950 acres of wheat. Your neighbor Frank has offered you the opportunity to rent 300 acres of his farm for $55 per acre. You expect Frank's operating costs to be 10% higher
than the costs on your 950 acres of wheat. Your operating costs on your 950 acres of wheat is $165.00 per acre. Frank's land is somewhat better than yours and you expect to get a yield of 55 bushels
per acre on Frank's land (the yield on your 950 acres of wheat is 33 bu per acre). Frank's land will also provide a small grain pasture benefit that you estimate at $38 per acre. Frank will only let you use
1/3 of the land for pasture. You will need to farm the land at night and on weekends and you estimate that this will cost you 500 hours of lost work from your job at the local mill where you earn a wage
of $17.00 per hour. In this rental agreement, Frank will pay for 2/3 of the production costs and will take 3/5 of the grain revenue. The price of wheat is $5.00 per bu. NOTE: Ignore any changes in repair,
depreciation, or interest costs from increased equipment use.
Additional Revenues
(A) x 55 x 300 Bx (36)
Costs Reduced
Total Ben
Net Benefit
(0
What is the value of A
Additional Costs
(C) x 300+ (D) x 165x (300)
Revenues Reduced
(F) x 17.00
Total Cost
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 2 steps
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education