Chapter 1.3 Calculate your cost of production per kilogram of meat or wool
Chapter 1.3 Calculate your cost of production per kilogram of meat or wool
Background information
In the grazing industries, knowing your cost of production ($ spent to produce a kilogram of meat or wool) is a key piece of financial information you can use to assess your enterprise performance. Comparing your performance against other like businesses (chapter 1.4) will be more powerful if you know your costs per kilogram.
Making sense of prices and marketing (see chapter 2.3 in MMFS Module 2 Market Focused Wool Production, and chapter 3.1 in MMFS Module 3 Market Focused Lamb and Sheepmeat Production) is also much easier when you know your costs per kilogram.
Knowing your cost of production allows you to set profitable target average sale prices which assists in budgeting and planning expenditure and shows the likelihood of being able to meet your overhead costs, interest expenses and taxation liabilities. This will drive a profitable business outcome.
Analysing your cost of production will lead to a deeper financial understanding of your business. This is a high value process that can assist in a critical review of your business and boost productivity.
At a glance
- Peter Drucker famously said, “If you can't measure it, you can't manage it.” Knowing your cost of production is essential to analyse and improve enterprise performance.
- High cost of production is a trigger to review variable costs and your management approach. Dip deeper into your figures to identify focus areas for improvement.
Determine your cost of production
Calculating cost of production is an important step in analysing business performance. A specific set of tools is included with this module. These include:
- Tool 1.7 MLA cost of production calculator for sheep, beef and goat enterprises
- Tool 1.8 AWI cost of production calculator for wool enterprises
- Tool 1.9 MMFS cost of production calculator
SIGNPOSTS
This Australian government website has several resources, templates and checklists for business planning.
Hitting a range of key production and financial benchmarks can more than double prime lamb profits. Knowing what these benchmarks are, the targets for each and the management strategies to achieve them is fundamental to strong, long-term profitability.
An overview of the financial performance of wool flocks and how it compares to other competing land use activities, findings of a deeper analysis of the performance of eight top performing wool flocks over five years, and key financial and production benchmarks suitable for setting wool business strategy in a range of regions.
Learn why knowing your cost of production can help you make improvements in your business and how other producers have benefited.
Tips and advice for using analysing and interpreting the results from the calculator to identify the changes you may need to improve your profitability and which aspects of your business are running well or need tweaks.
A selection of webinars aimed to cover the key practices to improve business and sheep performance.
Various webinars on animal health, pasture and cashflows to drive productivity in your business.
Analysis of farm costs, receipts, income, profit, rates of return, performance by state and performance by industry.
Provides insights into the performance of Australian sheepmeat farms and their productivity in comparison to their global counterparts.
Covers all aspects of sheep farming for meat and wool production throughout temperate Australia.
The four key benchmarks producers should strive to reach, while understanding their own profit drivers and business goals, to make the top 20%.
This Australian government website has several resources, templates and checklists for business planning.
Everything you need to know to about how to write a great business plan.
A two-day financial and business management training workshop for all livestock producers. The aim is to enhance producer knowledge and skills in basic financial and business management to improve business efficiency and profitability.
A group-based training program that uses supported learning packages to deliver training and coaching to improve producer skills and knowledge. Through PGS, participants have the opportunity to develop and practice skills with small groups of like-minded producers to improve business performance.
Activities held in each state to improve sheep management and business skills in a range of scenarios.
