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Estimate Equipment Cost Recovery

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What will this be worth at the end of its life on your farm? This could be its value as scrap metal or what you think you could sell it for, used, to another farm or at an auction.
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It is important to distinguish between how you might treat this asset when filing your taxes (where there might be advantages to an accelerated depreciation schedule) and a realistic estimate of how long it will last on your farm, taking into account wear and tear. Many farms make use of some equipment for very long periods of time, whereas others are replaced more often because they are more prone to wearing out or becoming obsolete. What you need to enter here is a realistic estimate of the number of years you will use the piece of equipment before it wears out or is replaced.
years
Perhaps this investment will allow you improve marketable yields. If so, estimate the additional revenue generated as a direct result of this investment. For example, you might be investing in a waterwheel transplanter that waters in your transplants resulting in less transplant mortality, less transplant shock and thus you might see improved yields. Or perhaps you are buying a cultivation tool or spray rig that will enhance yields. DO NOT use this cell to reflect the fact that the new tool might allow you to expand overall production (such as growing more row feet of a given crop or collection of crops). This analysis must compare "apples to apples" and use the same base amount of activity (such as flats seeded, transplants planted, row feet cultivated, pounds harvested, etc.).
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If you know your farm's gross margin, replace 40% with that figure. Gross margin is a company's total sales revenue minus its cost of goods sold, divided by the total sales revenue, expressed as a percentage. NOTE: Gross margin only takes into account Direct Costs. It does not include indirect (overhead) costs. Direct costs are those costs that can be completely attributed to the production of specific goods or services. Direct costs refer to materials, labor and expenses related to the production of a product. Other costs, such as cost to sell, depreciation, insurance, or administrative expenses, are considered indirect costs and are NOT included in the calculation of Gross Margin.
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Increased Operating Costs

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A new implement for a tractor is likely going to increase the number of hours a tractor is used in a year. Value that additional usage here. The hourly cost rate for a small tractor, not including labor, might be $15 to $20. For larger tractors it might be $25 to $30 (or much more for very large tractors). Use a value that fits your situation. Click here for information on estimating hourly tractor usage costs.
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Decreased Operating Costs

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A new implement for a tractor is likely going to increase the number of hours a tractor is used in a year. Value that additional usage here. The hourly cost rate for a small tractor, not including labor, might be $15 to $20. For larger tractors it might be $25 to $30 (or much more for very large tractors). Use a value that fits your situation. Click here for information on estimating hourly tractor usage costs.
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Only complete this section if you are borrowing money for your new equipment or improvement. If you need help estimating your annual interest expense, you can use this calculator.

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This section helps you estimate the labor savings associated with a using a new piece of equipment by comparing the hours and cost of doing a task the way you are currently doing it with a new method based on purchasing a new capital asset (equipment, machine, implement, etc.). There most likely will be some guess work involved! Ideally, some of the numbers would be based on your own records (hours spent seeding, transplanting, weeding, harvesting, washing, etc.). For information on the time savings associated with a new tool or equipment, you might gather information from the manufacturer or input from other growers who have experience using the equipment.

  • Start by deciding what this new equipment will help you accomplish (seed flats, transplant seedlings, harvest a particular vegetable, wash vegetables, etc.).
  • Then, determine the total base amount of that task that happens on your farm. For example, if you are considering buying a vacuum seeder, figure out how many flats you seed on your farm in a given year. If you are considering buying a transplanter, how many transplants do you plant in a year? If you are buying a root washer, how many pounds of roots do you harvest?
  • Next, enter a work rate for this task. In the case of evaluating a vacuum seeder, this would be flats seeded per hour. For a transplanter, this would be plants/hour. Now, enter data for the "new method" using the piece of equipment you are considering buying.

Base Values

Total amount you plant, cultivate, harvest, wash, etc. over entire year. (What will the new equipment help you do? Seed flats? Put plants in the ground? Cultivate beds or rows? Harvest or wash vegetables?)
Pick a unit --flats, plants, beds, pounds, etc.-- for which you can easily determine or estimate a total quantity for the season.

Current Method

Ascribe an hourly work rate that will change based on using the new piece of equipment, measured in the same units as the base amount above (e.g. lbs harvested per hour, transplants planted per hour, etc.)
The number of people currently required for the task.
people
Additional required above actual direct task time above (carrying flats, attaching implement to tractor, watering in transplants, etc.). Buying a transplanter may change the amount of time you spend carrying flats when transplanting but there will be added time to mount and adjust the transplanter on a tractor. In the case of switching from hand transplanting to transplanting with a waterwheel transplanter, you should factor in the fact that the waterwheel transplanter will accomplish two tasks: transplanting and watering in the seedlings. In contrast, if transplanting by hand, you likely will need to then water in the transplants or immediately set up irrigation lines.
hours
Full hourly labor cost (hourly wage plus payroll taxes, workers comp, benefits, etc.). This might include workers compensation insurance, payroll taxes, meals, benefits, etc.
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New Method

Ascribe an hourly work rate that will change based on using the new piece of equipment, measured in the same units as the base amount above (e.g. lbs harvested per hour, transplants planted per hour, etc.)
Note that a new piece of equipment may have very specific needs in terms of the number of workers. This may be more, or less, than the number of workers currently needed for a task. For example, you can transplant by hand with only 1 person but a tractor-mounted transplanter is going to require a work crew: a tractor driver plus 1 or more people to ride on the transplanter. Other tools may decrease the number of people needed for a job.
people
Additional required above actual direct task time above (carrying flats, attaching implement to tractor, watering in transplants, etc.). Buying a transplanter may change the amount of time you spend carrying flats when transplanting but there will be added time to mount and adjust the transplanter on a tractor. In the case of switching from hand transplanting to transplanting with a waterwheel transplanter, you should factor in the fact that the waterwheel transplanter will accomplish two tasks: transplanting and watering in the seedlings. In contrast, if transplanting by hand, you likely will need to then water in the transplants or immediately set up irrigation lines.
hours
Full hourly labor cost (hourly wage plus payroll taxes, workers comp, benefits, etc.). This might include workers compensation insurance, payroll taxes, meals, benefits, etc. NOTE: for new method, the hourly rate could be higher if the new method will require an employee with more advance skills (such as a tractor driver).
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