Costing a Poultry Enterprise with a Loan
A youth group wants to start a 200-bird broiler enterprise. Chicks cost P8 each, feed is expected at 4 kg per bird at P6/kg, and medication and litter come to P1,200 in total. They can sell birds at P45 each with 5% mortality. They plan to borrow P10,000 at 15% annual interest for a six-week cycle, and they will hire one worker at P1,500 per cycle. The shed needs repairs costing P2,000 before the first cycle. They have no records from previous ventures.
1. Calculate the expected gross income, total costs and profit for one cycle, and judge whether the enterprise is viable.
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Birds sold = 200 x 0.95 = 190. Gross income = 190 x P45 = P8,550. Chick cost = 200 x P8 = P1,600. Feed = 200 x 4 kg x P6 = P4,800. Medication and litter = P1,200. Labour = P1,500. Interest for six weeks = P10,000 x 0.15 x (6/52) = P173 (approximately). Shed repairs of P2,000 are a one-off capital cost, not a per-cycle cost, so they should be spread over several cycles; if charged fully to cycle one, total cost = 1,600 + 4,800 + 1,200 + 1,500 + 173 + 2,000 = P11,273, giving a loss of P2,723. Excluding repairs, cost = P9,273, giving a loss of P723. Either way the enterprise loses money at these assumptions. It is not viable as planned; the group must raise the selling price, cut feed cost, or improve survival.
2. Identify the two variables that most affect profitability and suggest how to improve them.
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Feed and selling price dominate. Feed is P4,800 of P9,273, about 52% of operating cost, and price determines income. A 10% feed saving (better feeder design, reducing spillage, correct feed form) saves P480. A P2 increase in price adds 190 x P2 = P380. Reducing mortality from 5% to 2% adds 6 birds x P45 = P270. The group should focus first on feed conversion and feed wastage, then on marketing to secure a higher price, such as direct sales rather than middlemen. Combining all three could turn the loss into a small profit, but the margin is thin.
3. Explain why the absence of records is itself a risk and what the group should record.
Read the worked answer
Without records the group cannot tell whether a loss comes from feed, mortality, price or theft, and cannot compare cycles. They should record daily feed issued and consumed, daily mortality with cause where known, bird weights at intervals, medication used, labour hours, and sales with prices. At the end of the cycle they should calculate feed conversion ratio and cost per bird. Records turn a guess into a decision tool and are also needed by lenders. Starting records from day one is cheaper than reconstructing them later.