Farm Management
What the domain covers
Farm management is the application of economic principles to farm decisions: what to produce, how to produce, when to sell and how to control resources. The exam tests management functions, farming systems, decision tools and the difference between gross margin and net income.
Core rules and concepts
- Functions: planning, organising, directing and controlling.
- Farming systems: specialised, diversified, mixed farming, ranching and dry farming.
- Records: physical records, financial records, inventory and labour records.
- Budgeting: partial budget for small changes; complete budget for whole-farm plans; cash-flow budget for liquidity.
- Balance sheet shows assets and liabilities; income statement shows revenue and expenses.
Worked example
Wheat gives gross returns of ₹60,000/ha and variable costs of ₹30,000/ha, so gross margin is ₹30,000. Mustard gives ₹45,000 gross returns and ₹18,000 variable costs, so gross margin is ₹27,000. Fixed costs are ₹12,000/ha for both. Net income is ₹18,000 for wheat and ₹15,000 for mustard. Choose wheat if land and capital are available. Reasoning: gross margin ranks crops before fixed costs; net income confirms the final choice when fixed costs differ.
Traps that cost marks
Treating gross margin as profit; ignoring family labour as an opportunity cost; including sunk costs in new decisions; choosing a crop on gross returns alone without variable costs.