Reference no: EM131075915

In March 2009, Donna and Jim Green looked with dismay at the financial statement sum

After reading the case, prepare a 2-4 page written response to answer the following questions:

What is the appropriate cow size for the herd using the 50% weaning rule?

Compare the value of a calf to the cost of maintaining the cow as an alternative means of determining appropriate cow size. Hint: Calculate marginal revenue and marginal expense. Which method (50% weaning rule or marginal analysis) do you think provides the best measure? Why?

What are the drivers in a cow-calf operation? Is the revenue-expense calculation (see Exhibit 2) clear regarding drivers? Why or why not?

How would you change the detailed statement of revenues and costs so that it provides information that would help Green make her decision?

To what extent is the Greens' confusion a result of the failure of the accounting system?

How would the results of Old Mule Farms' operations change if revenues or expenses were allocated in a different manner?

OLD MULE FARMS

David M. Currie and Lorena Mošnja Škare wrote this case solely to provide material for class discussion. The authors do not in
tend

to illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

Richard Ivey School of Business Foundation

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In March 2009, Donna and Jim Green looked with dismay at the financial statement summarizing the performance of Old Mule Farms for the year 2008. Old Mule's cow-calf operation had experienced another year of losses. Especially frustrating was that the losses occurred desp ite the Greens' multiple efforts to improve the farm's efficiency. While these efforts improved performance compared to 2007, they were not sufficient to overcome the decline in calf prices, so the operation continued to lose money (see Exhibit 1). If the situation did not improve, the Greens faced the threat of losing the farm that had been owned by the family for three generations.

COW-CALF OPERATIONS

The cow-calf segment is the foundation of the beef cattle industry. A ranch maintains a herd of cows, each of them expected to wean a calf once a year. Like a human, the gestation period of a cow is approximately nine months. After birth, the cow nurses the calf for another six or seven months until the calf is weaned from its mother's milk. During this time, the cow enters estrus, is impregnated, and the cycle begins again. Thus, once a farm reaches a steady state of operations, a cow can produce a calf each year.

There were more than 750,000 cow-calf operations in the United States in 2007, the vast majority of them with fewer than 50 cows. Cow-calf operators sell their weaned calves to a stocker operator or to a feedlot, where the calves are fattened before being sent to a packinghouse. The end products are the various fresh beef products such as steaks, roasts and hamburgers that are consumed by millions of people around the world.

Revenues and expenses for a cow-calf operation typically are presented on a per cow basis, as shown for Old Mule Farms in Exhibit 2.