Farm Business Management Practice Exam

Land ownership costs in budgeting a corn enterprise are fixed costs. These are payments tied to owning or renting the land (such as mortgage or lease payments, property taxes, and depreciation) that you incur regardless of how much corn you actually produce. They don’t rise or fall with higher or lower output in the annual budget, unlike variable costs such as seeds, fertilizer, fuels, and labor, which move directly with production. Some costs can have both fixed and variable parts, but for the purpose of the annual budget, land ownership costs are treated as fixed because the main payments don’t depend on yield. Avoided cost is a decision-analysis idea about costs you can avoid by not undertaking a project, not a way to classify these annual production costs.