Calculating cost of production

In the grazing industries, knowing the cost of production (dollars spent to produce a kilogram of meat or wool) is a key piece of financial information that can be used to assess enterprise performance. Comparing one business’s performance against other like businesses (i.e. benchmarking) is more powerful when the costs per kilogram are known.  

Making sense of prices and marketing (covered in more detail in MMFS Module 2 Market-focused wool production and MMFS Module 3 Market-focused lamb and sheepmeat production) is also much easier when the costs per kilogram are known. 

Knowing the cost of production of an enterprise allows a business to set profitable target average sale prices, which assists in budgeting and planning expenditure and shows the likelihood of being able to meet overhead costs, interest expenses and taxation liabilities. This will drive a profitable business outcome.  

Analysing cost of production leads to a deeper financial understanding of a business. This is a high-value process that can assist in critically reviewing a business and boosting productivity.