# Solve using the Contribution Margin approach. A farmer is trying to decide whether to rent his neighbours

## Question:

Solve using the Contribution Margin approach.

A farmer is trying to decide whether to rent his neighbour’s land to grow additional hay for sale to feedlots at $180 per delivered tonne. The land can be rented at $400 per hectare for the season. Cultivation and planting will cost $600 per hectare; spraying and fertilizer will cost $450 per hectare. It will cost $42 per tonne to cut, condition, and bale the hay, and $24 per tonne to transport it to the feedlots.

a. How many tonnes per hectare must be produced to break even?

b. How much is the break-even tonnage lowered if the selling price is $10 per tonne higher?

c. What is the profit or loss at the $180 per tonne price if the crop yield is:

(i) 15 tonnes per hectare? (ii) 10 tonnes per hectare?

## Step by Step Answer:

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