Good budgets are based on past farm records and careful study of production and outlook information. The budgets shown in Table 16 are presented as useful guide-lines. Each budget is constructed by applying a price to the recommended production inputs. The budgets are divided into variable and fixed costs. Variable costs change with production inputs from year to year, whereas fixed costs generally remain constant each year.
Total costs are the sum of variable and fixed costs.
A space is provided for growers to enter their own costs. In many years, income is not adequate to cover total costs of production. Thus, the short-run production decision is that as long as income exceeds variable costs, production can be economically justified. In the long run, profits must exceed total production costs if production is to remain economically viable. One way to estimate profit is to determine the breakeven price needed to cover production costs and compare it with the expected selling price.