Cost of Production (COP) is the dollar amount (cost) associated with growing a specific crop, making a specific product, and providing a specific service.
Determining the cost of your crop, product or service is important because it helps determine your ‘break even price’ and if you will make money. It can also be used to help you determine the effect of cost cutting or replacing a specific crop/product and determine the impact of changing costs and changing price. If you are growing or selling multiple products, it helps you determine which are making or losing money.
“How To” – Introduction to How to Calculate your COP
The first step for determining your Cost of Production (COP), is to make a list of all expenses associated with your business. This includes both direct (expenses allocated to a specific crop) and indirect costs (annual operating costs). In figuring out your direct cost, you’ll need to know how much labor and materials it cost to grow each crop.
You will also need production and sales estimates. This includes estimates on how much you produce of each crop and how much you anticipate selling. For instance, if you want to know how much to sell your greens (ie. kale and chard varieties), you’ll need to determine how many pounds you harvest each month/annually. Out of how much you harvest, how much is lost as ‘seconds’ and how much do you anticipate selling (in pounds/dollar amount).
Take this quick quiz to determine if you have the information you need to calculate your cost of production. The quiz will generate a ‘to-do list’ and helpful resources for obtaining any information you’re missing.