John Tarleton Angus Beef John Tarleton Ranch is a small, family-owned business t
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Question
John Tarleton Angus Beef
John Tarleton Ranch is a small, family-owned business that started its operations in 1899. Recently, the Ranch received a gift of an Angus steer. The goal is to make as much money as possible from this gift. The Ranch is consulting with you to learn about selling the Angus steer.
You are to prepare a revenue and cost analysis (in Table form) for the Angus steer. The known facts are:
The steer was just born and expected to mature in 24 months. At maturity, it is expected that the steer would weigh 1800 pounds. At 20 months old, the steer is expected to weigh 1200 pounds. Up until 20 months old, it is expected that the steer will be nurtured by its mother and eat grass. Since the steer will graze on the football field, the cost of feeding the steer until 20 months old is zero.
From 20 months until 24 month, the steer would be fed a diet of grass and a special grain mixture designed for fattening steers. Each day during these four months, the steer would eat 1.25% of its body weight in grain mixture. Assume a linear grow from 20 months to 24 months. The growth from birth to 20 months of age would be typical for an Angus steer.
Cost of feeding per day is $2.48 per head.
Questions to answer:
1. What is a typical growth pattern (in pounds) for an Angus steer from birth to 20 months old?
2. How much would it typically cost for the grain feed from 20 month to 24 months?
3. Based on age and projected weight, how much could the steer be sold for?
4. When is the best time to sell the Angus steer?Justify your answer.
5. What other items should the Ranch consider?
Be sure to cite your sources.
Explanation / Answer
Answer:
1) At 20 month, the steer weighs 1200 pound.
The growth rate = 1200 / 20 = 60 pounds / month
2) The increase in the weight of the steer during the last 4 months = 1800 - 1200 = 600 pounds
assuming 30 days in a month, the growth in the weight of the steer per day = 600 / 120 = 5 pounds / day
In the first day the weight of the steer will be 1205 pound
In the second day the weight of the steer will be 1210 pound and will form the following Arithmetical Progression series:
sum of the weights of each day of the last 4 months
= 1205 + 1210 + 1215+...........................upto 120 terms
= (120/2)*[2*1205 +(120-1)*5]
= 180300 pounds
Note: the formula used to find the sum of the weights:
S = (n/2) [2a+(n-1)d]
where n = number of terms = 120
a = first term of the series = 1205
d = common difference = 5
Total weight of grain mixture required to feed the steer during the last 4 months
= 180300 *1.25% = 2253.75 pounds
Total cost of feeding the steer = 2253.75 pounds x $2.48/pound = $5589.30
3)
The projected weight of the steer is 1800 pounds. And the cost of feeding the steer = $5589.30
The steer must be sold at a price which will leave enough return considering the following factors:
a) the time value of money spent on the steer
b) the total cost of maintaining the steer and
c) the required return on investment on the steer.
If we assume that the required return is 20%, the steer must be sold at a price
= $5589.30 * 1.2 = $6707.16
4) The best time to sell the steer is at the age of 20 months. This is because at that time the cost incurred to acquire the steer as well as to maintain it nil for the Ranch. So the Ranch can make a profit equal to the entire sale price of the steer if it is sold tight after 20 months.
5) If it is sold at 20 months, then the opportunity cost of losing the contribution made by steer if it is sold at 24 months must be considered.
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