Gross Margins
The gross margin (GM) for an enterprise is defined as that enterprise’ s gross income (GI) minus its variable costs (VC):
GM = GI – VC
When using gross margins to choose the enterprises for a farm, the crop mix is usually chosen first by following the step listed below.
1. Select the crop with largest GM/acre. Increase the acreage of this crop up to the acreage limit or another limit.
2. Select the crop with the second largest GM/acre. Increase the acreage of this crop up to the acreage limit or another limit.
3. Continue selecting crops in this manner until the acreage limit is reached.
4. Repeat the process in steps in steps 1 through 3 using the GM/hour instead of GM/acre. If this results in a different crop mix, chose a compromise that balances the maximum of GM per acre and per hour
5. Add livestock to the farm’s enterprise mix if labor and other resources are available.