Solved: Value Chain Analysis Required Develop a value

chain of six to

Value-Chain Analysis

Required Develop a value chain of six to nine activities for Fowler’s Farm based on Problem
2-32.
In problem 2-32, Fowler’s Farm is a 1,000-acre dairy and tobacco farm located in southern
Virginia. Jack Fowler, the owner, has been farming since 1982. He initially purchased 235 acres
and has made the following purchases since then: 300 acres in 1985, 150 acres in 1988, dairy
equipment and buildings worth $350,000 in 1988, and 315 acres in 1998. The cost of farmland
has inflated over the years so that, although Jack has a total investment of $1,850,000, the
land’s current market value is $2,650,000. The current net book value of his buildings and
equipment is $300,000, with an estimated replacement cost of $1,250,000. Current price
pressures on farm commodities have affected Fowler’s Farm as well as others across the
country. Jack has watched as many of his neighbors either have quit farming or have been
consolidated into larger, more profitable farms. Fowler’s Farm consists of three different
operating segments: dairy farming, tobacco, and corn and other crops intended for livestock
feed. The dairy farm consists of 198 milk-producing cows that are grazed on 250 acres of
farmland. The crop farm consists of the remaining acreage that covers several types of terrain
and has several types of soil. Some of the land is high and hilly, some of it is low and claylike,
and the rest is humus-rich soil. Jack determines the fertilizer mix for the type of soil and type of
crop to be planted by rules of thumb based on his experience. The farm equipment used
consists of automated milking equipment, six tractors, two tandem-axle grain bed trucks, and
numerous discs, plows, wagons, and assorted tractor and hand tools. The farm has three
equipment storage barns, an equipment maintenance shed, and a 90,000-bushel grain
elevator/drier. The equipment and buildings have an estimated market value of $1,500,000.
Jack employs five full-time farmhands, a mechanic, and a bookkeeper and has contracted part-
time accounting/tax assistance with a local CPA firm in Pittsboro. All employees are salaried;
the farmhands and the bookkeeper make $25,000 a year, and the mechanic makes $32,000
annually. The CPA contract costs $15,000 a year. In 2010, the farm produced 256,000 gallons
of raw milk, 23,000 bushels of tobacco, and 75,300 bushels of corn. Jack sells the tobacco by
contract and auction at the end of the harvest. The revenue in 2010 was $1,345,000, providing
Jack a net income after taxes of $233,500. Jack’s daughter Kelly has just returned from
college. She knows that the farm is a good business but believes that the use of proper
operating procedures and cost management systems could increase profitability and improve
efficiency, allowing her father to have more leisure time. She also knows that her father has
always run the farm from his experience and rules of thumb and is wary of scientific concepts
and management principles. For example, he has little understanding of the accounting
procedures of the farm, has not participated in the process, and has adopted few, if any,
methods to maintain control over inventories and equipment. He has trusted his employees to
maintain the farm appropriately without using any accounting or operating procedures over
inventories or equipment, preventive maintenance schedules, or scientific application of crop
rotation or livestock management.

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