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Machine Economy

Machine economy that creates profitability

The machines are a central resource in agriculture and machine costs make up a large part of the company's costs. The difference between the farms is large and has a major impact on the company's profitability. By trimming the machine economy, you create better profitability.

Machine costs make up about 20-25% of the company's sales and if we add labor costs, labor and machine costs amount to about 30-45% of sales. For a company with a turnover of 5-10 million, it will be about 3-4.5 million in labor and machine costs. In comparison to how much time and energy is spent on optimizing feed, seeds and fertilizer, there is relatively little focus on tuning the machine economy. In an age of increasingly advanced and costly technology as well as ever larger mill units, there is every reason to increase focus on machine economy and how it can be improved.

Machine economy is not only a cost calculation, but also the value your machines create. A higher machine cost can be justified by better revenues. A more efficient and more adapted machine chain can lead to savings in labor costs, more resource-efficient use of input goods or create a long-term fertility. Likewise, a low income can provide a smaller financial framework for machine costs so as not to jeopardize the result on the last line. To create a long-term plan, the company can have a strategy for how work routines and machine systems are to be shaped to create long-term profitability.

In view of the fact that the machines are becoming more advanced and tying up more and more capital, there is reason to partly follow how the cost items change from year to year and are also put in relation to the values and revenues that the machines create. General machine calculations are a good overall measure and can be a good reference, but to trim your own machine economy, more active work with your machine economy is needed to improve the result on the last line.

Machine calculations

Machine calculations can be made in different ways depending on the purpose and planning situation. In general machine calculations and grant calculations, the purpose may be to show average mid-year calculations and what costs different types of tools and machines have over a number of years. Considering that the machine costs amount to about 20-25% of the company's turnover and that the differences between farms are large, there is every reason to put more focus on your own machine finances. Average results are seldom sufficient for sufficient profitability, but the focus needs to be on where the best entrepreneurs are and set their own goals that are followed up. If the machine economy on an individual farm can be improved 5-10% (lower costs / higher income), this means 1-2% better profit on the last line.

Fixed and variable costs

In the calculation, there are "fixed" and "variable" costs as well as "special costs" and "joint costs". What is what depends on the planning horizon. Simplified, you can say that to calculate the cost of driving an additional 5% area, much of the machine costs are fixed and the variable costs are mainly diesel and a little more maintenance. If it is a matter of reviewing the entire farm's operations in 5-10 years, virtually all machine costs are to be regarded as variable.

See what happens in the margin

The decrease in value is often regarded as fixed as the value decreases over time, but it is also affected by how much the machine is used and how well it is operated, so it is partly mobile. The most interesting thing in machine economics is what happens on the margin, ie how you can change profitability by changing. It can be to increase or decrease area and number of hours, spend a few more hours on maintenance and avoid unnecessary breakdowns or you can increase the working width of a tool and thus increase productivity and production value throughout the chain. Machine cost monitoring is not just about quickly estimating costs but just as much about going through last year's costs and analyzing what caused an increased or reduced repair and maintenance cost, increased diesel consumption or how the actual market value reduction was on the machine that was replaced. The focus is thus not only on obtaining a figure, but what the reasons are behind it, what can be influenced and how the business will be improved for next year. If you work with machine collaboration, there are also many benefits to following up actual machine costs. By setting goals for their machine economy and following up their own actual machine costs, you have a better opportunity to also calculate how increased or decreased number of hours or used area affects your fixed and variable costs. If there is a good basis for your own machine finances, you can more easily calculate the economic effects of different action alternatives and become much more confident in making the right decision in both short-term and long-term issues.

Find the right level to track your machine costs

The reason for not calculating their own machine costs is, among other things, that the machine cost does not come as external invoices that are in a certain account. The machine economy is often in 5-10 different accounts in the accounting. The cost of impairment consists of the accounting depreciation, which may differ from the actual impairment in the market. The labor cost for machine maintenance is below personnel costs and if you are self-employed, they are included as part of the result. To get better control of your machine finances, you need an annual follow-up of actual costs and compare with your goals and cost limits. Start with simpler machine cost monitoring so that you get started, then you can gradually refine the analyzes according to your needs.

Own machine cost follow-ups can be done easily for all tools and machines by annually following a handful of cost accounts in the accounting. You can also follow the costs of eg 12 months rolling. The costs can be set in relation to sales, for example that the account maintenance or diesel is x% of sales in a rolling 12 months.

Template for overall machine cost calculations.
Example of overall machine cost calculation.

Are you wondering anything? Contact us via and we will be happy to answer your questions.

More detailed machine cost analysis

It can also be done in more detail with cost center or project number per implement or machine category, for example all tractors or hay machines. Those who really want really good control of machine costs can have project accounting per implement and machine, eg all costs for tractor XX are posted on a specific project number and can be followed up at a detailed level for one or more years. A detailed cost follow-up per machine, however, requires a great deal of commitment on the part of the accountant so that it is consistent and that the result is really used for follow-up and decision-making. When a machine cost follow-up is done per machine category or per machine, there is also the possibility of distributing machine costs per crop. Tractors are often used in all plant cultivation and are most easily distributed per hour as different crops often require different numbers of hours per hectare. Basic machines for tillage, sowing, fertilizing etc. are most easily distributed per area used. It is also possible to, for example, take a lower base machine cost per hectare of hay as the hay is several years old. Combines can be distributed based on the number of threshed hectares, as well as hay machines and special machines per hectare for each crop. In order not to make it too complicated, it is easiest to beat the machine cost per cultivated area and gradually refine machine cost monitoring and distribution of machine costs per crop.

Template for more detailed machine cost calculation.
Example of detailed machine cost calculation.

Are you wondering anything? Contact us via and we will be happy to answer your questions.

What is included in machine cost calculations

  • Fuels, lubricants and oils
  • Maintenance, repairs and spare parts
  • Taxes and insurance
  • Storage
  • Common cost for the farm's workshop
  • Costs for purchased machine services
  • Depreciation
  • Interest

In order not to get caught up in details in the beginning, you can take the large costs and wait with, for example, your own work for maintenance or storage and take the information that is easier to find in the accounting. If you want to include them, you can use a template as these are not the major cost items.

You can easily find fuels, lubricants, greases and oils in the accounts under account 53XX. Try to assess the proportion of consumed fuel, lubricants and oils that belong to tools and machines. May also need to be adjusted with opening and closing balance if major purchases have been made around the time the financial statements have been closed. The cost of fuel depends largely on market prices and taxes but also on consumption, either per hour or which cultivation system is used. Different machines have different fuel efficiency and in times of high diesel prices it can be profitable to invest in more fuel efficient machines. With a sharp increase in the price of diesel, it will also be interesting to look at alternative farming methods and cultivation systems to reduce tillage and to do several work steps per crossing. When it comes to purchasing lubricants, greases and oils, the cost can be reduced by comparing prices for similar qualities at more than one player to see if there are more affordable alternatives.

Maintenance, repairs and spare parts are often found under account 55XX and include expenses for service, repairs, spare parts and maintenance. Depending on how it is booked, it may be necessary to make an estimate of what is attributed to tools and machines and whether there is other maintenance that belongs to other maintenance than tools and machines, eg stable furnishings, courtyard equipment or buildings. Although major repair costs are difficult to predict, there is a tendency that there is always some major repair and breakdown. By annually following outcomes for repairs and the purchase of spare parts, awareness increases about the costs and importance of care and maintenance in order to be able to take action in time before there is a major breakdown. Another advantage of following maintenance and repair costs is to decide in time whether to change the machine or question whether you should have your own machine or rent a machine if necessary.

With a proactive maintenance work, unnecessary and costly breakdowns and repairs can be avoided. As much as 70% of equipment failures could be avoided with more preventive maintenance, partly after and before the season, but also daily and weekly maintenance.

Own work with maintenance of implements and machines is available under labor costs 7XXX and for employed personnel there is the cost of a number of items such as salary, social security contributions, sickness and holiday costs. Estimate how much of the annual working time is spent on maintenance. Another way is to calculate an approximate hourly cost with social security contributions etc. and then estimate the number of annual hours for maintenance. If you are an owner and do not take out a salary, you may also estimate a reasonable hourly cost and how much time you spend on machine maintenance. It varies greatly between different farms, if you rent out a lot of maintenance, service and repairs or if you do the main part yourself. Own maintenance work can, like all other work steps, be rationalized and made more efficient by having clear and accessible maintenance and service plans with routines for who, when and how maintenance is to be done. That maintenance is not done in the right way, at the right time or that it takes a long time (for it to look for instruction manuals or find out which oil to use for which machine) costs money.

Insurance and tax are below 63XX and 56XX respectively and often include farm insurance, fire insurance and machine damage insurance. Assess which insurance costs and taxes belong to your tools and machines and what belongs to other things such as stable buildings, forest or crops etc. With preventive maintenance and service work, the risk of injuries and breakdowns is reduced and thus unnecessary and costly insurance matters and downtime are avoided.

Storage costs for machine halls and more also vary greatly between farms. If you can see the cost of maintenance and capital cost for, for example, machine halls, you can distribute all or part of these costs to tools and machines. If it is not reported, a simpler distribution of building costs can be made or that you wait with this cost as it is largely fixed and is not one of the major cost items in the machine calculation.

Common costs for the farm's workshop can be found in several accounts in the accounting. Under 54XX there are often consumables and consumables that can partly be attributed to the workshop. There are also heating and electricity costs that can to some extent be distributed in the workshop, often below 53XX.

Costs for purchased machine services can be found in different accounts depending on how it is booked, and in the machine calculation, hired machine services primarily refer to work in the field and not construction or repair of, for example, buildings or forest ditches. The cost of hired machine services due to the failure of own machines can be avoided by performing preventive maintenance and service before and during the season.

Depreciation of implements and machines refers to the market depreciation that takes place annually. The accounts contain calculations for accounting depreciation which are regulated by tax legislation and can take place within certain limits. The accounting depreciation should largely reflect the actual depreciation, but there may be a difference. In machine calculations that intend to see machine costs over a longer period, it is common to calculate an average annual decrease in value as the plan is to keep the tool or machine for a number of years. If you want to see the market and actual annual depreciation, it is more appropriate to take an annual percentage depreciation of eg 12 - 15%. In practice, this means that a newer tractor drops more in value in the beginning, while an older tractor drops less in kronor per year.

Impairment is affected by use and wear but also by the extent to which the implement or machines are cared for and maintained. A well-maintained machine on which you can demonstrate a validated service log drops less in value compared to other machines that are not maintained properly or cannot prove what maintenance and service the machine has received. As tools and machines are increasingly sold online, it will become increasingly important to be able to show interested buyers what maintenance and service the machine has received to get a higher sales value.

Interest expense is a calculated cost to obtain a cost because capital is tied up in tools and machines. The alternative was for the restricted capital to be invested elsewhere with a certain return. A related area is financing and financing costs. Unlike costing, financing cost is a liquidity cost to finance the purchase of a machine. It can be all or part of the purchase price. Here too, it is important that the implement and the machine are managed in a good way so that the residual value does not become unnecessarily low. If the machine is managed in a good way, the finance company can set a higher residual value and the financing cost is reduced.

Machine costs in relation to revenue

The basis of machine economics is that the machines generate enough revenue to create sustainable profitability. By following up and keeping track of machine costs, it becomes easier to assess what value and revenue is required to create profitability. On the one hand, it can be good with high machine capacity and relatively new machines to ensure a high harvest and high quality of the crop, but on the other hand, the machine costs must not be too high and jeopardize the result on the last line. It will be a question of assessing an optimal and reasonable machine capacity in relation to the quantity and expected quality that will provide revenue and assessing risks for what can disrupt production and the various work steps. What improves the machine calculation can be to increase the number of hours and the number of hectares used, but at the same time it threatens not to have time to do the critical work steps to get the expected harvest.

Convenience effect

Timing effect is a concept that refers to the effect of being able to do the right work step at the most optimal opportunity. If the work step cannot be done at the most optimal time and, for example, the amount of harvest or the quality decreases, a cost arises, a so-called opportunity cost that can be expressed as SEK / ha and day. An example is a round baler that will harvest the first crop in hay production. If the harvest is delayed by 1 day, the nutritional value and feed quality corresponding to approximately 14-20 öre per kilo of dry matter deteriorates with the prices that currently apply. A round baler produces about 20-25 round bales per hour with about 250-300 kg tsp per bale and runs about 10 hours per day. In total, the press produces about 60 tonnes of tea per day and if the value decreases by 14-20 öre / kg of tea, the loss will be about SEK 8000-12000 / day as the press stands still. It may also be the case that the press does not have sufficient capacity to handle a certain area and that it thus becomes vulnerable to catch up even if the press rolls as it should.

Labor and machine costs as a percentage of sales

Labor and machine costs as a percentage of sales are a way of assessing the reasonableness of machine costs. Depending on which production branches, crops and fertility there are on the farm, labor and machine costs in relation to turnover vary between about 30-45%. If we take, for example, a crop that has a turnover of SEK 21,000 and labor and machine costs amount to SEK 7,000 / ha, labor and machine costs amount to 33%. Measuring an individual year can be misleading and therefore a long-term strategy is needed for how the company assesses which focus and which cost frameworks, for example, crop cultivation should have in the next 3-5 years and based on that set a goal that eg labor and machine costs should be 30 or 35%. By following this up annually, a good and fair picture is given of where the company is, for example, on a three-year average. With investment calculations and machine cost monitoring, the goal picture becomes clearer and the financial framework and goals for what value needs to be created and also what framework the labor and machine cost needs to be accommodated within.