Future Business Leaders of America (FBLA) Agribusiness Practice Test

What type of enterprise comparisons can Gross Margin analysis assist with?

1. Commodities versus financial assets

2. Crops versus livestock

3. Local versus international markets

4. Short-term versus long-term investments

The correct answer is: Crops versus livestock

Gross Margin analysis is particularly useful for comparing crops and livestock within the agricultural industry. This type of analysis focuses on the revenue generated from selling a particular product after subtracting the cost of goods sold (COGS), which includes all direct costs associated with producing that product. When looking at crops versus livestock, Gross Margin analysis helps determine which type of operation is more profitable by highlighting the profit left after accounting for direct production costs. For instance, different crops may have varying costs of input (such as seeds, fertilizers, and labor) compared to livestock operations, which involve costs like feed, veterinary care, and housing. By comparing the Gross Margins of each category, producers can make informed decisions about resource allocation, investment in specific types of products, and overall operational strategy. This analysis can guide farmers in choosing whether to expand crop production, livestock farming, or diversify their farming practices based on the profitability demonstrated by the Gross Margin results.