Goats: The Green Alternative (A)

  • Reference: IVEY-9B11B018-E

  • Year: 2011

  • Number of pages: 5

  • Geographic Setting: Tennessee, United States

  • Publication Date: Nov 23, 2011

  • Source: Ivey Business School (Canada)

  • Type of Document: Case

  • Industry Setting: Agriculture, Forestry, Fishing and Hunting;

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Description

The owner of a goat herd in Tennessee must decide whether to rent out his herd for a land-clearing project at a nearby resort. Goats are better suited to clearing the land than humans and machines, but the owner has never rented out his goats for such a purpose. The owner must identify costs associated with the project, then determine a price to charge for the service. Since the owner has no prior experience renting out livestock, he must come up with estimates of the incremental costs associated with the rental operation and prepare a bid with little knowledge of rates charged by competitors for goat rentals. This case provides a realistic example of the thought processes that business owners go through when evaluating whether to expand into complementary lines of business, as well as the considerations of entrepreneurs contemplating starting new businesses. See also Goats: The Green Alternative (B) 9B11B025 and Goats: The Green Alternative (C) 9B15D001.

Learning Objective

The case has been used in managerial accounting and economics courses to introduce concepts such as fixed and variable costs, cost drivers, and financial modeling. It illustrates basic principles of managerial accounting such as direct and indirect costs. When used in a managerial accounting course, the professor can provide students with an influence diagram showing relationships between variables, or let students develop the relationships themselves. Model variables are described in the case, so the case can be used to introduce basic financial modeling. Students are instructed to make the model flexible enough that it can be used to prepare future bids. Thus, students need to identify which driver is the most relevant for developing a financial model. The case has also been used to apply cost-volume-product models for breakeven and target profit analyses, as well as sensitivity analysis, based on the financial models developed by students.

Keywords

Economics Environmental sustainability Farms Fixed and Variable Costs Managerial accounting modeling spreadsheet application United States