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GOATS: THE GREEN ALTERNATIVE (A)
David M. Currie and Kyle S. Meyer wrote this case solely to provide material for class discussion. The authors do not intend to
illustrate either effective or ineffective handling of a managerial situation. The authors may have disguised certain names and other
identifying information to protect confidentiality.
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Copyright © 2011, Richard Ivey School of Business Foundation
Version: 2011-11-17
Jaden McCoy operated a dairy goat farm in Soddy-Daisy, Tennessee. In January 2011, the owner of a
nearby resort approached McCoy about using goats to clear a section of his property. The property had
become overgrown with a variety of weeds, and was situated on a steep hillside that made it difficult for
the maintenance staff to reach with power machinery. This particular site was populated with nettles,
kudzu and poison ivy, all of which are safe for goats. There was no evidence of plants such as azalea or
oleander that are toxic for goats.
McCoy knew goats had become popular for property maintenance in situations where the terrain was rocky
or uneven. He had been approached by other property owners about renting out his herd, but had rejected
the offers because he was not able to determine the overall cost. To consider this offer, McCoy assembled
information to determine whether such an undertaking was profitable. The next step was to put this
information into a format that would help him decide whether he should accept the proposal.
MCCOY’S DAIRY GOAT BUSINESS
In the United States, the dairy goat business is fragmented and localized. According to the U.S.
Department of Agriculture’s 2007 Census of Agriculture, there were 27,481 farms containing 334,754
goats, meaning each farm averaged 12 goats.1 Eighty per cent of the goat farms had fewer than 100 head.
There was not much demand for goat’s milk from the general population, particularly when compared to
cow’s milk. Goat’s milk was usually sold to local customers, frequently as feed for other animals due to its
high nutritional content.2
McCoy’s dairy goat farm was one of 50 within a radius of 100 miles, including eastern Tennessee, western
North Carolina, and northern Georgia. McCoy thought his farm of 100 does was the largest in the region.
1
United Stated Department of Agriculture (2009) 2007 Census of Agriculture,
www.agcensus.usda.gov/Publications/2007/Full_Report/index.asp, accessed August 16, 2010.
2
Pennsylvania State Univ. (1998) Dairy goat production, Cooperative Extension Service,
http://pubs.cas.psu.edu/FreePubs/pdfs/ua260.pdf, accessed August 10, 2010.
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McCoy acquired goats many years ago almost by accident. He attended the Hamilton County Livestock
Exposition with a girlfriend who thought the goats were “cute” when she saw them on exhibit. She
purchased four of them — a buck and three does — as a present. The present lasted longer than the
girlfriend did, and through the years the herd grew to its present size of 100 does and one buck. The does
produced milk that McCoy sold to a local health food cooperative.
Multiple births are common for does. The period during which a doe lactates lasts up to 300 days. In the
latter part of the gestational period, the doe is dry and produces no milk. Some of McCoy’s does were
unproductive because they did not become pregnant or produced little milk, so McCoy culled them from
the herd along with the excess kids to maintain a herd of 100. All the adult males except two were sold
because there was no reason to have males in a dairy herd, except to impregnate the females.
The primary source of revenue from the goats was milk sales, but other revenue was derived from the sale
of culled does and kids. The traditional method of allocating expenses in most animal-raising enterprises is
on a per-head basis, so costs in the dairy farm were allocated per doe. The primary cost was feed, including
forage, grain and minerals, but also milk for replacement livestock. Wages for day labourers were another
major expense. These employees helped McCoy tend the goats, milk them and deliver the milk to the
cooperative.
McCoy had to purchase replacement livestock each year to bring new blood lines into the herd, adding
vigor and improved milk production. It also was necessary to replace livestock lost due to age, predation
and disease. This shrinkage could amount to as much as 25-30 per cent of the herd each year. A
replacement doe cost US$200-300, while a buck cost US$400-500.
Net revenue after variable costs — the contribution margin — had to cover the fixed costs of operating the
farm: depreciation of the milking equipment and other machinery, the barn and purchasing replacement
livestock. The most recent income statement revealed the farm generated taxable income of US$3,291 in
2010 (see Exhibit 1). This amount was added to other income McCoy earned so he could calculate his tax
liability for the year.
THE PROPOSAL
The potential client was a resort of several hundred acres in the foothills of the Smoky Mountains between
Chattanooga and Knoxville, Tennessee. Due to the rocky terrain, the grounds keeping staff found it
difficult to maintain portions of the property. Workers frequently had to cut and trim by hand rather than
by machine, increasing the cost of property maintenance. Consequently, the maintenance supervisor called
Jaden McCoy one afternoon to inquire about using goats in place of maintenance staff on the portions of
the property where machinery could not be used. The supervisor invited McCoy to suggest a price. McCoy
believed he was the only person bidding on the contract at this time.
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McCoy had many other business interests outside dairy goat farming; dairy goats represented a small part
of the total. They kept his 60 acres free of noxious weeds, did not require an inordinate amount of
attention, and created a small profit.
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Revenue from this project would come from renting the goats. McCoy did not have experience renting out
goats, but he believed he could earn a profit at a rental fee per day of US$15. Since he was the only bidder,
McCoy realized he could raise the fee if his calculations revealed that the project would be unprofitable.
McCoy had to determine how many goats were necessary and how long they would be on site. Since the
trailer held up to 25 goats, McCoy decided he would transport the maximum number of goats to the job,
pricing each job on the basis of 25 goats per day. The number of calendar days on a job would vary
according to the size of the site.
McCoy had to determine how much the goats would eat to adequately estimate the time for this project.
The amount of forage goats would eat actually depended on the density and type of vegetation. A goat in a
pasture would eat about 250 square feet of forage daily, but McCoy had no idea how much they could eat
on a wild hillside. He decided to use 250 square feet as the numerical amount in his calculations, declaring
it the forage square feet per goat. In his formula, the site area, the number of goats and the forage square
feet per goat determined the number of calendar days the goats would spend on site. At 360 feet by 121
feet, the proposed property was an acre in size.
Once he determined the number of calendar days spent on site, McCoy could calculate revenue from the
proposed project as a function of the number of goats, the rental fee per day and the number of calendar
days. Due to difficulties loading and unloading the goats, McCoy decided to bill for a full day even when
the job required only a portion of a day. If a job took three and a half days to complete, the client would be
billed for four full days.
EXPENSES
McCoy identified four categories of expenses for the project: set-up costs, fencing costs, shepherd and dog
costs, and transportation costs.
Set-up
McCoy realized he would incur some costs prior to transporting the goats to the job site. Goats require a
covered area (goats do not like to get wet), water, a mineral lick and other supplies while grazing. When
the job was complete, these facilities would need to be removed and transported back to McCoy’s farm.
McCoy estimated these costs, which he called set-up costs, at approximately US$100.
Fencing
Goats tend to disperse when foraging, so it is difficult to keep them in one location. Enclosing the site
served two purposes: it kept the goats within a confined area and provided some protection against
predators, including bobcats, coyotes, bears and even domestic dogs.
McCoy investigated various fences and discovered he could obtain vinyl fence for US$0.75 per linear foot,
fully installed. The fence would be installed around the perimeter of the site, so fencing costs depended on
site perimeter and fencing cost per linear foot. The vinyl fence was not reusable; McCoy would deliver it
to a local recycle center when the job was complete.
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REVENUES
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A shepherd would transport the goats to and from the site. With the aid of a dog, the shepherd would also
tend to the goats on site. McCoy determined 10 hours of compensation would cover the shepherd’s time,
including driving and tending to the goats. He found a local farmhand to take care of the goats on an asneeded basis. The farmhand was willing to accept US$190 per day to tend the goats. Shepherd and dog
costs were determined by the number of calendar days and shepherd and dog rate per calendar day, fixed
at US$190.
Transportation
McCoy already had a trailer that he could use for transporting goats, but using it more intensively would
lead to increased maintenance on the trailer. Transporting the goats to the site and back would also require
a truck with its own fuel and increased maintenance costs. McCoy believed US$0.63 per mile sufficient to
cover the fuel cost and increased maintenance for both vehicles. McCoy would limit his transportation
costs by making only one round trip each day with a fully loaded trailer of 25 goats.
The proposed site was 40 miles from McCoy’s farm in Soddy-Daisy, and would require two trips — one to
the site and one return — each day. Overall, there were four aspects of transportation costs: rate per mile
and miles to site, trips per day (limited to two) and number of calendar days.
ANALYZING THE DECISION
McCoy was reasonably certain if his goats performed satisfactorily on this project, the property owner
would invite him to clear other portions of the property. Other property owners might learn of the success
and invite McCoy to bid on clearing their properties as well. McCoy believed this could add significant
value to his business, representing an important profit opportunity.
McCoy did not want to limit his perspective to only this project. He decided to build a model to change any
of the inputs, such as site dimensions, cost of fencing and miles to the site. The model could help him
determine the profitability of each project based on the estimated total revenues, total variable costs and
total fixed costs.
With all of these thoughts, McCoy sat down at the table with paper, pencil and a computer with a blank
spreadsheet open before him. He was ready to formulate the model to tell him whether he could make a
profit on this project; one he could use to price future projects. McCoy needed to classify costs as either
fixed or variable and incorporate these cost behaviors into his model. He realized a number of factors
affected total costs, but he hoped the model could identify these factors.
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Shepherd and Dog
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Exhibit 1
per doe
per herd of
100 does
Revenues
Milk sales
545.60
54,560.00
Other revenues
49.06
4,906.00
Total revenues
594.66
59,466.00
99.00
9,900.00
126.23
12,622.50
Milk for replacements
49.50
4,950.00
Supplies
13.20
1,320.00
Veterinary fees / medicine
24.20
2,420.00
Bedding
11.55
1,155.00
5.48
547.80
Utilities
15.40
1,540.00
Repairs & other costs
11.00
1,100.00
Labor
148.50
14,850.00
Total direct costs
504.05
50,405.30
90.61
9,060.70
Variable costs
Forage
Grain mixture
Fuel
Contribution margin
Fixed costs
Milking equipment depreciation
1,980.00
Housing barn depreciation
594.00
Machinery depreciation
357.50
Replacement livestock
2,838.00
5,769.50
Taxable income
Source: Adapted from L.F. Tranel, “Beginner dairy goat fact sheet,” 2007,
www.extension.iastate.edu/dairyteam/goatssheep.html, accessed August 10, 2010.
3,291.20
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INCOME STATEMENT, 2010
Instructions for Case Assignment:
The case assignment is titled:
"GOATS: The Green Alternative (A)" https://www.iveycases.com/ProductView.aspx?id=52521
This case combines many of the topics cover in MBA 521. It is about a goat farmer expanding
his operation to provide “for hire” weed eating services. You will need to purchase the case from
Ivey, follow the instructions below.
In addition to covering the questions listed below, you need to present your findings in a
professional manner, well written, well formatted, and a strong evaluation and recommendation.
You will submit your case analysis to the Drop Box provided. Please note the document will be
submitted through turnitin.
Questions to address:
McCoy identified four categories of expenses for the project: set-up costs, fencing costs, shepherd and
dog costs, and transportation costs.
1. Calculate the project expenses and classify them as fixed or variable.
2. Determine the total cost of the suggested job for the resort. Using the suggested price determine if
the job would be profitable.
3. Making some assumptions determine if McCoy could be more profitable in other scenarios. Be
creative but make your assumptions clear.
4. Conclude with some recommendations and possible alternatives that your findings support as a
good decision for McCoy
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