1- Comparison of AA Previous to AA Current
In order to figure out the potential impact of switching from AA corn to GM corn for Belgrove farms, we took into account what each of the four farms excelled in producing. By using the “recommendation” chart, we found out what farm could easily produce corn at both price points of $4.70 and $5.50. In the first projection of AA corn, we used the previous year’s expenses to determine the future projection. We assumed if Belgrove Farms continued producing AA corn they would still be making 290,000 Bushels which would increase the cost of making the same corn by $0.22, with an overall increase of $63,800 in profit per bushel. If they decide to continue growing AA corn, their income before taxes results in $248,095. This would result in $195,750 more in sales, about a 46% increase in revenue from the previous years.
2- Comparison of AA Current to GM#1 Current
If Belgrove Farms wants to switch over to genetically modified corn, they would have to charge more for the GM corn since Europe places more restrictions on imported genetically modified products. We assumed if Belgrove Farms began producing the first scenario of GM corn it would increase the cost of making corn by $0.55, which would increase the overall cost by $756,000 in comparison to AA corn. With the selling price at $5.50, a $0.50 increase in selling price from AA corn, their income before tax yields a profit of $666,720. This would result in $418,625 more in sales, about a 37% increase in revenue more than AA corn.
3- Comparison of AA Current to GM#2 Current
In the next scenario, Belgrove Farms set their selling price to $4.70 per bushel based on the condition that Europe puts “heavy restrictions” (GMOptimization) on imported genetically modified products. We assumed if Belgrove Farms began producing the first scenario of GM corn it would increase the cost of making corn by $0.55, which would increase the cost by $608,000 in comparison to AA corn. If Belgrove Farms began selling corn at $4.70, a $0.30 decrease in price from AA corn, their income before tax yields a profit of $344,095.This would result in a $96,000 increase in sales, about a 72% increase in revenue more than AA corn.
4- Comparison GM#1 Current to GM#2 Current
When comparing the first scenario to the second scenario of GM corn, you can see that GM#2 is cheaper in selling price to GM#1 by $0.80, in which it would cost $148,000 more to produce than GM#2. However, GM#1 has $472,000 more in sales revenue and is leading in net income before tax with $342,000 more income in comparison to GM#2. The first scenario would make about 52% more than the second scenario. By comparing both scenarios, we believe GM#1 is more profitable, which is what companies want. It would be best to go with producing GM #1.
You can also come up with this conclusion by looking at the profit margin to see how much Belgrove Farms would make in each scenario. If Belgrove Farms sticks to producing AA corn their profit margin would be 17%. Switching to GM#1 would bring up the profit margin to 25%. If you choose to go with GM #2, your profit margin would be 16%. You can clearly see that the best choice would be to go with GM corn in the first scenario while the second scenario has a slight smaller margin, it may have a larger effect in the long run. This will not only allow you to expand your company but also to keep part of it alive, since you can still produce some AA yellow corn.