See Gittinger, J Price(1984)." Economic Analysis of Agricultural projects

Cost:benefit ration mean if you make some investment what will be the output of that investment in a given period of time. it is like a feasibility or a pre- assessment whether this investment is beneficial or not.

Let your net returns be N = G-E where G is gross returns and E is expenditure. The ratio N/E = (G/E)-1. So you can use either N/E or G/E because they are closely related. But your decision rule will be different. If you use G/E then the project passes the test of acceptability if G/E > 1. If you use N/E then the project passes the acceptability test if N/E > 0. In either case you are using the rule that a project passes the acceptability test if G-E>0. One final point: if you are using gross returns to measure benefits and expenditure to measure costs, it doesn't sound like you are really doing cost-benefit analysis. It's a profitability analysis.

The correct way of calculating BCR is,

BCR = Gross income / Total Costs

The project (agronomic experiment or trial in your case) with BCR > 1 should be selected.

See Gittinger, J Price(1984)." Economic Analysis of Agricultural projects

Sep 17, 2013

Thank you all great minds for answering my query.............i got it.....

BCR= Net Return / Cost of cultivation

and

Return per Rupee Invested = Gross return / Cost of cultivation

Reference book:- Numerical Agronomy by Abhijit Sharma 2014

BC Ratio= Discounted benefit/ Discounted Cost.

Discounted benefit is the sum of present values of benefits realized over a period of time i.e. may be n number of years. And same way the discounted cost is calculated.

However, when we are dealing with annual crops, there is no need of discounting as the Discounting factor will be one. Therefore, in such cases the following formula can be used

BCR= Gross Income/ cost

Gross income= (Quantity of Main product* price of Main product)+ (Quantity of by product* price of by product)

Cost= expenses incurred for agronomic operations in terms of labour,and farm machinery, and input costs (seed, fertilizers, irrigation, pesticides and FYM)

 BCR= Gross Return/ Cost of cultivation

Benefit -Cost ratio is the ratio of the gross return to the total used cost

Lovely Discussion, and special thanks to Mr. Alistair Munro for clarifying one basic point.

May I raise another point, particularly about agricultural produces.

What about cost of marketing? As most of us talking about cost of cultivation it excludes that probably.

i have seen in many manuscripts, People use very old prices of Agriculture produced. So i think actual market values should be included.

Dear Semerjeet 

I agree with the view of Alistair Munro . For B:C Ratio you have to consider net profit and divide the same with cost involve in the intervention . You may also work out as gross return divided by cost of cultivation -1 (G/C-1) 

what if the gross income is less then investment i.e. if G-E

If you are calculating on the basis of cost of cultivation , then you have to take the values which are coming >1 in BCR. Means profit per rupee invested

but if you are calculating on the basis of net returns then all values coming in BCR you can take....means that is your profit only......

Kindly check here too..

https://www.investopedia.com/terms/b/bcr.asp

GMR/cost is the right method to calculate BCR

I think Munro made it very clear that gross or net both we can use but criteria for selection will change. But the last point he said profitability analysis which we sometimes do instead of BCR. So caution to be needed. Further Reza rightly mention the cost of marketing, I think we take price of product at the farmer field then there is no necessity. But we generally take whole sale market price of product and no price for by product.

B:C = Gross returns / Total Cost Cultivation

There are very good papers on the optimization studies that talk about when to take ratio and when to take difference. I think this paper will definately be useful for you https://pdfs.semanticscholar.org/52be/f428f92b512bc88368f8fa1a7efd0af72dec.pdf . In this the author talks when one is dealing with multiple investment then ratio model help to find the optimization and difference is calculated when its a single investment.

Happy reading !

I reviewed the replies here and suggest the following improvements. BCR is the Present value (PV) of benefits (PV) divided by the PV of costs. We take PV to account for time value of money as the benefit and cost flows are over a period of time. There are two methods to estimate BCR.

BCR is the ratio of discounted net benefit to the capital investment. The CB is the excess of income after recovery of CF0. The PV of the CB is the NPV. BCR is estimated using the formula, where CF0 is the initial capital investment.

BCR=1+(NPV/CF0)

BCR is the ratio of total discounted benefits to total discounted costs of a project. Where the discount rate is the weighted average cost of capital (WACC) or opportunity cost of capital. BCR = PV of benefits stream / PV of Costs.

Up to my knowledge for agriculture related production oriented produce the best way to calculate B:C ratio by dividing gross returns with total expenditure incurred. Whereas for marketing related things, storage, dress etc like NPV and discount rates need to be considered.

Mr Reddy.. the IRR, NPV and BCR are outout from the same fuctional equation. Its same for all sectors and industries. But user may have their preferences

1. BCR = Discounted Gross income or PV of Gross income / Discounted or PV of total expenditure Capital plus operating. or

2. BCR = Discounted Net income or PV of Net income / Discounted or PV of total capital expenditure. or

3. BCR = 1+(NPV/capital Investment)

Benefit-Cost Ratio= Net Profit/Gross Cost, where

Net Profit= Gross Income - Gross Cost (including the imputed value of family labor)

Gross Cost= Fixed costs + Variable Cost

B C ratio in Agriculture considered as Gross income divided by cost of cultivation.

B:C = Gross income/ cost of cultivation

Rahul is right if the BCR relates to annual crops or annual income. E.G PADDY OR BANANA ...GROSS INCOME ÷TOTAL EXPENDITURE. If the income and expendityre spread over more tha a year e.g. plantation crops or long term investment then BCR = PV OF BENEFIT ÷ PV OF COST. THIS IS TO account for the time value of money.

B:C Ratio= Gross return/Cost incurred in cultivaton

B:C ratio = Net return / Total cost of cultivation

BCR = TOTAL INCOME/TOTAL COST

BCR = TOTAL INCOME / (RECURRENT COST+ FIXED COST)

BCR = (TOTAL INCOME - RECURRENT COST) / FIXED COST

BCR = NET INCOME/ FIXED COST

Please assist. I have used the used answers above to calculate the cost: benefit ratio and have a decimal figure (example 1,4) but some literature presents the cost: benefit ratio as (example 1:14.31). Please explain the second example.

I assume you used BCR = NET INCOME/ FIXED COST. Thats BCR to fixed cost. If you use BCR = TOTAL INCOME/TOTAL COST, then the BCT WILL BE LOWER I.E BCR TO TOTAL COST.

Thanks, @Kannapiran C Arjunan I used the 'Total income earned/Total cost of production' and my answers are 0.8, 1.5, 2.1 ....and so on. What was used to obtain the 1:1.2, 1:7.66, 1:9.46 ....and so on?

Dear researchers kindly support your answers or quote with some studies so that we can use the formula gross income divided by cost of cultivation in our papers and quote the scientist

doi:10.1016/j.still.2010.07.009, doi: 10.26655/JRWEEDSCI.2020.2.5 many more,...benefit-cost ratio was calculated from gross income divided by the total cost of production.

I agree with @ Alistair Munro.

The more appropriate method is to consider the net returns for B: C ratio calculation as it gives actual benefit/ profitability instead of total turn over.

Hi Dinesh

BCR = total benefit (TB) / total cost (TC)

eg.

Total benefit $100 = TB

Total cost (TC) = recurring or operating cost (OC) of $20 +fixed or capital cost (CC) of $30= $50.

Net Benefit (NP) = TB minus OC = $80

a. BCR =TB/TC = 100/50 =2.0

b. BCR = NB / TC = 80/50 = 1.6

C. BCR = NB / CC = 80/30 = 2.6

b is wrong due to double counting of OC i.e OC already paid of so why keep it under total cost ?

a and b can be used if you are keen on return on tital or capital cost .

Yes I am very much agree by calculating B:C Ratio with Net Returns/Cost of Cultivation. As in BC Ratio we get to know about the benefits in terms of rupee invested such if here we get 1.81 BC Ratio which means we get 1.81 rupees per rupee invested. As Gross returns is not a benefit it is actually a cost which is gettable only by selling a produce which includes cost of Cultivation.

I agree with @Alistair Munro

There is tow types of benefit: cost ratio, one is economic B:C ratio, another one is agronomic B:C ratio. In case of economic B:C ratio, it is calculated with net benefit divided by cost of cultivation, where net benefit means gross benefit minus cost of cultivation (COC).This term is also called benefit per rupee investment. But, in case of agronomic B:C ratio, it is calculated with gross benefit divided by COC. Which ratio you have used, you always mentioned about the calculation/procedure in materials and method section.