Farm Business Management 1983 -- Georgia Agriculture Education Curriculum

Name:

Multiple Choice

Identify the letter of the choice that best completes the statement or answers the question.

If the total revenue of a farmer will cover his variable costs and some but not all of his fixed costs, he will:

a.	minimize his losses by producing in the short run.
b.	not produce anything if he is smart.
c.	show a return to all factors of production.
d.	minimize his profits by continuing to produce.

In analyzing the ongoing farm business, depreciation should be considered as:

a.	a variable cost.	c.	an opportunity cost.
b.	a fixed cost.	d.	an operating cost.

Which of the following statements describe the advantages of a family-farm corporation?

a.	corporations do not pay income tax.
b.	a family corporation avoids personal liability and the liability is limited to the investment in the farm business.
c.	there is little or no market for a shareholder if he decides to sell his interest in the farm business.
d.	it is less expensive to establish a corporation structure.

It is profitable for a farmer to borrow money to expand his farm business when the borrowed money:

a.	returns more than the cost of borrowing money.
b.	can be secured at a low interest rate.
c.	can improve the level of production.
d.	will increase volume of business.

A decline in value of an asset over its useful life associated with use, age and obsolescence is known as:

a.	appreciation.	c.	inventory.
b.	depreciation.	d.	hedging

Which of the following is not a fixed cost in the use of a tractor?

a.	insurance.	c.	oil and grease.
b.	depreciation.	d.	interest on borrowed money.

Items that are least marketable and least readily converted into cash without loss.

a.	current assets.
b.	intermediate or working assets.
c.	intermediate for working liabilities.
d.	fixed or long term assets.

Livestock, land, and other personal property used to secure a loan.

a.	collateral.	c.	mortgages.
b.	amortized.	d.	principle.

Long-term credit should be used to:

a.	purchase cattle.
b.	purchase machinery.
c.	purchase land and buildings.
d.	purchase fertilizer.

10.

One of the most important points to consider in developing a lease between a tenant farmer and a landlord is that it should:

a.	be in writing.
b.	specify the land description.
c.	state the type of crops to produce.
d.	be an oral agreement.

11.

When analyzing the profitability of a farm business, the first item to consider is the:

a.	cropping practices.
b.	livestock enterprises.
c.	amount of machinery available.
d.	return to owned resources.

12.

Purchasing a larger piece of machinery in order to reduce the cost required to complete a particular operation is profitable if:

a.	the savings in labor is less than the cost of owning the larger machine.
b.	there is sufficient capital available.
c.	the savings in labor is equal to the cost of owning the larger machine.
d.	the value of labor saved is greater than the additional cost of owning and operating the larger machine.

13.

By diversifying crop enterprise rather than specializing in one major crop, the farmer will:

a.	reduce risk and uncertainty.
b.	decrease annual labor efficiency.
c.	facilitate the use of more labor-saving equipment.
d.	concentrate production knowledge.

14.

Which of the following factors should probably be considered in deciding whether to store soybeans until next spring rather than sell at harvest. (Assume that storage facilities are already available on the farm).

a.	need for capital at harvest and price outlook.
b.	annual depreciation on storage facilities.
c.	production costs per bushel of the stored grain.
d.	original construction costs of storage facilities.

15.

Earnings in a cooperative are usually distributed:

a.	on a basis of share holdings by owners.
b.	on the basis of share holdings by patrons.
c.	on the basis of patronage.
d.	on the basis of physical volume of business.

16.

A marketing function which tends to regulate the supply of a product and has a stabilizing effect on the price is:

a.	grading.	c.	storing.
b.	processing.	d.	transporting.

17.

Farmer Jones doesn't own, plant, or raise wheat, but has just purchased a futures contract. Is he:

a.	hedging.	c.	bearish.
b.	speculating.	d.	bullish.

18.

Cooperatives differ from noncooperative corporations in which area?

a.	no manager in a cooperative.
b.	no board of directors in a cooperative.
c.	how voting is done.
d.	cooperatives are never incorporated.

19.

A farm net worth statement -

a.	is required report for state income tax.
b.	is used to determine farm income.
c.	provides a financial picture of the farm business as of some particular date.
d.	shows returns above all production costs.

20.

In a Free Market, price is determined by:

a.	the supply of buyers.
b.	the demand of consumers vs. the supply of the product.
c.	a sales person offering a reduction from the sticker value.
d.	the amount of rain and sunshine during the growing season.

21.

Planning for retirement, transferring property ownership and conserving the estate of a farmer are objectives of:

a.	income tax management.	c.	a trust.
b.	estate planning.	d.	a will.

22.

If one pound of soybean meal will substitute for 1.2 pounds of linseed meal of equal nutritional value and soybean meal sells for 5.2 cents per pound and linseed meal sells for 4 cents per pound, the livestock farmer who wishes to make the largest net profit should:

a.	feed 68% soybean meal and 32% linseed meal.
b.	feed all soybean meal.
c.	feed 20% soybean meal and 80% linseed meal.
d.	feed all linseed meal.

23.

An example of a fixed cost is:

a.	repair parts for the mower.
b.	concentrate to mix with grains.
c.	gas, oil and grease.
d.	interest on investment.

24.

A good use of cash flow planning is to:

a.	obtain a loan for operating capital
b.	replace poor animals in a herd.
c.	indicate which enterprises are most profitable.
d.	compute estimates of income taxes.

25.

The producer who engages in cash contracting or hedging is:

a.	trying to eliminate yield uncertainty.
b.	speculating.
c.	trying to eliminate price uncertainty.
d.	usually does so during rising prices.

26.

A budget predicts:

a.	prices.	c.	income and expense.
b.	net worth.	d.	inventory values.

27.

A feed dealer makes a credit charge of 1 1/2% monthly on all bills not paid by the 10th of the month following the monthly billing on the first. The annual percentage interest rate would be:

a.	6%.	c.	12%.
b.	8%.	d.	18%.

28.

The major advantage of renting or leasing a production input such as land or machinery is to:

a.	increase fuel efficiency.
b.	increase depreciation allowance.
c.	improve output per worker.
d.	release capital for other uses.

29.

Operating loans can be acquired from:

a.	insurance companies.
b.	federal land bank associations.
c.	production credit associations.
d.	the judicial branch of the Federal government.

30.

When one is negligent and therefore liable for injury or damage caused to someone else what insurance covers this?

a.	co-insurance.	c.	double indemnity.
b.	collision.	d.	liability.

31.

When a farmer borrows money to purchase land, he usually must offer the title to the property as security until the loan or debt has been repaid. This credit instrument is commonly referred to as a:

a.	sales contract.	c.	mortgage.
b.	money market certificate.	d.	check.

32.

John worked for a building contractor during the summer and his monthly check stub showed $61.00 deducted for FICA. This deduction was for:

a.	Social Security tax.	c.	State Income tax.
b.	Federal Income tax.	d.	Investment credit.

33.

A net gain from the sale of real or depreciable property held more than one year is a:

a.	capital gain.	c.	postponed gain.
b.	deferred payment sale.	d.	ordinary income.

34.

The demand for U.S. farm products is increased by:

a.	our export markets.
b.	convincing Americans to eat less food.
c.	by reducing the amount of land planted each year.
d.	by government price support programs.

35.

An annuity is:

a.	a kind of savings bond.
b.	a retirement plan which pays a constant amount of money each year.
c.	a special kind of term insurance.
d.	a method of depreciating machinery and equipment.

36.

Mr. Berry earned $15,000 from farming last year. His farming operations control $150,000 of assets, of which $50,000 are owed (mortgage, operating loans, etc.). What was the rate of return on Mr. Berry's own capital?

a.	10%	c.	15%
b.	5%	d.	20%

37.

An increase in the price of steak:

a.	causes a decline in the price of pork chops.
b.	causes consumers to switch to eating more pork and chickens, thus increasing the price of these items.
c.	reflects increased efficiency of producing cattle.
d.	has no effect on the prices of other commodities.

38.

How much investment credit can be taken on a $6,000 machine which will last 7 years?

a.	none.	c.	$400
b.	$200	d.	$600

39.

A series of payments of principal and interest to repay a loan is called:

a.	amortization.	c.	rate of return.
b.	depreciation.	d.	present value.

40.

Whole life insurance provides:

a.	insurance coverage for your automobile "for the life" of each car.
b.	insurance coverage for the policy holder over his entire life and may be a source of inexpensive loans.
c.	life insurance protection which must be renewed every 5 years, and does not have a cash value.
d.	protection for your personal property.

41.

To hedge a crop such as corn or wheat means to:

a.	sell a futures contract when the crop is planted and purchase a future contract at harvest to lock in a fixed price.
b.	speculate in the commodities market.
c.	build a windbreak around one's cropland.
d.	install an irrigation system to insure that you always get high yields.

42.

The most likely source of loans for young farmers wishing to purchase a farm is:

a.	the Farmer's Home Administration (FmHA).
b.	their local savings and loan association.
c.	their local P.C.A.
d.	a large life insurance company.

43.

Which one of the following groups of terms is used to calculate the fixed cost of machinery and equipment?

a.	taxes, fuel, depreciation, labor.
b.	fuel, depreciation, repairs, insurance.
c.	depreciation, insurance, taxes, labor.
d.	depreciation, interest, taxes, insurance.

44.

Tom contracted to deliver 3,500 bushels of soybeans at $6.08 per bushel to a local buyer next December. Tom's motive was to:

a.	remove all risk from his business.
b.	help out the local buyer
c.	remove some of the risk from his business.
d.	guarantee the buyer will have soybeans at $6.08 per bushel.

45.

Joe has $5,000 on which he can make 10% interest if he puts it in a savings account. Instead he decides o invest it in hogs. The $500 per year in interest from the bank that he could have received is called:

a.	opportunity cost.	c.	depreciation.
b.	investment credit.	d.	an annuity.

46.

Sarah made a list of the plants on hand in her greenhouse operation and estimated their worth. This was a/an:

a.	inventory.	c.	liability list.
b.	acid-test.	d.	income statement.

47.

Investment credit for a new piece of equipment can be used to:

a.	reduce the lease price.
b.	purchase other items from the dealer.
c.	used as collateral for a bank loan.
d.	reduce federal income tax.

48.

Interest is:

a.	the charge for a bank account.
b.	the charge for the use of money.
c.	the charge for life insurance.
d.	the charge for the use of collateral.

49.

Assuming no inflation, a dollar received today:

a.	has less value than a dollar received one year from today.
b.	has greater value than a dollar received one year from today.
c.	has equal value as a dollar received one year from today.
d.	may have less or greater value than a dollar received one year from today.

50.

With an amortized loan over 25 years you will pay the lowest amount of the interest during the year?

a.	1st.	c.	15th.
b.	10th.	d.	25th.

Completion

Complete each sentence or statement.

Use for questions 1-3:

A farmer wishes to fertilize his corn with 150 pounds of nitrogen per acre. He can chooce between the following three types of fertilizer at the prices shown.

Choice #1 - 20-0-0 at $90.00 per ton (2,000 lbs)

Choice #2 - 45-0-0 at $190.00 per ton

Choice #3 - 82-0-0 at $275.00 per ton

51.

If the farmer selects the 45-0-0, what will be the cost per pound of actual nitrogen applied?

52.

Which fertilizer should be selected as the cheapest source of nitrogen? (Place the number of the coorect choice in the answer blank)

53.

Using your answer to question #2, how many pounds of fertilizer material must be applied poer acre in order to apply exactly 150 pounds of actual nitrogen?

Income statement analysis, Problems 54 - 57:

Use the following information to answer questions 54 - 57

Soybean sales $20,000

Coastal bernuda sales 8,500

Building depreciation 2,800

Increase in inventory of livestock 14,000

Feeder calf sales 42,000

Total farm cash operating expenses 48,000

Machinery depreciation 11,000

Decrease in crop inventory 4,000

54.

What is the gross cash farm income for this business?

55.

What is the net farm income for this business?

56.

If this farmer calculates his taxable income using the cash method of accounting, what will his taxable income be?

57.

What is the net cash farm income for this business?

Problem 58-60

Cash and checking account balance $3,500

Mortgage on land 120,000

Value of machinery 50,000

Value of land 250,000

Value of feeder livestock 60,000

Loan at back (due in 90 days) 40,000

Loan on machinery 20,000

Value of grain in storage 15,000

Interest due and payable 5,000

58.

This farmer has total assets with a vlaue of how much?

59.

This farmer has a bet worth of how much?

60.

What is the farmer's owner equity ratio?

Problem 61-63

Mark currently rents is neighbor's swine farrowing house for $1,200.00 per year.

Mark's alternative is to buid his own house for $20,000. He can finance the full amount at 10% amortized over 20 years with payments of $193.00 per month.

Complete the following partial budget to help Mark decide what to do.

Additional Costs (annual) Additional Returns (annual)

Reduced Returns (annual) Reduced Costs (annual)

61.

Total additional annual costs and reduced returns

62.

Total additional annual returns and reduced costs .

63.

Net change in Income (indicate + or -)

Questions 64-67

Thomas is considering adding another 20 X 30 ft. section onto his greenhouse operation. The environmental controls (heaters, coolers, etc.) in the house are adequate to handle this additional section though his heating costs would increase by 1.3 and his cooling costs by 1/4. Thomas grows fern hanging baskets year-round and currently produces 5 crops per year; 2,250 baskets per year in his 60 X 30 ft. house. Help Thomas decide whether or not to increase his operation. Labor is not considered.

Current Data

60 X 30 ft. greenhouse

2,250 baskets per year

Selling price per basket = $5.00

Heating costs = $1,200

Cooling costs = $400.00

Variable Cost per basket,

pot, soil, plants, fertilizer, etc.) = $2.00

Projected Data and Costs

80 X 30 ft. greenhouse (total size)

64.

Total baskets produced per year = .

Selling price per basket = $5.00.

65.

Total Heating costs = .

66.

Total Cooling costs = .

67.

Use the following partial budget form to answer question 17.

Additional Costs Additional Returns

Reduced Returns Reduced Costs

a. Total Annual Additional b. Total Annual Additional

costs and reduced Returns and reduced

returns. costs,

17. Net change in income (B - A)

(*indicate plus or minus) (answer

A. Organization:

Cash Crops

Soybeans....................240 acres

Corn........................100 acres

Wheat.......................240 acres

Pasture Crops

coastal Bermuda.............100 acres

Annual rye grown on corn land during winter

Livestock

100 brood cows, 3 bulls

B. Financial Summary:

Receipts by Enterprise

Soybeans....................$36,000

Corn........................ 30,000

Wheat....................... 19,000

Beef - Calves............... 27,000

Expenses by Enterprise (includes all costs except labor and management.

Soybeans....................$15,000

Corn........................ 31,000

Wheat....................... 10,000

Beef cows................... 19,000

68.

What is the net return per acre for soybeans?

(answer).

69.

What is the net return per acre for corn?

(answer)

70.

What is the net return to labor and management for this farm? (answer).

71.

What would be the total net return to labor and management for this farm if the 100 acres now planted in corn was planted in soybeans instead, assuming present yields can be maintained. (answer).

72.

Russell paid $1,000 down and financed the balance on a piece of land he paid $50,000 for. His current principal balance is $48,000. He is considering selling and has had the land appraised. Based on the appraisal of $77,000 what is Russell's equity in this land? (answer).

73.

If Frank borrowed $6,000 from the local bank to purchase his tractor at 15% interest (on unpaid balance) and agreed to make annual payments for 3 years (equal principle payments), how much total interest would he pay?

(answer)

Frank purchased a tractor on December 1, 1982 for $8,500. Using the accelerated cost recovery system for depreciation, calculate his depreciation on the tractor.

5 Year Property Depreciation

1st year - 15%

2nd year - 22%

3rd through 5th year - 21%

74.

(a) What would be his depreciation for 1982? (answer)

(b) What would be his depreciation of 1985? (answer)