Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | Hedgers and
speculators in the futures market are different in that... a. | speculators always want
the price to decrease. | b. | hedgers are more at risk. | c. | speculators do not
produce a product to sell. | d. | all the above. | | |
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| 2. | Speculators
in the futures market... a. | cause confusion in the market. | b. | accept the price risk
the hedgers are seeking to avoid. | c. | make a profit if prices increase. | d. | should not be
allowed. | | |
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| 3. | All of the
following are said to be inelastic with regard to demand except... a. | pork. | c. | gasoline. | b. | salt. | d. | sugar. | | | | |
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| 4. | The total
quantity of goods and services produced is called... a. | supply. | c. | produce. | b. | demand. | d. | none of the above | | | | |
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| 5. | A plan that
projects expected returns and costs is called a... a. | supply and demand
curve. | c. | consumption
plan. | b. | budget. | d. | hedge. | | | | |
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| 6. | A producer
most often uses a cash flow statement to... a. | estimate the amount of credit needed and when it will be
needed. | b. | determine equipment needs. | c. | estimate potential cash
overflow. | d. | estimate when debt payments will come due. | | |
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| 7. | If the
government allowed no immigration to this country and controlled illegal immigration, the effect on
agriculture would probably be... a. | a shortage of agricultural labor. | b. | an increase in the
hourly wage for agricultural workers. | c. | an increase in the total cost of labor. | d. | all the
above | | |
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| 8. | Which is an
advantage of leasing land over land ownership? a. | more capital is available for other uses. | b. | the risk of decreasing
land prices is avoided. | c. | farm size can be varied easily. | d. | all the
above | | |
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| 9. | Suppose that
the government passed a law setting the maximum interest rate that could be charged to agricultural
producers by commercial banks at 5%. A likely result would be that... a. | banks would begin
requiring better record keeping by producers. | b. | farmers would borrow
more money from banks. | c. | commercial banks would not make loans to
farmers. | d. | there would be little effect. | | |
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| 10. | If beef
cattle producers are making an unusually high profit, then one might assume... a. | other producers will
enter the beef cattle business. | b. | the supply of beef will increase. | c. | A and
B. | d. | none of the
above. | | |
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| 11. | An
appropriate use for short-term credit would be to... a. | purchase fertilizer and
seed. | c. | purchase
buildings. | b. | purchase land and equipment | d. | all of the above. | | | | |
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| 12. | Which of the
following are variable costs? a. | investment interest, taxes, and
depreciation. | b. | seed, fertilizer, and fuel. | c. | all of the
above. | d. | none of the above. | | |
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| 13. | A limit move
is... a. | the largest distance
livestock can be transported without receiving water. | b. | the maximum amount up
or down a variable interest loan can fluctuate. | c. | the maximum amount up
or down a futures contract can move during its life. | d. | the maximum amount up
or down a futures contract can move in any one day. | | |
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| 14. | A listing of
all property owned and money owed is called... a. | inventory. | c. | depreciation schedule. | b. | cash disbursement
sheet. | d. | net worth
statement. | | | | |
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| 15. | Accounting
methods that accurately reflect income and expenses are satisfactory for income tax reporting
purposes. The ___________of accounting is most widely used by farmers. a. | accrual
method. | c. | cash
method. | b. | cigar-box method. | d. | dash-board method. | | | | |
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| 16. | A
___________ is two or more persons who, as co-owners, operate the business. a. | cooperative. | c. | sole
proprietorship. | b. | corporation. | d. | partnership. | | | | |
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| 17. | Mr. Brown
purchased a computer system for use in managing his farm. How much will the depreciation be for
the first year. Assume that the computer will be sold at the end of five years for a salvage
value of $600. a. | $773.33. | b. | $966.67. | c. | $193.33. | d. | It cannot be determined from the data
supplied. | | |
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| 18. | A grower
might sign a contract to produce a product at a set price in order to... a. | reduce
risks. | b. | increase risks. | c. | reduce his
capital. | d. | increase his chance of making an extremely high
profit. | | |
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| 19. | In theory,
how do grain reserves stabilize prices? a. | by reducing the quantity of grain available in the
trade. | b. | by insuring grain gets to where hungry people
are. | c. | by releasing supplies
in short production years and absorbing supplies in big production years. | d. | by setting price
support levels. | | |
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| 20. | The number
of farms in the U.S. is... a. | increasing. | c. | remaining stable. | b. | decreasing. | d. | not
known. | | | | |
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| 21. | Which
financial institution is specifically designed to make long term farm loans? a. | The Production Credit
Association | c. | commercial
banks | b. | The Federal Land Bank | d. | none of the above | | | | |
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| 22. | A document
that shows the exact size, location, ownership, and method of ownership of property is
a... a. | Debt Equity
Ratio. | c. | CPU. | b. | Deed. | d. | Contract. | | | | |
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| 23. | A major
obstacle to starting a farming operation is... a. | the grain embargo. | b. | a lack of
markets. | c. | the amount of capital required. | d. | the high tech machinery
needed is not yet available in the market. | | |
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| 24. | If farmers
experience a crop failure the GNP (Gross National Product) is... a. | decreased. | c. | not
changed. | b. | increased. | d. | becomes unstable. | | | | |
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| 25. | One use of
short term credit might be for... a. | a home. | c. | fertilizer applied to crops. | b. | breeding
stock. | d. | buildings. | | | | |
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| 26. | Suppose you
go to a bank to get a loan. If you are asked about your equity you tell them
about... a. | the amount of taxes you
paid within the last year. | b. | the amount of child support you pay each
month. | c. | your assets minus your liabilities. | d. | the amount of money
spent on education as it pertains to your job. | | |
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| 27. | Suppose a
producer discovers insects in his cotton and decides to use an insecticide to save the crop. A
bank will loan him $2000.00 at 9.5% interest until he sells his crop 12 months later. At that
time he must repay the loan. How much will he pay in interest if simple interest is
computed? a. | $1900 | c. | $2190 | b. | $190 | d. | none of above | | | | |
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| 28. | Suppose a
producer planted two acres of pick-your-own strawberries and sold them all on the first day he opened
for business. Which action below would not be logical? a. | planting more
strawberries to sell in the future. | b. | lowering the price. | c. | raising the
price. | d. | none of the above. | | |
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| 29. | If the price
of inputs has risen 10% since last year but the price received for the crop and the yield is the
same, then gross income will be... a. | less. | b. | the same. | c. | more. | d. | a comparison cannot be made from the data
provided. | | |
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| 30. | Price is
determined largely by the supply and demand of products. If the government fixes the price
above the equilibrium point of the supply and demand curve, a _________ will result. a. | surplus | c. | famine | b. | shortage | d. | none of these | | | | |
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| 31. | You are
hired by a bank to determine if Bob Smith's Orchard is over capitalized. You report to the bank that
yes, he is over capitalized. In other words Smith... a. | is late in making his
bank loan payment. | b. | has more production assets than is really required for his
operation. | c. | will not be able to make a profit because his inventory is too
large. | d. | none of the above | | |
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| 32. | An example
of a variable cost of machinery operation would be... a. | interest on the
equipment. | c. | fuel for the
equipment. | b. | taxes on the equipment. | d. | depreciation on the equipment. | | | | |
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| 33. | Suppose a
piece of machinery is to have $4500 total depreciation over its lifetime. Using the straight
line depreciation method, how much depreciation can be taken off the third year if the machinery has
an expected life of 5 years and no salvage value? a. | $562.56 | c. | $1,500.00 | b. | $750.00 | d. | $900.00 | | | | |
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| 34. | A person's
estate is... a. | their assets plus their
debt ratio. | b. | the total value of their real and personal
property. | c. | their debt ratio. | d. | all of
above. | | |
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| 35. | For maximum
profit, one should strive for... a. | maximum yield or output. | b. | maximum gross
profit. | c. | maximum net profit. | d. | minimum input needed
for an acceptable production level. | | |
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| 36. | Which
statement below is true? a. | One reason to incorporate is so that liability is restricted to the
corporate assets. | b. | For every dollar spent on food, approximately 60 cents is returned to
the farmer. | c. | The average age of farmers in Georgia is
decreasing. | d. | Farm records are best kept on computer with a word processing
program. | | |
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| 37. | The primary
purpose of the total budget is... a. | To show whether the farm plan can generate an adequate cash flow to
meet expenses when they come due. | b. | To show what the net return to the owned resources of the farm will be
under the farm plan. | c. | To show whether adequate resources will be available to carry out the
farm plan. | d. | To show how the farm plan will affect the firm's liquidity
position. | | |
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| 38. | Which of the
following is true? a. | The term, liquid assets, refers to any liquid product owned or
controlled by a farmer. | b. | Feeder pigs, corn on hand, and diesel fuel in your large fuel tank are
all considered intermediate liabilities. | c. | Lenders usually require collateral. | d. | Land and buildings are
intermediate assets. | | |
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| 39. | Which of the
following costs is considered to be a fixed cost? a. | grain | c. | fertilizer | b. | real estate taxes | d. | baler twine | | | | |
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| 40. | When
planning a change in resource use in a farm business, which of the following comparisons is
considered most important? a. | average cost to total cost. | c. | marginal cost to marginal return. | b. | total cost to average
return. | d. | labor cost to marginal
return. | | | | |
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| 41. | A person who
is heavily in debt and has young dependents should consider ______________ for maximum protection at
minimum cost. a. | 20-year endowment
insurance | c. | term life
insurance | b. | limited payment life insurance | d. | whole life insurance | | | | |
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| 42. | If a farmer
sells his livestock and machinery and produces nothing on his land, then... a. | he would have no
costs. | c. | he would still have
fixed costs. | b. | he would still have variable costs. | d. | his opportunity costs would decrease. | | | | |
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| 43. | Suppose John
goes into the landscape maintenance business. If he has his truck and other equipment paid for
and he does all the labor himself then he would... a. | have no
costs. | c. | still have fixed
costs. | b. | still have variable costs. | d. | still have variable and fixed costs. | | | | |
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| 44. | The price of
a commodity is basically determined by the... a. | impact of advertising campaigns. | c. | costs of production. | b. | world food
situation. | d. | supply and demand for
the product. | | | | |
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| 45. | The
difference between total assets and total liabilities is... a. | net
worth. | c. | gross
sales. | b. | net profit. | d. | capital gain. | | | | |
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| 46. | 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. | | | | |
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| 47. | Mr. Jones is
currently growing cotton on a 40 acre tract of land. He plans to use a partial budget to determine if
soybeans will be more profitable. Which of the following items would not be included in the
partial budget? a. | the cost of the
land. | c. | production costs for
soybeans. | b. | production costs for cotton. | d. | the projected price of cotton. | | | | |
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| 48. | A soybean
producer decides to store his beans in the local elevator for six months. The price at harvest
is $5.20 per bushel and the elevator charges 1.5 cents per month/per bushel for storage. He has
5,000 bushels to sell and must borrow $26,000 at 10 percent interest for six months while he stores
the soybeans. What price must he receive for his soybeans to break even and cover his storage
and opportunity costs? a. | $5.35 | c. | $5.55 | b. | $5.65 | d. | $5.20 | | | | |
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| 49. | Cooperatives
differ from noncooperative corporations in which area? a. | there is no manager in
a cooperative. | b. | there is no board of directors in a
cooperative. | c. | how voting is done. | d. | cooperatives are never
incorporated. | | |
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| 50. | Suppose land
prices in John's area are expected to be stable over the next several years and taxes are set at $10
per acre/per year. If John can get a long-term loan at 10% and knows that he can count on a $50
profit per acre, then the maximum he should consider paying for land is about ____ per
acre. a. | $400 | c. | $800 | b. | $600 | d. | $1000 | | | | |
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Data for
questions 51-54.
Partial Budgeting:
A producer is considering holding his hogs until they reach 240 pounds
instead of his current selling weight of 220 pounds. Use the following data to help him make
the correct decision.
- Scope: 80 market hogs
- feed cost is 12 cents
per pound
- 220 pound hogs sell for 48 cents per pound
- 240 pound hogs sell
for 46 cents per pound
- it takes 2.9 pounds of feed for 1 pound of gain from 220 to 240 -
total overhead costs will increase at the rate of $10 per day
- from 220 to 240
pounds, the hogs will gain 2 pounds per day
Additional
cost
Additional Returns
Reduced
Returns
Reduced Cost
Total reduced income =
added Total added income =
added
costs & reduced returns______. returns
& reduced costs______.
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| 51. | What would
be the net change in profit if the producer decides to hold his hogs to the heavier
weight? a. | +$837 | c. | -$323 | b. | +$1500 | d. | -$273 | | | | |
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| 52. | What will be
the gross returns with the proposed change? a. | $8379 | c. | $8448 | b. | $5859 | d. | $8832 | | | | |
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| 53. | What would
be the net change in profit if the selling price for 240 pound hogs was 53 cents? a. | $122 | c. | -$100 | b. | $1071 | d. | $1220 | | | | |
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| 54. | What is the
additional overhead cost (total) for the proposed change?
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Data for
questions 55-57.
Pounds of Yield
per Marginal
Total Marginal
Fertilizer
Acre
Cost
Return Return
------------------------------------------------------------------
500
50 bu.
700
70 bu.
900
90 bu.
1100
105 bu.
1300
115 bu.
1500
122 bu.
1700
127 bu.
- Price received for the product is $2.00 per
bushel
- Total fixed cost is $100 per acre
- Variable cost is
equal to $40 per acre plus the cost of fertilizer @ $6 per hundred pounds.
- Scope = 200
acres.
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| 55. | Based on the
data provided, how many pounds of fertilizer should be applied to maximize profit? a. | 900
pounds | c. | 1700
pounds | b. | 1300 pounds | d. | 1500 pounds | | | | |
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| 56. | What would
be the profit on this crop using the projections listed above? a. | $4500 | c. | $2800 | b. | $4880 | d. | $3800 | | | | |
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| 57. | What would
be the break-even point (per bushel)? a. | $2.15 | c. | $1.47 | b. | $1.89 | d. | $1.96 | | | | |
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Data for
questions 58-61.
Cash Flow Projection for Jerry's Vegetable Farm,
1989
Cash
Inflow
Jan-Mar Ap-June July-Sept
Oct-Dec
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Sale of
Products 0
7000 2000
3000
======================================================================
Cash
Outflow
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Seed
100
500 100
500
Hired
Labor
200 800
300 300
Fixed
Cost
600 600
600 600
Supplies
850
1550
50 50
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Total Cash
Outflow 1750
2950 1050
1450
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Cash Surplus/
Deficit -1750
4050 950
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Operating Loan
Bal.
1750 0
($0.00 1/1/89)
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Ending Cash
Balance
0 2300
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| 58. | How much
money will be needed to operate this farm through March of 1989? a. | $1750 | c. | $1200 | b. | $1450 | d. | $1500 | | | | |
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| 59. | What is the
projected gross income for this farm in 1989? a. | $8000 | c. | $1200 | b. | $1450 | d. | none of the above | | | | |
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| 60. | What will be
the ending cash balance for the farm in December, 1989? a. | $4700 | c. | $4800 | b. | $4450 | d. | $4500 | | | | |
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| 61. | What will be
the ending cash balance for the farm at the end of September? a. | $950 | c. | $3250 | b. | $1450 | d. | none of the above | | | | |
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Data for
questions 62-66.
Joe has been asked by his banker to explain the financial
situation of his farming operation. He has assembled the following
data.
Checking account
balance
$10300
Savings account
balance
$11200
Supplies on
hand
$1500
Wheat in
storage
$62000
Equipment
$25000
Land and
buildings
$24000
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| 62. | What is the
total value of the fixed assets for Joe's operation? a. | $134,000 | c. | $24,000 | b. | $113,500 | d. | $49,000 | | | | |
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| 63. | What is the
total value of the current assets (include supplies on hand)? a. | $25,500 | c. | $21,500 | b. | $24,000 | d. | $85,000 | | | | |
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| 64. | What is the
total value of the intermediate assets? a. | $87,000 | c. | $111,000 | b. | $25,000 | d. | $49,000 | | | | |
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| 65. | Joe has the
following liabilities:
Current Liabilities (payments due in the next 12
months)
Feed
bill
3500
Land and equipment
payments
15000
Intermediate Liabilities (payments due from 2-10
years)
Machinery
loan
23000
Feed lot equipment
loan
9000
Long term Liabilities
Mortgage on the
farm
30000
Joe's business is... a. | current | c. | insolvent | b. | intermediate. | d. | solvent. | | | | |
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| 66. | Joe has the
following liabilities:
Current Liabilities (payments due in the next 12
months)
Feed
bill
3500
Land and equipment
payments
15000
Intermediate Liabilities (payments due from 2-10
years)
Machinery
loan
23000
Feed lot equipment
loan
9000
Long term Liabilities
Mortgage on the
farm
30000
Joe's net worth is... a. | $134,000 | c. | $53,500 | b. | $80,500 | d. | $56,000 | | | | |
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| 67. | Data for
questions 67-68.
Various proportions of
hay and grain can be fed to cattle. Suppose that the same production level can be maintained
with any one of the following rations.
Ration Pounds
of Hay Pounds of
Grain
A
6,500
6,500
B
7,000
6,000
C
7,500
5,575
D
8,000
5,180
Suppose hay sells for
$20.00/ton and grain sells for $3.60/100 pounds. Which ration
would be cheapest to
feed?
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| 68. | Data for
questions 67-68.
Various proportions of
hay and grain can be fed to cattle. Suppose that the same production level can be maintained
with any one of the following rations.
Ration Pounds
of Hay Pounds of
Grain
A
6,500
6,500
B
7,000
6,000
C
7,500
5,575
D
8,000
5,180
Suppose hay is selling
for $30.00/ton and grain is still selling for $3.60/100 pounds. Which
ration would be cheapest to feed?
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Information
for problems 69-71.
Production costs for corn to be grown in 1989 are estimated
as follows:
Yield = 110 bu./acre
Scope = 300
acres
Variable Costs (Direct Costs) per acre:
Fertilizer and
lime
$32.60
Seed and
chemicals
18.50
Machine
operation
21.50
Interest on
operating capital
7.00
Fixed Costs (Indirect Costs) per acre:
Machinery and
equipment
$32.00
Taxes and land
maintenance
9.00
Land cost
84.00
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| 69. | What is the
break-even price to cover all costs of producing this corn crop? a. | $2.21 | c. | $1.83 | b. | $2.02 | d. | $1.86 | | | | |
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| 70. | This
producer can get $2.53 at the local market or he can get $2.57 for his corn delivered to
Savannah. If it costs $600 more to deliver the product to Savannah than to the local market,
what will be the effect on net return? a. | his net return will be $1320 less if he delivers to
Savannah. | b. | his net return will be $720 less if he delivers to
Savannah. | c. | his net return will be $1320 more if he delivers to
Savannah. | d. | his net return will be $720 more if he delivers to
Savannah. | | |
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| 71. | If
conditions were such that the farmer could not grow any crop besides corn, what would corn prices
have to drop to for him not to raise corn? a. | $1.13 | c. | $1.70 | b. | $1.60 | d. | $1.84 | | | | |
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| 72. | Data for
question 72-73.
Jason has determined that his cost for producing potted
Japanese maples is $18 each. He has a one-quarter acre field of trees with the pots spaced 4 X
6 feet apart. He has been offered $26 each for the trees delivered to Atlanta. Jason has
estimated his harvesting and delivery costs as follows...
Cost of a rental truck (returned to rental
site) $.65 per
mile
Cost of
gas
$.20 per mile
Labor for preparing plants for
delivery
$5.50 per hour
Man-hours required to prepare plants for
delivery 18 man-hours
Mileage to
Atlanta
150 miles
Labor for
delivery
$100
What will be his net return? a. | $3170 | c. | $6534 | b. | $3560 | d. | $3262 | | | | |
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| 73. | Data for
question 72-73.
Jason has determined that his cost for producing potted
Japanese maples is $18 each. He has a one-quarter acre field of trees with the pots spaced 4 X
6 feet apart. He has been offered $26 each for the trees delivered to Atlanta. Jason has
estimated his harvesting and delivery costs as follows...
Cost of a rental truck (returned to rental
site) $.65 per mile
Cost of
gas
$.20 per mile
Labor for preparing plants for
delivery
$5.50 per hour
Man-hours required to prepare plants for
delivery 18
man-hours
Mileage to
Atlanta
150 miles
Labor for
delivery
$100
Suppose the retailer who bought the trees marks them up by 30%, what
would a retail customer pay for one tree including 5% tax? a. | $36.67 | c. | $34.67 | b. | $35.49 | d. | $33.49 | | | | |
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| 74. | Match the
following terms with their definitions and choose the correct sequence of answers below (reading your
answers from top to bottom).
1.
Assets
2. Balance of Trade
3. Capital Investments 4.
Capitalism
___ the net difference between the value of a country's imports and
exports of goods and services.
___ possessions of
value, usually measurable in terms of dollars.
___ an economic system in which the means of production are privately
owned and controlled and which is characterized by competition and the profit
motive.
___ an expenditure for items such as buildings and equipment which add
to the value of the property of a business, rather than for operating expenses. a. | 2 3 4
1 | c. | 2 1 4
3 | b. | 3 2 1
4 | d. | 2 4 1
3 | | | | |
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| 75. | Match the
following terms with their definitions and chose the correct sequence of answers below (reading your
answers from top to bottom).
1. Cost of
Living
2. Import Quota
3.
Competition
4. Free Market
___ continuing struggle among business firms to gain a larger
share of a given market or for other business advantages.
___ the amount of money needed to buy goods and services required to
maintain a certain standard.
___ an open market or
exchange in which buyers and sellers operate without restrictions.
___ limit on the quantity of a specific product that may be brought
into the country during a specific time period. a. | 2 3 4 1 | c. | 3 1 4 2 | b. | 3 2 1 4 | d. | 2 4 1 3 | | | | |
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