Multiple Choice
Identify the
letter of the choice that best completes the statement or answers the question.
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| 1. | Speculators in the futures
market... a. | may, depending on prices and their
position in the market, make great profits or take great losses. | b. | are more at risk than hedgers. | c. | do not produce a product to sell. | d. | all the above | | |
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| 2. | Which of the following would
be most elastic with regard to demand? a. | gasoline | c. | automobiles | b. | salt | d. | sugar | | | | |
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| 3. | A document that lists
projected income and expenses is a... a. | supply and demand curve. | c. | consumption plan. | b. | budget. | d. | hedge. | | | | |
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| 4. | Short-term credit is
generally used to purchase such items as... a. | fertilizer and seed. | c. | buildings and equipment. | b. | land and equipment. | d. | all of the above. | | | | |
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| 5. | Which of the following is a
variable cost? a. | depreciation | c. | equipment
payments | b. | livestock feed | d. | real estate loan
payments | | | | |
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| 6. | Signing a contract to
produce a product at a set price is done to... a. | reduce risk. | b. | increase risk. | c. | reduce capital investment. | d. | increase the chance of high gross return. | | |
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| 7. | The size of farms in the
U.S. is... a. | increasing. | c. | remaining
stable. | b. | decreasing. | d. | not known. | | | | |
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| 8. | Hedging does all the
following except... a. | guarantees a profit to the producer. | b. | guarantees a price to the producer. | c. | prevents windfall profits. | d. | insures against unfavorable price movement. | | |
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| 9. | Which of the following
market structures best describes the market in which an American wheat farmer
operates? a. | monopoly | c. | perfect
competition | b. | oligopoly | d. | monopolistic
competition | | | | |
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| 10. | When the price of a product
goes down (assuming no change in other factors)... a. | less product is supplied. | c. | more producers enter the market. | b. | more product is supplied. | d. | none of the above. | | | | |
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| 11. | What factor may alter demand
for a product when there is not a change in price? a. | population increase or decrease | c. | consumer income | b. | taste/fashion | d. | all the above | | | | |
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| 12. | The point where an
additional unit of a variable cost item decreases the actual out-put of an enterprise is called the
point of... a. | depreciation. | c. | comprehension. | b. | debt equity ratio. | d. | diminishing returns. | | | | |
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| 13. | The primary decision-making
tool of a producer is the... a. | net worth statement. | c. | equity ratio. | b. | budget. | d. | weather. | | | | |
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| 14. | From which of the following
businesses or business types would you expect to receive a patronage refund? a. | a tractor dealership | c. | cooperative | b. | sole proprietorship | d. | a partnership | | | | |
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| 15. | A list of the critical
financial statements does not include the... a. | income statement. | c. | cash flow statement. | b. | bank statement. | d. | net worth
statement. | | | | |
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| 16. | Net worth is equal
to... a. | assets plus liabilities. | c. | liabilities minus assets. | b. | assets times liabilities. | d. | assets minus liabilities. | | | | |
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| 17. | Which asset or liability is
not matched to its correct category?
Category
Item a. | fixed asset
real estate | b. | intermediate asset
equipment | c. | intermediate liability a
loan to the neighbor | d. | long term liability a
mortgage on real estate | | |
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| 18. | Which of the following is a
characteristic of a flexible loan. a. | a "pre-payment without penalty" clause | b. | a competitive interest rate | c. | a clause calling for "interest only" during difficult
times | d. | all the above | | |
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| 19. | There are three kinds of
budgets. Which of the following listings has them ranked from the most to least
comprehensive? a. | enterprise, whole farm,
partial | c. | partial, enterprise, whole farm | b. | whole farm, enterprise, partial | d. | whole farm, partial, enterprise | | | | |
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| 20. | An IRA is
a... a. | tax sheltered retirement plan. | b. | government agency to regulate production. | c. | branch of the USDA. | d. | government agency to collect taxes. | | |
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| 21. | Which is not true
about the value of money? a. | The value of money changes. | b. | Inflation cheapens money. | c. | Deflation increases the value of money. | d. | One dollar received today is worth less than a dollar received next
year. | | |
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| 22. | Ann knows that she will need
$100,000 for living expenses when she retires in 20 years. She used _________ to determine how
much she needs to invest today at 10% interest to accumulate the needed funds. a. | trigonometry | c. | compounding | b. | geometry | d. | discounting | | | | |
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| 23. | Which of the following
should not be depreciated? a. | trucks | c. | buildings | b. | land | d. | tractors | | | | |
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| 24. | With which method of record
keeping is it easiest to determine the net farm income and analyze the strong and weak points of an
agricultural business from year to year? a. | accrual method | b. | cash method | c. | shoe box method | d. | judged on this factor alone, all are equal | | |
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| 25. | Mr. Brown is the owner of
the local hardware store. He does not farm but likes to buy and sell in the futures
market. He is a... a. | producer. | c. | speculator. | b. | liquidator. | d. | hedger. | | | | |
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| 26. | If all other factors remain
the same and the supply of a product goes up, then the price of that product will
probably... a. | fall. | c. | remain the same. | b. | rise. | d. | go up, then back down
dramatically. | | | | |
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| 27. | If a tractor purchased in
1987 for $12,000 is valued at $14,000 today, then it has... a. | appreciated. | c. | decreased in value. | b. | depreciated. | d. | hedged. | | | | |
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| 28. | A pork producer who does not
produce this year will lose some money including _____. a. | medicine | c. | feed | b. | depreciation | d. | sales
commissions | | | | |
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| 29. | Which items are least
readily converted into cash without loss? a. | current assets | c. | crops held for
sale | b. | intermediate or working
assets | d. | fixed or long term assets | | | | |
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| 30. | A document that shows the
exact size, location, ownership, and method of ownership of property is a... a. | contract. | c. | rite of habeas corpus. | b. | deed. | d. | budget. | | | | |
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| 31. | One of Sarah's greenhouse
customers injured his back when he fell into an open ditch in the greenhouse. The judge said,
"Sarah, you failed to use ordinary care in providing for your customers' safety. You are
guilty of _____________. I hope you have ____ insurance." a. | negligence, liability | c. | having an attractive nuisance, life | b. | homicide, liability | d. | homicide, home owners | | | | |
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| 32. | Fixed costs in the operation
of an agricultural production business would include... a. | taxes, depreciation, interest and insurance. | b. | hedges, speculation, put and calls. | c. | feed, fertilizer, seed and maintenance. | d. | collateral, principle, mortgages and
annuities. | | |
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| 33. | What statement best
describes an advantage of a family farm corporation? a. | limited liability | c. | easily transferred ownership | b. | opportunity for tax savings | d. | all the above | | | | |
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| 34. | Storage of a product has the
following effects... a. | stabilizes price and regulates supply. | b. | encourages thrift and discourages
competitiveness. | c. | drives down price and encourages supply. | d. | drives up the price and drives down the patronage
refund. | | |
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| 35. | A Georgia cotton farmer
might anticipate an increase in the demand for U.S. cotton by the following event. a. | a large cotton crop in Africa | b. | synthetic fiber replaces cotton in shirt
production | c. | a near total cotton crop failure in China and Russia | d. | none of the above | | |
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| 36. | Joe is a U.S. apple
producer, all his factors of production have remained constant over the last two years, however,
suddenly U.S. apple production has soared, with production factors still remaining constant, Joe can
expect apple prices to... a. | fall. | c. | remain the
same. | b. | rise. | d. | fluctuate
wildly. | | | | |
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| 37. | One way government might
influence the production of certain products or commodities would be to... a. | call in any loans it has made to producers. | b. | change high interest rates on loans to
producers. | c. | loan money at low interest rates to producers. | d. | encourage imports and discourages exports. | | |
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| 38. | As a cooperative member,
your share in the profits the cooperative made are distributed to you on the... a. | amount of depreciation you have accumulated. | b. | basis of hedging. | c. | basis of speculation. | d. | basis of patronage. | | |
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| 39. | Which of the following is
not a basic form of business organization? a. | sole proprietorship | c. | partnership | b. | corporation | d. | monopoly | | | | |
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| 40. | When a banker asks a person
to pledge land, his truck, and livestock to obtain a loan, this property is referred to
as... a. | a hedge. | c. | collateral. | b. | a risk. | d. | depreciation. | | | | |
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| 41. | Jim has a good reputation as
a rancher and maintains good fences. During a storm one night a tree fell across his fence and
one of his cows wandered out into the road and was hit by a car. The driver was not injured,
but the cow died and there was considerable damage to the car. Who was responsible for the car
repair and the cost of the cow? a. | Jim was responsible for both. | b. | The driver is responsible for both. | c. | Jim is responsible for the damage to the car and the driver for the
cost of the cow. | d. | Neither is responsible; it is a "no fault"
accident. | | |
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| 42. | ________ is a measure of how
sensitive the market is to a change in one of the parts. a. | Demand | c. | Supply | b. | Elasticity | d. | Price | | | | |
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| 43. | Which of the following is
not a characteristic of a cooperative? a. | They are owned by members who use them. | b. | They emphasize high profits. | c. | They emphasize member control. | d. | Members of the cooperative elect a board of
directors | | |
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| 44. | If you make a mistake when
filling out a check, you should... a. | make sure the incorrect information is struck through at least
twice. | b. | write in the correct information in a different color ink. | c. | destroy the check and write a new one. | d. | any of the above | | |
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| 45. | When a piece of equipment
such as a combine or a truck, has declined in value over its useful life, it has... a. | invested. | c. | optioned. | b. | appreciated. | d. | depreciated. | | | | |
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| 46. | ______ is the act of lending
money at an excessive or unlawfully high rate of interest. a. | Blackmail | c. | Lading | b. | Usury | d. | Debt
servicing | | | | |
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| 47. | _______ is a means of
shifting risk of uncertain events, at a cost, from you to someone else specializing in taking
risks. a. | Reserves | c. | Futures
market | b. | Insurance | d. | Leasing | | | | |
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| 48. | A business is solvent
if... a. | total expenses exceed total
liabilities | c. | total assets exceed total liabilities | b. | total liabilities exceed total assets | d. | none of the above | | | | |
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| 49. | Which is true of
credit? Credit... a. | is a vital tool in agriculture. | c. | provides a means of leverage. | b. | is widely used as a business tool. | d. | all the above. | | | | |
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| 50. | The process of using futures
contracts for forward pricing is called... a. | reserves. | c. | insurance. | b. | risk enhancement. | d. | hedging. | | | | |
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Data for questions 51 -
60.
Tom has complied the following yearly costs for his blueberry plant operation.
In Tom's situation, the production cycle can be one or two years. The costs per year are the
same for year one and year two. Use this data to help him analyze his profit/loss
situation.
- scope: 8,000 blueberry plants
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equipment cost: $600
- land
payment allocated to the Blueberry plot: $100
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fertilizer cost: $300
- labor cost: 120 hours at $4.00
per hour
- chemicals: $250
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repairs, gasoline, miscellaneous: $325
- selling price for one-year-old,
9-12" plants: $.48 each
- selling price for two-year-old,
18-24" plants: $.80 each
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| 51. | What is Tom's fixed cost of
production per year? a. | $2055 | c. | $700 | b. | $1355 | d. | none of the above | | | | |
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| 52. | What is Tom's variable cost
of production per year? a. | $2055 | c. | $700 | b. | $1355 | d. | none of the above | | | | |
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| 53. | What will be Tom's gross
return if he sells the plants after one year? a. | $2055 | c. | $700 | b. | $1355 | d. | none of the above | | | | |
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| 54. | What will be Tom's net
returns on the blueberry operation if he sells the plants after one year? a. | $2055 | c. | $1785 | b. | $1355 | d. | none of the
above | | | | |
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| 55. | What is the cost per unit of
production for one-year-old plants? a. | $.2055 | c. | $.257 | b. | $.235 | d. | none of the above | | | | |
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| 56. | Suppose Tom can get $.54 for
each one-year-old plant if he grades them carefully, ensuring that all plants are premium
grade. If 80% of his plants will grade premium and the others have to be sold as culls for $.15
each, what should he do? a. | Sell them as one lot for $.48 each -- he will make 6 cents more on each plant this
way. | b. | Grade them and sell one group as
premium grade and one as culls -- he will make $34.89 more this way. | c. | Sell them as one lot for $.48 each -- he will make $144 more this
way. | d. | Grade them and sell one group as
premium grade and one as culls -- he will make $144 more this way. | | |
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| 57. | Partial
Budgeting:
Tom also has to decide if he should sell his blueberry plants as one-year-old stock
this year or wait until next year to sell them as two-year-old stock. Help him make the correct
decision.
Additional
Costs
Additional Returns
Reduced
Returns
Reduced Costs
Total reduced income =
added Total added income =
added
costs
& reduced returns______. returns &
reduced costs______.
57. What would be the change in profit between selling
one-year-old stock and two-year-old stock? a. | + $505 | c. | - $323 | b. | + $1500 | d. | - $273 | | | | |
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| 58. | What will be the gross
returns with the proposed change? a. | $6400 | c. | $8448 | b. | $5859 | d. | $8832 | | | | |
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| 59. | Tom must decide to produce
two one-year crops or one two-year crop. What should he do? a. | Produce one two-year crop -- he makes $505 more this
way. | b. | Produce one two-year crop -- he makes
$2290 more this way. | c. | Produce two one-year crops -- he makes $505 more this way. | d. | Produce two one-year crops -- he makes $1280 more this
way. | | |
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| 60. | What is the additional
overhead cost for the proposed change?
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Data for questions 61 -
65.
Pounds of Yield
per Marginal
Total
Marginal
Fertilizer
Acre
Cost
Return Return
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400
25
bu.
600
30 bu.
800
45 bu.
1000
52 bu.
1200
55 bu.
1400
56 bu.
1600
54 bu.
- Price received for the crop is $6.50 per
bushel
- Total
fixed cost is $100 per acre
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Variable cost is equal to $140 per acre plus the cost of fertilizer @ $7 per hundred
pounds.
- Scope =
200 acres.
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| 61. | Based on the data provided,
how many pounds of fertilizer should be applied to maximize profit? a. | 1000 pounds | c. | 1400 pounds | b. | 1200 pounds | d. | 1600 pounds | | | | |
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| 62. | What is the break-even point
or cost of production (per bushel) at the point of maximum profit? a. | $5.15 | c. | $5.47 | b. | $5.89 | d. | $5.96 | | | | |
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| 63. | What would be the profit on
this crop using the projections listed above? a. | $4501 | c. | $5800 | b. | $4881 | d. | $6700 | | | | |
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| 64. | At which level of
fertilization does the point-of-diminishing-returns occur? a. | 1000 pounds | c. | 1400 pounds | b. | 1200 pounds | d. | 1600 pounds | | | | |
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| 65. | It is very important for a
producer to know how much yield he can expect from an additional unit of an input such as
fertilizer. Suppose this producer chose to put on 800 lbs. of fertilizer because that is what
his neighbor does. What would be his profit or loss? a. | a profit of only $700 | c. | a loss of $700 | b. | a profit of only $600 | d. | a loss of $600 | | | | |
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Data for questions 66 -
69.
Cash Flow Projection for AAA Quail Farm, 1990
Cash
Inflow
Jan-Mar Ap-June
July-Sept
Oct-Dec
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Sale of
Products 0
8000
0
8000
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Cash Outflow
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Chicks
700
0
700
0
Hired Labor
600
800
600
800
Fixed Cost
600
600
600
600
Feed & Medicine
850
1550
850
1550
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Total Cash Outflow
2750
2950
2750
2950
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Cash Surplus/
Deficit
5050
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Operating Loan
Bal.
2750
($0.00 1/1/90)
-----------------------------------------------------------------------------------------------------
Ending Cash
Balance 0
2300
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| 66. | How much money will be
needed to operate this farm through March of 1990? a. | $2950 | c. | $8000 | b. | $2750 | d. | $5050 | | | | |
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| 67. | What is the projected gross
income for this farm in 1990? a. | $8000 | c. | $1200 | b. | $1450 | d. | none of the above | | | | |
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| 68. | What will be the ending cash
balance for the farm at the end of September? a. | $2300 | c. | - $450 | b. | $2750 | d. | none of the above | | | | |
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| 69. | What will be the ending cash
balance for the farm in December, 1990? a. | $4700 | c. | $4800 | b. | $4450 | d. | $4600 | | | | |
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Data for questions 70 -
74.
Wilber has complied the following data on his agricultural operation. Help him
analyze his financial situation.
Assets
Checking account
balance
$9300
Savings account
balance
$15200
Supplies on
hand
$4200
Crops in
storage
$6500
Equipment
$42500
Land and
buildings
$42000
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| 70. | What is the total value of
the fixed assets for Wilber's operation? a. | $134,000 | c. | $42,000 | b. | $113,500 | d. | none of the above | | | | |
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| 71. | What is the total value of
the current assets (include supplies on hand)? a. | $25,500 | c. | $21,500 | b. | $35,200 | d. | none of the above | | | | |
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| 72. | What is the total value of
the intermediate assets? a. | $87,000 | c. | $111,000 | b. | $42,500 | d. | none of the above | | | | |
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| 73. | Wilber has the following
liabilities:
Current Liabilities (payments due in the next 12
months)
Seed
bill
500
Land and
equipment payments
5000
Intermediate Liabilities (payments
due from 2-10 years)
Machinery
loan
36000
Long Term
Liabilities
Mortgage on the
farm
30000
73. Wilber's business
is... a. | current. | c. | insolvent. | b. | intermediate. | d. | solvent. | | | | |
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| 74. | Wilber has the following
liabilities:
Current Liabilities (payments due in the next 12
months)
Seed
bill
500
Land and
equipment payments
5000
Intermediate Liabilities (payments
due from 2-10 years)
Machinery
loan
36000
Long Term
Liabilities
Mortgage on the
farm
30000
Wilber's net
worth is ... a. | $119,700 | c. | $71,500 | b. | $80,500 | d. | $48,200 | | | | |
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| 75. | Suppose an item is regularly
priced $34 but it is on sale for 25% off. What would be the total cost of the item including 6%
sales tax? a. | $33.00 | c. | $27.03 | b. | $29.78 | d. | $36.09 | | | | |
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