Farm Business Management 1993 -- Georgia Agriculture Education Curriculum

Name:

Multiple Choice

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

Which of the following is true about term life insurance?

a.	Term life insurance is rarely recommended.
b.	Term life insurance is available only to persons between 20 and 55 years of age.
c.	Term life insurance builds cash value fast and is a source of inexpensive loans.
d.	none of these are true

Which of these terms is most closely related to a Futures contract?

a.	forward contact	c.	promissory note
b.	bond	d.	yield grade

Cliff is a computer specialist. He does not own, plant, or raise soybeans, but he has just purchased a futures contract for soybeans. He is:

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

A major goal of diversified farming is to:

a.	spread risk among several enterprises.	c.	use labor-saving techniques.
b.	increase labor efficiency.	d.	concentrate production knowledge.

Items which are least marketable and least readily converted into cash without loss are:

a.	current assets.	c.	animals kept for breeding.
b.	intermediate or working assets.	d.	fixed or long term assets

If the revenue from an enterprise will cover variable costs and most of the fixed costs, a rational producer will:

a.	minimize his losses by producing in the short run.
b.	not produce anything.
c.	show a profit for all factors of production.
d.	minimize his profits by continuing to produce

Which of the following statements is true about family-farm corporations?

a.	Shareholders are paid by patronage dividends.
b.	Personal liability is limited to the investment in the business.
c.	A corporation generally has less expense of production.
d.	all the above are true

The income that could have been received if the input had been used in its most profitable alternative use is called:

a.	alternative income.	c.	net profit.
b.	marginal revenue.	d.	opportunity cost.

A budget is best described as __________ of income and expense.

a.	a prediction	c.	an accurate measure
b.	an exact measure	d.	a very accurate measure

10.

A financial tool that would be used to compare the feasibility of raising turkeys to 25 pounds vs. 20 pounds is a:

a.	supply budget.	c.	demand budget.
b.	partial budget.	d.	supply and demand curve evaluation.

11.

Capital gains is:

a.	gain from the sale of commodities produced, services rendered, etc.
b.	ordinary costs associated with capital items.
c.	the gain or loss from the sale of capital assets.
d.	something that is normally used up during a production cycle.

12.

Which of the following is true?

a.	One example of a current asset is an uncashed check from the sale of products.
b.	Long-term liabilities include the mortgage on real estate.
c.	A business is said to be solvent if total assets exceed total liabilities.
d.	all of the above are true

13.

Which of the following is true?

a.	Current assets minus current liabilities is working capital.
b.	The difference between the price of a commodity in the nearby future's market and the local cash price is called basis.
c.	A decline in value of an asset over its useful life associated with use, age and obsolescence is known as depreciation.
d.	all are true

14.

Which of the following Net Capital Ratios would indicate the best financial position? (Total Assets / Total Liabilities)

a.	1.50	c.	1.75
b.	1.80	d.	0.25

15.

Suppose a producer has just enough acreage to justify the tractor he has purchased. Why would he want to do custom work for his neighbor? So that his:

a.	total variable cost will decline.	c.	average fixed cost per acre will decline.
b.	variable cost per acre will decline.	d.	total fixed cost will decline.

16.

The Net Worth Statement is the best measure of:

a.	total capital investment.	c.	net cost income.
b.	income taxes that must be paid.	d.	financial progress over a period of years.

17.

A written agreement by which an owner of property transfers the title to someone to manage and safeguard for the benefit of beneficiaries is a:

a.	trust.	c.	corporation.
b.	partnership.	d.	quit claim deed

18.

A 62 year old woman wants to pass along her farm and other assets to her children with a minimum amount of taxes. She should:

a.	see someone specializing in estate planning.
b.	write a will specifying reduced tax.
c.	give all her assets to her heirs immediately.
d.	nothing, there is nothing she can do to reduce taxes.

19.

Gene secured a recent loan with his timber land. The lender:

a.	will not be happy if he finds out Gene has cut the timber.
b.	may grant permission to harvest the timber.
c.	has a right to stop the harvest of timber from the land.
d.	all the above

20.

Samuel made $22,470 profit on his operation last year. His capital investment was $200,550. What was his rate of return to capital invested?

a.	8.9%	c.	10%
b.	9.7%	d.	11.2%

21.

Agricultural producers such as one who produces soybeans are best described as price:

a.	takers.	c.	obtainers.
b.	seekers.	d.	negotiators.

22.

Which of the following is true about a limited partnership?

a.	The limited partner cannot participate in management of the business.
b.	The limited partner cannot have their name included in the name of the partnership.
c.	There can be more than one limited partner in a limited partnership.
d.	all the above.

23.

When the change in price is greater than the relative change in quantity taken, an agricultural commodity is said to be:

a.	inelastic.	c.	unitary elastic.
b.	elastic.	d.	perfectly inelastic.

24.

Successful advertising:

a.	increases demand for the product advertised.	c.	reduces net profit.
b.	causes more to be sold but at a lower price.	d.	reduces gross profit.

25.

An increase in the supply of an agricultural commodity normally results in:

a.	a price decrease.	c.	unchanged prices.
b.	a price increase.	d.	downward movement of the GNP.

26.

The amount of an agricultural product available for sale at a given price and at a specific place and time is called:

a.	demand.	c.	market.
b.	supply.	d.	utility.

27.

Government price regulation of any consumer product or service:

a.	disrupts a free market.
b.	causes consumers to demand more at the same price.
c.	helps preserve the free market system.
d.	results in lower prices to the producer.

28.

The quantity of a luxury item purchased compared to the amount of a necessity item purchased would be:

a.	affected less by a price change.	c.	little changed by a change in price.
b.	affected equally by a price change.	d.	affected more by a price change.

29.

If prices increase incrementally for both gasoline and chicken:

a.	gasoline will prove to be more inelastic than chicken.
b.	chicken will prove to be more inelastic than gasoline.
c.	both will prove to be have near perfect elasticity.
d.	gasoline will prove to be flatter in trajectory.

30.

Relative to demand, most basic necessities tend to be:

a.	inelastic.	c.	unitary.
b.	elastic.	d.	none of the above

31.

If the price of an agricultural commodity is too high, the supply will be greater than the demand resulting in a:

a.	surplus.	c.	shortage.
b.	monopoly.	d.	slump.

32.

The equilibrium price of an agricultural product is the point where:

a.	demand and price are unchanged for one week or more.
b.	production is stable at a given price.
c.	the quantity supplied is equal to the quantity demanded.
d.	selling price equals purchasing price.

33.

For a product such as potatoes, which has an inelastic demand schedule, the total revenue will be:

a.	decreased with a reduction in price.	c.	increased with a reduction in price.
b.	decreased with an increase in price.	d.	increased with the same price.

34.

Since there is no substitute for food, in the aggregate, the demand for agricultural products tends to be:

a.	elastic.	c.	inelastic.
b.	unitary elastic.	d.	perfectly elastic

35.

As price of an agricultural product increases the supply:

a.	decreases.	c.	increases.
b.	equalizes.	d.	remains unchanged

36.

How much will the per-unit cost of soil be if one bag of soil costs $18 and each bag will fill 72 ten-inch baskets?

a.	$0.29	c.	$0.25
b.	$0.27	d.	$0.53

37.

Which of the following is NOT true?

a.	Supply increases as demand increases.
b.	Demand increases as price increases.
c.	Price and demand move in opposite directions (up/down).
d.	Supply and demand curves establish the equilibrium price

38.

Which of the approaches below would NOT improve prices if practiced by all producers?

a.	curtail production.	c.	remove surplus.
b.	increase supply.	d.	reduce yield.

39.

What happens to the price of a product when the demand increases and the supply remains unchanged?

a.	it is sold at a higher price	c.	the price is unchanged
b.	it is sold at a lower price	d.	the price is stabilized by the USDA

40.

Other things being equal, the greater the supply of an agricultural product:

a.	the lower the price paid.	c.	the same price paid.
b.	the higher the price paid.	d.	none of the above

41.

If the price of an agricultural commodity is too low, demand will be greater than the supply resulting in a:

a.	surplus.	c.	shortage.
b.	monopoly.	d.	slump.

42.

Most farm businesses are:

a.	limited partnerships.	c.	sole proprietorships.
b.	corporations.	d.	partnerships.

43.

The number of farms in the U.S. is ______ the number of farms in 1945.

a.	slightly more than	c.	much less than
b.	much more than	d.	the same

44.

A major crop failure by farmers would _______ the GNP. (assume other production remains constant):

a.	decreased
b.	increased
c.	render the GNP un-changed -- farm products are not included in the GNP.
d.	there is no way to determine this from the information given.

45.

Short term credit should be used for items such as:

a.	brood cattle purchases.	c.	fertilizer applied to crops.
b.	irrigation ponds.	d.	buildings.

46.

Suppose you go to a bank to get a loan and they ask about your equity capital. You then tell about the amount of:

a.	federal taxes paid within the last year.
b.	child support you pay each month.
c.	money you have and the value of property you own free of debt.
d.	money you have spent on education.

47.

An example of a variable cost of machinery operation is:

a.	interest.	c.	fuel.
b.	taxes.	d.	depreciation.

48.

An investor in determining whether or not to invest in a particular enterprise must consider:

a.	feasibility of investment.	c.	opportunity cost.
b.	risk of investment.	d.	all of the above

49.

Which of the following is true?

a.	One should always produce well beyond the point of diminishing returns.
b.	For 50+ years American producers have lost cropland to construction, etc. However, due to increased yields, production has been increasing.
c.	For maximum profit, one should strive for the greatest yield or output.
d.	The average American consumer spends a higher percent of his income on food than he did twenty years ago.

50.

Which of the following is true?

a.	An individual farm is said to be a monopoly.
b.	One reason to incorporate a farm is so that liability is restricted to the corporate assets.
c.	For every dollar spent on food, approximately 75 cents is returned to the farmer.
d.	The term, liquid assets, refers to any liquid product such as milk controlled by a farmer

ITEMS 51 - 53 Partial Budget: Selling Calves vs. Stockering

A producer has 50 calves ready to wean at 450 pounds each. He can sell them for $0.62 per pound.

The producer has 50 acres available for winter grazing, thus he has an alternative of stockering the calves rather than selling them at weaning. If he chooses this alternative, he estimates his costs will be:

50 acres of winter grazing @ $92.00 per acre for a total of $4600

Interest on the value of the calves for 6 months at an annual rate of 8%

Veterinary & medicine cost @ $4.00 per calf

Supplemental feed cost @ $15.00 per calf

He estimates the calves will gain to a weight of 750 pounds on the grazing. Also, he expects a selling price of $60.00 per cwt. for the yearlings.

He has $8,665 invested in the caves at weaning time.

51.

What is the cost of keeping the calves an additional six months?

a.	$6666	c.	$4539
b.	$6108	d.	$2897

52.

What is the total value of the calves at weaning?

a.	$12,786	c.	$13,950
b.	$9,984	d.	$13,887

53.

What is the estimated TOTAL PROFIT to be made on this calf crop -- from conception and birth to the 750 pound weight?

a.	$7742	c.	$8477
b.	$7727	d.	$8614

54.

If an item is regularly priced $18, but is marked 15% off, what is the total price after 5% sales tax is added?

a.	$16.96	c.	$15.32
b.	$16.07	d.	$15.65

Use the following information and data for Questions 55 - 58. James is contemplating building a new house and financing $118,000 of it over 30 years at 8% interest. Using the table of payments below, answer the following questions.

Equal Monthly Payments to Amortize a Loan of $1000
Interest Rate	15 Years	20 Years	30 Years
7 3/4	9.41	8.21	7.16
8	9.56	8.36	7.34
8 1/4	9.7	8.52	7.51
8 1/5	9.85	8.68	8.76

55.

How much will James' monthly payment be?

a.	$866.12	c.	$734.00
b.	$923.14	d.	$435.48

56.

How much will James pay in interest over the 30 year period?

a.	$17,866.12	c.	$100,734.30
b.	$11,923.14	d.	$193,803.20

57.

How much would James save in interest payments if he could pay the loan off in 15 years?

a.	$85,054.40	c.	$108,748.80
b.	$13,734.00	d.	$145,435.48

58.

The person creating the table made a mistake in one of the cells listed below -- all others are correct. Which one is obviously incorrect?

a.	8.5% for 30 years	c.	8.25% for 20 years
b.	8% for 20 years	d.	7.75% for 30 years

ITEMS 59 - 61. Bill plans to continue the same enterprises and production levels next year. He expects his cost of production to rise but he does not expect the prices he receives for his products to change. Because of his health he will have to hire more labor and inflation will drive up other costs. Complete the following table to determine Bill's expected expenses and income in 1994.

Input	Spent in 1993	Expected % Increase	Added Cost	Expected to Spend in 1994
Gas, Oil, grease, etc.	6783	15
Fertilizer	7426	10
Chemicals	3592	5	180	3,772
Machinery	20518	5	1,026	21,544
Labor	12532	50
Interest	15800	15	2,370	18,170
TOTALS	66,651

59.

What will be the ADDED expense for Bill during 1994?

a.	$11,602	c.	$9,109
b.	$9,235	d.	$10,339

60.

Overall, the expense increase was a ___% increase.

a.	9.5%	c.	13.7%
b.	10.4%	d.	17.4%

61.

Bill's gross income in 1993 was $102,528. What will be his net profit in 1994 if his predictions are correct?

a.	$33,884	c.	$24,082
b.	$23,879	d.	$24,275

62.

Amy has 8,000 ten-inch hanging baskets to fill with soil. How much will her total soil cost be if each bag of soil costs $18 and each bag will fill 63 ten-inch baskets?

a.	$2320	c.	$2160
b.	$1280	d.	$2286

Use the following information to answer Questions 63 - 65. Wheat sells for $4.00 per bushel and nitrogen fertilizer sells for $.40 per pound.

Total pounds of fertilizer per acre	Total wheat yield per acre	Additional pounds of fertilizer applied	Additional bushels of wheat per acre	Cost of added fertilizer	Return from additional yield
0	18
10	22	10	4	4	16
20	26	10	4	4	16
30	28	10	2	4	8
40	30	10	2	4	8
50	31	10	1	4	4
60	32	10	1	4	4
70	33	10	1	4	4
80	33	10	0	4	0
90	33	10	0	4	0

63.

How much fertilizer should be applied to maximize profit?

a.	40 pounds	c.	80 pounds
b.	60 pounds	d.	90 pounds

64.

What is the additional net profit from fertilizing with 30 pounds of nitrogen rather than using no fertilizer at all?

a.	$8	c.	$28
b.	$16	d.	$40

65.

The economic principle demonstrated here is the:

a.	principle of elasticity.	c.	principle of cash flow.
b.	principle of investment.	d.	none of these

Income Statement Analysis

Use the following information to answer questions 66 - 69.

Soybean sales $34,000

Sale of hay 13,500

Building depreciation 6,800

Increase in inventory of livestock 67,000

Feeder calf sales 12,000

Total cash operating expenses 32,000

Machinery depreciation 9,000

Decrease in crop inventory 14,000

66.

What is the gross cash farm income for this business?

a.	$59,500	c.	$135,500
b.	$118,500	d.	$139,500

67.

What is the net cash farm income for this business?

a.	$11,700	c.	$42,500
b.	$27,500	d.	$66,500

68.

What is the net farm income for this business?

a.	$69,300	c.	$61,700
b.	$40,700	d.	$64,700

69.

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

a.	$44,700	c.	$27,700
b.	$35,700	d.	$11,700

Data for questions 70 - 71.

Cash flow project for Athens Greenhouses, 1993-1994

	Jan-March	April-June	July-Sept.	Oct.-Dec.	Jan-Mar. '94
CASH EXPENSES
Fertilizer	300	300	300	300	300
Hired Labor	100	100	100	100	100
Seed	300	300	300	300	300
Marketing	400	550	550	550	550
Greenhouse payments	1000	1000	1000	1000	1000
Equipment payments	500	500	500	500	500
Utilities	13000	300	300	500	13000
TOTAL CASH OUTFLOW	15,600	3,050	3,050
SALES	0	41,200	4500	1400	0
CASH SURPLUS OR DEFICIT	- 15,600	22,550	24,000
OPERATING LOAN BALANCE ($0.00 1/1/93)	15,600
ENDING CASH BALANCE	0

70.

During 1993, what amount of money will need to be borrowed to operate this business and for how long?

a.	$14,897 for 3 months	c.	$12,050 for 12 months
b.	$11,789 for 6 months	d.	$15,600 for 3 months

71.

According to this projection, how much cash will be on hand at the end of December 1993?

a.	$22150	c.	$2150
b.	$2250	d.	$22,546

Balance Sheet Analysis, Problems 72 - 75.

Cash and checking account balance $13,500

Mortgage on land 150,000

Value of machinery 34,500

Value of land 150,000

Value of feeder livestock 10,000

Loan at bank (due in 90 days) 70,000

Value of grain in storage 26,000

Interest due and payable 1,000

72.

This producer has assets with a total value of ___________.

a.	$13,000	c.	$203,500
b.	$103,500	d.	$234,000

73.

This producer has a net worth of ____________.

a.	$12,500	c.	$13,000
b.	$15,500	d.	$234,000

74.

What is the producer's Equity Ratio? (Also known as Debt-to-Net Worth) (Total Liabilities divided by Net Worth)

a.	1.52	c.	22.85
b.	17	d.	21.48

75.

If the value of land suddenly dropped by 15%, this producer's:

a.	assets would drop by $22,500.	c.	assets would not cover his liabilities.
b.	business would not be solvent.	d.	All of the above statements are true.