Name: 
 

1998 State Farm Business Management CDE


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

1. 
A measurable point where an increase in the addition of a variable cost item decreases the actual output of an enterprise is referred to as:
a.
budget
c.
marginal cost
b.
diminishing returns
d.
marginal returns
 

2. 
Opportunity costs are:
a.
the money spent to do business
c.
the amount that money increases or decreases through time depending on the many alternative uses
b.
the money spent to grow or produce one enterprise
d.
the cost of using a resource in one way based on the return that could be obtained from using it in the best alternative way
 

3. 
Which of the following is not a fixed cost?
a.
fertilizer
c.
machinery
b.
interest
d.
depreciation
 

4. 
Bill knows that corn yield peaks at about 150 bushels with approximately 125 units of fertilizer in his county.  He also knows he can produce 25 bushels of corn without fertilizer.  With this information, Bill knows that:
a.
anything more than 125 units of fertilizer would be wasted
c.
he should use more than 125 units of fertilizer so he can increase yields
b.
he should not use any fertilizer so he can save money
d.
none of the above
 

5. 
The demand curve shows the relationship between:
a.
consumer tastes and the quantity demanded
c.
price and production costs
b.
price and the quantity demanded
d.
money income and quantity demanded
 

6. 
The percent change in quantity divided by the percent change in price is defined as:
a.
elasticity
c.
production movement
b.
marketing
d.
consumption ratio
 

7. 
The financial record that reflects the profitability of the business over an accounting period  is a(n):
a.
income statement
c.
operating statement
b.
profit and loss statement
d.
all of the above
 

8. 
An estimate of monthly cash inflows and outflows is a:
a.
risk management plan
c.
cash flow projection
b.
whole farm budget
d.
detailed enterprise analysis
 

9. 
One of the best measures of liquidity is:
a.
projected analysis
c.
current ratio
b.
ratio analysis
d.
None of the above
 

10. 
The intermediate ratio = (current assets + intermediate assets) / (current liabilities + intermediate liabilities).   The intermediate ratio for Green Farms in year four is 3.51:1.
This means that:
a.
there are $3.51 worth of intermediate and current assets for every $1.00 of intermediate and current liabilities
c.
Green Farms should make a profit of $3.51 for every $1.00 spent
b.
there are $3.51 worth of intermediate and current liabilities for every $1.00 of     intermediate and current assets
d.
it is projected that Green Farms will lose $3.51 for every $1.00 spent
 

11. 
A business is solvent if:
a.
it is incorporated
c.
it made a profit last year
b.
total assets exceed total liabilities
d.
total liabilities exceed total assets
 

12. 
When gathering data for use in budgets, a source of information might be:
a.
county averages and production data
c.
neighbors
b.
sample budgets
d.
all of the above
 

13. 
An enterprise budget:
a.
is a projection of costs and returns for a particular production process
c.
projects the outcome of a particular organization of inputs and production practices
b.
is used to estimate profit and break-even levels for prices or yields
d.
all of the above
 

14. 
If the variable operating costs of Lisa's watermelon production is $334.57 and the yield is 7 tons, what is Lisa's break-even price per ton?
a.
$.02
c.
$50.20
b.
$47.80
d.
$49.75
 

15. 
A step-by-step process for identifying all the costs and returns that change due to alterations in one or more of the production processes is a(n):
a.
partial budget
c.
additional budget
b.
enterprise budget
d.
whole farm budget
 

16. 
Which of the following is not nonfarm earnings?
a.
inheritances
c.
income from the sale of a tractor
b.
income from investments
d.
salaries earned off the farm
 

17. 
When a price ceiling is imposed at a level below the equilibrium price, this creates a shortage.
a.
true
b.
false
 

18. 
A contract calling for delivery of a carefully described commodity at some later time period is a(n):
a.
futures contract
c.
cash agreement
b.
options contract
d.
forward agreement
 

19. 
Compounding calculates the present value of a future sum of money.
a.
true
b.
false
 

20. 
Sums of money paid or received in periodic payments for a specific period of time are annuities.
a.
true
b.
false
 

21. 
Which of the following accounting systems is the simplest?
a.
cash
b.
accrual
 

22. 
When earnings are distributed to owners and then those earnings are taxed as personal income for each owner, this is a:
a.
sole proprietorship
c.
S corporation
b.
partnership
d.
subchapter C corporation
 

23. 
If an employee is paid wages of $2,500 during the year, the employer is required to pay social security tax for that employee.
a.
true
b.
false
 

24. 
An independent contractor:
a.
agrees to perform certain services for a fixed price
c.
must pay his own self-employment taxes and the employer taxes for his employees
b.
is the employer of his own employees
d.
all of the above
 

25. 
A legally enforceable arrangement or agreement between two or more parties is a(n):
a.
listing
c.
deal
b.
deal
d.
none of the above
 

26. 
You are only liable for personal injuries if you intentionally inflict them on a trespasser.
a.
true
b.
false
 

27. 
A legal statement of a person's wishes concerning the disposal of property after death is a(n):
a.
contract
c.
will
b.
deed
d.
estate plan
 

28. 
If a farmer's equity is $560,000 and his liabilities are $270,000, his debt-equity ratio is:
a.
.56
c.
.42
b.
.48
d.
.61
 

29. 
Jason borrowed $1,000 from the bank at 8% interest.  He is to make a lump-sum payment at the end of the year.  If simple interest is used, what is the total amount he will pay
a.
$1,148
c.
$1,180
b.
$1,120
d.
$1,080
 

30. 
If you negligently keep an object or condition on your land that is attractive and dangerous to children, you will be liable if a child is injured by that object or condition.  This is called:
a.
landowner liability doctrine
c.
doctrine of attractive nuisance
b.
farm liability doctrine
d.
doctrine for children
 

31. 
Which of the following was enacted to provide safety in the workplace by eliminating or reducing potentially hazardous conditions?
a.
Fair Labor Standards Act
c.
Occupational Safety and Health Act
b.
Immigration Reform and Control Act
d.
Migrant and Seasonal Agricultural Worker Protection Act
 

32. 
Goals that can be achieved in less than one year and usually provide immediate satisfaction are:
a.
quick-term goals
c.
long-term goals
b.
short-term goals
d.
intermediate-term goals
 

33. 
A factor that will help determine priorities of goals is:
a.
orderly sequence
c.
dollar value
b.
time
d.
all of the above
 

34. 
The accounting system that keeps balance in financial transactions is:
a.
public accounting
c.
double entry accounting
b.
single entry accounting
d.
triple entry accounting
 

35. 
Efforts to reduce tariffs, taxes, domestic subsidies and other barriers to free trade are not important and do not affect the American farmer.
a.
true
b.
false
 

36. 
Ann made $41,303 profit on her nursery operation last year.  Her capital investment was $216,108.  What was her rate of return to capital invested?
a.
19%
c.
17%
b.
5%
d.
9%
 

37. 
A budget for corn would be a(n):
a.
enterprise budget
c.
partial budget
b.
supply budget
d.
all of the above
 

38. 
A decline in the value of an asset over its useful life associated with use, age and obsolescence is:
a.
depreciation
c.
appreciation
b.
inventory
d.
“wear-and-tear”
 

39. 
Net cash income is:
a.
excess cash at the end of the year
c.
gross receipts minus cash expenses (operating and fixed)
b.
income minus wages and salaries
d.
none of the above
 

40. 
The purpose of insurance is to:
a.
provide for retirement
c.
facilitate safety
b.
reduce risk and uncertainty
d.
provide benefits to attract employees
 

41. 
What type of insurance protects the farmer from lawsuits if he/she causes personal injury or property damage to another person?
a.
life insurance
c.
liability insurance
b.
accident and health insurance
d.
property insurance
 

42. 
The coordination of activities that are involved with the moving of a commodity from the producer to the ultimate consumer is:
a.
hedging
c.
advertising
b.
speculating
d.
marketing
 

43. 
Planning the acquisition, enjoyment and distribution of property for the benefit of their family is a(n):
a.
transfer agreement
c.
land management plan
b.
estate plan
d.
partnership plan
 

44. 
Stage 3 of production begins when the marginal product (M.P.) becomes zero.
a.
true
b.
false
 

45. 
Fixed costs occur no matter what or how much product is produced.
a.
true
b.
false
 

46. 
A spouse who works for the other spouse has to pay social security taxes
a.
true
b.
false
 

47. 
The process of searching for the equilibrium or market clearing price is called price discovery.
a.
true
b.
false
 

48. 
An example of a government payment is a(n):
a.
disaster payment
c.
ASCS deficiency payment
b.
SCS conservation program payment
d.
all of the above
 

49. 
Which of the following is a fixed cost?
a.
grain
c.
fertilizer
b.
real estate taxes
d.
feed
 

50. 
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
 
 
Use the following questions to answer questions 51-58.  Mr. Smith is examining the financial performance of his diversified livestock operation.  He has assembled the following data:

Checking account balance      $15,100
Savings account balance      $32,500
Supplies on hand      $  3,000
Feed on hand      $  2,000
Breeding herd      $67,000
Equipment      $26,000
Land and buildings      $19,000
Machinery loan      $16,600
Feedlot equipment loan      $  9,000
Feed bill      $  1,800
Interest on land and equipment payments      $15,000
Mortgage on farm      $24,000
 

51. 
What is the total value of the current assets?
a.
$47,600
c.
$52,600
b.
$49,600
d.
$54,400
 

52. 
What is the total value of the fixed assets for Mr. Smith's operation?
a.
$45,000
c.
$77,500
b.
$19,000
d.
$92,600
 

53. 
What is the total value of the intermediate assets?
a.
$93,000
c.
$145,600
b.
$98,000
d.
$126,600
 

54. 
Mr. Smith's total assets amount to:
a.
$164,600
c.
$159,600
b.
$145,600
d.
$132,100
 

55. 
What is the total of Mr. Smith's liabilities?
a.
$71,400
c.
$69,600
b.
$64,600
d.
$66,400
 

56. 
Mr. Smith's business is solvent.
a.
true
b.
false
 

57. 
What is Mr. Smith's net worth?
a.
$-98,200
c.
$79,200
b.
$98,200
d.
$-79,200
 

58. 
What is Mr. Smith's debt-equity ratio?
a.
1.21
c.
.68
b.
1.48
d.
.76
 
 
Use the following information to answer questions 59-61.

Soybean sales      $54,000
Sale of hay      $26,000
Building depreciation      $  5,600
Increase in inventory of livestock      $65,000
Feeder calf sales      $20,000
Total cash operating expenses      $47,000
Machinery depreciation      $  5,500
Decrease in crop inventory      $12,000
 

59. 
What is the gross cash farm income for this business?
a.
$165,000
c.
$153,000
b.
$100,000
d.
$  88,000
 

60. 
What is the net cash farm income for this business?
a.
$47,500
c.
$53,000
b.
$35,500
d.
$88,000
 

61. 
What is the net farm income for this business?
a.
$89,400
c.
$53,000
b.
$94,900
d.
$65,500
 
 
Tom is doing some end-of-the-year analysis on his soybean crop.  Answer questions 62-66 based on his soybean crop data.

Acres planted      350 acres
Price per bushel      $6.25
Total yield      11,550 bushels
Fertilizer cost      $12,000
All other variable cost      $  5,050
Chemical cost      $  8,000
Labor and equipment cost      $15,000
 

62. 
What was the yield per acre?
a.
30 bushels
c.
43 bushels
b.
41 bushels
d.
33 bushels
 

63. 
What were the total expenses for this crop?
a.
$40,050
c.
$25,050
b.
$35,000
d.
$32,050
 

64. 
What was the gross income from the soybean crop?
a.
$78,325.50
c.
$72,187.50
b.
$69,575.00
d.
$  2,187.50
 

65. 
What was the profit made on this crop?
a.
$60,187.50
c.
$54,150.25
b.
$32,137.50
d.
$29,118.25
 

66. 
What was the break-even point per bushel for the soybean crop?
a.
$3.29
c.
$4.16
b.
$3.47
d.
$4.89
 
 
Use the following information to answer questions 67-70.

Net Worth Statement - Claxton Farms

Assets
Current Farm Assets      $  50,000
Intermediate Farm Assets      $  40,000
Long Term Assets      $  80,000
Total Farm Assets      $170,000

Liabilities
Current Farm Liabilities      $  20,000
Intermediate Farm Liabilities      $    8,000
Long Term Liabilities      $110,000
Total Farm Liabilities      $138,000
 

67. 
What is the farm net worth?
a.
$32,000
c.
$1,200
b.
$1,500
d.
$26,000
 

68. 
What is the current ratio?
a.
1.0
c.
1.23
b.
2.5
d.
1.56
 

69. 
What is the intermediate ratio?
a.
5
c.
2.61
b.
1.23
d.
3.21
 

70. 
Suppose you are an agricultural lending officer for a bank and Mr. Claxton comes in with the balance sheet above.  He asks for the maximum amount your bank will lend to him.  The policy of your bank is to lend up to 70% of net worth.  How much could you lend him based only on his net worth?
a.
$19,000
c.
$26,300
b.
$22,400
d.
$18,750
 
 
Use the following information to answer questions 71 and 72.

Help John decide how he should market his hogs, given the following information:

He has 175 hogs weighing 250 pounds each.  He can get:
52 cents per pound at Swainsboro
49 cents per pound at Dublin
47 cents per pound at McRae
48 cents per pound at Kite

It will cost him:
$385 to deliver them to Swainsboro
$425 to deliver them to Dublin
$575 to deliver them to McRae
$190 to deliver them to Kite
 

71. 
John should sell his hogs at:
a.
Swainsboro
c.
McRae
b.
Dublin
d.
Kite
 

72. 
John's break-even price is 42 cents per pound.  What will his profit be if his selling price is 51 cents per pound?
a.
$3,888.00
c.
$4,015.50
b.
$3,937.50
d.
$4,057.50
 

73. 
When Jill sold her crossbred steer she received $1,250.  She figured her total expenses to be $975.  The percentage net return realized was:
a.
12%
c.
25%
b.
25%
d.
31%
 

74. 
Ann has 8,000 ten-inch hanging baskets to fill with soil.  How much will her per-unit cost of soil be if each bag of soil costs $25 and each bag will fill 49 ten-inch baskets?
a.
$0.49
c.
$0.51
b.
$0.63
d.
$0.90
 

75. 
How much will the total soil cost be for Ann's 8,000 hanging baskets?
a.
$3,902
c.
$4,080
b.
$4,233
d.
$3,899
 



 
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