Chapter 1

Chapter 1Multiple Choice1. One force that has helped cause U.S. farms to become larger and fewer is:a. Competition from foreign producers

b. Lower production costs per unit by spreading fixed investment technology over more unitsc. More labor used in agricultural production

d. Declining nonfarm wage rates

2. Improved data collection technology such as satellite photography will be most helpful to farm managers for:

a. Preparing up-to-date financial statements

b. Balancing livestock rations

c. Prescribing fertility and pest control practices for smaller land unitsd. Producing more uniform products

3. Standardization of farm financial ratios and accounting practices will help farm managers:

a. Compete with nonfarm businesses for capitalb. Summarize their account books in less time

c. Pay less income tax

d. Manage hired employees more effectively

4. Agricultural processors will probably want more uniform products in the future in order to:

a. Pay lower prices to producers

b. Diversify their product lines

c. Reduce environmental contamination

d. Make more efficient use of processing and packaging equipment

5. By forming strategic alliances, small and medium-sized farmers and rancher can:

a. Increase their managerial freedom

b. Achieve advantages of diversification

c. Achieve marketing advantages that larger operations enjoyd. Increase their own volume of production

6. An increase in the number of nonfarmers living in rural areas will cause:

a. Farmland values to decrease

b. Farmers to pay more attention to off-farm effects of their production practicesc. Less regulation of agricultural production practices

d. Profit maximization to be the only criterion for adopting new technologies

True/FalseF1. In the future farm managers will have to be concerned about the environmental effects of their practices on their own farms but not away from their own farm

T2. Standardized accounting practices for farming operations will make comparisons with other farms and nonfarm businesses more meaningful

T3. One of the most important areas in which advances in electronics can help farm managers is in collecting the raw data needed to make better decisions

F4. Since farm managers will be making the same basic types of decisions in the 21st century as they do no, they can rely on rules of thumb to guide their actions.

T5. Product differentiation means producing crops and livestock with different characteristics for specific markets.

Chapter 2Multiple Choice1. Which function of management is concerned with monitoring the results of a decision and taking corrective action?

a. Planning

b. Implementation

c. Controld. Organization

2. Which of the following shows the proper sequence of management functions as they would be applied to a specific problem?

a. Planning, control, implementation

b. Planning, implementation, controlc. Control, planning, implementation

d. Control, implementation, planning

3. The mission statement of a farm or ranch business describes

a. Its financial condition

b. Its daily chores

c. Its cultural values

d. Its reason for existing

4. doubling the number of acres farmed in 10 years is an example of a

a. Long run goalb. Short-run goal

c. Plan

d. Farm organization

5. Which of the following is an example of a strategic decision?

a. Determining fertilizer levels for crops

b. Deciding when to sell grain

c. Determining what crops and livestock to produced. Setting milking times for a dairy

6. Which of the following is an example of a tactical decision?a. Balancing a livestock rationb. Forming a partnership with a relative

c. Joining a feeder pig cooperative

d. Installing an irrigation system

7. What managers do is best described by which of the following?

a. Gather information

b. Make decisionsc. Analyze data

d. Organize the farm

8. External scanning could include assessing

a. The financial condition of the business

b. Changes in consumer tastesc. The basic values of the managers

d. Productivity of the farmland owned

9. One characteristic that makes decision making in agriculture different from other types of business is

a. More government regulation

b. Prevalence of very large business units

c. Predictability of production processes

d. Fixed supply of a major resource

10. The term of describing how much time is available to make a decision is

a. Imminenceb. Revocability

c. Frequency

d. Importance

True/FalseF1. Short-run planning is more important than long-run planning

T2. Goals must be known before management decisions can be made.

F3. Because weather and prices are unpredictable, it is impossible to plan more than one year in advance.

F4. Strategic planning only needs to be done by beginning farmers and ranchers.

F5. No management decision should be made until all possible information has been acquired.

F6. Maximizing profit is the only goal managers use to make decisions.

T7. More time should be spent on irrevocable decisions than on those which can be easily reversed.

F8. farm and ranch managers can usually set the selling prices for their products.

T9. Even choosing the best alternative action will sometimes produce undesirable results.

F10. Biological production processes are more predictable than industrial production processes

Chapter 3Multiple Choice1. A fiscal accounting period is one which

a. Covers January 1 through December 31

b. Is only 3 months in length

c. Ends on any date other than December 31d. Can only be used by governmental agencies

2. Selling grain from storage would be which type(s) of farm business activity?

a. Operatingb. Investment

c. Financing

d. Operating and investment

3. When using cash accounting which of the following accounts would never be used?

a. Grain sales

b. Depreciation

c. Fertilizer purchases

d. Accounts payable

4. A prepaid expense is one where payment is made

a. By check

b. In an accounting period prior to the one in which the purchased item will be used to produce incomec. In a series of payments over time

d. Before the bill is even received

5. Which of the following would not be recorded when using a single-entry, cash accounting system?

a. Charging $2,000 worth of chemicals at the farm supply store

b. Billing a neighbor $850 for baling hay

c. Recognizing that $3,476.34 of interest has accrued since the last interest payment

d. All of the above

6. One advantage of a double-entry accrual accounting system over a single-entry cash system isa. It is easier to enter transactions

b. A current balance sheet is always availablec. Noncash transactions do not need to be entered

d. It can be done on a computer

7. Any item of value is called a(n)

a. Owner equity

b. Credit

c. Profit

d. Asset

8. At the end of the year a farmer has an unpaid bill at the local machinery repair shop. It would be shown in an accrual accounting system as a(n)

a. Prepaid expense

b. Account receivable

c. Account payabled. Accrued expense

9. A major advantage of accrual accounting over cash accounting is

a. A more accurate estimate of annual profitb. Simplicity

c. Always shows a higher profit

d. Can use single entry instead of double entry

True/False

F1. An accounting period must be from January 1 to December 31.

T2. Good farm records can be useful when applying for a farm loan.

F3. An accounting system only needs to be able to record those transactions which are part of the farms production activities.

T4. Depreciation is a noncash expense which is included as an expense when using cash accounting.

F5. Revenue and expenses can be properly matched in the correct time period when using cash accounting.

T6. A single-entry accounting system does not maintain current values for assets and liabilities.

T7. A depreciation schedule is a necessary part of a complete accounting system.

F8. Records are of no use when trying to obtain a new loan.

F9. The basic accounting equation is: Assets + Liabilities = Owner equity.

T10. Changes in inventory values are not included in a cash accounting system.

F11. Cash accounting will always show a lower profit than accrual accounting.

T12. Profit or net farm income is equal to total revenue for the accounting period minus total expenses for the same period.

Chapter 3Multiple Choice1. The depreciation method with the greatest depreciation in the first year is

a. Double declining balance

b. Sum-of-years digits

c. Straight line

d. All of the above have the same depreciation in the first year

2. Which of the following cannot be valued using the cost less accumulated depreciation method?

a. Tractor

b. Barn

c. Purchased dairy cow

d. Land

3. The proper term for the value found by subtracting accumulated depreciation from the assets original cost is

a. Salvage value

b. Market value

c. Book valued. Use value

4. The total depreciation over an assets useful life is equal to

a. Cost minus salvage valueb. Cost plus salvage value

c. Book value

d. Salvage value

5. To be depreciable, an asset must have a useful life

a. More than ten years

b. Five years or more

c. More than one yeard. Six months or longer

6. The depreciation method with the smallest annual depreciation in the first year of life is

a. Straight lineb. Sum-of-years digits

c. Double declining balance

d. 150% declining balance

7. A depreciable assets book value will equal its salvage value

a. Only on the purchase date

b. Only at the midpoint of its useful life

c. Only at the end of its useful lifed. Every year of its useful life

True/FalseF1. Book value is equal to cost minus salvage value.

F2. Market value is the most conservative valuation method to use during periods of inflation.

T3. All depreciation methods will result in the same total depreciation over the full life of the asset.

T4. It is possible for an asset to have a $0 salvage value.

F5. Book value and market value will always be the same dollar amount.

T6. Book value will equal salvage value at the end of the assets useful life.

T7. Using the sum-of-years digits depreciation method, annual depreciation will decline by a constant amount each year.

F8. A tractor can be valued using the farm production cost method.

F9. The market value of an asset cannot be lower than its cost.

T10. Cost less depreciation cannot be used to value purchased feeder livestock.

Chapter 5

Multiple Choice1. Which of the following is an example of a noncurrent liability?

a. Farm machinery

b. Loan on feeder livestock

c. Loan on farm machineryd. Prepaid expense

2. Which of the following is an example of a current asset?

a. Dairy cows

b. Farm buildings

c. Farm machinery

d. None of the above

3. Another term which has the same meaning as owners equity is

a. Net worthb. Net farm income

c. Total asset value

d. Total liabilities

4. Of the following, which is the most liquid asset?

a. Farm machinery

b. Balance in checking accountc. Breeding livestock

d. Feeder livestock

5. If a business has working capital greater than $0, its current ratio will be

a. Greater than oneb. Equal to one

c. Less than one

d. There is no relationship between the amount of working capital and the current ratio

6. If the debt/asset ratio is increasing, then the debt/equity ratio will be

a. Increasingb. Decreasing

c. Constant

d. Indeterminate, need more information

7. Which of the following best describes a balance sheet?

a. It shows changes in assets and liabilities over the last accounting period

b. It shows changes in assets and liabilities over a period of time

c. It shows assets and liabilities at a point in timed. It shows profit for the last account period

8. The best description of a business which has increased its debt/asset ratio is one which hasa. Purchased more assets

b. Sold some assets

c. Increased its debt

d. Increased its debt relative to total assets

9. Which of the following assets would have the same value using either a cost or a market basis valuation?

a. Land

b. Machinery

c. Prepaid expensesd. Purchased breeding livestock

10. The degree to which a farms assets adequately cover or exceed it liabilities is referred to as

a. Solvencyb. Profitability

c. Liquidity

d. Working capital

11. A statement of owner equity shows

a. A list of all assets and liabilities

b. The valuation adjustment for owner equity

c. Owner equity for the past 20 years

d. The sources and amounts of changes in owner equityTrue/FalseT1. The three major components of a balance sheet are assets, liabilities and owners equity.

T2. The Farm Financial Standards Council recommends only two classes of assets, current and noncurrent.

F3. The primary purpose of a balance sheet is to measure and record net farm income.

T4. On a cost basis balance sheet, machinery would be valued at cost less accumulated depreciation.

F5. Working capital is one measure of solvency.

T6. Inventories of grain and feeder livestock would be valued at market on either a cost or market basis balance sheet.

F7. If total asset value increases, owner equity will also increase.

F8. Borrowing $20,000 to purchase additional dairy cows will decrease owner equity.

T9. Current liabilities are debts which must be paid in full within one year from the date of the balance sheet.

F10. On a cost basis balance sheet, owner equity will increase if land values increase.

T11. Noncurrent assets have a useful life of more than one year.

Chapter 6Multiple Choice1. Net farm income less family living expenses and income taxes equals:

a. Owner equity

b. Retained farm earningsc. Total liabilities

d. Total assets

2. Which of the following would not be included as an expense on an accrual income statement?

a. Depreciation

b. Change in accounts payable

c. Accrued interest

d. Cost of a new farm pickup

3. How does the sale of an old tractor affect an income statement?

a. Increases revenue by the amount received for the tractor

b. Increases (decreases) revenue by the amount of gain (loss)c. Increases revenue by the amount of depreciation taken over its life

d. Has no effect on an income statement

4. If return on assets is greater than return on equity, the interest rate on borrowed money was

a. Higher than return on assetsb. Lower than return on assets

c. Equal to return on assets

d. Equal to return on equity

5. The purpose of a farm income statement is

a. To compute assets and liabilities over an accounting period

b. To compute owner equity at a point in time

c. To show revenue, expenses, and net farm income for an accounting periodd. To show all family income

6. An increase in prepaid expenses shows up on an income statement as

a. An increase in revenue

b. A decrease in revenue

c. An increase in expenses

d. A decrease in expenses

7. The best return to management of the following would be

a. Greater than the opportunity cost of managementb. Equal to zero

c. Greater than zero

d. Negative

8. Which of the following is not included in the revenue section of an income statement?

a. An inventory decrease

b. An increase in the market value of landc. Gain on the sale of breeding livestock

d. An increase in accounts receivable

9. A gain on the sale of a depreciable asset implies

a. Its salvage value is zero

b. Its book value is zero

c. Too little depreciated was taken over its life

d. Too much depreciation was taken over its life

10. Any difference between net farm income and net farm income fromoperations is due to

a. Gain or loss on the sale of machinery or landb. Interest expense

c. Inventory change

d. Depreciation

True/False

F1. Retained farm earnings cannot be negative.

T2. Depreciation is a noncash expense but is included on a cash basis income statement.

T3. Net farm income helps explain changes in owner equity.

T4. Changes in inventory value are needed to compute an accurate net farm income.

F5. Only the cash used for the down payment is included as an expense on an income statement.

F6. A farm business would be considered profitable any year net farm income is positive.

T7. An increase in accrued interest will increase total farm expenses for the year.

F8. Net farm income fromoperations includes any gain or loss on the sale of land.

F9. Owner equity will increase any year there is a positive net farm income.

T10. Any accrued but unpaid expense is included as an expense when computing net farm income.

Chapter 7

Multiple Choice1. If the marginal physical product is decreasing with additional input, marginal value product will be

a. Increasing

b. Decreasingc. Constant

d. Decreasing and equal to MPP

2. In Stage II of a production function, marginal physical product will be

a. Increasing

b. Decreasing

c. Negatived. Equal to zero

3. The relationship between input and output in a production function is shown ina. The appropriate physical unitsb. Terms of total cost and total revenue

c. Terms of total input cost and total value product

d. Price of input and price of output

4. The equation for computing marginal cost is

a. Total cost divided by output

b. Total cost divided by input

c. Change in total cost divided by change in input

d. Change in total cost divided by change in output

5. If a farmer is producing at some point where MR is greater than MC and input is not limited

a. Profit is not being maximized

b. More input should be used to maximize profit

c. More output should be produced to maximize profit

d. All of the above

6. If MPP is less than APP, then APP

a. Is decreasingb. Is increasing

c. Is constant

d. May be doing any of the above

7. If the price of the input decreases, a profit maximizing farmer should

a. Use more input and produce more outputb. Use more input and produce less output

c. Use less input and produce more output

d. Use less input and produce less output

8. The Equal Marginal Principal should be used whenever

a. Input prices are high

b. Output prices are low

c. There is limited input and several alternative uses for itd. A farmer wishes to maximize production from several different enterprises

9. A diminishing marginal physical product occurs because of

a. Decreasing output prices

b. Increasing input prices

c. Decreasing input prices

d. Limits on physical or biological response to increased input levels

10. Profit is maximized somewhere in the range where a marginal physical product is

a. Decreasing but still positiveb. Increasing but positive

c. Constant

d. Negative

True/False

F1. Profit will increase any time more input is used.

T2. As a general rule, if the price of the output increases, you should use more input to maximize profit.

T3. If MPP is increasing, MVP will also be increasing.

F4. Marginal cost is equal to the input price as long as that prices is constant.

T5. When the equal marginal principle is used correctly, the final MVP for each alternative will all equal each other and all be greater than MIC.

T6. For The Law of Diminishing Returns to work, there must be at one fixed input.

F7. If MVP is less than MIC, there is a negative profit.

T8. Doubling both input and output price will not change the profit maximizing input and output levels.

F9. Average physical product will continually increase as more input is used.

F10. Marginal cost is equal to the change in total cost divided by the change in input.

Chapter 8Multiple Choice1. An isoquant curve will

a. Slope downwardb. Slope upward

c. Be horizontal

d. Any of the above depending upon the input prices

2. Supplementary enterprises are those where

a. The output of one can be increased only by reducing the output of another

b. The output of both enterprises can be increased at the same time

c. The output of one can be increased with no change in the output of the otherd. Their substitution ratio is decreasing

3. If two inputs have a constant substitution ratio, the least-cost combination will

a. Be in the same proportion as the price ratio

b. Be in the same proportion as the substitution ratio

c. Be in an exact 50-50 proportion

d. Generally be all of one input or all of the other

4. Assume input A and input B can be used in combination to produce a fixed amount of output. If the price of input A increases relative to that of input B, the new least-cost combination will

a. Include less of A and more of Bb. Include less of B and more of A

c. Include more of both A and B

d. Include less of both A and B

5. A production possibility curve showsa. All combinations of two inputs which will produce a fixed amount of output

b. All combinations of two outputs which can be produced from a fixed amount of inputc. The amount of output which can be obtained from different amounts of variable input

d. The profit possible from producing different combinations of two outputs

6. An increase in the slope of a production possibility curve will

a. Cause the substitution ratio to increaseb. Cause the substitution ratio to decrease

c. Have no effect on the substitution ratio

d. Change the price ratio

7. The feed combinations in a least-cost feed ration depends on all the following except:

a. Relative prices of the feeds available

b. Substitution rates between the feeds available

c. Selling price of the livestockd. The nutritional requirements of the livestock

8. An isoquant curve shows

a. All combinations of two outputs that can be produced from a given amount of input

b. All combinations of two inputs that will produce a given amount of outputc. The amount of output that can be produced from a given amount of input

d. The ratio between the prices of two inputs

True/FalseT1. The majority of agricultural enterprises will exhibit a competitive enterprise relationship.

T2. The price ratio and not the absolute price level determines the profit-maximizing output combination.

T3. Complementary enterprises allow you to increase the production of both at the same time.

F4. As the slope of an isoquant decreases, the substitution ratio increases.

T5. Doubling both input prices does not change the price ratio.

T6. If the price of one output increases, the new profit-maximizing output combination will include more of the now higher priced output and less of the other.

T7. Over time, changes in technology can change the substitution ratio between two inputs.

F8. Price changes cause changes in the input substitution ratio.

T9. Supplementary enterprises will generally be supplementary over a limited range and then become competitive.

T10. Isoquants representing larger amounts of output will be further from the graphs origin.

Chapter 9Multiple Choice1. In the short run,

a. Total fixed costs are zero when there is no production

b. Total variable costs are zero when there is no productionc. Total cost will remain constant as output is increased

d. Total cost will decrease as output is increased

2. The opportunity cost of one more unit of a variable input is

a. Its market value at the time of its use

b. Its cost at time of purchase

c. The return from using that input in its next best alternative used. The same as marginal cost

3. The marginal cost curve

a. Will eventually increase as output is increasedb. Will eventually decrease as output is increased

c. Is constant regardless of output level

d. Has the same shape as a marginal revenue curve.

4. Which of the following could be used to compute ATC?

a. AFC

b. AVC

c. ATC

d. All of the above

5. Which of the following could be used to compute ATC?

a. (TVC TFC) / Output

b. (AFC + AVC) / Output

c. TC / Input

d. (TFC + TVC) / Output

6. In the short run, production should be stopped whenever

a. Total revenue is less than total variable costb. Total revenue is less than total cost

c. Total revenue is less than total fixed cost

d. Total revenue is greater than total fixed cost

7. There are increasing returns to size whenever a larger business

a. Has a larger average cost per unit of output

b. Has a smaller average cost per unit of outputc. Has the same average cost per unit of output

d. Increasing returns to size cannot be described in terms of average cost

8. At the output level where MC is equal to ATC,

a. MR is equal to MC

b. MC is also equal to AVC

c. They are both less than AFC

d. ATC is at its minimum valueTrue/FalseT1. It is possible for the opportunity cost of an input to be very low or zero if there is no alternative use for it.

T2. There are both fixed and variable costs in the short run.

F3. AFC is constant as output increases.

T4. The vertical distance between the TC and TVC cost curves on a graph is equal to TFC.

T5. Production should continue in the long run as long as revenue will cover all costs.

F6. Total fixed cost will decrease as more output is produced.

F7. ATC will continually decrease as more and more output is produced.

T8. MC is equal to change in TVC divided by the change in output.

F9. There is no opportunity cost on a farm operators own labor, only on hired labor.

T10. A declining long run average cost curve indicates economies of size.

Chapter 10Multiple Choice1. Cost of production is computed from the equation

a. Total fixed cost divided by output

b. Total variable cost divided by output

c. Total cost divided by outputd. Total cost divided by output selling price

2. As output increases with no change in total cost, break even price will

a. Increase

b. Decreasec. Remain constant

d. Initially decrease and then begin to increase

3. The values in a crop enterprise budget are normally for

a. One unit of output

b. 100 pounds of output

c. One bushel of output

d. One acre

4. Which of the following are or could be totally noncash expenses on an enterprise budget

a. Depreciation

b. Labor expense

c. Management expense

d. All of the above

5. Which of the following terms, if used on an enterprise budget, would be considered the same as variable cost?

a. Ownership cost

b. Operating costc. Overhead cost

d. Indirect cost

6. Which of the following would be a fixed cost on a typical crop enterprise budget?

a. Land chargeb. Machinery repairs

c. Labor expense

d. Harvesting expense

7. On a breeding livestock enterprise budget, if replacement females are assumed to be raised on the farm or ranch,

a. An expense item for their depreciation should be shown

b. The number of young females sold should be reducedc. The cost of buying replacements should be included

d. Income from the sale of cull breeding animals can be ignored

8. On an enterprise budget, fixed costs are often called

a. Indirect costs

b. Operating costs

c. Sunk costs

d. Ownership costs

9. Interest is included as a variable cost on an enterprise budgeta. Only if money will be borrowed

b. As an opportunity cost on other variable costs regardless whether borrowed or equity capital will be usedc. Because of the investment in machinery

d. Because of the investment in land

10. Cost of production will be the same value as

a. Average total costb. Total cost

c. Average variable cost

d. Marginal cost

True/FalseF1. Only cash revenues are included on an enterprise budget.

T2. The equation for break even yield is total cost divided by selling price.

T3. If the cost of production is greater than the selling price, the revenue from the enterprise will be less than the total economic costs.

F4. It is safe to assume that the input levels shown on published enterprise budgets are the profit-maximizing amounts.

T5. For a given total cost, the higher the yield, the lower the break-even price.

F6. There is only one possible enterprise budget for each enterprise.

T7. Enterprise budgets are useful when selecting enterprises to include in a whole farm plan.

F8. Only cash expenses are included on an enterprise budget.

T9. Some enterprises may have more than one source of revenue.

F10. There are no opportunity costs on an enterprise budget.

Chapter 11

Multiple Choice1. Which of the following may be included on a partial budget?

a. Fixed costs

b. Variable costs

c. Opportunity costs

d. All of the above

2. The values shown on a partial budget are

a. Total revenue and total expenses for the farm

b. Only total expenses for the farm

c. Only total revenue for the farm

d. Only changes in revenues and expenses

3. Which of the following are the profit increasing changes on a partial budget?

a. Additional costs and additional revenue

b. Reduced costs and reduced revenue

c. Reduced costs and additional revenued. Additional costs and reduced revenue

4. Which of the following are the profit decreasing changes on a partial budget?

a. Additional costs and additional revenue

b. Additional costs and reduced revenuec. Reduced costs and additional revenue

d. Reduced costs and reduced revenue

5. If a partial budget shows some fixed or ownership costs under Reduced Costs, it means

a. The proposed alternative requires purchasing a new capital asset

b. A new capital asset must be purchased next year with either alternative

c. The proposed alternative would allow the sale of a capital asset that will no longer be neededd. There is an error on the budget as fixed costs are never included under Reduced Costs

6. A partial budget is designed to analyze the effect of a proposed change on

a. Economic profitb. Business risk

c. Liquidity of the business

d. Accounting profit

7. A partial budget would be the most useful type of budget for estimating

a. The amount of borrowing required for the next year

b. The break even price needed to cover all costs of cotton production

c. Labor needed on the farm during the next year

d. The change in profit from installing an irrigation system on one fieldTrue/FalseF1. Only cash expenses are shown on a partial budget.

T2. A partial budget includes only those costs and revenues which will change if the proposed alternative is adopted.

F3. The better alternative as shown on a partial budget is sure to be the one which maximized profit for the business.

F4. Opportunity costs are never included on a partial budget.

T5. Changing a crop rotation to plant 80 acres more barley and 80 acres less wheat would be a decision which could be analyzed using a partial budget.

F6. Change in profit is the only factor to consider when looking at the results of a partial budget.

T7. Not all partial budgets will need to include some fixed only ownership costs.

T8. A partial budget analyzes only two management alternatives at one time.

F9. Only changes in variable or operating costs are included on a partial budget.

F10. A single partial budget can analyze up to four alternatives.

Chapter 12

Multiple Choice1. In whole farm planning it is assumed that when ____________ is maximized, total profit is also maximized.

a. Profit per unit

b. Gross margin per unit

c. Total gross margind. Total gross income

2. If an acre of alfalfa requires $75 of operating capital and 5 hours of labor, and a farm has 70 acres of land, 400 hours of labor, and $4,500 of operating capital available, the maximum acres of alfalfa that can be grown is:

a. 50

b. 60c. 70

d. 80

3. Using simplified programming to develop a whole farm plan, when no more enterprises can be added it may still be possible to increase gross margin by replacing one enterprise with another enterprise that has a higher gross margin per:

a. Acre

b. Bushel

c. Unit of excess resource

d. Unit of limiting resource

4. An advantage of linear programming over simplified programming is:

a. Linear programming is less complex mathematically

b. Linear programming can quickly analyze a large number of activities and resourcesc. Linear programming contains built-in default data

d. Linear programming requires less data

5. Farming systems analysis takes into account:

a. Interactions among different enterprisesb. Possible variations in key values such as selling prices

c. Different types of production technology

d. Specialized labor needs

6. Sensitivity analysis looks at the change in total profit caused by:

a. A change in selling prices

b. A change in yields

c. A change in the price of a key input

d. Any of the above

7. The purpose of liquidity analysis is to estimate if:

a. The supply of labor will be sufficient to carry out the plan

b. The supply of irrigation water will be sufficient

c. Cash inflows will be sufficient to meet expected cash outflowsd. Net farm income will be positive or negative

8. When comparing several long-range whole-farm budgets with different quantities of major fixed resources such as owned land or permanent labor, the prices used to estimate gross income should be:

a. Current prices on the date the budget is made

b. Prices expected when this years products are sold

c. Average prices from the previous year

d. Expected average prices over the next several years

9. A whole-farm budget analyzes:

a. Costs, returns, and resource needs for a specific set of enterprisesb. Costs and returns that would be affected by a specific management change

c. Projected costs and returns for one unit of a specific enterprise

d. The actual costs and returns that were realized during one year for all the enterprises on a farm

10. Technical coefficients for whole-farm planning refer to:

a. The estimated gross margin for one unit of each enterprise being considered

b. The quantity of each resource that is availability

c. The quantities of resources needed to produce one unit of each enterprise being consideredd. The total quantity of each resource needed for a given farm plan

True/FalseT1. When developing a whole-farm plan the inventory of resources should include labor and management skills as well as physical resources.

F2. Farms that carry out the same type and scale of enterprises year after year do not need to develop a whole-farm budget.

T3. In whole-farm budgeting only gross margin is multiplied by the number of units of each enterprise because fixed costs are assumed to be constant when the number of units of an enterprise change.

F4. Principal payments on noncurrent debts are needed for analyzing profitability, but not liquidity.

T5. Sensitivity analysis in whole-farm budgeting looks at how net income and cash flow would be affected by changes in key prices or production rates.

T6. Crop and livestock inventories held over from last year can be ignored when doing a long-run budget.

T7. Changing from one whole-farm plan to another may require several transitional years in which net income and cash flow are different than in a typical year.

F8. Both simplified and linear programming assume that the resource requirements per unit of an enterprise increase as more units of the enterprise are carried out.

F9. he shadow price or dual value for a resource in a linear programming solution shows how much total costs would increase if one more unit of the resource were available.

T10. One way that goals other than profit maximization can be included in whole farm planning is by restricting the types of enterprises considered.

Chapter 13

Multiple Choice1. Which of the following would not appear on a cash flow budget?

a. Feed purchases

b. Inventory changec. Family living expenses

d. Cost of new tractor

2. Which of the following would appear on an income statement but not on a cash flow budget?

a. Gain or loss on sale of capital asset

b. Inventory changes

c. Depreciation

d. All of the above

3. When preparing a cash flow budget it is important to

a. Take into account the timing of cash inflows and outflowsb. Include all noncash expenses

c. Include only noncash revenues

d. Omit family living expenses and other personal withdrawals

4. A cash flow budget can be used to

a. Estimate when and how much money will need to be borrowed during the year

b. Estimate when and how much debt can be repaid during the year

c. Estimate when excess cash may be available so plans can be made to invest itd. All of the above

5. A projected negative annual cash flow before any new borrowing is considered indicates

a. Net farm income will be negative

b. Depreciation expense is too high

c. Total debt will be higher at the end of the year than at the beginningd. There should have been more debt at the beginning of the year

6. A cash flow budget can be used to monitor the farm business by

a. Comparing actual cash inflows and outflows to the budgeted monthly cash flowsb. Comparing actual cash inflows and outflows to 10-year averages

c. Comparing the projected ending cash balances to the actual balances for each month

d. Comparing actual selling prices to those assumed in the cash flow budget

7. A cash flow analysis of an investment in a new capital asset should include projections for

a. Several months

b. One year on a monthly basis

c. One year for the whole year only

d. Several years

8. The last step in constructing a cash flow budget should be

a. Estimating the amount of crop and livestock production for the year

b. Estimating how much new current debt will be needed and can be repaid each monthc. Estimating family living expenses

d. Estimating when payments on existing debt are due

True/FalseT1. A cash flow budget for a whole farm can be prepared on an annual, quarterly or monthly basis.

F2. The primary use of a cash flow budget is to estimate profit for the coming year.

F3. A cash flow budget contains exactly the same information as an income statement only it is shown by time period.

T4. Both principal and interest payments on noncurrent debt are included on a cash flow budget.

T5. When they are different, cash expenses are entered on a cash flow budget in the time period the bill will be paid and not in the time period the item was purchased.

F6. An inventory increase is shown on a cash flow budget in the time period it occurs even though the product will not be sold until a later period.

T7. A cash flow budget can be used to analyze the feasibility of a new capital investment.

F8. Nonfarm income and expenses are not included on a cash flow budget.

T9. The beginning cash balance for one time period should be the same as the ending cash balance for the previous time period.

T10. A cash flow budget should include the total amount of cash received from the sale of a capital asset.

Chapter 14Multiple Choice1. The number of shares of stock received by each stockholder when a farm corporation is formed is based on the ________ contributed by each stockholder.

a. Amount of equityb. Value of total liabilities

c. Value of labor

d. Value of total costs

2. In a joint operating agreement, gross income is shared in proportion to each persons contribution to:

a. Total labor

b. Total costsc. Total assets

d. Total liabilities

3. A parent and a child who were starting a farm together would most likely double the size of their milking parlor if their ultimate goal was to end up with:

a. A spin-off operation

b. The parents retiring in a few years and renting the farm to the child

c. A family farming corporation with both parent and child active

4. Estate planning is most concerned with the passing on the _____ of the farm to the next generation

a. Income

b. Ownershipc. Management

5. A limited partnership is one which:

a. Some partners do not participate in management, and have limited liabilityb. The maximum number of acres farmed is fixed by law

c. The number of partners much not exceed 35

d. Only one type of enterprise is carried out

6. A limited liability company combine the legal aspects of:

a. A sole proprietorship and a partnership

b. A partnership and corporationc. A corporation and a cooperative

d. A sole proprietorship and a corporation

7. Which type of farm business organization does each of the following statements best describe?a. Sole proprietorship

b. Partnership

c. C (regular) corporation

Ca. Files its own income tax return, separate from the personal returns of its members.

Cb. Requires a board of directors and detailed records

Ac. Most common farm business arrangement

Cd. Has the most limited individual financial liability

Be. Life of the business ends on the death of one member

Af. Easiest to organize and operate

Cg. Stock is owned by shareholders

Bh. Certain members can limit their financial liability by not participating in the management of the business

8. In a cooperative, shareholders have voting rights:

a. In proportion to the number of shares owned

b. In proportion to the amount of business done with the cooperative

c. In proportion to the capital contributed

d. That is equal for all membersTrue/FalseT1. Farm partnerships are more common than farm corporations in the United States.

F2. A farm business that is in the consolidation stage of its life cycle will be looking for opportunities to grow, even if it means using debt.

F3. Only one person can provide the management in a sole proprietorship.

F4. When comparing the contributions of each party in a joint operating agreement, resources such as owned machinery or land should be valued at their market or sale value rather than their annual ownership cost.

F5. Oral partnership agreements are not legal in most states.

T6. It is possible for a shareholder in a farm corporation to also receive a salary from the corporation and/or rent property to it.

F7. Net income from a farm partnership is taxed at a different rate than individual income.

F8. Transfer of farm income, ownership, and management are most easily accomplished by doing them all at the same time.

T9. A corporation is the most convenient form of business organization for dividing and transferring ownership.

T10. A parent and a child who set up separate farming operations might still find it advantageous to own certain assets jointly.

Chapter 15Multiple Choice1. Most farmers are more likely to accept a risk if:

a. Only a small possible loss is involvedb. They have a high debt to asset ratio

c. They have high fixed cash flow obligations

d. They are primarily concerned with maintaining their net worth

2. Which type of farm lease agreement results in the most price and yield risk for the tenant?

a. Crop-share

b. Livestock share

c. Fixed cashd. Custom farming

3. The maxi-min strategy for choosing among risky alternatives assumes that the farm manager is most concerned with:a. Achieving a high average return

b. Achieving the best possible result in a good year

c. Achieving the best possible result in a bad yeard. Minimizing the chances of suffering a loss

4. Which of the following strategies does not reduce production risk?

a. Selling grain before harvest by a forward contractb. Applying insecticide to a crop

c. Vaccinating livestock against disease

d. Keeping a years supply of extra hay stored

5. On a certain farm alfalfa yields have been 4.3, 7.2, 5.6, 3.6, 6.7, 7.2, 5.5, 5.7, 4.8 and 5.4 tons per acre in the last 10 years. Assuming past yields are a good indicator of future yields, what is the most likely yield range for the coming year?a. 4 to 5 tons per acre

b. 5 to 6 tons per acrec. 6 to 7 tons per acre

d. 7 to 8 tons per acre

6. What is the expected value for the farms alfalfa yield, if each past result is given equal weight?

a. 5.0 tons per acre

b. 5.6 tons per acrec. 6.2 tons per acre

d. 6.5 tons per acre

7. The probability that the outcome of an uncertain event will be equal to or less than a certain value is given by the:

a. Coefficient of variationb. Standard deviation

c. Expected value

d. Cumulative distribution function

8. __________ insurance protects farm operators from the loss of a building from fire or wind.

a. Life

b. Propertyc. Liability

d. Multiple peril crop insurance

9. The success of hedging as a measure to reduce price risk depends on the fact that cash and futures contract prices for the same commodity:

a. Move up or down independently of each other

b. Tend to be about the same on a given day

c. Tend to move up or down at the same timed. Tend to move in opposite directions

10. Which type of risk control does each of the following management strategies illustrate?

a. Reduce the variability of possible outcomes

b. Set a minimum price or income level, for a fixed charge

c. Maintain flexibility for making decisions

d. Improve ability of the business to bear risk

ASell grain by a commodities futures contract (hedge).

BPurchase multiple peril crop insurance.

AProduce five different crops instead of only one.

CInvest in grain storage facilities.

DKeep $30,000 in short-term savings.

ARent land with a crop share lease.

BPrice grain by buying a commodity option (put)

CHave the capacity to either sell feeder pigs or finish them to market weight.

True/FalseT1. Weather is an important source of production risk for crop producers.

T2. Even farmers with good risk-bearing ability may be risk avoiders.

F3. Prices or yields that are highly variable over time will have a small standard deviation.

T4. A farmer who is neither a risk lover nor a risk avoider would always choose the available strategy with the most profitable income.

F5. Using the coefficient of variation to measure the riskiness of a possible strategy puts more emphasis on possible results that are worse than average rather than better than average.

T6. Livestock raising enterprises, such as beef cows, a ewe flock, or a sow herd, usually have more stable profits over time than buying and finishing feeder livestock.

F7. Being self-insured by maintaining liquid financial reserves carries no cost to the operator, while buying insurance policies does.

T8. Commodity options essentially allow a producer to pay a premium to establish a minimum price for a commodity.

T9. Revenue insurance protects against both low yields and high prices.

T10. Both a decision tree and a payoff matrix can be used to illustrate the results of different combinations of management strategies and uncertain outcomes.

Chapter 16

Multiple Choice1. What is the MACRS class life for beef animals used for breeding purposes?

a. 3 years

b. 5 yearsc. 7 years

d. 10 years

2. During the first year of farming, a farmer can choose which accounting method to use for tax purposes by

a. Sending a certified letter to the IRS

b. Notifying any certified public accounting

c. Keeping the farm records according to the method chosen

d. Using that method when completing the farm tax return for the year.

3. Which of the following would not be shown on a farm tax return when using the cash accounting method?

a. Inventory changesb. Depreciation

c. Fertilizer expense paid

d. Interest expense paid

4. An advantage of the accrual method of computing taxable farm income isa. The result is a better indicator of net farm income than that obtained from using the cash method.b. Lower marginal tax rates

c. Inventory changes are included so taxable income will always be smaller

d. Income taxes are postponed one year when inventory values are increasing

5. The income tax ratesa. Are average tax rates

b. Are marginal tax ratesc. Are different for farmers and ranchers than other tax payers

d. Apply only to business income, not to salary and wages

6. The adjusted tax basis on a depreciable asset is its

a. Original cost

b. Current market value

c. Beginning basis less accumulated depreciationd. Current book value based on straight line depreciation

7. The goal of income tax management should be

a. To pay as little income tax as possible

b. To minimize taxable income

c. To maximize short-run profit

d. To maximize long-run, after-tax profit

True/False

F1. All capital gain income is exempt from income taxes.

T2. The MACRS tax depreciation method uses a zero salvage value for depreciable assets.

T3. An advantage of the cash method of computing taxable income is flexibility.

F4. Taxpayers can use only the regular MACRS tax depreciation method.

T5. With the cash method, the cost of feeder livestock is a tax deductible expense only in the year they are sold.

T6. The cash method has the potential for wide changes in income if the crop production from two years is sold in the same year.

T7. Because of the half-year rule, a 5-year class live asset will still have some tax depreciation in the sixth year it is owned.

F8. Section 179 expensing must be taken on every eligible asset.

T9. Complete and accurate records are required for good tax management.

T10. Even though they will have to be paid in a later year, postponing the payment of income taxes is usually good tax management.

Chapter 17Multiple Choice1. The process of finding future value of a present sum is called

a. Compoundingb. Discounting

c. Amortizing

d. Budgeting

2. The process of finding the present value of a future sum is called

a. Compounding

b. Discounting

c. Amortizing

d. Budgeting

3. A series of periodic payments is called a(n)a. Budget

b. Present value

c. Future value

d. Annuity

4. Using a higher discount rate will cause the present value of a future amount to

a. Increase

b. Decreasec. Remain constant

d. Increase for short time periods but decrease for time periods of over 10 years

5. A net present value of zero means the investment has an internal rate of return

a. Greater than the discount rate

b. Less than the discount rate

c. Exactly equal to the discount rated. Equal to zero

6. The internal rate of return is the interest rate which would

a. Make net present value just equal to zerob. Make net present value greater than zero

c. Make sure the investment would be financially feasible

d. Generate a positive net cash flow from the investment

7. The future value of $10,000 placed in a savings account will depend on

a. The interest rate

b. The time it is left in the account

c. Both the interest rate and time in the accountd. The discount rate

8. A financially feasible analysis looks at the

a. Net present value of the investment

b. Internal rate of return for the investment

c. Payback period for the investment

d. Net cash flows resulting from the investment and its financing

9. When computing the after-tax net present value of an investment

a. Cash flows need to be adjusted for increased or decreased income taxes

b. The discount rate should be reduced by the marginal tax rate

c. Neither of these adjustments need to be made

d. Both cash flows and the discount rate need to be adjusted

10. When finding the net present value of an investment considering inflation

a. All cash flows should be increased by their expected rate of inflation

b. The discount rate should be a nominal rate

c. Both of the aboved. Neither of the above

True/FalseF1. Any investment which has a positive net present value will also be financially feasible.

T2. Depreciation is not included when computing the net cash flows from an investment.

F3. A $1,000 of income 5 years from now is worth the same as $1000 of income today.

F4. The best way to analyze an investment is to compute the payback period.

T5. Income taxes can affect the profitability of an investment.

F6. The simple rate of return and the internal rate of return will be the same for any investment.

T7. The higher the interest rate the smaller the annual payment needed to accumulate a given amount 10 years from now.

T8. A person requiring a 6 percent return could pay more for an investment than someone requiring an 8 percent return.

T9. If a positive rate of inflation is expected, the real discount rate is smaller than the nominal discount rate.

T10. Some cash flows may be taxed at different rates than others.

Chapter 18Multiple Choice1. The current ratio is a measure of a farm firms:

a. Return on equity

b. Ability to pay short-term credit obligationsc. Return on investment in current assets

d. Level of total debt to total assets at the present time

2. Two similar farms could have the same return to management but different net farm income due to:

a. Differences in prices received for products sold

b. Differences in prices paid for inputs purchased

c. Differences in amount of unpaid labor and equity capital usedd. Differences in physical efficiency

3. In general terms, efficiency refers to:

a. The volume of resources utilized in the farm business

b. The ratio of total liabilities to total assets in the business

c. The net farm income generated by the farm business

d. The volume of production generated per unit of resource utilized in the farm business

4. A trend analysis for a farm business could be performed using what kind of data for comparison?a. Historical data from the same farm for the past five yearsb. Data from comparable farms in the same region for the same year

c. Expected results from a whole farm budget completed at the beginning of the year

d. Historical data from similar farms in the same region for the past five years

5. For a farm in which alfalfa hay is raised and fed to dairy cattle, to analyze alfalfa as a separate enterprise, the value of the hay fed should be recorded as:

a. An expense to alfalfa and an income to dairy

b. An expense to dairy and an income to alfalfac. An asset to alfalfa and a liability to dairy

d. An asset to dairy and a liability to alfalfa

6. The degree to which a farms assets adequately secure its debts is referred to as:

a. Liquidity

b. Solvencyc. Efficiency

d. Profitability

7. An advantage of using the value of working capital instead of a cash flow budget to analyze a farms liquidity:a. It is simpler to calculateb. It takes into account the timing of the cash flows

c. It takes into account revenue to be received from the sale of products not yet in existence

d. It takes into account future operating expenses as well as debt repayment

8. When the value of livestock production per $100 feed fed is greater than 100 it means that:

a. The livestock enterprise had a positive profit

b. The livestock enterprise had a negative profit

c. Feed costs were less than gross revenue adjusted for inventory changes, home consumption and livestock purchasesd. $100 per hundredweight was the breakeven sale price

9. The most accurate method of allocating machinery to fixed costs among crop enterprises is in proportion to:

a. The number of acres planted to each crop

b. The gross income generated by each crop

c. The bushels produced by each crop

d. The actual hours which the machinery is used on each crop

10. Which of the following ratios does not analyze the solvency of the farm business?

a. Debt/asset ratio

b. Turnover ratio

c. Debt/equity ratio

d. Equity/asset ratio

True/FalseT1. The debt/asset ratio and the debt/equity ratio both measure the overall solvency of the farm business.

F2. Cash grain farms can usually operate safely with a lower current ratio than dairy farms.

T3. Increasing livestock production by building up inventories of raised breeding stock and feed can cause temporary liquidity problems.

F4. Most of the information needed for analyzing profitability comes from the balance sheet.

F5. The return on assets (ROA) calculation is a good measure of the marginal return that can be expected from investing more capital in the business.

T6. In general terms, efficiency determines whether farms and ranches with the most resources also generate the most production.

T7. Physical efficiency measures do not take into account the prices paid to acquire resources.

F8. The value placed on products transferred from one enterprise to another within a farm business can affect the net farm income for the total farm.

T9. If a farm has zero liabilities, the ROA and ROE will be the same.

F10. Estimating the amount of feed fed by subtracting the total accounted for by all other uses from the total of all the sources is more accurate than recording actual quantities as feed is used.

Chapter 19Multiple Choice1. The Farm Service Agency (USDA) make loans to farmers:

a. For purchase of farm land, but not operating expenses

b. Who cant qualify for credit from commercial sourcesc. At higher interest rates than commercial lenders

d. Only if the money is used for house construction

2. Which of the following sources of agricultural credit is not a government agency?a. Commodity Credit Corporation (CCC)

b. Farm Service Agency (FSA)

c. Small Business Administration (SBA)

d. Farm Credit System (FCS)

3. An example of debt restructuring that would improve a farmers cash flow in the short run is:

a. Lengthening the repayment period of a large loan from 3 years to 10 yearsb. Making payments on amortized loans with funds borrowed on a line of operating credit

c. Consolidating several small loans into one larger one

d. Shortening the repayment period of a loan from 10 years to 3 years

4. Outside equity to increase the total resources of a farming operation can be obtained by:

a. Long-term borrowing

b. Reinvesting net farm income

c. Securing funds from non-operator investors or limited partnersd. Inflation in asset values

5. The degree to which a farms liabilities are backed up by assets is known as:

a. Liquidity

b. Solvencyc. Efficiency

d. Profitability

6. The largest source of nonreal estate farm credit is

a. Commercial banksb. Farm Credit System

c. Merchants and dealers

d. Insurance companies

7. An amortized loan repayment plan with a balloon payment:

a. Has all the principle due in one payment

b. Has each total payment larger than the previous one

c. Adjusts the interest rate after each payment

d. Has more principle due in the final payment in the others

8. The Farm Credit System obtains loan funds from:

a. Selling bonds on the national money marketsb. Customers deposits

c. Guaranteeing commercial bank loans

d. The federal government

9. A farming operation that is earning an average return on assets of 4 percent could service a maximum debt-to-asset ratio of _________ if its average interest rate on borrowed money is 10 percent.

a. 6 percent

b. 25 percent

c. 40 percentd. 250 percent

10. When a borrow wants to establish credit with a new lender, the possibility of success will be improved if:

a. Existing loans and accounts payable are not revealed

b. Several years of accurate financial statements are provided, which show financial progress over timec. The borrower will guarantee the loan alone rather than with a co-signerd. The loan request is for a land purchase rather than for self-liquidating assets such as feeder livestock

True/FalseT1. Capital includes machinery and livestock as well as cash.

F2. Farming and ranching typically use less capital per worker than the average United States industry.

T3. To maximize profits, additional capital should be used until the marginal value product just equals the interest rate.

F4. A borrower would pay more total interest on a 10-year loan amortized under an equal principal payment plan than on the same loan amortized under an equal total payment plan.

T5. A financial contingency plan is needed in order to meet cash commitments when unexpected cash flow shortfalls occur.

F6. Farm businesses that are highly leveraged tend to have more stable net incomes from year to year than those that are not.

T7. Changes in asset values due to inflation affect the solvency of a business more than its liquidity.

F8. Borrowing operating funds under a line of credit agreement requires more communication between borrower and lender than borrowing the same amount in several separate loans.

F9. Purchasing capital assets with short-term loans leads to an improved debt structure for the business.

T10. Sometimes a farm business may have to sell productive assets to meet short-term financial commitments even though profits may be reduced in the long run.

Chapter 20Multiple Choice1. Which type of lease agreement results in the most price and yield risk for the tenant?

a. Fixed cashb. Flexible cash

c. Crop share

d. Custom farming

2. When using comparative sales to estimate the value of a tract of farmland, it is important to remember that the sale price of the comparative tract may have been higher than normal because:

a. It was an unusually large tract

b. It was sold from one close relative to another

c. It was sold by a seller financed installment sales contract with a low interest rated. It was located on a poorly maintained road

3. Crop share leases are based on the principle that gross income should be shared in the proportion as:a. Total cash costs

b. Total variable costs

c. Total fixed costs

d. Total economic costs

4. When long-term interest rates are 10 percent and the rate of inflation is expected to be 4 percent, a farm with an estimated net return to land investment of $90 per acre would have a value of $____ per acre using the income capitalization approach to land valuation.a. $643

b. $900

c. $1,500

d. $2,250

5. Under a flexible cash lease in which the rent paid is set equal to 30 percent of the actual gross income from the crop, the owner and tenant share what type of risk?

a. Price

b. Yield

c. Both price and yieldd. Neither

6. Farmland values in the United States generally declined during the period:

a. 1950 to 1960

b. 1970 to 1980

c. 1980 to 1987d. 1987 to 1997

7. One advantage that owning farmland has over leasing is:

a. Labor and machinery are used more efficiently

b. Owner equity could increase if land values go upc. The number of acres farmed is more flexible

d. Less capital is tied up in long-term investments

8. The purpose of an environmental audit is to determine:

a. The value of a piece of farmland, based on the prices for which other farms have sold for recently

b. If lime or other fertilizer needs to be applied

c. If there are environmental hazards on a farm that need to be cleaned up or correctedd. If the property taxes on a farm have been paid

9. Landowners who wish to make all the decisions about production and marketing, but not contribute their own labor, would probably prefer a:

a. Custom farming agreementb. Crop share lease

c. Fixed bushel lease

d. Cash rent lease

10. Indicate whether the following would tend to increase (+) or decrease (-) farmland values, all else equal.

a. Increase in crop prices(+)b. Increase in production input prices( -)c. Increase in long-term interest rates( -)d. Increase in the rate of inflation(+)True/FalseT1. Owning farmland rather than renting it generally gives the operator more management freedom.

T2. The market data approach to valuing farmland relies on information about comparable sales of similar farms that have sold recently.

F3. When a piece of farmland is sold, water and mineral rights are automatically transferred with it.

F4. A crop share tenant who receives two-thirds of the production and pays for all the fertilizer would tend to apply more fertilizer than a profit maximizing owner-operator.

T5. In a livestock share lease both tenant and owner typically own part of the livestock.

F6. Short-term lease agreements encourage operators to implement more soil and water conservation practices than long-term agreements do.

F7. Enterprise budgets are a good planning tool to evaluate the interactions among different products in a farming system.

T8. A cash rent lease requires the tenant to provide more operating capital than a crop share lease.

T9. A variable or flexible cash rent lease allows the landowner to share in price and/or yield risk without paying any of the cost of seed and fertilizer.

F10. The fact that the supply of farmland in the United States is essentially fixed makes land prices and rental rates less responsive to changes in crop prices and production technology than prices with variable inputs such as pesticides.

Chapter 21Multiple Choice1. Which type of bonus payment plan would provide a hired manager of a beef cattle feedlot with the most incentive to correctly balance rations?

a. $5 paid per finished animal sold

b. $500 paid in December for each year worked

c. 0.5 percent of gross sales

d. $100 for each 0.1 pounds of feed used per pound of grain, below a standard value

2. The biggest problem in securing sufficient labor throughout the year on a cash grain farm is:

a. Labor needs are highly variable from month to monthb. Labor supply is highly variable from month to month

c. Working conditions have become worse in recent decades

d. There are no slack work periods

3. A good incentive plan for farm employees should:a. Shift some price risk to the employee

b. Be based on factors over which the employee has controlc. Be paid only once a year

d. Account for over half of the employees total compensation

4. Workers compensation laws require employers to:

a. Pay workers at least a minimum wage rate

b. Withhold income tax from workers wages after a certain level of wages are paid

c. Carry insurance to protect workers who suffer job-related injuries or illnessesd. Contribute to a fund that is used to pay benefits to unemployed workers

5. A characteristic of labor that makes it different from other agricultural resources is:

a. Its marginal cost affects how much can be used profitably

b. It cannot be stored or saved for later usec. Other resources cannot be substituted for it

d. It has no opportunity cost

6. Generally the largest part of a farm employees total compensation comes from:

a. Wages or salaryb. Fringe benefits

c. A bonus or incentive payment

d. Contributions to an employee retirement plan

7. One measure of labor efficiency on a farm is:

a. Total labor cost for the year

b. Average hourly wage paid

c. Value of farm production per person-yeard. Total number of person-years of labor used

8. The amount of human labor used in U.S. agriculture has decreased during the last 50 years because:

a. More capital intensive technology has changed the marginal rate of substitution of capital for laborb. Returns to farm labor have declined

c. Total crop and livestock production has decreased

d. Tasks performed on farms and ranches today require less skill today than in previous decades

9. An organizational chart of a farm business helps illustrate:a. Where various fields or building sites are located

b. What farm groups or organizations the manager belongs to

c. Whether the business is a sole proprietorship, partnership, or corporation

d. Which personnel exercise authority over other personnel

10. Evaluation meetings with farm or ranch employees should be held:

a. Whenever a problem arises

b. When an employee resigns

c. On a regularly scheduled basisd. With all employees present together

True/FalseF1. The total number of workers employed in agriculture in the United States has increased since 1950.

T2. When labor is fixed in supply but plentiful that is, under utilized, more of it should be used until its marginal value product reaches zero.

F3. Classified ads for farm employees should be short in order to hold costs down.

F4. For crop farms, labor efficiency generally decreases as more acres are farmed.

T5. When planning a work schedule, jobs that must be done at a specific time should be scheduled first.

T6. The cost of housing provided to a farm employee can be a tax deductible expense for the employer.

T7. Employees should first be given a warning before being discharged for poor work performance.

F8. All agricultural employees must be paid at least the minimum legal wage.

T9. The Immigration Reform and Control Act requires employers to certify that workers are eligible for employment in the United States.

F10. In most states it is legal to ask prospective employees questions about their race, religion and age.

Chapter 22

Multiple Choice1. One advantage of custom hiring machinery operations over owning your own machine is:

a. It is more convenientb. It requires less investment capitalc. Depreciation deductions help reduce taxes

d. You have more control over the quality of work performed

2. Timeliness costs result from:a. Late planting or harvesting of cropsb. Owning machinery for a longer than average number of yearsc. Hiring hourly labor to operate machinery

d. Trying to repay machinery loans over a very short term

3. Farm machinery capital leases allow the farmer to:

a. Deduct depreciation expense for the machine for income tax purposes

b. Purchase the machine at the end of the lease for below market price

c. Reduce repair and maintenance costs, compared to owning the same machine

d. Have less capital tied up in intermediate assets

4. What is the average annual interest cost for a new feed grinder-mixer that costs $15,000 and has an expected salvage value of $3,000 after 8 years? The interest rate is 10 percent.a. $150

b. $600

c. $900d. $1,500

5. If the capital recover factor for an 8 year live and a 10 percent interest rate is .1874, the capital recovery charge for the machine in the previous question would be:

a. $255 per year

b. $2,549 per yearc. $2,811 per year

d. $3,373 per year

6. A grain drill has annual ownership costs of $3,600 and operating costs of $3.50 per acre. The same operation can be custom hired for $8.00 per acre. If the annual use is ______, it would be cheaper to own the machine.

a. More than 313 acres

b. Less than 313 acres

c. More than 800 acresd. Less than 800 acres

7. The main average of purchase used machinery instead of new machinery is:

a. Lower initial investmentb. Increased reliability

c. A longer expected useful life

d. Lower repair costs

8. The effective field capacity of a 16.5-foot wide chisel plow that is operated at a speed of 5.0 miles per hour with 85 percent field efficiency is:a. 8.5 acres per hourb. 10.0 acres per hour

c. 11.8 acres per hour

d. 70.1 acres per hour

9. Field efficiency would probably be highest for which operation:

a. Combining

b. Planting

c. Spraying

d. Plowing

10. The most common method of acquiring the use of farm machinery in the United States is:

a. Custom hiring

b. Owningc. Renting

d. Leasing

True/FalseT1. Machinery ownership costs are often called fixed costs because they do not change when the annual use of the machine changes.

F2. Calculating a capital recovery charge for a machinery investment replaces estimating depreciation and insurance costs.

F3. Only actual field time should be considered when labor costs for machinery are calculated.

F4. Smaller machines typically have higher field efficiencies than larger machines of the same type.

T5. If timeliness costs are included, total machinery cost per acre may increase as the number of acres increases.

T6. Short-term rental of farm machinery is likely to have a lower cost than owning machines that have a low level of annual use.

F7. To be considered a lease for income tax purposes, a machinery lease must require the operator to purchase the machine when the lease expires.

T8. Custom hiring certain machinery operations helps reduce labor needs for a farming operation.

F9. The most important factor in deciding when to replace machinery should be the amount of income tax that can be saved in the year of purchase.

T10. Total annual costs for a farm machine that is purchased new tend to decrease rapidly the first few years, then decrease more slowly, then eventually increase.