Arkansas Agricultural Education & FFA



Arkansas FFA Farm Business Management CDE2016 District CDEPart A. Economic Principles Related to Business ManagementEconomics is a social science that involves the study of how individuals __________ .Develop their tastes and preferencesMaximize their wealthDefine happinessChoose among alternativesWhen a U.S. Senator tells a campaign crowd that “High inflation rates are a much more serious economic problem than high unemployment rates”, it is an example of __________ .A normative statementAn empirically proven factA positive statementA microeconomic argument“Entrepreneurship” is __________ .the talent for organizing the use of land, labor and capital, among other thingsskill in influencing government regulators and legislatorsaccumulated technical knowledge in using labor and capital.Knowledge of the particular natural resources to be found in a given areaSome years ago, chemists at 3M Corporation were trying to create a super-strong glue. Somehow they got their molecules twisted and came up with one of the weakest glues ever made. But rather than pouring it down the drain, they tried coating some paper with it. Voila! The “Post-It Note” was born. In this case, 3M was acting as a(n) __________ .UtilityRationerEntrepreneurAbstractionWhen economists speak of scarcity, they are referring to the __________ .Condition in which society is not employing all its resources in an efficient wayCondition in which peoples’ wants outstrip the limited resources available to satisfy those wantsEconomic condition that exists in only very poor countries of the worldCondition in which society produces too many frivolous goods and not enough socially desirable goods.Which of the following is TRUE?Economists calculate only economic profit, and accountants calculate only accounting profit.Economic profit is always greater than accounting profit.Accounting profit is the different between total revenue and explicit costs.Economic profit is the difference between total revenue and implicit costs.Which of the following statements is FALSE?Money must change hands before a cost can be incurred.No monetary payment takes place when an implicit cost is incurred.Costs may be either explicit costs or implicit costs.Cost implies that a sacrifice has been made.Economic profit is the difference between total revenue and __________ .Explicit costsImplicit costsSunk costsThe sum of explicit and implicit costsA cost of resources used in production for which no actual monetary payment is made is a(n) __________ cost.TacitImplicitCovertExplicitThe rule of profit maximization says that firms should produce at the point where __________ .Total revenues equals total costMarginal revenue equals marginal costPrice equals average costPrice equals total costIf a firm earns normal profit, then it has generated revenues __________ .Equal to the sum of implicit and explicit costsGreater than total opportunity costsSufficient to cover explicit costs, but not implicit costsSufficient to cover implicit costs, but not explicit costsAn unrecoverable cost that should be disregarded in any current or future decision is also called a(n) __________ cost.SunkExplicitImplicitVariableThe N.M. Corporation has exactly the same costs of production as last year except for fixed costs, which are $50,000 this year compared to $30,000 last year. Which of the following statements is FALSE?The total cost curve will be the same this year as last year.The marginal cost curve will be the same this year as last year.The variable cost curve will be the same this year as last year.The fixed cost curve will have the same slope this year as last year.Which of the following statements is TRUE?The short run is always somewhere between six and twelve months.In the short run, changes in output can only be brought about by a change in the quantity of variable inputs.The long run is any period of time over one year.In the short run, there are variable costs but no fixed costs.Average fixed cost __________ .Is usually greater at lower levels of output than at higher levels.Does not change as output changesExists only in the short runBoth A and CThe marginal cost of making the 100th unit is $50 and the average total cost of the 100th unit is $100. What do we know about the average total cost curve at a quantity of 100?It is rising (increasing)It is falling (decreasing)It is constant (straight across)We do not know what is happening to the average total cost curveIf the wage rate increases, which of the following will NOT happen?The marginal cost curve will shift upThe total fixed cost curve will shift upThe total cost curve will shift upThe total variable cost curve will shift upFive months ago Wilson opened up a health club. Which of the following is an implicit cost related to the health club?Wilson paid $120 for an outside laundry service to clean the towels used at the club.Wilson paid $100 for the pest control exterminator to spray the health club.Wilson previously worked as an accountant, earning $3,000 a month.Wilson usually eats four hamburgers a day, priced at $3 each.Suppose that one fixed and one variable input are used to produce good X. As the marginal physical product of the variable input increases, then marginal cost __________ .IncreasesDecreasesRemains constantThere is not enough information to answer the questionExhibit 1QuantityFixed CostsVariable CostsTotal CostsMarginal CostsAverage Total Cost03000---------------134022003200Refer to Exhibit 1. What is the marginal cost of producing the 1st unit?40100140340Refer to Exhibit 1. What is the variable cost of producing the 2nd unit?50100150300Refer to Exhibit 1. What is the total cost of producing the 3rd unit?200300450500Pete’s Burgers has fixed costs of $200. When Pete’s Burgers makes 500 hamburgers, their variable costs are $150. When Pete’s makes 600 hamburgers their variable costs are $250. The average total cost when they are making 600 hamburgers is __________ , and the marginal cost for the range between 500 and 600 hamburgers is __________ .ATC=$0.75; MC=$1.00ATC=$0.75; MC=$2.00ATC=$1.30; MC=$1.00ATC=$1.30; MC=$2.00Suppose that you are evaluating the market for baseball bats. Louisville Slugger produces the Barry Bonds’ bat. Since his record breaking 73 home runs more kids prefer his bat to any other. What will happen in the market for the Bonds’ bat?Both the price and quantity will increaseBoth the price and quantity will decreasePrice will decrease; quantity will increaseQuantity will increase, but price is indeterminableThe price of eggs will drop when __________ .The number of egg farms increaseGovernment regulations cause an increase in the cost of producing eggsThe price of feed for chickens increasesThe quantity demanded of eggs decreasesThe law of supply states that price and quantity supplied are __________ .Inversely related, ceteris paribusDirectly related, ceteris paribusNot relatedFixedWhich of the following is TRUE about the relationship between price and quantity supplied?There is always a direct relationshipThere is always in inverse relationshipThere is usually a direct relationshipThere is usually an inverse relationshipSarah received a raise of 20%. Before, she purchased five pounds of hamburger and one pound of steak a month. After her pay increase, she consumes three pounds of steak and two pounds of hamburger a month. All else remaining constant, we know that __________ .Hamburger is an inferior good and a steak is a normal good for SarahHamburger is a normal good and steak is an inferior good for SarahBoth steak and hamburger are normal goodsBoth steak and hamburger are inferior goodsAn increase in the number of buyers in an area will result in a __________ .Movement up the demand curveMovement down the demand curveLeftward shift in the demand curveRightward shift in the demand curveTobacco production is one of the more heavily subsidized industries in the United States. Suppose that as a result of intense lobbying from health-related concerns, Congress repeals the tobacco firms’ subsidies. Which of the following scenarios would likely occur?The tobacco firms’ supply curve would shift rightward, as it would now be cheaper to produce each level of output.The tobacco firms’ supply curve would shift leftward, since it would not cost more to produce each level of output.The tobacco firms would not experience any shift in their supply curves; subsidies don’t affect output.There would be a movement along the supply curve for tobacco, but the supply curve would not shift.There has been significant freeze in Florida destroying a large portion of the orange crop. The U.S. Surgeon General also reports that drinking fresh squeezed orange juice reduced the chance of having cancer by 50%. Given these two events the price of orange juice will __________ and the output of orange juice will __________ .Increase; increaseIncrease; decreaseIncrease; be indeterminableBe indeterminable; decreaseAt a price above equilibrium price, there is __________ .A shortageA surplusExcess demandSuper-equilibriumSuppose that you are evaluating the apple market. The U.S. Surgeon General confirms that eating apples (one a day) can prevent many chronic diseases. At the same time, many apple trees are infested by an apple weevil. This weevil destroys 1/3 of all apple trees in the U.S. The result of these two events will be that __________ in the apply market.Both the price and quantity will increasePrice will increase; quantity will decreaseQuantity will decrease, but price is indeterminablePrice will increase but quantity is indeterminableExhibit 2Refer to Exhibit 2. Suppose that wheat producers lobby the government for a price floor and receive one. This price floor is set at PF. What is the quantity of wheat purchased at PF?Q1Q2Q3Q1 – Q2Refer to Exhibit 2. Suppose that wheat producers lobby the government for a price floor and receive one. This price floor is set at PF. How many fewer units of wheat will be sold at the price floor than at equilibrium price?Q1 – Q2Q3 – Q2Q3 – Q1Q2Refer to Exhibit 2. Suppose that wheat producers lobby the government for a price floor and receive one. This price floor is set at PF. What is the quantity of wheat produced at PF?Q1Q2Q3Q1 – Q2When the price of good X increases from $3 to $5, the quantity demanded of good Y decreases from 220 to 180. The cross elasticity is __________ and X and Y are __________ .-0.4; complements-0.4; substitutes-2.5; complements-2.5; substitutesWhen a farmer increases the amount of fertilizer used by 10%, the farmer’s crop of corn increases by 3% and the farmer’s crop of wheat increase by 5%. Which of the following statements is TRUE about elasticity with respect to fertilizer?Corn has a higher elasticity than wheatWheat has a higher elasticity than cornWheat and corn have the same elasticityWheat and corn are unit elasticIf a good is an inferior good then income elasticity of demand is __________ .Less than oneLess than zeroGreater than oneGreater than zeroGrocery stores do not often advertise sale prices on table salt because _________ .The demand for salt is elasticThe demand for salt is inelasticThe demand for salt is unit elasticThe demand for salt is negativeJack sells peanuts outside of Jacob’s Field in Cleveland. He currently charges $3 for a bag of peanuts. If Jack’s customers have a price elasticity of demand of 0.75, which of the following statements is TRUE?If jack increases his price, he could increase his total revenueIf jack increases his price, his total revenue will be unchangedIf jack lowers his price, he could increase his total revenueIf jack lowers his price, his total revenue will be unchangedThe fewer substitutes for a good, __________ .The lower its income elasticity of demandThe higher its income elasticity of demandThe lower its price elasticity of demandThe higher its price elasticity of demandSuppose that an increase in income increases the demand for granola bars and that a decrease in the price of grapes decreases the demand for granola bars. Based on this information, which of the following do we know about granola bars?Granola bars are normal goods, and granola bars and grapes are substitutesGranola bars are normal goods, and granola bars and grapes are complementsGranola bars are inferior goods, and granola bars and grapes are substitutesGranola bars are inferior goods, and granola bars and grapes are complementsIf Cassandra bought 16 cotton blouses last year when her income was $40,000 and she buys 24 cotton blouses this year when her income is $35,000, then blouses are __________ .An inferior goodA normal goodA substitute goodA complementary goodWhen the price of Moose Tracks ice cream increases from $3 to $4, the quantity demanded of Moose Tracks ice cream decreases from 1,000 to 900, and the quantity demanded of Chubby Hubby ice cream increases from 500 to 550. The cross elasticity of demand is __________ and Moose Tracks and Chubby Hubby are __________ .-0.33; complements-0.33; substitutes0.33; complements0.33; substitutesSuppose the price of eggs fall and a chicken farmer decides to sell all his chickens for meat rather than keeping them to lay eggs. The elasticity of supply for the farmer would be __________ .InelasticUnit elasticElasticUnit inelasticIf the government imposes a tax on suppliers, the equilibrium price of the product will __________ and the equilibrium quantity of the product will __________ .Increase; increaseDecrease; increaseIncrease; decreaseDecrease; decreaseExhibit 3Refer to Exhibit 3. If the government is contemplating imposing a per-unit tax and it wants the tax to have as small a negative effect on consumers as possible, it should choose a good for which the market is depicted on graph __________ .(1)(2)(3)(4)Refer to Exhibit 3. If the government wants to impose a per-unit tax in order to raise revenues, which of the depicted markets should it choose in order to maximize tax revenues?(1)(2)(3)(4)Refer to Exhibit 3. As a producer, if you had a choice, which of the depicted markets would you operate in?(1)(2)(3)(4)Exhibit 4Refer to Exhibit 4. The market for good X is initially in equilibrium at $5. The government then places a tax on the producers of good X in-effect, taxing them on each unit of good X they sell. As a result, the supply curve __________ .Shifts (down and) rightward from S2 to S1Shifts (up and) leftward from S1 to S2Does not shift from S1There is not enough information to answer the questionRefer to Exhibit 4. The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. As a result, the equilibrium price __________ .Rises from $5.00 to $6.25Falls from $5.00 to $4.00Remains constant at $5.00None of the aboveRefer to Exhibit 4. The market for good X is initially in equilibrium at $5. The government then places a per-unit tax on good X, as shown by the shift of S1 to S2. What is the per-unit tax equal to?$1.00$2.25$0.25$4.00Suppose the milk industry is characterized by perfect competition and is in long run equilibrium. As a result of change in the price of orange juice, a substitute for milk, the demand curve for milk shifts out. If milk is a decreasing-cost industry, what will happen in the long run?The price of milk will increaseThe price of milk will decreaseThe price of milk will stay the sameThe price of milk will decrease at first but then return to the original priceAs a result of increased logging in a rural town, new roads are installed to the town and more people choose to live in the town. The result of this is the logging industry faces __________ input prices and is likely to be a(n) __________-cost industry.Higher; increasingHigher; decreasingLower; increasingLower; decreasingReal-world markets that approximate the four assumptions of the theory of perfect competition include __________ .Some agricultural marketsThe soft drink marketThe stock marketBoth A and CA perfect competition industry is decreasing cost. If the demand curve for the industry shifts left (decreases), which of the following will NOT happen?Firm’s average cost curve shifts downIndustry supply shifts leftThe price of the good increasesThe quantity of the good decreasesIn the theory of perfect competition, __________ .The market demand curve is horizontalThe single firm’s demand curve is horizontalThe single firm’s demand curve is downward slopingBoth A and BWhich of the following is an assumption of the theory of monopoly?There are extremely high barriers to entryThere are many sellersThe product has a number of close substitutesThe product is extremely high qualityWhich of the following is an example of a monopoly?You don’t want to buy cable from the one company that provides cable to your city so you are stuck getting a satellite dish.While there are a lot of appliance stores in the big city three hours away from you, they are too far to travel so you buy your new refrigerator from the one store locally that sells appliances.If you want to buy a new novel, your only choices are to buy from the one local bookstore in your town or to get on the Internet and buy from any of the thousands of online places.All of the above would be considered examples of monopoly.A monopoly may exist because __________ .Government has refused to grant a public franchiseOne firm has the exclusive ownership of a scarce resourceThe firm is so large and is currently experiencing such vast diseconomies of scale that it can out-compete all newcomersBoth A and BIf there is a natural monopoly __________ .It is cheaper for one firm to produce the entire industry’s output rather than have two or more firms produce the same outputOne firm owns all the natural resources used in the production of a good, such as owning the diamond mines needed to produce diamondsThere are close substitutes for the good but by nature they are the types of substitutes that don’t compete with the monopolyOne firm has a patent to the goodWhich of the following industries is the best real-world example of monopolistic competition?CottonElectricity generationAutomobilesService stationsA firm in monopolistic competition maximizes profits by producing the quantity where __________ .Marginal revenue equals marginal costPrice equals marginal costMarginal revenue equals average costPrice equals average costWhich of the following is an assumption of the theory of oligopoly?There are barriers to entryThere are many sellers and many buyersFirms produce and sell either homogenous or differentiated productsBoth A and CIn a market with a dominant firm and competitive fringe, the dominant firm’s demand curve shows the __________ that will occur in the competitive market at each price __________ the equilibrium.Shortage; aboveSurplus; aboveShortage; belowSurplus; belowA concentration ratio indicates the __________ .Number of firms in an industryNumber of large firms in an industry compared to the number of large firms in another related industryPercentage of total sales accounted for by the (for example) four largest firmsPercentage of sellers in an industry relative to the number of buyersA monopolist can sell 15,000 units at a price of $100 per unit. Lowering price by $1 raises the quantity demanded by 500 units. What is the change in total revenue resulting from this price change?$34,500$12,500$65,500-$35,500A farmer has 1,000 acres on which he has previously grown corn. His yield per acre is 100 bushels of corn. If the corn payment rate is $0.43 a bushel, his production flexibility contract payment equals __________ .$39,600$43,000$36,550$12,345Part B. Concepts related to the use and analysis of records to manage resourcesWhich function of management is concerned with monitoring the results of a decision and taking corrective action?OrganizationControlPlanningImplementationOne force that has helped cause U.S. farms to become larger and fewer is __________ .Competition from foreign producersLower production costs per unit by spreading fixed investment in technology over more unitsMore labor used in agricultural productionDeclining nonfarm wage ratesAn increase in the number of non-farmers living in rural areas will cause __________ .Farmland values to decreaseFarmers to pay more attention to off-farm effects of their production practicesLess regulation of agricultural production practicesProfit maximization to be the only criterion for adopting new technologiesWhich of the following is an example of a strategic decision?Determining fertilizer levels for cropsDeciding when to sell grainDetermining what type of business/legal organization to useSetting milking times for a dairyBy forming strategic alliances, small and medium-sized farmers and ranchers can __________ .Increase their managerial freedomAchieve advantages of diversificationAchieve marketing advantages that larger operations enjoyIncrease their own volume of productionWhich of the following is an example of a tactical decision?Forming a partnership with a relativeInstalling an irrigation systemJoining a feeder pig cooperativeBalancing a livestock ration“What managers do” is best described by which of the following?Gather informationMake decisionsAnalyze dataOrganize the farmExternal scanning could include assessing __________ .The financial condition of the businessChanges in consumer tastesThe basic values of the managersProductivity of the farmland ownedOne characteristic that makes decision making in agriculture different from other types of business is __________ .More government regulationPrevalence of very large business unitsPredictability of production processesFixed supply of a major resources such as landAgricultural processors will probably want more uniform products in the future in order to __________ .Pay lower prices to producersDiversify their product linesReduce environmental contaminationMake more efficient use of processing and packaging equipmentWhich phase of the strategic management process would be most influenced by a farm family’s basic values and attitudes about agriculture?External scanningSettings goalsInternal scanningStrategic developmentA mission statement is __________ .A set of goals to be achieved by a specific dateA comprehensive plan to reshape the farm business over the next decadeA list of important jobs the farm manager needs to accomplish in the near futureA short summary of why a business existsThe statement “To achieve an average feed conversion rate of 2.75 pounds of feed per pound of gain for my market hogs by 2007” is __________ .A mission statementA strategyA goalAn example of external scanningWhich of the following is an operating activity?Pay cash for tractor repairsCharge $12,000 of feedSell corn for $35,000All of the aboveWhich of the following is an investment activity?Pay principal on a loanPurchase a pickupPay interest on the loanAll of the aboveWhen using cash accounting which of the following accounts would never be used?Accounts payableDepreciationGrain salesFertilizer purchasesA prepaid expense is one where payment is made __________ .By checkIn an accounting period prior to the one in which the item will be used to produce incomeIn a series of payments over timeBefore the bill is even receivedWhich of the following would be recorded when using a single-entry, cash accounting system?Charging $2,000 worth of chemicals at the farm supply storeReceiving $850 from a neighbor for baling hayRecognizing that $3,476.34 of interest has accrued since the last interest payment All of the aboveOne advantage of a single-entry accrual accounting system over a double-entry cash system is __________ .It is easier to enter transactionsA current balance sheet is always availableNoncash transactions do not need to be enteredIt can be done on a computerAn organization that develops and publishes guidelines for farm financial analysis and reporting is called the __________ .Farm Accounting AssociationFarm Credit SystemFarm Financial Standards CouncilAgricultural Analysis AssociationAt 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) __________ .Prepaid expenseAccounts receivableAccount payableAccrued expenseA major advantage of accrual accounting over cash accounting is __________ .A more accurate estimate of annual profitSimplicityAlways shows a higher profitCan use single entry instead of double entryThe Farm Financial Standards Council (FFSC) __________ .Reviews loan applicationsRecommends uniform procedures and standards for preparing farm financial statementsRecommends changes in farm tax regulations to the Internal Revenue ServiceSets financial goals for different types of farms and ranchesUsing double entry accounting, transactions can be posted to which accounts?Only income and expenseOnly asset and liabilitiesIncome, expense, assets and/or liabilitiesOnly cash and noncashWhich of the following is a noncurrent asset?Feeder cattleFeed bill at local feed storeFeed inventoryA 36-month certificate of depositAn organized list of the value of all assets and all liabilities used by an accounting system is called __________ .A chart of accountA balance sheetAn income statementA debitAccording to the cash accounting method, expenses are recorded __________ .When the bill is receivedAt the end of the yearAt the end of each monthWhen the bill is paidWhich of the following is an example of a noncurrent liability?Farm machineryFeed billFarm mortgagePrepaid expenseWhich of the following is an example of a current asset?Dairy cowsFarm buildingsFarm machineryNONE of the aboveAnother term which has the same meaning as owner’s equity is __________ .Net farm incomeNet worthTotal asset valueTotal liabilitiesOf the following, which is the most liquid asset?Cash in the cash boxBalance in checking accountBreeding livestockFeeder livestockIf a business has working capital greater than $0, its current ratio will be __________ .Greater than oneEqual to oneLess than oneThere is no relationship between the amount of working capital and the current ratioIf the debt/asset ratio is increasing, then the debt/equity ratio will be __________IncreasingDecreasingConstantIndeterminate, need more informationWhich of the following best describes a balance sheet?It shows changes in asset and liabilities over the last accounting periodIt shows asset and liabilities at a point in timeIt shows changes in assets and liabilities over a period of timeIt shows profits for the last accounting periodThe best description of a business which has increased its debt/asset ratio is one which has __________ .Purchased more assetsSold some assetsIncreased its debtIncreased its debt relative to total assetsWhich of the following assets would have the same value using either a cost or a market basis valuation?LandMachineryPreparid expensesPurchased breeding livestockThe degree to which a farm’s assets adequately cover or exceed its liabilities is referred to as __________ .LiquidityWorking capitalProfitabilitySolvencyA statement of owner equity shows __________ .A list of all assets and liabilitiesThe sources and values of changes in owner equityThe valuation adjustment for owner equityOwner equity for the past 20 yearsWhich financial statement asses a specific point in time rather than a period of time?Income statementStatement of owner equityStatement of cash flowsBalance sheetA lender would usually prefer to have farm assets valued at their __________ value on a balance sheet that is part of a loan application.MarketAccrualCashCostAnother name for a balance sheet is __________ .Net worth statementIncome statementStatement of owner equityStatement of cash flowsThe “cost value” shown on a balance sheet for an asset such as a tractor is equal to _________ .The original purchase priceThe original purchase price less depreciation expense taken to dateThe original purchase price plus cost all repairs to dateThe cost of a new tractor of the same sizeA “contingent” or “deferred” income tax liability is one that __________ .Is owed by not yet paidWould be owed if and when an asset is soldRepresents delinquent taxes from past yearsWould be due under cash accounting but not accrual accountingThe “cost” value of farmland can change due to __________ .Changes in the selling price of farmlandAccumulated depreciationThe cost of nondepreciable improvements made, such as ponds and terracesIncreases in property taxesPaying a feed dealer a sum of money in October to be applied toward feed to be delivered in March would show up on a balance sheet as __________ .A prepaid expenseAn account receivableAn account payableSupplies on inventoryThe depreciation method with the greatest depreciation in the first year is __________ .Double declining balance150% declining balancestraight lineALL of the above have the same depreciation in the first yearWhich of the following cannot be valued using the cost less accumulated depreciation method?TractorBarnBreeding livestockMarket livestockThe proper term for the value found by subtracting accumulated depreciation from the asset’s original cost is __________ .Salvage valueBook valueMarket valueAsset valueThe total depreciation over an asset’s useful life is equal to __________ .Cost minus salvage valueCost plus salvage valueBook valueSalvage valueTo be depreciable, an asset must have a useful life of __________ .More than ten yearsFive years or moreMore than one yearSix months or longerAssume a new tractor is purchased on January 1 for $124,000 and given a salvage value of $20,000 and a useful life of 8 years. What would the annual depreciation be per year under the straight-line method?$15,500 per year$49,600 per year$61,995 per year$13,000 per yearA depreciable asset’s book value will equal its salvage value __________ .Only on the purchase dateOnly at the midpoint of its useful lifeOnly at the end of its useful lifeEvery year of its useful lifeThe current ratio is a measure of a farm firm’s __________ .Return on equityAbility to pay short-term credit obligationsReturn on investment in current assetsLevel of total debt to total assets at the present timeWhich of the following items on a balance sheet would NOT be considered when making accrual adjustment to net income?Accrued interestChange in market value of landInventories of market livestockPre-paid expensesWhich of the following is NOT included as an expense on the net farm income statement?DepreciationInterest payments made on loansPrincipal payments made on loansThe cost of supplies used by not yet paid forDepreciation is a cost associated with which of the following assets?Farm landCattle feedDairy barnLiquid fertilizerWhich type of financial statement would be most useful for keeping record of expenses?Net worth statementNet income statementStatement of owner equityStatement of cash flowsWhat are the steps in the control function of farm management?Establish standards for comparing results; measure the actual performance of the farm business; identify problem areas and take corrective actionCalculate assets; calculate net worth; calculate liabilitiesAssessing the farm; analyzing revenues; analyzing expensesEstablishing the farm; measuring the wealth of the farmer; identify the problems the farmer has with equipmentIn general terms, efficiency refers to __________ .The volume of resources utilized in the farm businessThe ratio of total liabilities to total assets in the businessThe net farm income generated by the farm businessThe volume of production generated per unit of resource utilized in the farm businessA trend analysis for a farm business could be performed using what kind of data for comparison?Historical data from the same farm for the past five yearsData from comparable farms in the same region for the same yearExpected results from a whole farm budget completed at the beginning of the yearHistorical data from similar farms in the same region for the past five yearsThe degree to which a farm’s assets adequately secure its debts is referred to as __________ .LiquiditySolvencyEfficiencyProfitabilityAn advantage of using the value of working capital instead of a cash flow budget to analyze a farm’s liquidity __________ .It is simpler to calculateIt takes into account the timing of the cash flowsIt takes into account revenue to be received from the sale of products not yet in existenceIt takes into account future operating expenses as well as debt repaymentWhen the value of livestock production per $100 feed fed is greater than 100 it means that __________ .The livestock enterprise had a negative profitThe livestock enterprise had a positive profitFeed costs were less than gross revenue adjusted for inventory changes, home consumption and livestock purchases$100 per hundredweight was the breakeven sale pricewhich of the following ratios does NOT analyze the solvency of the farm business?Debt/asset ratioEquity/asset ratioDebt/equity ratioTurnover ratioWhich of the following is a measure of economic efficiency?Net farm incomeChange in owner equityGross revenue per year of laborNet cash flowLow profitability can be caused by __________ .Low yields or output levels relative to input useUnused machinery capacity with high levels of machinery ownership cost relative to outputPoor marketing leading to low prices receivedALL of the above can cause low profitabilityWhich of the following farm business analysis measures is NOT a measure of efficiency (either physical or economic)?Gross revenue generated per person (FTE)Pounds of milk produced per cow per yearValue of crops produced per acreDollars received per ton of hay soldWhich of the following would appear on an income statement but NOT on a cash flow budget?Gain or loss on sale of capital assetInventory changesDepreciationALL of the aboveA farm’s asset turnover ratio measures __________ .How often they replace machinery and equipmentHow much gross revenue is generated for each dollar invested in farm assetsHow many years it takes to pay for machinery and buildingsHow much debt the farm has for each dollar of assetsWhich of the following would NOT appear on a cash flow budget?Feed purchasesInventory changesFamily living expensesCost of new tractorWhen preparing a cash flow budget it is important to __________ .Take into account the expected timing of cash inflows and outflowsInclude all noncash expensesInclude only noncash revenuesEstimate expected cash inflows and outflows for a whole year onlyA cash flow budget can be used to __________ .Estimate when and how much money will need to be borrowed during the yearEstimate when and how much debt can be repaid during the yearEstimate when excess cash may be available so plans can be made to invest it ALL of the aboveA ranch that just replaced a large number of fences and corrals would most likely see which of the following ratios increase?Depreciation expense ratioInterest expense ratioOperating expense ratioNet farm income from operations ratioA projected negative annual cash flow indicates __________ .Net farm income will be negativeDepreciation expense is too highProjected cash inflows are less than projected cash outflowsProjected asset values are less than projected liability valuesA cash flow analysis of an investment in a new capital asset should include projections for __________ .Several monthsOne year on a monthly basisOne year for a whole year onlySeveral yearsThe last step in constructing a cash flow budget should be __________ .Estimating the amount of crop and livestock production for the yearEstimating how much new current debt will be needed and can be repaid each monthEstimating family living expensesEstimating when payments on existing debt are dueA cash flow budget can be used to monitor the farm business by __________ .Comparing actual cash inflows and outflows to the budgeted monthly cash flowsComparing actual cash inflows and outflows to 10-year averagesComparing the projected ending cash balances to the actual balances for each monthComparing actual selling prices to those assumed in the cash flow budgetA cash flow budget should contain all of the following items except __________ .Depreciation Principal payments on machinery loansCost of new farm machinery to be purchasedDiesel fuelA projected negative cash balance at the end of the year can be made positive by __________ .Delaying proposed purchased by capital assetsCarrying over less inventory of stored grain to the following yearLengthening repayment periods on term loansALL of the aboveThe size of the minimum cash balance a farm business should try to show at the end of each budgeting period will depend on __________ .The total dollars of cash inflows and outflows projectedThe form of farm business organization the farm choosesThe number of acres farmedThe number of people employed on the farmEstimating the total amount of operating credit that will be owed at the end of each time period during the year is useful for __________ .Projecting farms’ net worth at the end of the yearComparing to the maximum balance on an operating line that a lender will approveScheduling crop and livestock marketingEstimating the farm’s net income for the yearPart C. Concepts and functions of risk managementMost farmers are more likely to accept a risk if __________ .Only a small possible loss is involvedThey have a high debt to asset ratioThey have high fixed cash flow obligationsThey are primarily concerned with maintaining their net worthWhich type of farm lease agreement results in the most price and yield risk for the tenant?Crop-shareLivestock shareFixed cashCustom farmingOn 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?4 to 5 tons per acre5 to 6 tons per acre6 to 7 tons per acre7 to 8 tons per acreUsing the data in the question above, what is the expected value for the farm’s alfalfa yield, if each past result is given equal weight?5.0 tons per acre5.6 tons per acre6.2 tons per acre6.5 tons per acreThe safety-first strategy for choosing among risky alternatives assumes that the farm manager is most concerned with __________ .Achieving the highest average return over the long runAchieving the best possible result in a good yearAvoiding the worst possible result in a bad yearMinimizing the chances of not breaking evenWhich of the following strategies does NOT reduce production risk?Selling grain before harvest by a forward contractApplying insecticide to a cropVaccinating livestock against diseaseKeeping a year’s supply of extra hay stored__________ insurance protects farm operators in case of the loss of a building from fire or wind.LifePropertyLiabilityMultiple peril cropWhen “placing a hedge” for a commodity held in storage for later sale, a farmer __________ .Buys a futures contractSells a futures contractBuys crop insuranceSigns a contract with a local elevatorOn a partial budge which analyzes switching 120 acres from growing wheat to growing barley, which of the following costs would NOT be included on the budget?Seed expense for either cropFertilizer for the barleyFertilizer for the wheatProperty tax on the landOn a partial budget analyzing a change from cow-calf production to stocker production, using the same pasture acreage and facilities, which of the following would be included as a reduced cost?Cull cow salesFeeder cattle purchasesA fixed interest charge for ownership of breeding livestockPasture rentThe probability that the outcome of an uncertain event will be equal to or less than a certain value is given by the __________ .Coefficient of variationStandards deviationExpected valueCumulative distribution functionThe success of hedging as a measure to reduce price risk depends on the fact that cash and futures contract prices for the same commodity __________ .Move up or down independently of each otherTend to be about the same on a given dayTend to move up or down at the same timeTend to move in opposite directionsUnder a Yield Protection crop insurance policy, a crop farmers’ yield loss results in an indemnity payment based on __________ .The average futures price before planting seasonThe average futures price during the month of harvestThe 10-year average cash price for that commodityThat actual price the producer receives from selling the remaining cropWhich of the following marketing strategies provides farmers who sell grain or livestock the LEAST protection against a decline in selling prices before they are ready to actually deliver the commodity?Buying PUT options in advanceSelling at the cash price at the time of deliveryHedging with futures contracts in advanceForward contracting in advanceWhich type of forward pricing tool cannot be reversed or offset later?Forward contract with a local elevatorFutures contractPut optionCall option“Basic risk” in marketing refers to __________ .unpredictable up and down movements in the futures marketunpredictable up and down movements in the cash marketunpredictable changes in the difference between futures and cash marketsunpredictable movements in interest rates on operating loansA parent and child who were starting to farm together would most likely double the size of the cow herd and milking parlor if their ultimate goal was to end up with __________ .A “spin-off” operation with the child farming separately from the parentsThe parents retiring in a few years and renting the farm to the childA family farming corporation with both parent and child actively involvedThe child working full-time off the farmEstate planning is most concerned with passing on the __________ of the farm to the next generation.IncomeOwnershipManagementDebtWhen a producer enters into a forward contract with a local elevator or grain processor, which of the following is TRUE?She cannot deliver the grain until after a specified dateShe can cancel the contract if prices go up laterThe contract must be for multiples of 5,000 bushelsShe can contract to deliver any number of bushelsA limited liability company combines the legal aspects of __________ .A sole proprietorship and a partnershipA partnership and a corporationA corporation and a cooperativeA sole proprietorship and a corporationIn a farm partnership, net income is shared in proportion to __________ .The labor contributed by each partnerThe total costs paid by each partnerThe ownership shares of each partnerThe number of partnersIn a cooperative, shareholders have voting rights __________ .In proportion to the number of shares ownedIn proportion to the amount of business done with the cooperativeIn proportion to the capital contributedThat are equal for all membersThe most common form of farm business organization is the __________ .Sole proprietorshipPartnershipLimited liability corporationCorporationWhich marketing tool allows a producer to set minimum selling price but still benefit if prices trend upward significantly?HedgingPut optionsForward contractingSelling on the spot of cash marketA financially secure farmer or rancher who is NOT very concerned about avoiding risk, when facing an event with an unpredictable outcome, will choose the strategy that __________ .Has the highest expected value for its possible outcomesHas the smallest range between the best and worst possible outcomesHistorically has had the smallest standards deviation for its possible outcomesHas the lowest probability of an unfavorable outcomeExhibit 5BondFaceValueof BondPrice ofthe BondAnnualPaymentA$1,000$800$60B$1,000$900$150C$1,000$1,000$250D$1,000$1,100$400E$1,000$1,200$450Refer to Exhibit 5. The coupon rate for Bond A is __________ .0.06 percent0.075 percent6.0 percent7.5 percentRefer to Exhibit 5. The yield on Bond A is __________ .0.06 percent0.075 percent6.0 percent7.5 percentRefer to Exhibit 5. The yield on Bond B is __________ .16.7 percent0.17 percent0.15 percent15 percentRefer to Exhibit 5. The yield on Bond C is __________ .0.25 percent25 percent2.5 percent100 percentA tariff is a tax on __________ .SavingsCapital goodsImportsLandBeth purchased two May live-cattle futures contracts in January. One contract is 40,000 lbs. of live-cattle. It is currently March. In March, Beth can fulfill her contract obligation by __________ .Purchasing tow May live-cattle futures contractsSelling two May live-cattle futures contractsDelivering 80,000 lbs. of live cattle to a futures transaction pointAccepting delivery of 80,000 lbs. of live-cattle at a futures transaction pointExhibit 6OpenHighLowSettleChg. CATTLE (CME)40,000 lbs. – cents per lb.Aug. 0580.0080.2279.7579.92+.12Oct. 0581.0581.3080.5780.65- .07Dec. 0583.8084.1583.5083.62- .12Feb. 0686.0086.3585.8585.97- .20Apr. 0684.5084.7584.1584.42- .12Jun. 0680.2080.3579.6079.60- .30Aug. 0679.5279.5279.5279.52- .27Est. sales 11, 282. Mon’s sales 15, 866Mon’s open int. 131, 490. +309Refer to Exhibit 6. On August 10, 2005, what was the best prediction of live-cattle spot prices in February 2006?85.97 cents per lb.8.597 cents per lb.1.59 cents per lb.0.8697 cents per lb.Refer to Exhibit 6. On August 10, 2015, a buyer of live-cattle decides to execute a hedge for cattle she will purchase in April 2006. In April, she expects the basis to be $2.25/cwt. If she hedges today, about what hedge price does she expect to receive?0.8667/cwt8.667/cwt86.68/cwt866.7/cwtMarkets that quickly and accurately assimilate all available information into market prices are referred to as __________ markets.EfficientInefficientMonopolyElasticExhibit 7May 12, 2004November 5, 2004November 2004 Soybean Future Contract Price (one contract is 5,000 bushels)$6.23/bushel$7.50/bushelSoybean Spot Price$7.15$7.35Refer to Exhibit 7. On November 5, 2004, what was the soybean basis?1.50.15-0.15-1.5Refer to Exhibit 7. On May 12, a speculator sells three November soybean futures contracts and off-sets those contracts on November 5. What are speculator’s profits?$190.50$19,050-$190.50-$19,050Refer to Exhibit 7. Soybean farmers plant in May and harvest in November. A soybean farmer hedges by __________ November soybean futures in May, __________ the same number of November soybean futures in November and selling their grain in the spot market.Selling; buyingBuying; sellingBuying; buyingSelling; sellingRefer to Exhibit 7. If the soybean farmer hedged in 2004, what hedge price did she receive?$0.608$6.08$60.80$608.00Exhibit 8ContractFuture Prices onFebruary 6, 2003Future Prices onMarch 1, 2003Settlement Price($ per bushel)Settlement Price($ per bushel)March 03 Corn FuturesContract (5,000 bushels)2.382.50February 04 Corn FuturesContract (5,000 bushels)2.442.62Refer to Exhibit 8. Suppose Dave Chappell bought two March corn contracts on February 6, 2003. It is currently March 1, 2003, the month in which the March contract expires. He can fulfill his contract obligation by __________ .Selling two March corn contracts at $2.38/bushelBuying two March corn contracts at $2.50/bushelAccepting delivery of corn and paying $2.38/bushelAccepting delivery of corn and paying $2.50/bushelMore than 99% of all futures contract obligations are met by __________OffsettingAccepting or making deliveryCancelling the contractOnsettingExhibit 9DateJuly 2004 Winter WheatContract Futures Price (5,000 bushels/contract)Spot Price in YourTownSettlement Price ($ per bushel)($ per bushel)January 10, 20043.303.60July 10, 20043.503.45Refer to Exhibit 9. You are a wheat farmer who plans to harvest and sell wheat in July. You decide to hedge all of your wheat by selling wheat futures contracts on January 10, 2004. You expect the basis in July to be -$0.10. What is your expected hedge price on January 10?$320.00$32.00$3.20$2.30Refer to Exhibit 9. You are a wheat farmer who plans to harvest and sell wheat in July. You decide to hedge all of your wheat by selling wheat futures contracts on January 10, 2004. You expect the basis in July to be -$0.10. Come July 10, you offset your future position and sell in your local spot market. What is our realized hedge price?$2.35$3.25$23.50$32.50Refer to Exhibit 9. You purchase a put option for July 2004 winter wheat futures contracts at a price (the option premium) of $0.40 per bushel. The strike price for this option is $4.00 per bushel. If the expected basis in July is $0.25/bushel, what is the minimum expected price you will receive for your wheat by using this option?$3.85$8.35$38.50$83.50Exhibit 10Futures ContractFutures Prices onFebruary 6, 2003Futures Prices onMarch 1, 2003Settlement Price($ per bushel)Settlement Price($ per bushel)March Corn (5, 000 bushels)2.382.50December Corn (5,000bushels)2.442.62July Wheat (5,000 bushels)3.413.10Refer to Exhibit 10. Suppose it is March 1, 2003. Between March and December, the spot price of corn is expected to __________ .RiseFallRemain the sameCannot tell from the information givenRefer to Exhibit 10. Suppose it is February 6, 2003. The best prediction of corn spot prices in March is __________ .$23.80/bushel$2.38/bushel$32.80/bushel$3.28/bushelRefer to Exhibit 10. If Pistol Pete purchases one July wheat contract on February 6 and offsets the contract on March 1, how much total money will he receive or pay?$15.50$1,550-$15.50-$1,550A “quota” is __________ .A tax imposed on imported goodsA legal limit on the amount of a good that can be produced by foreign owners of a firm located in a host countryA legal limit on the amount of a good that can be importedAn agreement between two countries in which the exporting country voluntarily agrees ot limit its exports to the important countryExhibit 11Country 1Country 2Good AGood BGood AGood B200075016020601512040453080603045408015600100075Refer to Exhibit 11. The opportunity cost of one unit of good B is __________ for Country 1 and __________ for Country 2.20A; 15A2A; 1A40A; 15A1/2A; 1ARefer to Exhibit 11. The opportunity cost of one unit of Good A is __________ for Country 1 and __________ for Country 2.20B; 15B2B; 1B40B; 15B1/2B; 1BRefer to Exhibit 11. Country 1 has a comparative advantage in the production of __________, and Country 2 has a comparative advantage in the production of __________ .Good A; good BGood B; good ABoth goods; neither goodNeither good; both goods2016 Arkansas District Farm Business Management Test AnswersDAACBCADBBAAABDBBCBABDAAABCBDBCBDBACABCBACAADCCBAABABBDDABABBADADCCACBBBCCDBBDDBACDBABBACCABCCBDCDAAAACDCDBDAABBCAADBACDCBBCCBADABAADCDDDBBADACDBAADABACBBCABBDCDCABACCBDBCDABACDABCBACACDABCACBAABDCBDA ................
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