Midterms

Question 1

When an input at its profit maximizing level, the marginal physical product generated at that level will be equal to what ratio?
A) unit price of the input divided by the unit price of the output
B) change in total revenue divided by the change in total physical product
C) total quantity of output divided by total quantity of input at that level
D) unit price of the output divided by the unit price of the input

Answer 1

A) unit price of the input divided by the unit price of the output

Question 2

If a farmer is producing at some point where MR is greater than MC and the amount of input available is not limited
A) more output should be produced to maximize profit
B) more input should be used to maximize profit
C) profit is not being maximized
D) all of these

Answer 2

D) all of these

Question 3

Marginal revenue is equal to
A) the price of the input, as long as that price is constant
B) the change in revenue divided by the change of cost
C) the price of the output, as long as that price is constant
D) the Total Physical Product divided by the input level

Answer 3

C) the price of the output as long as that price is constant

Question 4

If marginal physical product decreases as additional input is used, marginal cost will
A) remain constant
B) be decreasing
C) be increasing
D) could be any of these

Answer 4

C) be increasing

Question 5

Marginal revenue (MR) and marginal cost (MC) are measured in terms of
A) $ per unit of input
B) $ per unit of output
C) physical output units
D) physical input units

Answer 5

B) $ per unit of ouput

Question 6

If the purchase price of an input decreases, a profit maximizing rancher should
A) use less input and produce more output
B) use more input and produce more output
C) use less input and produce less output
D) use more input and produce less output

Answer 6

B) use more input and produce more output

Question 7

The lower the debt-to-asset ratio, the greater the solvency of a business
True
False

Answer 7

True

Question 8

In general terms, efficiency refers to
A) the volume or value of resources utilized in the farm business
B) the volume of value of production generated per unit of resource utilized in the farm business
C) the ratio of total liabilities to total assets in the business
D) the net farm income generated by the farm business

Answer 8

B) the volume of value of production generated per unit of resource utilized in the farm business

Question 9

The depreciation method with the smallest annual depreciation in the first year of life is
A) 150% declining balance
B) All depreciation methods have the same first-year depreciation
C) double declining balance
D) straight line

Answer 9

D) straight line

Question 10

Which of the following is a measure of economic efficiency?
A) debt-to-asset ratio
B) change in owner equity
C) net farm income
D) operating expense ratio

Answer 10

D) operating expense ratio

Question 11

S.K. Moe runs a farm business. Her current ratio is 0.8. Her debt-to-asset ratio is 0.2. Her rate of return on assets is 5.5% and her rate of return on equity is 6.0%. She estimates she could earn 4% on investments off-farm. What is the financial situation on this farm?
A) Good liquidity, good solvency, profitable
B) Good liquidity, weak solvency, not profitable
C) Weak liquidity, good solvency, profitable
D) Weak liquidity, weak solvency, not profitable
E) Good liquidity, good solvency, not profitable

Answer 11

C) Weak liquidity, good solvency, profitable

Question 12

Production functions show the amount of physical product obtained with different
A) levels of input
B) output prices
C) input prices
D) ratios of input and output prices

Answer 12

A) levels of input

Question 13

The market value of an asset can be lower than its cost.
True
False

Answer 13

True

Question 14

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

Answer 14

False

Question 15

The current ratio is a measure of a farm firm’s
A) return on equity
B) ability to pay short-term credit obligations
C) return on investment in current assets
D) level of total debt to total assets at the present time

Answer 15

B) ability to pay short-term credit obligations

Question 16

Which of the following ratios does not analyze the solvency of the farm business?
A) equity/asset ratio
B) asset turnover ratio
C) debt/asset ratio
D) debt/equity ratio

Answer 16

B) asset turnover ratio

Question 17

If the Cost of Debt is 5% and the rate of return on equity is 6%, then the rate of return on assets will be.
A) less than 6%
B) greater than 6%
C) equal to 6%
D) indeterminate, need more information

Answer 17

A) less than 6%

Question 18

An advantage of using the value of working capital instead of a cash flow budget to analyze a farm’s liquidity is that
A) it is simpler to calculate
B) it takes into account future operating expenses as well as debt repayment
C) it takes into account the timing of the cash flows
D) it takes into account revenue to be received from the sale of products not yet in existence

Answer 18

A) it is simpler to calculate

Question 19

J.K. Doe runs a ranch business. His current ratio is 2.5. His debt to asset ratio is 0.7. His rate of return on equity is 0.3%. He estimates he could earn 4% on investments off-ranch. What is the financial situation on this ranch?
A) Good liquidity, good solvency, profitable
B) Good liquidity, weak solvency, not profitable
C) Weak liquidity, good solvency, profitable
D) Weak liquidity, weak solvency, not profitable
E) Good liquidity, good solvency, not profitable

Answer 19

B) Good liquidity, weak solvency, not profitable

Question 20

A major advantage of accrual accounting over cash accounting is that
A) it always shows a higher profit
B) it can use single entry instead of double entry
C) it gives a more accurate estimate of annual profit
D) its simplicity

Answer 20

C) it gives a more accurate estimate of annual profit

Question 21

According to the cash accounting method, expenses are recorded
A) when they are paid
B) at the end of each month
C) when they are accrued
D) all of these

Answer 21

A) when they are paid

Question 22

The basic accounting equation is Assets + Liabilities = Owner Equity
True
False

Answer 22

False

Question 23

Which of the following is an example of a current asset?
A) farm buildings
B) farm machinery
C) dairy cows
D) none of these

Answer 23

D) none of these

Question 24

Liquidity refers to
A) the difference between income and expenses
B) the degree to which debt obligations coming due in the next 12 months can be paid from cash or assets that will be turned into cash
C) the degree to which all debts are secured
D) all of the above

Answer 24

B) the degree to which debt obligations coming due in the next 12 months can be paid from cash or assets that will be turned into cash

Question 25

Which of the following best describes a balance sheet?
A) it shows assets and liabilities at a point in time
B) it shows changes in assets and liabilities over a period of time
C) it shows changes in assets and liabilities over the last accounting period
D) it shows profit for the last accounting period

Answer 25

A) it shows assets and liabilities at a point in time

Question 26

A ranch business with a debt/asset ratio of 0.20 would be in a relatively strong financial condition
True
False

Answer 26

True

Question 27

A lender would usually prefer to have a farm assets value at which of the following values on a balance sheet that is part of a loan application.
A) cost
B) market
C) accrual
D) cash

Answer 27

B) market

Question 28

Which of the following is not a source of owner equity for a farm business?
A) loans received to purchase land
B) assets contributed to the business by the owner(s)
C) profit retained in the business
D) increases in the value of owned land

Answer 28

A) loans received to purchase land

Question 29

If $50,000 cash on hand is used to pay a $50,000 operating loan, then on the day of the transaction
A) net worth will increase but the current ratio will not change
B) net worth will not change but the current ratio will change
C) neither net worth nor the current ratio will change
D) net worth will increase and the current ratio will change

Answer 29

B) net worth will not change but the current ratio will change

Question 30

To be depreciable, an asset must have a useful life of
A) more than ten years
B) five or more
C) six months or longer
D) more than one year

Answer 30

D) more than one year

Question 31

If the debt/asset ratio is increasing, then the debt/equity ratio will be
A) constant
B) decreasing
C) increasing
D) indeterminate, need more information

Answer 31

C) increasing

Question 32

If a business has working capital greater than $0, its current ratio will be
A) equal to one
B) less than one
C) greater than one
D) There is not relationship between working capital and the current ratio

Answer 32

C) greater than one

Question 33

The degree to which a farm’s assets adequately cover or exceed its liabilities is referred to as
A) profitability
B) liquidity
C) solvency
D) working capital

Answer 33

C) solvency

Question 34

If total asset value increases, owner equity will also increase
True
False

Answer 34

False

Question 35

Using $20,000 in cash and a new loan of $80,000 to purchase land for $100,000 will cause equity to
A) increase by $80,000
B) increase by $20,000
C) increase by $100,000
D) not change

Answer 35

D) not change

Question 36

In which section of the Balance Sheet would the value of 20,000 bushels of stored grain be found?
A) Current Assets
B) Noncurrent Assets
C) The value of stored grain is not usually included on the Balance Sheet

Answer 36

A) Current Assets

Question 37

Which of the following is not included as an expense on the net farm income statement?
A) interest payments made on loans
B) the cost of supplies used but not yet paid for
C) depreciation
D) principal payments made on loans

Answer 37

D) principal payments made on loans

Question 38

Which type of financial statement shows how much the farm’s Gross Revenue and Total Operating Expenses were last year?
A) Balance Sheet
B) Income statement
C) Statement of owner equity
D) Statement of cash flows

Answer 38

B) Income statement

Question 39

The total depreciation over an asset’s useful life is equal to
A) salvage value
B) cost minus salvage value
C) cost plus salvage value
D) book value

Answer 39

B) cost minus salvage value

Question 40

Grain in storage can be valued using the cost less accumulated depreciation method
True
False

Answer 40

False

Question 41

In the short run, where there is no production
A) total fixed costs are zero
B) total variable costs are zero
C) total costs are zero
D) neither total fixed costs nor total variable costs are zero

Answer 41

B) total variable costs are zero

Question 42

In the short run, a producer should NOT purchase new livestock to feed if the projected total revenue is
A) less than total variable cost
B) less than total cost
C) less than total fixed cost
D) greater than total fixed cost

Answer 42

A) less than total variable cost

Question 43

Fixed costs from owning a tractor include all the following except
A) fuel
B) depreciation
C) insurance
D) interest

Answer 43

A) fuel

Question 44

Which of the following is NOT an opportunity cost?
A) value of homegrown feed fed to operator’s livestock instead of being sold
B) the income lost from poor livestock weight gain
C) the value of the ranch operator’s own labour that does not receive a wage
D) a return on the ranch operator’s own capital that is invested in land instead of in savings

Answer 44

B) the income lost from poor livestock weight gain

Question 45

Variable costs
A) change from one year to the next
B) occur even if an enterprise is not carried out
C) occur only in unusual cases
D) increase or decrease in proportion to the units of production

Answer 45

D) increase or decrease in proportion to the units of production

Question 46

To ensure overall profitability in the long run, expected gross revenue from an enterprise must exceed
A) average total fixed costs
B) average total variable costs
C) average total fixed and variable costs
D) total cash outflows

Answer 46

C) average total fixed and variable costs

Question 47

Cost of production per unit is calculated by dividing
A) total fixed cost by quantity of output
B) total variable costs by quantity of output
C) total costs by quantity of output produced
D) total costs by output selling price

Answer 47

C) total costs by quantity of output produced

Question 48

Diseconomies of size in agricultural production can result from
A) the time and expense of travelling between sites
B) high investment costs being spread out
C) price discounts being available with bulk purchases
D) selling larger volumes at premium prices

Answer 48

A) the time and expense of travelling between sites

Question 49

A crop enterprise budget containing all economic costs would include an entry for
A) fertilizer and seed
B) depreciation
C) opportunity cost on capital required
D) all of these

Answer 49

D) all of these

Question 50

If livestock weight gain increases with no change in total cost, the breakeven selling price will
A) increase
B) decrease
C) remain constant
D) spend on market conditions

Answer 50

B) decrease

Question 51

Which of the following are, or could be, totally noncash expenses on an enterprise budget?
A) depreciation
B) management expense
C)interest cost of operators’ capital invested in breeding livestock
D) all of these

Answer 51

D) all of these

Question 52

Which of the following would be a fixed cost on a typical flax enterprise budget?
A) owned land charge
B) machinery repairs
C) hourly labour expense
D) seed cost

Answer 52

A) owned land charge

Question 53

On an enterprise budget, fixed costs can also be called
A) direct costs
B) ownership costs
C) operating costs
D) prepaid costs

Answer 53

B) ownership costs

Question 54

Interest is included as a variable cost on an enterprise budget
A) only if money will be borrowed
B) because capital will be tied up in variable costs until revenue is received
C) because of the investment in machinery
D) because of the investment in land

Answer 54

B) because capital will be tied up in variable costs until revenue is received

Question 55

Ownership costs for farm buildings include all the following except
A) utilities
B) depreciation
C) insurance
D) interest on the building investment

Answer 55

A) utilities

Question 56

An enterprise budget for yellow peas shows the total cost of production for one acre is $400. You expect a yield of 40 bu/ac and a price of $20/bu. What is your break-even price?
A) (20 x 40)/400 = $2/bu
B) 400/40 = $10/bu
C) 400/20 = $20/bu
D) It will depend on the sale contract you negotiate

Answer 56

B) 400/40 = $10/bu

Question 57

A wheat enterprise budget that included all opportunity costs would estimate
A) economic profit
B) accounting profit
C) variable profit
D) maximum profit

Answer 57

A) economic profit

Question 58

A whole farm budget contains
A) cost and return projections along with resource needs for a specific set of enterprises
B) 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 ranch

Answer 58

A) cost and return projections along with resource needs for a specific set of enterprises

Question 59

The basic information used to build a whole farm budget can come from
A) one or more partial budgets
B) one or more enterprise budgets
C) a cash flow budget
D) a net worth statement

Answer 59

B) one or more enterprise budgets

Question 60

Which of the following may be included on a partial budget?
A) ownership costs
B) operating costs
C) opportunity costs
D) all of the above
E) none of the above

Answer 60

D) all of the above

Question 61

The values shown on a partial budget are
A) total revenue and total expenses for the farm
B) only gross margins for the farm
C) only total profit for the farm
D) only changes in revenues and expenses for the farm

Answer 61

D) only changes in revenues and expenses for the farm

Question 62

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 revenue
D) additional costs and reduced revenue

Answer 62

C) reduced costs and additional revenue

Question 63

Which of the following are the profit-decreasing changes on a partial budget?
A) additional costs and additional revenue
B) reduced costs and reduced revenue
C) reduced costs and additional revenue
D) additional costs and reduced revenue

Answer 63

D) additional costs and reduced revenue

Question 64

A partial budget is designed to analyze the effect of a proposed management change on
A) profit
B) revenue only
C) expenses only
D) crop yields or livestock gains

Answer 64

A) profit

Question 65

A partial budget would be the most useful type of budget for estimating
A) the amount of short-term borrowing required for the next year
B) the breakeven price needed to cover all costs of alpaca production
C) labour needed on the farm during the next year
D) the change in profit from installing an irrigation system in one field

Answer 65

D) the change in profit from installing an irrigation system in one field

Question 66

On a partial budget to analyze changing 160 acres from growing wheat to barley, which of the following costs would NOT be included?
A) seed expense for either crop
B) fertilizer for the barley
C) fertilizer for the wheat
D) property tax on the land

Answer 66

D) property tax on the land

Question 67

A partial budget includes only revenue and costs that would _________ as a result of a change in a certain production practice
A) increase
B) decrease
C) increase or decrease
D) not change

Answer 67

C) increase or decrease

Question 68

When sensitivity analysis is applied to a partial budget in order to evaluate the riskiness associated with a change in cropping
A) yield estimates may be varied
B) price estimates may be varied
C) yield and/or price estimates may be varied
D) no estimates can be varied

Answer 68

B) price estimates may be varied

Question 69

One of the advantages of partial budgets is
A) less data may be required than with an enterprise budget
B) cost changes may not be proportional because of economies of scale
C) the value of capital investments can be determined accurately
D) opportunity costs do not need to be included, especially when changes would be large

Answer 69

A) less data may be required than with an enterprise budget

Question 70

A primary purpose of a cash flow budget is
A) to project how large a credit line is needed for the coming year
B) to estimate total costs of production per unit of crops or livestock
C) to minimize income taxes
D) to project the farm’s net income for the coming year

Answer 70

A) to project how large a credit line is needed for the coming year

Question 71

In what situations are cash flow budgets good tools for estimating an operation’s profit?
A) when new loans are received
B) when non-farm income is included
C) when capital assets have been sold
D) none of the above

Answer 71

D) none of the above

Question 72

A projected negative annual cash flow indicates
A) net farm income will be negative
B) depreciation expense is too high
C) projected cash inflows are less than projected cash outflows
D) projected asset values are less than projected liability values

Answer 72

C) projected cash inflows are less than projected cash outflows

Question 73

Which of the following would NOT appear on a cash flow budget?
A) principal payments on long-term debt
B) full purchase price of a new combine
C) income taxes
D) accounts payable

Answer 73

D) accounts payable

Question 74

A projected negative cash balance at the end of the year can be made positive by
A) delaying proposed purchases of capital assets
B) selling inventory of stored grain
C) lengthening repayment periods on term loans
D) all of the above

Answer 74

D) all of the above

Question 75

Cash flow problems can result from all the following except
A) purchasing new buildings, land or equipment
B) expanding a livestock enterprise
C) paying off loans over too long a period
D) financing high nonfarm expenses from farm income

Answer 75

C) paying off loans over too long a period

Question 76

Which of the following would never appear in a ranch’s cash flow budget?
A) payment to be made towards an operating loan
B) opportunity cost of the operator’s management
C) wages to be paid to hired labour
D) cost of new fencing

Answer 76

B) opportunity cost of the operator’s management

Question 77

Stephanie Holmes-Winton of CachFlo suggests that farm families set up automatic withdrawals to a separate family living expense account. What is one of the barriers to do so that she mentioned?
A) the desire to plan regularly
B) not paying down outstanding loans when cash becomes available
C) wanting to stabilize spending
D) the desire to make resources last

Answer 77

B) not paying down outstanding loans when cash becomes available

Question 78

In what situation would the strategy Ms. Holmes-Winton recommends be most important?
A) enterprises with high monthly cash flow variability
B) enterprises with high liquidity
C) enterprises with off-farm income
D) enterprises with low operating expenses

Answer 78

A) enterprises with high monthly cash flow variability

Question 79

Which type of budget would be MOST useful to answer: Will you have enough cash to pay the $40,000 payment on your land loan in December?
A) Partial budget
B) Enterprise budget
C) Whole-farm budget
D) Cashflow budget

Answer 79

D) Cashflow budget

Question 80

Which type of budget would be MOST useful to answer: Will the offered contract price of $15.23 per bushel of canola for the upcoming year be enough to cover variable costs?
A) Partial budget
B) Enterprise budget
C) Whole-farm budget
D) Cashflow budget

Answer 80

B) Enterprise budget

Question 81

Which type of budget would be MOST useful to answer: What is your break-even selling price for weaned calves?
A) Partial budget
B) Enterprise budget
C) Whole-farm budget
D) Cashflow budget

Answer 81

B) Enterprise budget

Question 82

Which of the following strategies does NOT reduce production risk for an ag operation with both cash crops and cattle?
A) selling grain before harvest with a forward contract
B) vaccinating livestock against disease
C) applying insecticide to a crop
D) keeping a year’s supply of extra hay on hand

Answer 82

A) selling grain before harvest with a forward contract

Question 83

You compiled five years of flax yields for your farm in this table. What is the range in yields over this 5 year period?

Year Yield bu/ac
2021 10
2020 22
2019 25
2018 21
2017 29

A) 22 bu/ac
B) 19 bu/ac
C) 21.4 bu/ac
D) insufficient data

Answer 83

B) 19 bu/ac

Question 84

Following the violent windstorm in the Ottawa region this May, several producers have not yet been able to access funds to rebuild animal housing structures. Which of the following types of insurance has not been able to settle their claims in a timely manner?
A) Life
B) Property
C) Liability
D) Multi-peril livestock

Answer 84

B) Property

Question 85

In comparing enterprise budgets for four different crops, you find profitability to be similar. If you wanted to minimize risk, which of the following measures would be best to use to compare profit variability?
A) range
B) standard deviation
C) coefficient of variation
D) expected value

Answer 85

C) coefficient of variation

Question 86

Almost 80% of Farm Credit Canada’s grain and oilseed producer clients used the AgriInvest program as part of their strategy to reduce financial risk. Which one of the following is a feature of AgriInvest that is likely to have contributed to the program’s popularity?
A) You can withdraw funds from your account when you need them to help cover expenses in years of low farm income
B) You are re-imbursed for 30% of production losses
C) The government adds to the funds you invest as long as you keep the funds invested until retirement
D) Enrollment is automatic to all producers in Canada not covered by supply management

Answer 86

A) You can withdraw funds from your account when you need them to help cover expenses in years of low farm income

Question 87

Selecting a fixed interest rate for a loan rather than a variable interest rate is a strategy to manage
A) loan risk
B) production risk
C) legal risk
D) financial risk

Answer 87

D) financial risk

Question 88

Which is the most common business structure for farms and ranches in the Canadian Prairie provinces?
A) sole proprietorship
B) partnership
C) corporation
D) cooperative

Answer 88

A) sole proprietorship

Question 89

The number of shares of stock received by each stockholder when a farm or ranch corporation is formed is based on the ______ contributed by each shareholder.
A) value of equity capital
B) value of liabilities
C) amount of labour
D) managerial experience

Answer 89

A) value of equity capital

Question 90

Which of the following are special tax benefits available to ranchers and farmers in Canada?
A) the right to use cash accounting when filing income tax returns
B) the right to a higher capital gain exemption that other sectors of the population
C) tax-free transfer of intergenerational farm property
D) all of the above
E) none of the above

Answer 90

D) all of the above