2015 State Final Farm Business Management. Page 1
FFA Farm Business Management
Career Development Event
State Final
April 2015
###### PART II ######
200 Points
2 Hours
Answer each question on the scartron form provided.
You should receive a package with 4 exhibits that are part of the test. Your test booklet
should have 9 numbered pages of questions (including this page) as well as selected sections
from the Farmers Tax Guide (Exhibit 4). There are 25 questions and each correct answer is
worth 8 points. You may use a calculator.
For each question make only those assumptions specified for that question. Unless
explicitly specified, assumptions do not "carry forward" to the next question.
Prepared by
Dustin Bass, M.A.B.
Owner
Lady Lake Equestrian Center
(352) 750-4411
2015 State Final Farm Business Management. Page 2
For Questions 1-5 use the following scenario to determine your responses.
You have a cow-calf operation with plans to sell your calves once they reach 300 lbs. The variable cost
of producing 200 calves is $40,000. The fixed cost of the operation is $2,000. The marginal cost to
increase production is $250 per calf.
1. What is the total cost of this cow-calf operation?
A. $50,000
B. $42,250
C. $40,000
D. $42,000
2. What is the break-even price per pound needed for this example?
A. $0.70
B. $0.83
C. $133.33
D. $140
3. Assuming the current market price is $1.40 per lbs., how many calves will you have to sell in order to
break-even?
A. 95
B. 100
C. 101
D. 150
4. Assuming the current market price is $1.00 per lbs., what should you do to maximize profitability?
A. decrease production
B. maintain the current level of production
C. increase production
D. close down
5. If the market price drops to $0.80 per lbs., what action should you take?
A. decrease production
B. maintain the current level of production
C. increase production
D. close down
2015 State Final Farm Business Management. Page 3
To answer questions 6-10, refer to the estimated cost and returns of producing watermelons for
150-acres in Exhibit 1. This budget was prepared by Suzette P. Galinato, Research Associate,
IMPACT Center, School of Economic Sciences, Washington State University; Carol A. Miles,
Associate Professor/Associate Scientist and Vegetable Extension Specialist, WSU Mount Vernon
Northwestern Washington Research and Extension Center.
6. According to this budget, how many tons of watermelons are assumed to be harvested per
acre?
A. 1
B. 25
C. 360
D. 3000
7. According to the budget, which input is the largest variable cost per acre?
A. Watermelon transplants
B. Marketing
C. Fertilizer
D. Packing material
8. Assuming these costs would remain the same for any size farm, what would be your total
cost of production for producing 20 acres of watermelons?
A. $7,429.93
B. $133,883.29
C. $148,598.60
D. $180,000
9. You note at the local farmers’ market that watermelons are selling for $0.50 per pound. What
would be your total revenue on 1 acre if you sold your watermelons at the farmers market?
A. $9,000
B. $4,500
C. $1,000
D. $25,000
10. Realizing that you under estimated your labor costs, change your hourly costs to $15 per
hour. Based on this change what would your new estimated total variable cost be per acre be?
A. $6,520.44
B. $6,790.44
C. $7,294.93
D. $7,564.93
2015 State Final Farm Business Management. Page 4
11. You are curious to know how increasing the number of transplants will affect your costs.
What will be your total variable cost per acre if you increase the number of watermelon
transplants to 3,500 and add 2 hours of labor for planting?
A. $7,593.93
B. $6,795.44
C. $980.00
D. $6,819.44
To answer questions 12-16, refer to the balance sheet example for a family farm in Exhibit 2.
12. What was the net working capital for this producer
A. $-6,654
B. $8,746
C. $15,400
D. $23,500
13. Based on the information given, what is the company’s debt-to-equity ratio?
A. 7.8%
B. 75.6%
C. 83.3%
D. 183.3%
14. What is the quick ratio/acid test ratio for this company?
A. 0.35
B. 0.41
C. 0.57
D. 0.54
15. Based on the information in this balance sheet, this company would be considered:
A. Liquid
B. Solvent
C. Both Liquid and Solvent
D. Neither Liquid nor Solvent
16. If we assume this farm will reach $500,000 in sales, what will their asset turnover ratio be?
A. 1.41
B. 2.52
C. 1.37
D. 0.90
2015 State Final Farm Business Management. Page 5
To answer questions 17-20, refer to the compounding interest tables for 6% interest in Exhibit 3.
17. What is the present value of $10,000 to be received in 15 years using a 6% discount rate?
A. $24,540.94
B. $2,908,187.12
C. $4,074.82
D. $84.39
18. As a freshman you decided to start building your savings by depositing $200 each month into
a money market account with 6% interest. How much will your savings be worth at the end
of a four year high school career?
A. $3,049.17
B. $10,819.57
C. $1,889.04
D. $8,516.06
19. You want to set up an annuity that will pay you $1,000 per month for the next 30 years.
Assuming a 6% interest rate, how much would you have to initially invest to achieve your
goal?
A. $6,022.57
B. $1,004,515.04
C. $1,660.42
D. $166,791.61
20. If you deposit $10,000 today, what would it be worth in 50 years at the 6% interest when you
are ready to retire?
A. $199,355.95
B. $37,871,910.85
C. $5,016.10
D. $1,899,678.75
To answer questions 21-25, refer to the selected sections of the 2013 Farmers Tax Guide which
can be found in Exhibit 4.
21. The dollar limits for section 179 expenses decreased. What is the maximum amount you can
elect to deduct for property placed in service in 2014?
A. $15,000
B. $25,000
C. $200,000
D. It is impossible to tell with this information
2015 State Final Farm Business Management. Page 6
22. Which method of accounting do most farmers use?
A. Cash
B. Accrual
C. Farm inventory
D. Combination
23. Your vehicle is driven 3,000 miles for farm business. If you use the standard mileage
deduction, how much can you claim on your 2014 taxes?
A. $3,000
B. $1,125
C. $1,680
D. $1,350
24. Currently, California is experiencing a severe drought that is affecting many of their
agricultural operations. Some livestock producers are being forced to sell more animals than
they normally would as a result. Which of the following conditions are required for those
farmers to postpone claiming those gains until nest year?
A. Your principal trade or business is farming.
B. You use the cash method of accounting.
C. The weather-related condition caused your area to be designated as eligible for assistance.
D. All of the above.
25. On which form would you report the sale of dairy cows that are no longer producing?
A. Schedule F
B. Schedule E
C. Form 4797
D. Form 4835
2015 State Final Farm Business Management. Page 7
Exhibit 1. Estimated Cost and Returns of Producing Watermelons for 150-Acres ($/acre)
Total Returns
Watermelon
Variable Costs
Watermelon transplants
Unit
ton
Unit
transplants
Price/unit
$360.00
Cost/unit
$0.28
Quantity
25
Quantity
3000
Total
$9,000.00
Total
$840.00
Land preparation
Fumigation
acre
$275.00
1
$275.00
Disease control
acre
$115.00
1
$115.00
Plastic mulch
acre
$200.00
1
$200.00
Plastic mulch installation
hour
$12.00
8
$96.00
Insect control
acre
$60.00
1
$60.00
Lime
acre
$255.00
1
$255.00
Fertilizer
acre
$650.00
1
$650.00
Irrigation
acre
$85.00
1
$85.00
Labor
Machine operation
hour
$12.00
16
$192.00
Weed control
hour
$12.00
8
$96.00
Planting
hour
$12.00
13
$156.00
acre
$600.00
1
$600.00
Packing labor
acre
$400.00
1
$400.00
Packing material
acre
$1,200.00
Year-end crop removal
acre
$117.50
1
$117.50
Maintenance and Repairs
Machinery Repair
acre
$100.00
1
$100.00
Fueling and Lubrication
acre
$75.00
1
$75.00
acre
$720.00
1
$720.00
Chemicals and Fertilizer
Harvesting and packing
Hand harvest
Other Variable Costs
Marketing
Overhead (5% of variable costs)
acre
Interest on Variable Costs (5%)[2]
acre
Total Variable Costs
$1,200.00
$301.18
$121.76
$6,655.44
Fixed Costs
Depreciation
Machinery, Equipment and Irrigation
System
Irrigation System
acre
$212.86
acre
$26.67
$147.96
Interest
Other Fixed Costs
Land and Property Tax
acre
$200.00
Insurance Cost (on entire farm)
acre
$40.00
Management
acre
$150.00
Total Fixed Costs
Total Cost
Estimated Net Returns
$774.49
$7,429.93
$1,570.07
2015 State Final Farm Business Management. Page 8
Exhibit 2. Balance Sheet for Family Farm.
ASSETS
LIABILITIES
Current Assets
Current Liabilities
Cash
Accounts receivable
$5,346
0
(less doubtful accounts)
Accounts payable
$2,300
Short-term notes
2,000
Current portion of long-term notes
8,600
Inventory
2,000
Interest payable
Temporary investment
1,000
Taxes payable
Prepaid expenses
Total Current Assets
400
$8,746
Fixed Assets
Accrued payroll
Total Current Liabilities
$22,000
Mortgage
Land
250,000
Other long-term liabilities
(less accumulated depreciation)
Plant and equipment
(less accumulated depreciation)
Furniture and fixtures
60,000
TOTAL ASSETS
0
$15,400
Total Long-Term Liabilities
$150,000
0
$150,000
0
25,000
(3,842)
2,000
(less accumulated depreciation)
Total Net Fixed Assets
2,500
Long-term Liabilities
Long-term investments
Buildings
0
Shareholders' Equity
Capital stock
Retained earnings
$355,158
$363,904
Total Shareholders' Equity
TOTAL LIABILITIES & EQUITY
$175,004
23,500
$198,504
$363,904
2015 State Final Farm Business Management. Page 9
Exhibit 3. Compound Interest Table