Solution Manual For Farm Management Release 2025 By Ronald Kay, William Edwards and Patricia A. Duffy Chapters 1-22 CHAPTER 1 ANSWERS TO END OF CHAPTER QUESTIONS 1. What forces have caused farms and ranches to become larger? Which of them are likely to continue? How can smaller businesses compete successfully? Some forces that have affected the structure of U.S. agriculture include the availability of labor saving technology, higher labor costs, the desire for improved living standards by farm families, and technical and financial economies of scale. Most of these forces are likely to continue, so the trend toward fewer and larger farms will probably continue also. Managers can respond by becoming very efficient producers or by offering specialized products and services with higher profit margins. 2. How does quick access to more information help farm managers in the twenty-first century make better decisions? A greater volume of information can be collected, information collected can be more accurate and more timely, and decisions can be based on more realistic assessments of current costs, production, and prices. 3. List two examples of specialty agricultural markets, and the changes a conventional producer might have to make to fill them. Examples include organically grown produce, grass-fed meats, white corn, high-oil corn, grass seed, hydroponic tomatoes, and barley for malting. Most of these products require special attention to uniformity, purity, timely harvesting, or special breeding. Returns are typically higher, but production costs and risks are often higher, as well. 4. What agricultural products from other countries do you consume? Do any of these compete with products produced by farmers in your own country? For a U.S. student, likely choices include tropical fruits and vegetables, fish, beverages, specialty livestock products and processed food items. They may compete with some similar products but not be identical to them. 5. List other new challenges not discussed in this chapter that you think farm and ranch managers may have to face in the future. Some other possibilities include energy shortages, increased regulation of pesticides and animal health products, changing climatic conditions, adoption of genetically engineered plants and animals, negotiating production agreements with processors and suppliers, greater dependence on world markets, a shortage of experienced agricultural workers, co-existing with rural nonfarm residents, and finding the right mix of off-farm financing.
CHAPTER 2 ANSWERS TO END OF CHAPTER QUESTIONS 1.
What is your own definition of management? Of a farm manager?
There is no single answer to either part of this question. It should be used to get students to put their individual thoughts into words and get them to think about the concept of management, as opposed to labor. It is important to stress that any definition of these terms needs to mention decision making. 2. Do farm and ranch managers need different skills than managers of other businesses? If so, which skills are different? Which are the same? This is another general discussion question, but the ability to recognize, analyze and solve a problem through good decision-making is important for managers of any type of business. Therefore, all managers need a knowledge of and ability to apply basic economic and financial concepts. Managers of businesses with employees may need more personnel management skills than a farm operator who works alone. However, the greatest differences are probably in technical knowledge and skills rather than management skills. To make good decisions, a manager must have at least some basic technical knowledge related to the specific type of business being managed. 3.
How do strategic management and tactical management differ?
Strategic management defines the overall course of the business, while tactical management keeps the business on that course from day-to-day. 4.
Would you classify the following decisions as strategic or tactical? a. deciding if a field is too wet to till today b. deciding whether to specialize in beef or dairy production c. deciding whether to take a new partner into the business d. deciding to price wheat today or wait until a price target is met
a. b. c. d.
tactical strategic strategic tactical
5. Why are goals important? List some examples of long-term goals for a farm or ranch business. Make them specific and measurable, and include a time line. Goals provide a focus and direction for the entire management process. How can a decision be made without having a goal? Without a goal, how does a manager determine if one alternative solution is better than another? The probable outcomes from alternative solutions must be measured against how well they each contribute to achieving the goals of the farm or ranch. Goals also provide a standard against which future results can be measured. Long-term goals might be to increase profit by 15% per year for the next 5 years, to purchase a 160-acre farm within five years, to increase the size of the cow herd by 50% in three years, or to avoid losing net worth. A number of other long-term goals are listed in the "Formulating the Goals of the Business” section of this chapter. 6.
What are some common goals of farm and ranch families that might be in conflict with each other?
Many people have multiple goals rather than a single, dominant goal. This sets up a situation where goals may be in conflict. For example, maximizing profit may conflict with minimizing risk, spending more for living expenses, buying new machinery, or increasing farm size. Encourage students to come up with other examples.
7.
What are your personal goals for the next week? For next year? For the next 5 years?
Encourage students to think about their own personal goals, to write them down and refer to them from time to time. This exercise also can be used to demonstrate that goals will likely be different depending on the time horizon being used, and that both short-term and long-term goals are needed. However, point out that short-term and long-term goals may also be in conflict, and these conflicts should be noted and resolved. For example, taking an expensive vacation this year conflicts with saving money to purchase a vehicle or pay off debt. 8.
What internal characteristics of the farm should a manager consider when developing a strategic plan?
Physical resources: land, buildings, livestock, equipment, and established crops Human resources: number and availability of workers, special skills and interests Financial resources: owner equity, cash savings, credit worthiness, outside income sources 9. Identify several trends in technology or consumer tastes that a farm manager should consider when developing a strategic plan. Examples of new technology include new characteristics of crop varieties, improved gathering and processing of data, and automatic steering and manipulation of machinery. Examples of changes in consumer tastes include desire for leaner meat, higher protein grains, seedless fruits, fresh fruits and vegetables that keep longer, and increased demand for biofuels. 10. List the steps in the decision-making process. Which steps are part of the planning function of management? Implementation? Control? Evaluation? Identify and define the problem (planning) Identify alternative solutions (planning) Collect data and information (planning) Analyze the alternatives and choose one (planning) Implement the decision (implementation) Monitor and evaluate the results (control) Accept the responsibility for the decision (evaluation) 11. What characteristics of a decision affect how much time and effort a manager devotes to making it? Importance, frequency, imminence, revocability, and number of alternatives. 12. What are some characteristics of agriculture that make managing a farm or ranch different from managing other businesses? Dependence on biological processes and weather, a fixed supply of farmland, small business size of most farms and ranches, the existence of perfect competition in most of production agriculture, and others. CHAPTER 3 ANSWERS TO END OF CHAPTER QUESTIONS 1.
What factors affect the choice of accounting period for farmers and ranchers?
Whether or not they should use a calendar year or fiscal year accounting period depends on individual circumstances and enterprises on the farm or ranch. The general recommendation is to end the accounting period during a time of the year when business activity is "slow". For many farms and ranches, this is during the winter or end of the calendar year. However, for dairies, broiler, egg and continuous hog farrowing operations there may not be a slow
time of the year so any accounting period would be possible and practical. Citrus and winter vegetable operations in the southern states may wish to consider a fiscal year accounting year to avoid having their accounting period end during their normal harvesting period. 2.
How would one construct a balance sheet if the accounting was done using a single-entry, cash system?
There are no entries to asset or liability accounts under the cash system of accounting. Therefore, it is not possible to produce a balance sheet from what has been entered into the system. Values for assets and liabilities would have to be tracked and recorded somewhere else and then organized into a balance sheet. This could be done manually using a balance sheet form or by using computer applications. 3. Is it possible to use double-entry with a cash accounting system? If so, what are the advantages and disadvantages? Yes, double-entry can be used with a cash accounting system. The advantage is that many of the asset and liability accounts and their values will be maintained within the system making it easier to produce a balance sheet. However, it is important to realize that with a cash system, not all assets and liabilities will be included. Accounts payable and receivable, accrued expenses and inventory values would not be recorded. An alternative used by some farmers is to use cash accounting throughout the year and then, at the end of the accounting period, enter end of year values for the above accounts. This would result in a complete end of year balance sheet, but any balance sheets produced during the year would still be incomplete. 4.
Is it possible to use single-entry with an accrual system? Why or why not?
This combination is not possible. At least two entries must be made for each transaction in order to maintain the correct balances in the asset and liability accounts which are part of an accrual system. 5. Check advertising material for several farm accounting software programs. Are they cash or accrual systems? Single or double entry? How many of the 12 outputs from an accounting system discussed in this chapter are available from each program? Are there any additional outputs available? The class could be divided into teams, with each team investigating one accounting program and then sharing its information with the entire class. Descriptions of most farm/ranch accounting packages can be found on Internet sites, often with sample reports or even free demonstration packages. 6. Place an "X" under the column(s) to indicate whether each business event is a production, investment, or financing activity.
Event
Pay cash for tractor repairs Borrow $40,000 for operating expenses Pay interest on the loan Charge $12,000 of feed Equipment depreciates
Production
Investment
Financing
X X X X X
Event
Sell $35,000 of corn Purchase a pickup Pay principal on a loan 7.
Production
Investment
Financing
X X X
Explain the difference between an account payable and an account receivable.
An account payable exists whenever goods or services have been purchased but not yet paid for. It is similar to a loan, as the seller of the goods or services has not demanded immediate payment. Many farm supply stores will allow a purchaser 30 to 90 days to pay for purchases, often without any interest being charged unless payment is not made by the due date. An account receivable exists whenever a business has sold goods or provided services for which payment has not yet been received. Whenever a farm supply store allows a customer 60 days to pay for purchases, the customer now has an account payable and the store has an account receivable. Farmers may have account receivables from selling products or providing custom work for which payment has not yet been received but is expected at a later date. 8.
What products might a typical farm or ranch have in inventory at the end of a year?
Inventory items are products produced for sale but not yet sold, items purchased for resale, and items purchased for use in production but not yet used for that purpose. Grain and hay in storage, market livestock raised on the farm or ranch, purchased feeder livestock which are being grown or fattened for resale, feed, seed, fertilizer, and chemicals are typical inventory items. The latter four items may be listed as prepaid expenses in some accounting systems, if the operator has not taken delivery of them. If so, they should not be shown as part of the inventory. 9. Why are the results from an accrual accounting system recommended for use when making management decisions? Only an accrual accounting system will provide an estimate of net income which accurately reflects what occurred in the business during the accounting period. Cash accounting does not include changes in inventory values, accounts payable, accounts receivable, prepaid expenses and accrued expenses, which can result in a computed net income much different than the true accrual value. Using this result to make management decisions about future activities can result in bad decisions. If cash accounting is used during the accounting period, then accrual adjustments should be made at the end of the year as recommended by the Farm Financial Standards Council. The resulting adjusted profit should then be used to make management decisions. CHAPTER 4 ANSWERS TO END OF CHAPTER QUESTIONS 10. True or false. If the debt/equity ratio increases, the debt/asset ratio will also increase. Why? True. If additional debt is incurred, there should be a corresponding increase in total assets but owner equity will remain the same. The debt-equity ratio will increase and, since debt has increased proportionally more than assets, the debt/asset ratio will also increase. 11. True or false. A business with a higher working capital will also have a higher current ratio. Why? False. It is important to not confuse changes in a ratio with changes in an absolute number such as working capital. A business with current assets of $5,000 and current liabilities of $2,000 has the same current ratio as a business with current assets of $500,000 and current liabilities of $200,000. However, the latter business obviously has the higher working capital, $300,000, but their liquidity relative to the size of their current assets and liabilities is the same.