Solutions Manual For Farm
Management 10th Edition By
Ronald Kay, William Edwards,
Patricia Duffy (All Chapters
1-22, 100% Original Verified A+
Grade)
Part 1: Chapter 12-22
Part 2: Chapter 1-11
All Chapters Arranged Reverse.
Correct Answers at the end of each Chapter.
, Solutions Manual Part 1: Chapter 12-22
CHAPTER 12
ANSWERS TO END OF CHAPTER QUESTIONS
1. Can partial budgets ever include some fixed ownership costs? If yes, give an example of a partial budget that
might contain some fixed ownership costs.
Not all partial budgets will include some fixed ownership costs. If the proposed change does not include any change
in the capital assets owned, there will be no change in fixed ownership costs. However, if the proposed change
includes the purchase or sale of a capital asset, fixed ownership costs will change and should be included on the
partial budget. For example, a partial budget for considering owning a combine versus custom hiring harvesting will
include ownership costs. There are many other examples.
2. List the types of changes that would appear in a partial budget for determining the profitability of participating
in a government farm program. The program requires that 10 percent of your cropland be left idle in exchange for a
lump-sum payment.
Additional costs: Any costs that would be associated with maintaining the idled cropland.
Reduced revenue: The revenue that would no longer be received from the crop produced on the 10 percent of the
cropland that would be idled.
Additional revenue: The lump-sum payment that would be received from the government.
Reduced costs: The costs that would be saved by not planting the usual crop on the idled cropland.
3. Why are changes in opportunity costs included in partial budgets?
A proposed change analyzed in a partial budget may require a large increase or decrease in the amount of labor,
capital, or management used. Some or all of these resources may be provided by the farm operator and have no
direct cost. Somehow, changes in the costs for these unpaid resources must be included to make a fair comparison
of the alternatives. Opportunity costs are used to value the changes in the amounts of these resources used.
4. Assume that a proposed change would reduce labor requirements by 200 hours. If this was the farm operator's
labor rather than hired hourly labor, would you include a reduced cost for labor? What factors would determine the
value to use?
Yes, just as you would show an additional cost if the change increased labor requirements by 200 hours. There is an
opportunity cost for the operator's labor in either case. This opportunity cost depends on the possible alternative use
for this particular 200 hours of labor. Depending on the alternative use, the time of the year it is available, and other
factors, it could range from very high to very low.
5. When is completing a partial budget preferable to completing two or more whole-farm budgets?
When only a few costs and returns will be affected by carrying out a proposed change in the whole-farm plan.
6. Besides additional profit, what other factors should a farm operator take into account when evaluating a
proposed change?
Factors other than profit include price and yield risk, additional capital requirements, additional management skills,
timing of cash flows, and availability of new or additional resources such as skilled labor. These are often difficult to
quantify and incorporate into a partial budget, but nevertheless are important to consider before making a change.
12-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,7. How does computing a break-even value for a key variable in a partial budget improve a manager’s decision
making?
The manager can make a judgment about the probability that the actual value for the key variable will be above or
below the break-even value, and thus the probability that the proposed change will improve profits.
12-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, CHAPTER 13
ANSWERS TO END OF CHAPTER QUESTIONS
1. Why is machinery depreciation not included on a cash flow budget?
Machinery depreciation is a noncash expense and only expenses requiring a cash outflow are included on a cash
flow budget. For this reason, a cash flow budget contains no depreciation of any kind.
2. Identify four sources of cash inflows that would not be included on an income statement but that would be on a
cash flow budget. Why are they on the cash flow budget?
Cash received from: 1) new loans received, 2) nonfarm income, 3) full sale price of capital assets, and 4) gifts and
inheritances received. They are on a cash flow budget because they are cash inflows and represent cash that is or
could be available for farm use, even though they are not farm business income.
3. Identify four types of cash outflows that would not be included on an income statement but that would be on a
cash flow budget. Why are they on the cash flow budget?
Cash used for: 1) principal payments on debt, 2) the full purchase price of capital assets, 3) living expenses and
other personal withdrawals, and 4) income and self-employment taxes. They are on a cash flow budget because each
one requires the expenditure of cash, but they are not farm business expenses.
4. Identify four types of noncash entries found on an income statement but not on a cash flow budget.
Noncash entries found on an income statement but not on a cash flow budget include: 1) inventory changes,
2) accounts receivable, 3) accounts payable, and 4) depreciation.
5. What does a cash flow budget tell a manager about the projected profitability of the farm business?
A cash flow budget does not project profit. Questions 2, 3, and 4 above illustrate some of the major differences
between finding net cash flow and net farm income. While a large number of the same items appear on both of these
financial documents, there are too many differences to be able to estimate profit from a cash flow budget.
6. Discuss how you would use a cash flow budget when applying for a farm business loan.
A cash flow budget is extremely helpful when applying for a loan. It shows why, when, and how much money will
be needed. Just as important, it shows if, when, and how much of the loan can be repaid, with interest. A lender is
interested in both aspects but particularly in the repayment ability shown on the cash flow budget.
7. Assume you would like to make an investment in agricultural land in your area. Determine local land prices, cash
rental rates, and the cash expenses you would have as the landowner. Construct a five-year cash flow budget for the
investment, assuming 60 percent of the purchase price is borrowed with a 20-year loan at a 5 percent interest rate.
Would the investment be financially feasible without some additional source of cash inflow?
The answer to this question will depend on local conditions but should be of interest and perhaps enlightening to
those students who would like to purchase land soon after their graduation. They should also note that the question
assumes they already have the cash available to make the 40 percent down payment. The amount borrowed, length
of the loan, and the interest rate can all be varied to find some break-even cash flow combinations.
13-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
Management 10th Edition By
Ronald Kay, William Edwards,
Patricia Duffy (All Chapters
1-22, 100% Original Verified A+
Grade)
Part 1: Chapter 12-22
Part 2: Chapter 1-11
All Chapters Arranged Reverse.
Correct Answers at the end of each Chapter.
, Solutions Manual Part 1: Chapter 12-22
CHAPTER 12
ANSWERS TO END OF CHAPTER QUESTIONS
1. Can partial budgets ever include some fixed ownership costs? If yes, give an example of a partial budget that
might contain some fixed ownership costs.
Not all partial budgets will include some fixed ownership costs. If the proposed change does not include any change
in the capital assets owned, there will be no change in fixed ownership costs. However, if the proposed change
includes the purchase or sale of a capital asset, fixed ownership costs will change and should be included on the
partial budget. For example, a partial budget for considering owning a combine versus custom hiring harvesting will
include ownership costs. There are many other examples.
2. List the types of changes that would appear in a partial budget for determining the profitability of participating
in a government farm program. The program requires that 10 percent of your cropland be left idle in exchange for a
lump-sum payment.
Additional costs: Any costs that would be associated with maintaining the idled cropland.
Reduced revenue: The revenue that would no longer be received from the crop produced on the 10 percent of the
cropland that would be idled.
Additional revenue: The lump-sum payment that would be received from the government.
Reduced costs: The costs that would be saved by not planting the usual crop on the idled cropland.
3. Why are changes in opportunity costs included in partial budgets?
A proposed change analyzed in a partial budget may require a large increase or decrease in the amount of labor,
capital, or management used. Some or all of these resources may be provided by the farm operator and have no
direct cost. Somehow, changes in the costs for these unpaid resources must be included to make a fair comparison
of the alternatives. Opportunity costs are used to value the changes in the amounts of these resources used.
4. Assume that a proposed change would reduce labor requirements by 200 hours. If this was the farm operator's
labor rather than hired hourly labor, would you include a reduced cost for labor? What factors would determine the
value to use?
Yes, just as you would show an additional cost if the change increased labor requirements by 200 hours. There is an
opportunity cost for the operator's labor in either case. This opportunity cost depends on the possible alternative use
for this particular 200 hours of labor. Depending on the alternative use, the time of the year it is available, and other
factors, it could range from very high to very low.
5. When is completing a partial budget preferable to completing two or more whole-farm budgets?
When only a few costs and returns will be affected by carrying out a proposed change in the whole-farm plan.
6. Besides additional profit, what other factors should a farm operator take into account when evaluating a
proposed change?
Factors other than profit include price and yield risk, additional capital requirements, additional management skills,
timing of cash flows, and availability of new or additional resources such as skilled labor. These are often difficult to
quantify and incorporate into a partial budget, but nevertheless are important to consider before making a change.
12-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
,7. How does computing a break-even value for a key variable in a partial budget improve a manager’s decision
making?
The manager can make a judgment about the probability that the actual value for the key variable will be above or
below the break-even value, and thus the probability that the proposed change will improve profits.
12-2
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
, CHAPTER 13
ANSWERS TO END OF CHAPTER QUESTIONS
1. Why is machinery depreciation not included on a cash flow budget?
Machinery depreciation is a noncash expense and only expenses requiring a cash outflow are included on a cash
flow budget. For this reason, a cash flow budget contains no depreciation of any kind.
2. Identify four sources of cash inflows that would not be included on an income statement but that would be on a
cash flow budget. Why are they on the cash flow budget?
Cash received from: 1) new loans received, 2) nonfarm income, 3) full sale price of capital assets, and 4) gifts and
inheritances received. They are on a cash flow budget because they are cash inflows and represent cash that is or
could be available for farm use, even though they are not farm business income.
3. Identify four types of cash outflows that would not be included on an income statement but that would be on a
cash flow budget. Why are they on the cash flow budget?
Cash used for: 1) principal payments on debt, 2) the full purchase price of capital assets, 3) living expenses and
other personal withdrawals, and 4) income and self-employment taxes. They are on a cash flow budget because each
one requires the expenditure of cash, but they are not farm business expenses.
4. Identify four types of noncash entries found on an income statement but not on a cash flow budget.
Noncash entries found on an income statement but not on a cash flow budget include: 1) inventory changes,
2) accounts receivable, 3) accounts payable, and 4) depreciation.
5. What does a cash flow budget tell a manager about the projected profitability of the farm business?
A cash flow budget does not project profit. Questions 2, 3, and 4 above illustrate some of the major differences
between finding net cash flow and net farm income. While a large number of the same items appear on both of these
financial documents, there are too many differences to be able to estimate profit from a cash flow budget.
6. Discuss how you would use a cash flow budget when applying for a farm business loan.
A cash flow budget is extremely helpful when applying for a loan. It shows why, when, and how much money will
be needed. Just as important, it shows if, when, and how much of the loan can be repaid, with interest. A lender is
interested in both aspects but particularly in the repayment ability shown on the cash flow budget.
7. Assume you would like to make an investment in agricultural land in your area. Determine local land prices, cash
rental rates, and the cash expenses you would have as the landowner. Construct a five-year cash flow budget for the
investment, assuming 60 percent of the purchase price is borrowed with a 20-year loan at a 5 percent interest rate.
Would the investment be financially feasible without some additional source of cash inflow?
The answer to this question will depend on local conditions but should be of interest and perhaps enlightening to
those students who would like to purchase land soon after their graduation. They should also note that the question
assumes they already have the cash available to make the 40 percent down payment. The amount borrowed, length
of the loan, and the interest rate can all be varied to find some break-even cash flow combinations.
13-1
© McGraw Hill LLC. All rights reserved. No reproduction or distribution without the prior written consent of McGraw Hill LLC.
