Notes on Farm Managament

République du Cameroun Republic of Cameroon

Paix-Travail-Patrie Peace- Work-Fatherland
Ministère de l’Enseignement Supérieur Ministry of higher Education
Université de Dschang University of Dschang
Faculté Agronomique et des Sciences Agricoles Faculty of Agronomy and Agricultural Sciences
Département de Génie Rural Rural Engineering Department

Ondoua Steve Alex – FASA 2012 -2013

 Notes on Farm Managament
1. What is farm management?

Answer: farm management is the science that deals with farms the operations and organization, with the
objectives of securing maximum and continued flow of income in the farm. Farm management differs from farm
operation.

Farm management can also be explained as the science of organizing and controlling the resources of a
particular farm or firm so that the use of the enterprise as a whole is either the greatest profit or that profit the
manager desires is continuous.

1. What is the difference between farm organization and farm operation?

Answer:
- Farm organization involves the selection and combination of farm enterprises
- While farm operation involves the carrying out the decision made about farm organization.

2. Give the three interrelated perspectives from which farm management may be viewed, explain each of the
perspectives:
Answer:
Farm management may be viewed from the point of three inter related perspectives namely:
- The point of view of the farmer:
To the farmer, farm management involves the choice from among alternatives uses, the scare farm
resources and the operations of the farm enterprise to achieve maximum continuous profit.

- The point of view of extension worker

To the extension worker farm management connotate the following:
 To guide a practicing farmer to improve his management skill and ability
 To assist the farmer recognize his problem and analyze them and be in a position to make a meaningful
decision
 To carry back the problems of the farmer which inhibit profitable organization and operations of the farm.
- The point of view of researcher
To the researcher, farm management entails the collection of data from the farm’s field, analyze them and
interpret them in order to make farm inferences to farm level improvement and to make policy
recommendation.

3. Define management:

Management is the function of taking decisions about how land and capital resources must be used, and carry out
or implement these decisions.

4. How can the management decision be summarized?

The management decision can be summarized as:
- How much to produce?
- How to produce?
- What method of production to use?

5. What are the basic principles of farm management?

Answer:
Three principles of farm management are as follow:
- 1. How much to produce a commodity
 The principle determining how much a commodity must be produced is stated as follow

Ondoua Steve Alex – FASA 2012 -2013

 Notes on Farm Managament
 The most profitable output of a commodity is obtained by producing up to the point at which the cost
at any additional output is equal to the value of that additional output. This principle is known as
marginal principle which can be stated as:
MC = MR.
MC = Marginal Cost;
MR = Marginal Revenue


- 2. Resources to use in producing each commodity
At each level of production, it is possible to use various combinations of resources

- 3. How to combine enterprises or firm

Each farm enterprise should be expanded until an additional franc spent on each enterprise earn one franc
(1 Frs.); in other words until MR = MC for each enterprise.

Business objectives: one of the tasks of management is to define business objectives and sometimes policy.

a) Profit maximization is all about adequate cash income in commercial farming.

b) Profit maximization is all about adequate diet in subsistence farming.

Apart from the objectives mentioned in a) and b) above there are others like:

- High cash income

- High return on capital employed
- Capital growth
- Personal satisfaction
- Social responsibilities of management
- Security

6. In farm management, what are the main business areas to be planed and controlled?

The main business areas to be planed and controlled areas follow:

- Finance
 Financial management includes obtaining funds, ordering input to best advantage, keeping stock at economic
level, keeping assets in good working order using adequate cash flow, obtaining capital growth.
- Personnel
 Important aspect of planning personnel includes: staff selection, reward structure and motivate staff so that
they work efficiently toward the firm objectives.
- Production
 Business success in farming depends largely in management, organizing and efficient production.
- Marketing

7. Cite the four principles of Management, and give detail on each principle.

The four basic principles of management are:

- The planning
 Two types of planning can be identified:
 The Strategic planning and
 Tactical planning.
The Strategic planning defines the major orientations of the organization over a long period, generally five
years.

Ondoua Steve Alex – FASA 2012 -2013

 Notes on Farm Managament
The Tactical planning leans on strategic planning to define action to be undertaken in short and medium term.
It allows for the elaboration of the modalities of implementation.
Tactical planning opreationizes the strategic plan.

- Organizing
 The span of management is the number of direct subordinates who are answerable to the same authority.
 The authority is the power that a manager has
 The responsibility is the obligation for a person to produce a given result and hence to account for it.
- Directing
 Directing consist in obtaining from the available human resources the adherence to the objectives of the
enterprise and their contribution to the attainment of these objectives.
- Controlling
 The managerial function of control is the process by which action is adjusted to achieve business
objectives

8. What are the steps required for an effective control system?

- The key area to be controlled should be defined when the plan made,
- Performance standard should be set for the key area,
- Execute the planning measures,
- Compare the results with the pre-set standards
- Take corrective actions.

CHAPTER II : DECESION MAKING

1. Define Decision making:

Decision making is the activity of selecting from among possible alternatives, a future course of action.

2. What are the steps to be considered in decision making?

a) Find the precise problem
b) Define the most likely solutions to the problem
c) Asset the quantitative effect of each likely solution
d) Evaluate the qualitative effect of each likely solution
e) Decide the best solution
f) Take actions
g) Review the result of actions

3. What is managerial effectiveness?

The managerial effectiveness is the level of achievement of business objectives
4. What are the main qualities affecting managerial effectiveness?
The main qualities affecting managerial effectiveness are as follow:
- Experience
- Education training
- Personal characteristics
- Development of managerial skills and age.

CHAPTER III: FARM BUSINESS ORGANIZATION WITH RESPECT TO

SUBSISTENCE AND COMMERCIAL FARMING
5. What is subsistence farming?
Subsistence farming is the type of farming where most of the produce is consumed with little sold.
6. What are the main features of subsistence farming?
Ondoua Steve Alex – FASA 2012 -2013
 Notes on Farm Managament
Answer:
- diversified production of each farm,
- dominance of consumption and survival aims over commercialization ones,
- Close farming system with few bought input,
- Little difference between the farm firm and the household and between the producer and the consumer.

7. Give the main differences between subsistence farming and commercial farming

N° Item Subsistence farming Commercial farming

1 Profit maximization within
Main objective Food security maximization
constraints
2 Product Diversified food product Specialized sale product
3 Land tenure Usually customary Usually freehold or leasehold
4 Labour source Mainly family and communal Mainly hired
5 Investment in building, equipment,
Mainly land improvement with and
Capital source investment conservation work and growing, use
labor and few bought input
of bought input
6 Growing use of animals and
Power source Mainly hand labour
machine
7 Use of product Mainly for consumption Mainly for sale
8 Income Low but relatively stable Higher but more variable

CHAPTER IV: MANAGEMENT TOOL AND FARM PLANNING

8. Outline the main purpose of farm record an account and name the different groups of farm record
- To evaluate the performance of any farm or any enterprise within a given period of time,
- To help in taking farm management decision
- For cerdit purposes
- For taxation and insurance porpuses
- For national agricultural and economic plan

The records show the strong and weak points in management

9. What are the main types of farm records and account?

The types of farm records and account are as follow:

- Inventory record;
- Production record;
- Expenditure and income records;
- Special or supplementary records.
10. What is the difference between asset and liability in farming?
The difference between asset and liability is that the asset is the goods or services owned by the farmer and used
in the production process; while the liability is the good or services the farmer owns to the others.
11. What are the two steps in taking inventory
- The physical account of the assets and liabilities
- The valuation of the asset and the liabilities

12. What type of asset do you know?

- Fixed asset: Fixed asset are those with long life span. There are practically impossible to convert into cash.
Example: land, building, cattle, breeding stock.
- Working asset: they are those which can within a relatively short period of time be converted into cash. Example:
seed, crops, lively stock.

Ondoua Steve Alex – FASA 2012 -2013

 Notes on Farm Managament
- Current asset: they are those that can be used immediately in production. Example: cash.

13. Give the type of liabilities you know

- Long term liability: it includes mortgages which take time to liquidate, and long term debt.
- Medium term liability: It include debts incurred on the basis of crop in the production process
- Current liability is the debt that is due for payment.

Farm record and account are used for calculating aggregates and ratio measures for the purpose of assessing the farm
business. Aggregate measures include:

- The net worth statement: it’s the total value of asset

- Balance sheet
- Income statement
14. What are the basic financial statement that summaries information of a firm financial record?
Answer:
- The balance sheet
- Profit and loss account (income statement)
- Cash flow statement

15. List the economic and physical efficiency used to determine business profitability
- Financial success
- Capital position
- Size and efficiency mesure

a) The net capital ratio (NCR): It measures the degree of safety for the entire farm business

Total assets
NCR=
Total lianbilities

NCR < 1 → insolvent

NCR > 1 → solvent de TA > TL

b) Debt equity ration (DER): It represents the creditor contribution to that or the borrower.

Total liability
DER=
Net worth
DER < 1 → OE exceeds the amount of borrower funds

16. What are the advantages of keeping farm records and accounts?
- It enable the farmer to keep tracking of his daily activities
- It increases specialization and commercialization of farming
- It help to show return from input and resources used for various practices
- Record help to show progress to farm business it serves as aid for farm credit and financing.
- Records and account can be used for legal purposes
17. What are the advantages of budgeting?

By making formal budget, the farmer is shown to:

- To decide whether the proposed plan will increase profit,

- Not to forget some important factors in the production process,
- To decide between 2 or more alternative plan,
- To use the budget as a guide to production control
Ondoua Steve Alex – FASA 2012 -2013
 Notes on Farm Managament
18. In gross margin terms, give the role when labor, capital and land are limiting
- In gross margin, when labor, capital and land are limiting, the plan giving the highest gross is the best.

19. What questions the analysis Gross Margin can help us to answer?
The analysis of gross margin can help us to answer questions like:
- What will be likely production effect of changing the scale of production of an enterprise or dropind the
enterprise?
- What are the changes in prices or cost?
- What are the changes in contract to buy or to sale?

20. Give two set of question that partial budgeting will answer when a new process is being introduced and when a
new activity is substituting from something already existing.

The two questions are:

- What extra return can be expected?

- What extra cost will be incurred?

21. What is the depreciation?

Answer: the depreciation is the value of fixed asset that is for production over a certain period of time usually
a year.
22. What is life span?
Life span is the period of time during which a fixed asset is used in the production process.

Methods of computing the depreciation:

a) The straight line method:

Pricebought −salvage value

Depreciation=
life span of the asset

b) The double declining balance method

CHAPTER V: FARM ACCOUNTING SYSTEM

23. What are the two systems used in the farm accounting?

There are two system used in the farm accounting:

A- A combination of farm inventory cash account and single enterprise account

B- A complete farm account

The limitation of the single enterprise account:

- Misleading conclusion can be gotten from such an account
24. What is farm valuation?
Farm valuation involves getting the realistic measure of the current value of the assets of the farm business.
25. What is the basis of valuation?
Valuation is based in the market value or the cost of production
26. Why is the consuming value rational?

Ondoua Steve Alex – FASA 2012 -2013

 Notes on Farm Managament
Answer: based on general valuation: as general rules valuation are based on market value or cost of
production which ever is lower. Based on cost of production, the value of item equals purchase price plus cost
of raising to rearing it.
27. What is the basis of valuation?
Answer:
- Definition: valuation involves getting a realistic measure of the current value of the asset of the farm business.
- Basis of valuation: valuation is based on the cost of the product when ever it’s lower
28. How do you value trading stock?
Answer: trading stocks are generally valued based on the cost of production.
Trading stock = Cost of production + purchase livestock
29. What is balance sheet?
Answer: the balance sheet is the statement of the financial position or state of affairs of the farm business at
particular moment in time especially at midnight on the last day of the accounting period.
30. Give the principle components of the balance sheet content during a year and

This financial position as contained in the balance sheet contains the following:

- The resources or asset

- Obligation or liabilities
- Equipment of the owner
31. What can alter the structure of balance sheet?

32. What are the basis functions of a cash flow

Cash flow summarizes the inflows and the outflow over a given period of time.

33. What are the functions of a cash flow statement

Cash flow helps the farmer to estimate if
- Cash will be available when needed
- Surplus cash period exist helping the farmer to decide when to place cash in some income

34. What are the uses of cash flow statement?

- Cash flow is used to determine the payment capacity of the farmer
- It is used to work and repairmen term
- It is used to plan for adequate environment of family living expenses
- It is used to plan tax, insurance premium reschedule payment of taxes
35. What is the use of profit and loss account?
Answer: The profit and loss account is a measure of revenue and expenses during a given period of time
usually a year.
It can be used to
- determine tax payment,
- Analyze expenses potentials
- Evaluate the outcome of business activities
- Justify loan payment activities
36. What are the assumptions of lineal planning?

37. What can change the net worth?

Le gain, le don, l’héritage
38. What is an income statement?

It is the measure of revenue and expenses during a given accounting period usually a year.

Ondoua Steve Alex – FASA 2012 -2013

 Notes on Farm Managament
A poultry farmer bought 200 birds at point of lay at the cost of 2500frs per bird, the bird will lay for a period of five
month (150 days) after which they will be sold at a unit price of 4000frs CFA, the total cost of feeding and caring for
the bird for this period is estimation at 300.000frs. If 75% of the birds lay every, and the eegs are sold at an average
price of 1500frs per crate of 30 eggs.

Calculate:

1. the total number of eggs produced

2. the revenue realized from sale
3. the profit realized from the birds assuming the zero mortality

Exo II.

A farmer bought a new tractor for 1000000 Frs., he intend to use this tractor for five year after which he intend to sell
it for 2000000frc CFA.

1. Calculate this tractors rate of depreciation using the straight line method.
2. Sum of the year digit method and
3. the double declining balance method
4. Write short note on following management concept:
a) Budgeting
b) Managerial effectiveness
c) Cross margin analysis
5. Distinguish subsistence farming from commercial farming
6. Outline the state (in sequence) of an effective control system

The main purpose of farm record an account includes the following:

- To evaluate the performance of any farm or farm enterprise within a given period of time;
- To help in taking any farm management decision;
- For credit purpose;
- For taxation and insurance purpose;
- For national agricultural and economic planning.

Generally, farm records and account could be grouped as follow:

- Inventory records
- Production records
- Expenditure and income records
- Special or supplementary records.

7. What factors determine the market value of a farm?

A farmer has cassava in an area of 10.5 ha planted. One meter between ridges and 60 cm within ridges. If he used 30
cm cassava cutting for a stand,

1. How many bundles of cassava sticks where required for the farm if each stick measured 1.5 m in length (one
bundle = 50 cassava sticks)
2. calculate the approximate plant population per hectare
3. If the average yield per stand was 3.06kg, calculate the output of cassava harvested by the farmer from his
farm.

A farmer harvest 56 kg of tomatoes, 12.9 kg of maze, 16 kg of cassava from his

Ondoua Steve Alex – FASA 2012 -2013