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by: Nicolette Steuber


Nicolette Steuber
GPA 3.74


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Class Notes
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This 16 page Class Notes was uploaded by Nicolette Steuber on Saturday September 12, 2015. The Class Notes belongs to ACCT 2102 at University of Georgia taught by Farmer in Fall. Since its upload, it has received 576 views. For similar materials see /class/202539/acct-2102-university-of-georgia in Accounting at University of Georgia.


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Date Created: 09/12/15
Accounting 2102 Farmer Practice Test 4 Chapter 1215 the practice test does not cover all topics that will be on Test 4 the practice test is intended to give you an idea of how Test 4 will be formatted and provide practice not in sequential chapter order the majority of the questions on the practice test are taken from your practice questions on eLC but have all been reformatted into multiple choice questions the answers are on the last page of the practice test 1 A special order should generally be accepted if a b C d e Excess capacity exists and the special contribution margin is positive The order s revenue exceeds allocated xed costs regardless of the variable costs associated with the order Excess capacity exists and the revenue generated from the special order exceeds allocated xed costs The revenue exceeds total costs regardless of available capacity The revenue exceeds variable costs regardless of available capacity 2 Dawg Pile Inc is considering the purchase ofa new piece of equipment costing 25102 The equipment is expected to generate annual cash in ows of 7500 annual cash out ows of 2000 and annual depreciation expense of 500 for the next 7 years at the end of 7 years the equipment will have a salvage value of 0 If Dawg Pile is a start up company and uses the Payback Method as a screening tool for capital expenditures no project with a payback greater than 5 years will be considered which of the following statements is true a Fquot 99 e The equipment purchase should not be considered because the payback period is greater than 5 years Since the annual cash ows are even the payback period cannot be calculated with the information given The Payback Method is not a valid screening tool for capital expenditures The equipment purchase should be considered because the payback period is less than 5 years More than one of the above statements is true 3 Upon review of Make Your Mark Inc s Statement of Cash Flows the following was noted I Cash Flows from Operating Activities I 15000 I I Cash Flows from Investing Activities I 80000 I I Cash Flows from Financing Activities I 60000 I From this information the most likely explanation is that Make Your Mark is 999 using cash from operations and selling common stock to purchase long term assets using cash from operations to repay long term debt and purchase long term assets selling common stock to fund operations and purchase long term assets selling long term assets to fund operations and pay dividends to shareholders assuming long term debt to fund operations and purchase long term assets Accounting 2102 Farmer Practice Test 4 Chapter 1215 4 Which of the following is correct regarding responsibility centers a b 0 Responsibility centers are primarily utilized in companies with centralized operations Cost centers revenue centers pro t centers and investment centers are all considered responsibility centers Controllable costs as used in a responsibility accounting system only consists of variable costs If a manager is held responsible for generating revenue controlling costs and ef ciently investing assets then his division is considered a pro t center and an investment center Common xed costs should be allocated to a segment and used to evaluate the segment s performance 5 Which of the following statements regarding costs and decision making is incorrect a b DP0 Fixed costs are considered in total Per unit xed costs can be misleading because such amounts appear to behave as variable costs Variable costs should be considered on a per unit basis Opportunity costs should be considered when evaluating decision alternatives Qualitative considerations are ignored when evaluating decision alternatives 6 Which of the following best de nes the concept of a relevant cost a 0305 A past cost that is the same among alternatives A past cost that differs among alternatives A future cost that is the same among alternatives A future cost that differs among alternatives A cost that is based on past experience Accounting 2102 Farmer Practice Test 4 Chapter 1215 7 Brutus is a division of Madam Medusa s Pawn ShopBoutique Inc Last year the division generated operating income of 609840 and sales revenue of 10890000 Given invested capital of 3000000 which of the following statements is correct a b c 00 For every dollar of sales revenue generated 056 of income is earned For every dollar of capital invested 363 of income is earned Ifthe division s manager is evaluated based on maintaining the division s current Return on Investment he would accept an investment opportunity that would yield a return of 18 For every dollar of capital invested 020 of income is earned All of the above statements are correct Accounting 2102 Farmer Practice Test 4 Chapter 1215 8 Down Hill All the Way Inc produces bicycles In its current manufacturing environment Down Hill makes all of the wheels used in production Down Hill s annual costs related to the production of 100000 wheels are as follows An outside supplier has offered to sell Down Hill similar wheels for 125 per wheel If the wheels are purchased from the outside supplier 15000 of annual fixed overhead could be avoided and the new facilities now being used could be rented to another company for 45000 per year What is the highest price that Down Hill could pay the outside supplier for the wheel and be economically indifferent between making or buying the wheels a 125 b 100 c 160 d 135 e 170 Accounting 2102 Farmer Practice Test 4 Chapter 1215 9 The Geiger Company has two divisions East and West The diVisions have the following revenues and expenses East West Sales 720000 350000 Variable costs 370000 240000 Traceable fixed costs 130000 80000 Allocated common corporate costs 120000 50000 Net operating income loss 100000 20000 On which gure should the performance of the West Division s manager assuming the traceable fixed costs are all controllable a 20000 b 220000 c 110000 d 100000 e 30000 be judged Accounting 2102 Farmer Practice Test 4 Chapter 1215 10 Loco for Cocoa LLC processes cocoa beans into two products chocolate powder and chocolate syrup Demand for chocolate powder is 15000 units demand for chocolate syrup is 20000 units Loco only has 100003 beans on hand and will not be able to obtain any more for several weeks Each bean costs 050 from the supplier Fixed costs are 20000 per period The following information is available for each unit of product Powder 00 V Costs What is the highest amount Loco would be willing to pay for an additional bean a b 6 00 c 700 d 750 e 4 00 Accounting 2102 Farmer Practice Test 4 Chapter 1215 Present Value of an Annuity of1 in Arrears Period 10 ll DFWM LLC a manufacturer of hood ornaments is considering an investment in equipment that will have an initial cost of 560290 and yield annual net cash ows of 83500 The equipment is expected to have a useful life of 10 years and a 0 salvage value DFWM s hurdle rate is 10 Which of the following statements is incorrect The investment s payback period is less than 7 years The investment s net present value is positive The investment s internal rate of return is less than 10 The company would not purchase the equipment All else equal to achieve a positive net present value the initial cost would need to decrease rep99 s Accounting 2102 Farmer Practice Test 4 Chapter 1215 12 Selected sales and operating data for three division of three different companies are given below Division A Division B Division C Income rate Each division is presented with an investment opportunity that would yield a rate of return of 16 If performance is being measured by Return on Investment which division or divisions will probably accept the opportunity a A only b C only c B and C d A and C e A B and C Accounting 2102 Farmer Practice Test 4 Chapter 1215 13 Do the Hustle Company a manufacturer of bell bottom jeans has the capacity to produce 15000 pairs of jeans each month Current production and sales are 10000 pairs per month at a selling price of 15 each Based on this level of activity the following unit costs are incurred Hustle has received a special order from a customer who wants to pay a reduced price of 10 per pair of jeans for an order of 6000 pairs of jeans If the special order is accepted what will be the change in operating income a Increase of 7500 Increase of 1250 Decrease of 6250 Increase of 5000 Decrease of 30000 9990 Accounting 2102 Farmer Practice Test 4 Chapter 1215 14 Bump and Squall LLC manufactures safety products for infants Only 2400 minutes of machine time are available during the current period Customers demand 500 units of each product Data concerning the selling prices and unit costs of its three products appear below Product Don t Don t Pull Get That Climb on the Dog 3 Out onour the Chair Ear Mouth Sales price 90 30 60 Unit variable costs 35 10 20 Unit fixed costs 45 15 30 Machine minutes required per unit 5 4 2 Which of the following statements is incorrect assume the optimal production order is used to fill demand Bump should be willing to purchase up to 3100 additional minutes of machine time There is unfilled demand for 720 units Bump is able to produce 780 units during the period Bump should be willing to pay 11 per minute for all additional minutes required Two products have unfilled demand at the end of the period warmrt Accounting 2102 Farmer Practice Test 4 Chapter 1215 15 Peter C Tail s Lettuce Stand currently sells 60000 heads of lettuce each year for 100 per head Peter is thinking of expanding operations and serving the customer better by purchasing a slice and dice machine that will cut up each head of lettuce into bite size pieces that can be used for salads Peter expects he Will then be able to sell his lettuce for 200 per head Peter has prepared the following analysis for each option based on sales of 60000 heads of lettuce Selling Unsliced Lettuce Unit Variable Costs 025 Unit Fixed Costs 030 Selling Sliced Lettuce Unit Variable Costs 030 Unit Fixed Costs 090 Assume that Peter is currently selling only 50000 heads of lettuce per year instead of 60000 Under this scenario what will be Peter s increase or decrease in pro t for the year if he chooses to start slicing up the lettuce instead of selling it whole a 1000 decrease 11000 increase 11500 increase 38500 decrease 39000 decrease oaoc Accounting 2102 Farmer Practice Test 4 Chapter 1215 16 The High School Musical Company has two divisions Troy and Gabriella Troy has a controllable margin of 350000 and a segment margin of 220000 Gabriella has a controllable margin of 110000 and a segment margin of 30000 Common xed costs total 170000 50000 of this amount is allocated to the Gabriella diVision Management at High School is considering the elimination of the Gabriella DiVision since it has shown an operating loss for the past several years Which of the following statements is correct if the Gabriella DiVision is eliminated The company s operating income would increase by 20000 The company s operating income would equal 50000 The company s common xed costs would equal 120000 The company s operating income would decrease by 110000 Troy s segment margin would decrease by 50000 rug99 s Accounting 2102 Farmer Practice Test 4 Chapter 1215 Present Value of 1 Period 8 10 12 1 0926 0909 0893 2 0857 0826 0797 3 0794 0751 0712 4 0735 0683 0636 17 The Net Present Value of a project is 3927 The project has a projected life of 4 years It is expected to have the following annual cash ow Year 1 10000 Year 2 12000 Year 3 15000 and Year 4 unknown The project s initial investment is expected to equal two times the projected annual cash ow for Year 4 The company s hurdle rate is 10 What is the expected cost of the project a 20000 40000 21760 43521 24667 0305 Accounting 2102 Farmer Practice Test 4 Chapter 1215 18 Mercury Skateboard Company manufacturers skateboards Several weeks ago the firm received a special order inquiry from Venus Inc Venus desires to market a skateboard similar to one of Mercury s and has offered to purchase 11000 units Cost data for Mercury s model skateboard follow Total unit Cost The following additional information is available 0 The normal selling price of the Champion model is 5300 however Venus has offered Mercury only 3150 because of the large quantity it is willing to purchase Venus requires a modification of the design that will allow a 420 reduction in per unit Direct Material cost Mercury s supervisor notes that the company will incur 7400 in additional setup costs and will have to purchase a 4800 special device to manufacture these units The device will be discarded once the special order is completed Total manufacturing costs are applied to production at the rate of 40 per machine hour This figure is based in part on budgeted yearly fixed overhead of 1500000 and planned production activity of 60000 machine hours Assume that present sales will not be affected What is the affect on operating income from acceptance of the special order a Increase of 80300 Increase of 68100 Decrease of 69400 Increase of 84600 Increase of 72900 0905 Accounting 2102 Farmer Practice Test 4 Chapter 1215 19 Sporting Heaven is a baseball bat manufacturer located in Athens Georgia Two products are produced in its manufacturing facility Line Drive and Home Run The following information relates to its rst year of operations Line Drive Home Run Units Sold 20000 10000 Unit Sales Price 30 45 Variable Cost Percentage 40 50 Traceable Noncontrollable Fixed Costs 250000 100000 Common Fixed Costs 100000 50000 Calculate the figures on which Home Run s manager and segment should be judged a Manager 360000 Segment 110000 Manager 225000 Segment 125000 Manager 225000 Segment 75000 Manager 125000 Segment 75000 Manager 360000 Segment 10000 0305 Accounting 2102 Farmer Practice Test 4 Chapter 1215 Present Value of 1 Period 8 10 12 1 0926 0909 0893 2 0857 0826 0797 3 0794 0751 0712 4 0735 0683 0636 20 Pickin and Grinnin LLC manufactures guitars and is considering the purchase of a piece of machinery The machine will have a useful life of 3 years and is expected to generate annual net cash ow of 27000 The company s hurdle rate is 8 What must the machinery s purchase price be to achieve an Internal Rate of Return equal to 12 a 69579 24 1 1 1 64854 21438 64500 0305


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