[jeff]

NINJA Study Notes, Flashcards, and Audio: https://www.another71.com/products-page/

Wiley Software: https://www.another71.com/wiley-cpa-software/

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[wantCPA]

I am not getting this question at all. Does anyone get this?

Becker Question

American Coat Company estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. Reese Zipper Company has quoted a price of $.60 per zipper. American would prefer to purchase 5,000 units per month, but Reese is unable to guarantee this delivery schedule. In order to ensure availability of these zippers, American is considering the purchase of all 60,000 units at the beginning of the year. Assuming American can invest cash at eight percent, the company's opportunity cost of purchasing the 60,000 units at the beginning of the year is?

a. $1,320 b. $1,440 c. $1,500 d. $2,640

Choice “a” is correct.

BEC 5.31
FAR 86
REG 84
AUD 78

[momof4]

krystal83

You need to use the 8% to calculate a return on the money you could invest through the year if you did not have it tied up in inventory of zippers. If I do a estimate using the average investment of .6 * 60,000 units I get 1440. I suppose they want a more accurate number of ((60,000 * .6) -3000) * .08/12 = period 1 funds opportunity cost. Then next period you would subtract two months orders from what you could invest. Basically you are going backwards from an investment. There is probably a faster way but I can't think of it now. My brain is fried from BEC today.

This way will probably give you 1320

Anyone else know the fast way?

BEC 84
FAR 80
AUD 85
REG 78

[momof4]

krystal83

You need to use the 8% to calculate a return on the money you could invest through the year if you did not have it tied up in inventory of zippers. If I do a estimate using the average investment of .6 * 60,000 units I get 1440. I suppose they want a more accurate number of ((60,000 * .6) -3000) * .08/12 = period 1 funds opportunity cost. Then next period you would subtract two months orders from what you could invest. Basically you are going backwards from an investment. There is probably a faster way but I can't think of it now. My brain is fried from BEC today.

This way will probably give you 1320

Anyone else know the fast way?

BEC 84
FAR 80
AUD 85
REG 78

[wantCPA]

So, there are two steps that I really don't understand

(60,000*0.6) =36,000

36,000-3,000 = 33,000 Why do we subtract one month's amount?

33,000* 8% = 2,640

2,640 * 6/12 = 1,320 Why do we adjust this for half a year?

BEC 5.31
FAR 86
REG 84
AUD 78

[wantCPA]

So, there are two steps that I really don't understand

(60,000*0.6) =36,000

36,000-3,000 = 33,000 Why do we subtract one month's amount?

33,000* 8% = 2,640

2,640 * 6/12 = 1,320 Why do we adjust this for half a year?

BEC 5.31
FAR 86
REG 84
AUD 78

[momof4]

“Why do we subtract one month's amount?

The first year you must start with inventory on hand so you never get the benefit of investing the whole 36,000. So they did you the average method to get a rough return.

“Why do we adjust this for a half year”

I would actually think of that as 33000/2 * .08. We do this because take the average investment is a rough way of finding the return without using the present value factors of each month's cash flow. If we have 33,000 invested the first month and 0 invested at the end dividing the initial investment by two gives us the average amount invested for the whole year.

It is a rough measurement and I prefer the true time value calculation. Since they don't allow us to have a real financial calculator on the exam, we see methods like this.

BEC 84
FAR 80
AUD 85
REG 78

[momof4]

“Why do we subtract one month's amount?

The first year you must start with inventory on hand so you never get the benefit of investing the whole 36,000. So they did you the average method to get a rough return.

“Why do we adjust this for a half year”

I would actually think of that as 33000/2 * .08. We do this because take the average investment is a rough way of finding the return without using the present value factors of each month's cash flow. If we have 33,000 invested the first month and 0 invested at the end dividing the initial investment by two gives us the average amount invested for the whole year.

It is a rough measurement and I prefer the true time value calculation. Since they don't allow us to have a real financial calculator on the exam, we see methods like this.

BEC 84
FAR 80
AUD 85
REG 78

[RedMer007]

Did anyone else do poorly on Becker's Practice test #2 for BEC?

[RedMer007]

Did anyone else do poorly on Becker's Practice test #2 for BEC?

[Anonymous]

@RedMer007, I scored in the mid 60's on both, but felt the actual exam was easier (although I haven't seen my score yet so who knows). On the other two that I passed, I scored in the low 70's on the Becker finals.

[Anonymous]

@RedMer007, I scored in the mid 60's on both, but felt the actual exam was easier (although I haven't seen my score yet so who knows). On the other two that I passed, I scored in the low 70's on the Becker finals.

[wantCPA]

@RedMer007

After doing the practice exam #2, I felt like I really didnt know the material.

I got low 60s. I've heard it is way harder than the real exam.

I am taking the test today at 1pm. I will let you guys know how it goes.

BEC 5.31
FAR 86
REG 84
AUD 78

[wantCPA]

@RedMer007

After doing the practice exam #2, I felt like I really didnt know the material.

I got low 60s. I've heard it is way harder than the real exam.

I am taking the test today at 1pm. I will let you guys know how it goes.

BEC 5.31
FAR 86
REG 84
AUD 78

[RedMer007]

@ Krystal83

I couldn't agree more, I got a 60 on it and it really killed my spirit. I was feeling prepared for the exam up until that point. My exam is on Wednesday so this practice exam has got me very concerned.

[RedMer007]

@ Krystal83

I couldn't agree more, I got a 60 on it and it really killed my spirit. I was feeling prepared for the exam up until that point. My exam is on Wednesday so this practice exam has got me very concerned.

[Author]

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