[jeff]

@h0wdyus

Incorrect

The answer is B. Comparable sales.

“The use of comparable sales is not an income approach to valuation of a business, it is a market approach. Under the comparable sales approach, the value of a business is determined by comparing it to other entities with comparable characteristics for which the value is more readily determinable.”

This was a tricky one

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

[JamesBJames]

So, someone in the FAR study thread noted that 2014-released questions are out. I've been going through all the non-B6 questions. 16/18 on the “difficult” questions; gonna go through the “moderate” ones later. I feel good!

One of the questions that tripped me up, however, was this. I want to test my understanding.

“The following data pertains to Blue Co.:

Product

---

SP per unit

---

Variable Cost

A

---

$70

---

$42

B

---

$50

---

$28

C

---

$60

---

$32

A customer of Blue is going to spend a total of $40,000 on one product only. Which of the following

products would Blue prefer to sell to the customer?

a. A

b. B

c. C

d. Either A or C”

I said D since the CM for A and C are the same, but the answer is just C. I understand the reasoning, I think, but let's say Blue had an unlimited amount of cash to spend instead… would products A and C be equally appealing?

FAR: May 1st, 2014 - 91
AUD: May 29th, 2014 - 97!
BEC: July 16th, 2014 - 91
REG: August 29th, 2014 - 88

Licensed December 2015

Feel free to add me on LinkedIn by clicking my username!

[GoVPI]

@JamesB

I did it before I saw your answer because I wanted to see if I got it right… I knew it would be C based on my calculations but I also see where you are coming from. I have learned to not speculate even if something makes complete sense and maybe you had a professor in school like I did that would say the answer is D. I think with the CPA they want no speculation really. But technically yes because they are both $28 CM, it would just depend on how many units they needed.

BEC 8/14/14 - Passed
Graduated from college 12/13/14
AUD 8/31/15 - 74. Retake - Passed
REG
FAR

[Anonymous]

Where did you find the released questions? Can you post the link? 🙂

[M.O.D.]

It is not true that A and C are the same.

40000 x

40% = 16000

44% = 17600

46.7% = 18,664

You need to calculate CM% and rank that.

If in doubt calculate the actual total profit. That is the ultimate benefit to the company's shareholders.

This is true even if sales are unlimited.

BA Mathematics, UC Berkeley
Certificates in CPA and EA preparation, College of San Mateo
CMA I 420, II 470
FAR 91, AUD Feb 2015 (Gleim self-study)

[JamesBJames]

@Amanda: https://www.cpaexam.com/media/3897071/cpa2904us1_43_online_-_bec.pdf

@M.O.D: Thanks, that makes a lot of sense. I didn't try to approach the problem from that perspective; I just looked at CM and figured I could stop there. So, basically, even if we had no constraint on cash expenditures, C is definitely the best product because it produces the greatest percentage of return per every dollar we spend.

Thanks, guys.

FAR: May 1st, 2014 - 91
AUD: May 29th, 2014 - 97!
BEC: July 16th, 2014 - 91
REG: August 29th, 2014 - 88

Licensed December 2015

Feel free to add me on LinkedIn by clicking my username!

[Anonymous]

Well that set of 40 questions was a nice confidence booster!! 38/40!

[JamesBJames]

Nice! 38/40 is sick.

I missed four. I blanked on the CM ratio one, what the benefits are EDI are, what isn't part of a value chain (“accounting” is a cruel answer!), and the one that says you can compare two dissimilar-sized companies in the same industry using a return on assets ratio.

If you got a 38, though, you're probably gonna destroy BEC. When's your test?

FAR: May 1st, 2014 - 91
AUD: May 29th, 2014 - 97!
BEC: July 16th, 2014 - 91
REG: August 29th, 2014 - 88

Licensed December 2015

Feel free to add me on LinkedIn by clicking my username!

[GoVPI]

can you explain the calculations for CM ratio ranking?

BEC 8/14/14 - Passed
Graduated from college 12/13/14
AUD 8/31/15 - 74. Retake - Passed
REG
FAR

[Anonymous]

@JamesBJames Thanks! Test is this Friday (7/11), the two I missed were #35 and #38. I put C and D, respectively (35 I clearly made a dumb mistake on -__-). I hope that's truly indicative of a medium and a hard testlet because they were significantly easier than Becker's final exams.

[Anonymous]

@CPAin14 you've got to calculate the contribution margin ratio (Contribution Margin Per Unit/Selling Price Per Unit) for each of the products, then you want to invest in the product with highest CM Ratio.

[GoVPI]

@bpk1

thanks, makes sense. good luck friday, i will be looking forward to your feedback on how it goes

BEC 8/14/14 - Passed
Graduated from college 12/13/14
AUD 8/31/15 - 74. Retake - Passed
REG
FAR

[Anonymous]

Took my exam last Thursday, feeling very uneasy still. Felt like the 1st testlet was super easy and big confidence booster, then 2nd and 3rd were so hard I felt like crying before finishing. WC are hard to judge, I just made sure to have a clear beginning, middle, and end in all of them. I finished with about 14 minutes left.

[Anonymous]

@CPAwi88 if you did well on the first testlet, then you would get a more difficult second testlet, so that's usually a good sign!

[Anonymous]

@bpk1 – I've heard that before too but I just feel so defeated. And now almost a month long wait until score release and I have to start studying for REG on 8/16 (which I got a 74 on last time), it's hard to find the motivation today.

[GoVPI]

@cpawi88

How were the calculations? Heavy cost? Heavy financial like IRR, NPV?

BEC 8/14/14 - Passed
Graduated from college 12/13/14
AUD 8/31/15 - 74. Retake - Passed
REG
FAR

[Author]

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