[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

[klink24]

Ok, I'm not understanding the logic of this question for some reason. This is the second question I've come across with these exact details but with a different question.

Johnson Co., distributor of candles, has reported the following budget assumptions for year 1: No change in candles inventory level; cash disbursement to candle manufacturer, $300,000; target accounts payable ending balance for year 1 is 150% of accounts payable beginning balance; and sales price is set at a markup of 20% of candle purchase price. The candle manufacturer is Johnson's only vendor, and all purchases are made on credit. The accounts payable has a balance of $100,000 at the beginning of year 1. What is the budgeted gross margin for year 1?

A. $60,000

B. $70,000

C. $75,000

D. $87,500

I won't give the answer yet so others can give it a shot.

FAR: 4/19/2014 - 85!
AUD: 5/27/2014 - 90!
REG: 7/18/2014 - 81!
BEC: 8/13/2014 - 84!

4 up, 4 down, in 4 months.

Licensed 9/22 in NC.

[stoleway]

Klink….you've passed FAR so this should be easy. This is a cashflow question.

Use the accrual basis method.

Cogs – increase in AP = cash disbursed

Cog- 50,000 = 300,000

Cogs = 350,000

Sales=420,000

Gross margin =70,000

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[M.O.D.]

AP:

Beginning balance 100 (given)

Ending balance 150 (150% increase target)

Cash disbursements: 300

So (credit) purchases were 300+150-100=350

Beginning inv and ending inv are the same (assume 0), so all purchases are also COGS.

Markup is 20% of cost, so sales were 350×1.2 = 420

GP = 420-350 =70

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)

[Anonymous]

@klink24

The purchases can be solved for as follows:

Beginning A/P + Purchases – Disbursements = Ending A/P

100,000 + Purchases – 300,000 = 150,000

Purchases = 350,000

If the inventory levels are the same at the beginning and end of the year, this means that the amount of inventory sold is equal to the amount of inventory purchased, so cost of goods sold is also 350,000. Therefore, budgeted gross margin is 20% of this amount or 70,000.

[klink24]

LOL, exactly what I got! But WTB said the answer is $75k! And here's the explanation:

“When production is greater than sales, absorption costing income will be greater than variable costing income. This is because when production is greater than sales, more fixed costs are deferred in the inventory cost to the next period under absorption costing.”

Obviously an explanation for a different question related to absorption costing, but wanted to make sure I wasn't missing something. Guess I'll chalk it up to a WTB error.

FAR: 4/19/2014 - 85!
AUD: 5/27/2014 - 90!
REG: 7/18/2014 - 81!
BEC: 8/13/2014 - 84!

4 up, 4 down, in 4 months.

Licensed 9/22 in NC.

[M.O.D.]

Here is the question for your answer?

The management of Another91 computes net income using both absorption and variable costing. This year, the net income under the variable-costing approach was greater than the net income under the absorption-costing approach. This difference is most likely the result of?

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)

[klink24]

It fits. I've never seen that question asked. I'm sure when I do, the explanation for the right answer will be similar to your, mine, and others' explanations on the question I posted.

FAR: 4/19/2014 - 85!
AUD: 5/27/2014 - 90!
REG: 7/18/2014 - 81!
BEC: 8/13/2014 - 84!

4 up, 4 down, in 4 months.

Licensed 9/22 in NC.

[stoleway]

mod,

sales was probably more than production

REG -63│ 84!!
BEC- 59│70│ 71 │78!
AUD- 75!
FAR- 87!

Mass-CPA

[M.O.D.]

Stoleway, correct

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)

[klink24]

Finally came across the actual question:

Which of the following statements is correct regarding the difference between the absorption costing and variable costing methods?

A. When production equals sales, absorption costing income is greater than variable costing income.

B. When production equals sales, absorption costing income is less than variable costing income.

C. When production is greater than sales, absorption costing income is greater than variable costing income.

D. When production is less than sales, absorption costing income is greater than variable costing income.

Answer was C of course since under absorption costing fixed costs are inventoried instead of expensed, causing higher income than variable costing in the period where production is greater than sales.

FAR: 4/19/2014 - 85!
AUD: 5/27/2014 - 90!
REG: 7/18/2014 - 81!
BEC: 8/13/2014 - 84!

4 up, 4 down, in 4 months.

Licensed 9/22 in NC.

[Zackrampage]

Yep def is C, I really hate those wordy ones you have to read them and think carefully!

FAR - 62 , End of aug 2015
BEC - 67, 67
AUD - TBD
REG - TBD

[mikecuh]

I'm using the Becker textbook to study and for whatever reason, I can't figure out Fixed & Variable Overhead Variances for the life of me. I'll think that I have it understood after reading an answer, and then try to apply my understanding to the next question yet I consistently get it wrong. I know it's a lot but does anybody have tips to remember how to calculate this stuff? Becker uses A BA BS A, but whenever I try to apply that.. it never works

[M.O.D.]

@ klink, correct

@mike

There are two variable OH variances: what are they, and what do they mean?

There are also two fixed OH variances: what are they, and what do they mean?

Try to understand the concept of OH variance, and why would management use them.

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)

[Zackrampage]

Happy Sunday! Did MCQ's this morning now reading notes! BEC is in 18 days! ahhhh

FAR - 62 , End of aug 2015
BEC - 67, 67
AUD - TBD
REG - TBD

[Anonymous]

@Zack — Good luck in 18 days….I have 6 (as the panic sets in).

[Author]

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