[jeff]

Welcome to the Q1 2016 CPA Exam Study Group for BEC.

Some BLITZ videos to help your exams: https://www.another71.com/ninja-blitz

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

[monikernc]

Payaza, the equilibrium point will rise, right?

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

75 random question set, 88% but it took 2.5 hours. I cannot get my pace going. What next? HELP!

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Anonymous]

@monikernc, don't panic. Everyone I know who has taken BEC says that the question length on the exam is nowhere near the length of the Becker questions. I know you are using Ninja, but they both pull from AICPA licensed questions so there is a lot of overlap between the two MCQ sets. (If it makes you feel better it is taking me forever as well to slog through these.)

Hang in there! You can do it!

[FAR_WARS]

@cortes123:

Thanks,
I think i i mistook the line on the graph to represent costs. However, they actually represent profit. That is why my answer was the inverse of the correct answer.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Anonymous]

I HATE COBIT AND ALL THINGS IT.

[payaza2000]

@monikernc

Output would rise, fall, or remain the same. While the price level would rise.

I struggle with these types of economic questions the rest I feel comfortable with.

FAR 5/6/2015- 84
REG 8/3/2015 - 87
AUD 10/25/2015- 69 1/20/2016 -75
BEC 2/26/2016- 80

Thank you God

[jpowell31]

Hey there, I'm sitting my exam next Friday and in full-time panic mode. I've avoided the forum thus far to reduce my anxiety in seeing some questions that I was in no way ready to look at :). I have a question for you:

A vendor offered Wyatt Co. $25,000 compensation for losses resulting from faulty raw materials. Alternately, a
lawyer offered to represent Wyatt in a lawsuit against the vendor for a $12,000 retainer and 50% of any award
over $35,000. Possible court awards with their associated probabilities are:
Award Probability
$75,000 0.6
0 0.4
Compared to accepting the vendor's offer, the expected value for Wyatt to litigate the matter to verdict provides
a:
a. $4,000 loss.
b. $18,200 gain.
c. $21,000 gain.
d. $38,000 gain.

So I know the answer is a) and did it this (long) way:
Cost of award if Wyatt wins: Retainer 12,000
Add: ($75,000 − $35,000) × 50% 20,000
Total 32,000

Cost if Wyatt loses Retainer $12,000.

Award Cost Net to Wyatt Probability Expected
75,000 − 32,000 = 43,000 × .60 = 25,800
0 − (12,000) = (12,000) × .40 = (4,800)
21,000

Expected value of litigation 21,000
Less: Settlement offer (25,000)
Loss from choosing to litigate (4,000)

But Ninja just did it this way:
(75,000 + ((75,000-35000)* 50%))* 60% – 12,000 = $21,000 – 25,000 = ($4,000)

So this looks a lot easier but does it really take into account the probability of loss? i.e. if litigation lost and the probability was anything more than 0%, would this more simple formula work?

Thanks!

[FAR_WARS]

In a situation like this, can anyone explain why we multiply our “asset base” by the “imputed rate” to get “hurdle income”.

Is this an interest expense that we predict we will be paying on our assets? Hence the need to overcome the “hurdle income”?

1.8 working capital
+17.2 PPE
=
19 ASSET BASE
*.15 imputed rate
=
2.85 hurlde income
+2 mil residual income target
=
4.85 total target income

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Anonymous]

@Farwars I am not quite sure lol! I would like to know if it can be interpreted as a financing cost of the assets or a required return rate of management on the investment (asset base in your example) But nevertheless I think that it is more important to know the purpose of the residual income formula and with that maybe one can know what to do in a mcq. This little article does a good job explaining its use https://www.readyratios.com/reference/analysis/residual_income_ri.html

The article compares it to the Return of Investment ratio. I have seen mcqs asking me the RI and ROI of a company so I think that it is focused on investments and the measurment of their performance by including its associated costs.

@jpowell I really suck at algebra! I could not even get the 21,000 with the ninja formula, is the formula complete? I was trying to modify the numbers in the ninja formula to include a 50 – 50 % of probability with 10,000 as an another award option to see what happened but could not even get the 21,000 with the ninja formula…

[monikernc]

Residual income is the amount of net income in excess of the minimum desired rate of return, or imputed rate, on invested capital. If desired ROI is 15% and total capital invested is 1.8 working capital + 17.2 PPE = 19mil, net income = 2.85 mill meets the goal. If they earn $4.85mill, then $2mill is residual income.
The way your question presents it suggests that mgmt wants to know how much net income (target income) would need to be earned to achieve 15% ROI plus $2mill residual income. They want ROI of 15% + residual income = target.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[monikernc]

Jpowell… the probability of losing in the question is 40% not 0%. The amount they lose as your longer form of calculation proved is the $12000 retainer and the formula holds. Both ninja and yours, which includes the extra step of 40% chance of winning nothing + paying retainer, resolve to the same amount.
I also did it using your method and ninja with possible outcomes of 75000, 60%; 40,000, 30%; 0, 10% – and both formulas hold.
Your way it comes out to: $25800 + 7650 + (1200) = $32250 – 25000 offer from vendor = $7250 net award
Ninja way it comes to: $33000 + 11250 = $44250 – 12000 retainer = $32250 – 25000 offer from vendor = $7250 net award

(For cortes sake, i will point out that jpowell should have (75000-((75000-35000)* 50%)) * 60% ( a minus sign instead of a + sign between the two 75000's) in the ninja formula)

And with that i am going to bed. 196 questions took way too long today. Two more weeks till exam and i am burning out.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[Anonymous]

Does anyone have a simpler explanation for this theory? Thanks guys!

“The use of ABC [Activity-Based Costing] normally results in substantially greater costs for low-volume products than is reported in traditional product costing”.

[FAR_WARS]

This is my thinking, but if someone could confirm my logic that would be great!

ABC will allocate greater costs to low volume products because it is accurate enough to identify that a low volume product will have a greater portion of fixed costs allocated to each individual unit produced.

Traditional product costing is not precise enough to make this distinction.

FAR- 80
BEC- 75
AUD- 78
REG- ?

[monikernc]

Farwars and Amor, that is how i interpret it.
Farwars, I responded to your earlier question on prior page. Hope it helps.

FAR 7/25/15 76!
AUD 10/30/15 93
BEC 2/27/16 82
REG 5/23/16 88!
Ninja Book and MCQ and the forum - all the way!!!
and a little thing i like to call, time and effort!
if you want things to change, you have to do something different

[FAR_WARS]

@moniker, yes i saw it thanks.

“Residual income is the amount of net income in excess of the minimum desired rate of return, or imputed rate, on invested capital.”

So desired ROR and imputed rate are the same thing? We are “imputing” a ROR?

Or are we paying some sort of interest on our assets? (i don't think this is the case, is it?)

FAR- 80
BEC- 75
AUD- 78
REG- ?

[Author]

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