[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for BEC. 🙂

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

[cpaswag]

2 QUESTIONS : 1) Why are they using the second year as an example 2) why/how wouldn't SL provide saving until 3rd and 4th years?

ANSWER WAS A

Maxgo Company is considering replacing its current computer system. The new system would cost Maxgo $60,000 to have it installed and operational. It would have an expected useful life of four years and an estimated salvage value of $12,000. The system would be depreciated on a straight-line basis for financial statement reporting purposes and use the modified accelerated cost recovery system (MACRS) depreciation method for income tax reporting purposes. Assume that the percentages of depreciation for MACRS are 25%, 40%, 20%, and 15% for the 4-year life of the new computer.

Maxgo's current computer system has been fully depreciated for both financial statement and income tax reporting purposes. It could be used for four more years, but not as effectively as the new computer system. The old system currently has an estimated salvage value of $8,000 and will have an estimated salvage value of $1,000 in four years. It is estimated that the new system will save $15,000 per year in operating costs. Also, because of features of the new software, working capital could immediately be reduced by $3,000 if the new system is purchased. Maxgo expects to have an effective income tax rate of 30% for the next four years.

Assume that Maxgo Company purchases the new system. How would the capital budgeting decision differ if the company chooses to use straight-line depreciation for both financial statement and income tax reporting purposes?

A.
The net present value of the new system would be lower, and the investment would be judged less desirable.

Incorrect B.
This should have no effect on the decision because depreciation is a noncash expense.

C.
The net present value of the new system would be higher, and the investment would be judged more desirable.

D.
The effect could be either positive or negative, but there is not enough information given to make an informed decision.

EXPLANATION :
The use of MACRS depreciation would result in a greater deduction in Year 2 (40% MACRS versus 25% straight line). This will result in tax dollars saved in the early life of the project. The use of straight line (SL) would, of course, not provide this saving until the third and fourth years. The result would be:

a slightly lower net cash flow from the use of SL in year 2.
lower net present value using SL.
less desirable investment.

[Anonymous]

@mooseonloose-if the cost is .20 and the savings is only .17, then they shouldn't take up the arrangement because the savings is less than the cost….

[mooseonloose]

@anyatver thanks! I think I am losing it lol

[Anonymous]

no problem! 🙂

[skyxliner]

I'm using Roger to study for BEC and under corporate governance ERM, there are a million questions about Dodd Frank act that isn't covered in the lesson.

Is it worth knowing these? Are they even being tested?
2016 edition.

[rb2017]

I'm almost positive they removed the Dodd Frank Act from the exam. I think I saw that in a CPA exam update post.

[skyxliner]

I also read they remove from REG but no mention about BEC.

[A1lessio]

Hey Everyone, I need some help with the following question. Having issues with Activity based costing questions:

Where is the 550 coming from in the 550/700 part of the answer description?

The New Wave Co. is considering a new method for allocating overhead to its two products, regular and premium coffee beans. Currently New Wave is using the traditional method to allocate overhead, in which the cost driver is direct labor costs. However, it is interested in using two different drivers: machine hours (MH) for separating and roasting beans, and pounds of coffee for packing and shipping. Machine hours for the current month are 700 hours, direct labor cost per pound of coffee is $1.25, and direct materials cost per pound of coffee is $1.50. There are 1,000 pounds of coffee packed and shipped for the current month. The following data are also available:
Regular
Premium
Overhead for the current month
$5,000.00
Cost pool for separating and roasting beans
3,500.00
150 MH
550 MH
Cost pool for packing and shipping
1,500.00
500 pounds
500 pounds
What is the total cost per pound for the premium coffee using the new activity-based costing method?
a.
$7.75
b.
$5.00
c.
$5.75
d.
$9.75
Explanation
Choice “d” is correct. Activity based costing is a cost assignment concept that uses activity level as the fundamental cost object. Total cost per unit would be equal to the overhead allocated in accordance with the activity based cost object associated with each activity and the direct cost per unit.
(Cost × Premium/Total) ÷ Pounds = Cost/Pound
Separating and roasting1
($3,500 × 550/700) ÷ 500 = $5.50
Packing and shipping2
($1,500 × 500/1,000) ÷ 500 = 1.50
Direct Labor (given)
1.25
Direct Materials (given)
1.50
Total cost per pound for premium coffee
$9.75
1 The separating and roasting cost pool is allocated based upon man hours: 550 divided by a total of 700 hours (550 for premium and 150 for regular)
2 The packing and shipping cost pool is allocated based on pounds. Both quality beans are produced in the same amount, 500 pounds. Half of the packing and shipping costs go to each quality of bean.
Choices “b”, “c” and “a” are incorrect per explanation above

AUD (08/02/2016)

[mooseonloose]

Same question on becker and Ninja with two different answers.

A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor usage variance?

A.$25,000 favorable

B.$25,000 unfavorable

Correct C.$30,000 favorable

D.$30,000 unfavorable

The labor efficiency (usage) variance is the difference between standard cost of actual hours and the standard cost of the budgeted labor hours.

Standard cost (at $15 per hour) of the actual hours of 3,000 hours was $45,000.
Standard cost (at $15 per hour) of the standard hours (0.5 hours × 10,000 widgets) was $15 × 5,000 hours, or $75,000.
Since the actual cost was less than the budgeted cost ($45,000 – $75,000), the labor efficiency (usage) variance was $30,000 favorable.

A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct material usage variance?
a.$30,000 favorable.
b.$25,000 unfavorable.
c.$30,000 unfavorable.
d.$25,000 favorable.

Choice “b” is correct. The direct materials usage variance is calculated as follows:
DM quantity usage variance = Standard price × (Actual quantity used – Standard quantity allowed)
DM quantity usage variance = $5 per pound × (25,000 pounds – 20,000 pounds) = $25,000 unfavorable
The standard price of $5 per pound is given in the narrative, as is the 25,000 actual pounds used. The budgeted standard direct materials of 2 pounds per widget multiplied by actual widget production of 10,000 implies that 20,000 pounds should have been used. The fact that the company needed 25,000 pounds instead of 20,000 pounds makes this variance unfavorable.
Choice “d” is incorrect. The variance is not favorable because they used more materials than they budgeted given the actual level of production.
Choice “a” is incorrect. $30,000 relates to the direct labor rate variance as opposed to the materials usage variance.
Choice “c” is incorrect. $30,000 relates to the direct labor rate variance as opposed to the materials usage variance.

Which answer is correct?

[mooseonloose]

Same question on becker and Ninja with two different answers.

A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct labor usage variance?

A.$25,000 favorable

B.$25,000 unfavorable

Correct C.$30,000 favorable

D.$30,000 unfavorable

The labor efficiency (usage) variance is the difference between standard cost of actual hours and the standard cost of the budgeted labor hours.

Standard cost (at $15 per hour) of the actual hours of 3,000 hours was $45,000.
Standard cost (at $15 per hour) of the standard hours (0.5 hours × 10,000 widgets) was $15 × 5,000 hours, or $75,000.
Since the actual cost was less than the budgeted cost ($45,000 – $75,000), the labor efficiency (usage) variance was $30,000 favorable.

A company produces widgets with budgeted standard direct materials of 2 pounds per widget at $5 per pound. Standard direct labor was budgeted at 0.5 hour per widget at $15 per hour. The actual usage in the current year was 25,000 pounds and 3,000 hours to produce 10,000 widgets. What was the direct material usage variance?
a.$30,000 favorable.
b.$25,000 unfavorable.
c.$30,000 unfavorable.
d.$25,000 favorable.

Choice “b” is correct. The direct materials usage variance is calculated as follows:
DM quantity usage variance = Standard price × (Actual quantity used – Standard quantity allowed)
DM quantity usage variance = $5 per pound × (25,000 pounds – 20,000 pounds) = $25,000 unfavorable
The standard price of $5 per pound is given in the narrative, as is the 25,000 actual pounds used. The budgeted standard direct materials of 2 pounds per widget multiplied by actual widget production of 10,000 implies that 20,000 pounds should have been used. The fact that the company needed 25,000 pounds instead of 20,000 pounds makes this variance unfavorable.
Choice “d” is incorrect. The variance is not favorable because they used more materials than they budgeted given the actual level of production.
Choice “a” is incorrect. $30,000 relates to the direct labor rate variance as opposed to the materials usage variance.
Choice “c” is incorrect. $30,000 relates to the direct labor rate variance as opposed to the materials usage variance.

Which answer is correct?

[Jsn3004]

If a retailer's terms of trade are 3/10, net 45 with a particular supplier, what is the cost on an annual basis of not taking the discount? Assume a 360-day year.

A.
37.11%

B.
36.00%

C.
24.74%

D.
31.81%

Answer is D.

I see how D makes sense, but what would the answer be if the question asked what is the cost on an annual basis of TAKING the discount?

[Tony73085]

Hi everyone
So I'm taking BEC on Wednesday and I wanted to know which modules and topics are a definite need to know for the exam. I am studying with BECKER.

[mooseonloose]

@jsn3004

Wouldn't that be 68.19%

[mooseonloose]

Tony73085 be on the safe side and study everything. They will throw everything randomly. But definitely go over COSO, IT, Econ, and variances…basically everything lol

[Tony73085]

Thanks mooseonloose. I'll try hopefully I'll know 75% at least so I can pass lol.

[Author]

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