[jeff]

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

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

[Jazmin Rios]

To: CIM 1042

Contribution margin ratio is (Sales – CM ) / Sales in this case it is you are given the contribution margin 120,000 but you need the ratio so $120,000 / $200,000 = 0.60. The Break-even point is Fixed Cost / Contribution Margin ratio so now it is $90,000 / .60 = $150,000. FINALLY you have Margin of Safety which is Sales – Break-even so $200,000 – $150,000 = $50,000.

Break-even in $ = Fixed costs / Contribution Margin Ratio
Break-even in units = Fixed Costs / Contribution Margin per unit
Contribution Margin Ratio = Contribution Margin per unit / Unit Selling Price
Contribution Margin per unit = Unit Selling price – Unit Variable Costs
Margin of Safety = Sales – Break even point in $

Hope this Helped

[cottonkandi]

@cim1420 I can't explain it without ratios but the sales and contribution amount provided above isn't at breakeven point, therefore you can not use the formula above.

[famh110]

Hi all,

I am relatively new to this forum. I am taking BEC on 3/7 and studying using Becker.

Working on variances right now and just cant setup this problem correctly. Please let me know what your approach is to solve this question.

Thanks so much.

Virgil Corp. uses a standard cost system. In May, Virgil purchased and used 17,500 pounds of materials at a cost of $70,000. The materials usage variance was $2,500 unfavorable and the standard materials allowed for May production was 17,000 pounds. What was the materials' price variance for May?
a. $15,000 unfavorable.
b. $17,500 favorable.
c. $17,500 unfavorable.
d. $15,000 favorable.
Explanation
Choice “b”, $17,500 favorable is correct. Becker uses this PURE DADS mnemonic but I find it more confusing than helpful

[Fengshu]

@famh110
1. material price variance: AQ(SP-AP)
AQ = 17500, AP = $70,000 / 17500 = $4
2. material usage variance: SP(SQ-AQ) = -2500
SQ = 17000, AQ = 17500, thus SP = -2500 / (17000 – 17500) = $5
3. material price variance = 17500 x ($5 – $4) = $17500 Favorable

Hope this is helpful!

[GinjaNinja]

@famh110 Materials price variance = Actual Quantity x (Standard Price – Actual Price). Actual Price would be = $70,000 / 17,500 = $4. However, you need to solve for standard price by using the given direct materials usage variance. Direct materials usage variance = Standard Price x (Standard Quantity – Actual Quantity); So the equation would be: Standard Price x (17,000 – 17,500) = $2,500 unfavorable; Standard Price x 500 = $2,500; Standard Price = $2,500 / $500 = $5. Now that you know standard price, you can solve the material price variance, which would be: $17,500 x ($5 – $4) = $17,500 X $1 = $17,500. It is favorable because it actual price (i.e. $4) is less than originally budgeted (i.e. $5).

[cottonkandi]

@famh110 Sorry in advance for the long explanation but these are the steps I go through when I see these types of problem.

What I do first is ask what the question is asking and then write out the formula?

Step 1 – What is the question asking for? – Material Price Variance
Step 2 – What is the formula for Material Price Variance?

Material Price Variance = Actual Volume Produced * (Actual Unit Price – Standard (Budgeted) Unit Price)

When it says price variance- I know I have to use unit price in the Parenthesis.

Step 3 – Plug in info I have

Actual Volume Produced = 17,500
Actual Unit Price= 70,000/17,500 = $4

I realized that I'm missing Standard Unit Price and I know they gave me the material usage variance and I have volume information for both standard and actual volume produced therefore I can use that information to find Stand Unit Price

Step 4 Find Standard (Budget) Unit Price

When it says usage I know I have to use production volume/units in the parenthesis of the equation.

Also the equation says that the material usage is unfavorable which means Actual volume is greater than the budgeted volume. I think of it as this- if I was a manager and I budgeted to use 10 but used 12 in actual production, I wouldn't like it and my attitude to this situation would be unfavorable. (This thinking works for me)

Material Usage Variance = Standard (Budget) Unit Price * (Actual Production Units Used – Standard (Budgeted) Units)

2,500 = Standard (Budget) Unit Price * (17,500 – 17,000)

Standard (Budget) Unit Price = 2,500/500 = $5

Step 5 Analyze Actual Unit Price vs Standard Price to find favorable or unfavorable

Actual Unit Price = $4
Standard (Budget) Unit Price = $5

Now I put myself in a manager's shoes again. If I budgeted for $5 per unit but the actual price is $4 per unit, I would be happy because actual price is lower than budgeted therefore it would be favorable. Since 4>5 the material price variance would be favorable.

Step 6 Plug in all of the answers

Material Price Variance = 17,500 * (4-5) = 17,500 favorable

Hope this helps!

[Theodore]

I was struggling with that question too. Thanks guys!

FAR: 66, 76!
REG: 76!
AUD: 72, 9/7/2016
BEC: TBA

Don't Stop When You Are Tired, Stop When You Are Done.

[mperez102204]

When computing interest, like APR, do you always use 360 for the year and just use 365 when told??

[sara]

Hey guys! I'm taking BEC on 3/2. Can anyone who has Roger tell me if the IPQ are enough? It's too late to buy the NINJA MCQ, otherwise I definitely would have. I'm improving on Roger's questions. Are those sufficient or way too easy?

[mtaylo24]

@ssara4214, That's a tough one. Ninja MCQ for BEC is tough as nails, and you don't want to risk your confidence. I don't know much about Roger's TB…You may be better off doing the free 14 day wiley trial. That tb is about half the size of Ninja. 750 questions vs almost 1,400

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[mperez102204]

@A1lessio…

Thank you for the condolences. We are staying with the in-laws, so I am trying to study as much as I can without being rude, since we live far away and do not visit very often. I am working through financial management now, since it is the weakest for me (about 50 % ). Then moving on to the next one. I think you are 100% right though, I should just go for it because the test changes. Worse come to worse, I do not pass, Right?? Then i have to take the new test anyway.

[famh110]

@Fengshu &@GinjaNinja, Thanks you both! The detailed explanation helped:)

One more question, what has been the best method/trick for memorizing these formulas? In becker materials, they emphasize that all the variances formulas have to be memorized..they are like 10 I think.

[wng1885]

The following information is for Baby Frames, Inc., applicable to the month of May. Baby Frames evaluates manufacturing overhead by using variance analysis.

Actual Budgeted
———- ——————–
Number of frames manufactured 19,800 20,000
Variable overhead costs $4,100 $2 per DL hour
Fixed overhead costs $22,000 $20,000; $1 per unit
Direct labor hours 2,100 hours 0.1 hour per frame

What is the fixed overhead volume variance?

Incorrect A.
$200 favorable

B.
$200 unfavorable

C.
$400 favorable

D.
$400 unfavorable

Please help me understand this question. The Budgeted overhead is higher than the actual why would the variance be unfavorable? It is saying that the variance is unfavorable by 200.

[mtaylo24]

@wei, you switch it up for FOH Vol Variance. You didn't manufacture as many parts as you would like to, less demand/sales…

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[famh110]

dear @allergic2mornings…thank you so much for breaking it down. it allowed me to understand it better. for some reason, i am just seeing this post now. thanx

[Author]

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