[jeff]

Welcome to the Q2 2015 CPA Exam Study Group for BEC.

Economic Cycles (All Across the Land)https://www.another71.com/economic-cycles-rap/

Posted by Another71 on Thursday, November 6, 2014

Free NINJA: https://www.another71.com/cpa-exam-study-plan/

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

[Anonymous]

In regards to the explanation above, I should have put in there that the 26,400 tires *used* in January in step 3 is the amount of bicycles produced in January (13,200) * 2 tires per.

[Zuly]

Hi All, need your help with this MCQ from Wiley book. Can you please help? .

**73. A company obtained a short-term bank loan of $250,000 at an annual interest rate of 6%. As a condition of the loan, the company is required to maintain a compensating balance of $50,000 in its checking account. The company’s checking account earns interest at an annual rate of 2%. Ordinarily, the company maintains a balance of $25,000 in its checking account for transaction purposes. What is the effective interest rate of the loan?

a. 6.44%

b. 7.11%

c. 5.80%

d. 6.66%

73. (a) The requirement is to calculate the effective interest on the loan. Answer (a) is correct because the effective interest is 6.44%. The effective interest rate is determined by calculating the net interest expense, which is $15,000

($250,000 × 6%) minus the interest income from the compensating balance $500 ($25,000 × 2%) equals $14,500.

Then, this amount is divided by the amount of money that the firm has available, $250,000 – $25,000 compensating balance. Thus, the effective interest rate is 6.44% ($14,500/$225,000).

I'm following the entire explanation except for the fact of the compensating balance amount. If the loan requirement is 50,000 then why is the explanation say its 250,000 – 25,000 (compensating balance)? So confused.

Thanks!

FAR - (11/01/14) 71 (02/07/15) 79
AUD - (04/30/15) 86
BEC - (07/21/15) 73 (10/01/15) 75
REG - (11/30/15) 55 (05/19/16) 74

[Anonymous]

@Zumo76 the explanation is correct because the company normally keeps $25,000 in the account, whether or not they would have taken out the loan, so the actual amount the firm technically receives is $225,000 as they will need to keep an additional $25,000 in the account to reach the compensating balance of $50,000.

Hopefully that makes sense!

[Zuly]

Thanks Austin for the quick reply! It makes sense now. 🙂

FAR - (11/01/14) 71 (02/07/15) 79
AUD - (04/30/15) 86
BEC - (07/21/15) 73 (10/01/15) 75
REG - (11/30/15) 55 (05/19/16) 74

[thisiskirk88]

I'm taking BEC next Friday and starting to get nervous, last test to pass. Time isn't much of an issue with my first possible test (FAR will expire in November). Any suggestions on last minute prep? I have study flash cards and Roger and Wiley Books with the practice q's for each.

FAR: 68, 77
REG: 62, 61, 85
AUD: 81
BEC: May 29th

[Anonymous]

So questions here….I am going over a Becker question asking for the “break even point in sales”. It gives the following.

Total Sales – $ 80,000

Total Variable Costs – $ 20,000

Total Fixes Costs – $ 30,000

a. 30,000

b. 50,000 – I thought this was obvious

c. 80,000

d. 40,000 – “Correct answer according to Becker”

In the book it says BEP sales are equal to variable costs plus fixed costs, however the explanation here is they calculate as Total Costs/Contribution Margin Ratio . What am I missing here???

[Anonymous]

@Big Josh

Yes the BreakEven point is equal to Total VC + Total FC but the Total VC of $20,000 is based on how many units were sold to get $80,000 in sales. With $80,000 in sales they are showing a profit so you will need to find the selling price and VC per unit and use those to find the CM per unit so you can divide the Total FC (which do not change over a relevant period) by the CM per unit to get your total units needed to produce to break even. Finally multiply the BE units by the VC per unit price to get total VC selling that number of units and add the Total VC and Total FC to get your BreakEven point in Sales. See below:

$80,000 & $20,000 can be divided by 10,000 each (So I am saying the Total Sales amount of $80,000 was selling 10,000 units). Making SP per unit $8; VC per unit $2. Remember $30,000 = Total FC

$8 – $2 = $6 CM per Unit

$30,000 / $6 = 5,000 units produced to break even

5,000 x $2 = $10,000 Total VC

$10,000 + $30,000 = $40,000 Break Even Total in Sales

Hope this helps!

[Ssbknyc]

@Big Josh you can calculate BEP in sales by [Total Fixed Costs/CM Ratio]

Think of it this way your CM Ratio already takes into account Variable Costs–> [CM=Sales-Variable Costs]; CM Ratio= CM/Sales

Therefore, if you divide Total Fixed Costs by CM Ratio the answer will be how many Sales $ to cover Variable Costs and Fixed Costs to reach break even.

You can also check your answer by using the Formula [Sales-VC-FC=0]; if you are given enough information to check your answer.

Hope this helps. im taking the exam on Wednesday so if anyone out there is reading; let me know how i should approach these final days (using becker here)

Done 08/2014-08/2015

[Anonymous]

@ssbknyc and @dgilbreath. Awesome thanks. I definitely get the concept but wasn't even thinking of them giving info showing a profit! Sometimes we need to step away for a second haha. Good luck on your tests coming up! I have mine Tuesday.

[win2bet]

would the cost to inspect inventory for defective units be characterized as an appraisal or internal failure cost?

REG 68,87
BEC 85
FAR 75
AUD 64,64, 86!

[needcoffee]

@win2betmore Appraisal costs include the costs incurred to ID defective products.

"It's choice not chance that determines your destiny".

[pfitz092]

@Amor D

You may have already found it by now, but the formula for opportunity cost of giving/not taking a discount is:

(360 days/difference in days) x (discount rate/1-discount rate)

where difference in days = due date if discount not taken less the due date if discount is taken

In your example the answer would be:

(360/(30-10)) x (2/(100-2) or (360/20) x (2/98) which equals 36.73%

[Anonymous]

Ok, I guess I have found something that I have had confused for a long time… I've always thought that gross profit = sales – COGS in which COGS = variable production costs. In the problem in the link below gross profit includes fixed costs? Have I always had this confused?

https://i.imgur.com/bFm1LHd.png?1

[FlyguyFocus]

Test is just a few days away…

really struggling with variable and fixed overhead efficiency problems/variable spending etc.

I am good with the Price, efficiency, usage and spending variance…but struggle with the above…

any ratios that can assist?

BEC - 67, Mid-July retake
FAR -
AUD -
REG -

[Anonymous]

Kimbeth Manufacturing uses a process cost system to manufacture Dust Density Sensors for the mining industry. The following information pertains to operations for the month of May:

Units

Beginning work-in-process inventory, May 1 16,000

Started in production during May100,000

Completed production during May

92,000

Ending work-in-process inventory, May 31

24,000

The beginning inventory was 60 percent complete for materials and 20 percent complete for conversion costs. The ending inventory was 90 percent complete for materials and 40 percent complete for conversion costs.

Costs pertaining to the month of May are as follows:

•Beginning inventory costs are: materials, $54,560; direct labor $20,320; and factory overhead, $15,240.

•Costs incurred during May are: materials used, $468,000; direct labor, $182,880; and factory overhead, $391,160.

Using the weighted-average method, the total cost of the units in the ending work-in-process inventory at May 31, 1995, is:

a.

$154,800

b.

$156,960

c.

$153,960

d.

$155,328

Explanation

Ending Work-In-Process Inventory – Wtd. Avg.

Actual

Units

%

Compl.

Equiv.

Units

Total

Cost

Unit

Cost

Materials

24,000

90%

21,600

$ 99,360

$ 4.60

wtd-avg.

Conversion Costs

24,000

40%

9,600

57,600

$ 6.00

wtd-avg.

24,000

$ 156,960

[Author]

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