[jeff]

Welcome to the Q2 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

[Anonymous]

I wish the answer was illustrated in an Income Statement-format instead of a narrative explanation. I'm so confused by this question, saw, and missed this twice.

Kode Co. manufactures a major product that gives rise to a byproduct called May. May's only separable cost is a $1 selling cost when a unit is sold for $4. Kode accounts for May's sales by deducting the $3 net amount from the cost of goods sold of the major product. There are no inventories. If Kode were to change its method of accounting for May from a byproduct to a joint product, what would be the effect on Kode's overall gross margin?

A.
No effect

B.
Gross margin increases by $1 for each unit of May sold

C.
Gross margin increases by $3 for each unit of May sold

D.
Gross margin increases by $4 for each unit of May sold

The correct answer is B.

When May is treated as a byproduct, its $3 net realizable value (i.e., $4 – $1) is subtracted from the main product cost so only that $3 is included in the computation of gross profit for the main product.

However, when May is treated as a joint product the entire $4 selling price enters into the computation of gross margin. The $1 is not subtracted in computing gross margin. This $1 shows up in selling costs which appear after the computation of gross margin.

The effect of a change from byproduct to joint product status is a $1 increase in gross margin. It should be noted that bottom line net income does not change, however.

[Trying to pass]

Thank you sunshine and @pyacpa49 for the explanation…..

[pyacpa49]

@.Sunshine. It seems like the way you're doing it that you're just adding in the BB and then subtracting it out again though. I've done it this way for all FIFO questions and it has worked every time that I can remember. Plus my test is tomorrow, so I will try to remember your way, but the chances I cram that into my brain before the test are slim. Hopefully it all works out. Thanks for the explanation.

[Anonymous]

In this problem, Variable – Selling and Administrative Costs were included in the computation of product costs above the CM. I thought all GSA costs are treated as period cost BOTH under absorption and variable costing systems. Please clarify. Thanks again!

Augusta, Inc., expects manufacturing and sales of 70,000 units of product Maggie, its only product, to occur evenly over a 10-week period. Augusta pays for materials in the week following use. The balance of accounts payable for materials at the beginning of the 10-week period is $40,000. There are no beginning inventories. The fol¬lowing information pertains to product Maggie for the 10-week period:

Sales price $11 per unit
Materials $3 per unit
Manufacturing conversion costs—Fixed $210,000
Variable $2 per unit
Selling and administrative costs—Fixed $45,000
Variable $1 per unit

Using variable costing, what is Augusta’s budgeted income for the period?
A.
$95,000
B.
$140,000
C.
$305,000
D.
$350,000
The answer is A.

Variable costing is a method of costing in which fixed costs are charged to expense as period costs when incurred.

Variable cost per unit is $3 for material, $2 for other manufacturing costs, and $1 for selling and administrative, for a total of $6. Since the sales price is $11, the unit contribution margin ($11 − $6) is $5 per unit.

Total contribution margin for the period will be $5 × 70,000 units, or $350,000.

Manufacturing fixed costs are $210,000, while selling and administrative fixed costs are $45,000, for a total of $255,000 for fixed costs.

Subtracting fixed costs of $255,000 from the contribution margin of $350,000 leaves a budget net income of $95,000 for the period.

$11 SP
——
$3 VC-DM
$2 VC-MOH
$1 VC-GSA
——
$6 VC-Total
—–
$5 CM per Unit
x 70,000 Units
————
$350,000 CM
$210,000 FC-MFG/CC
$ 45,000 FC-GSA
—— —-
$95,000 NI Using Variable Costing System
=======

[Trying to pass]

Good Luck pyacpa49!

[Trying to pass]

Can someone explain to me the impact of increase in WC when we compute NPV? are we going to decrease the amount at the end of the asset life?

[Anonymous]

View post on imgur.com

This is a different MCQ from the last post I wrote above but with the same facts. The solutions show variable costing income statement treating VARIABLE – GSA differently. The first problem treats Variable – GSA as a product cost while the second one treats it as a period cost. It such a mess!

[Anonymous]

Here's another example of Variable – SGA being included in the total product variable costs. I hope someone can clarify this. Thanks again.

Waldo Company, which produces only one product, provides its most current month's data as follows:

Selling price per unit $80
Variable costs per unit:

Direct materials 21
Direct labor 10
Variable manufacturing overhead 3
Variable selling and administrative 6

Fixed costs:

Manufacturing overhead $76,000
Selling and administrative 58,000

Units:

Beginning inventory 0
Month's production 5,000
Number sold 4,500
Ending inventory 500

Based upon the above information, what is the total contribution margin for the month under the variable costing approach?

A.
$46,000

Correct B.
$180,000

C.
$207,000

D.
$226,000
the answer is B.

The contribution margin is sales revenue minus variable costs (fixed costs are not considered).

The total variable cost per unit is $40 ($21 + $10 + $3 + $6). The total number of units sold is 4,500.
•The total variable cost for the month is $180,000 (4,500 × $40).

The selling price per unit is $80. The total number of units sold is 4,500.
•The total sales revenue is $360,000 (4,500 × $80).

The contribution margin is the total sales revenue minus the total variable cost.
•Contribution margin = $360,000 – $180,000 = $180,000

[Anonymous]

This is another question from Ninja MCQ that's throwing me off. I could see only 40% and 66.67%. Where did 50% come from?

A department adds material at the beginning of a process and identifies defective units when the process is 40% complete. At the beginning of the period, there was no work-in-process. At the end of the period, the number of work-in-process units equaled the number of units transferred to finished goods. If all units in ending work-in-process were 66-2/3% complete, then ending work-in-process should be allocated as follows:

A.
50% of all normal defective unit costs

B.
40% of all normal defective unit costs

Incorrect C.
50% of the material costs and 40% of the conversion costs of all normal defective unit costs

D.
None of the normal defective unit costs

You answered C. The correct answer is A.

Units are identified as defective when production is 40% complete. Since the ending work-in-process inventory was 66-2/3% complete, all of the defective units had already been identified in work-in-process as well as finished goods.

The cost of normal spoilage is spread evenly over the remaining good units. At the end of the period, the number of work-in-process units equaled the number of units transferred to finished goods. Therefore, the same defective unit cost is allocated to finished goods as to work-in-process, meaning that 50% of the cost is allocated to each.

[lolo]

@pyacpa49, I wonder how it worked with you but if I were to give you an example I would say the BB 10,000 20% complete, started are 50,000 units and EB is 2,000 50% complete you calculate that by 50,000 – 2,000 = 48,000 units, but the correct calculation is 8,000 + 48,000 + 1000 = 57,000 EU not 48,000 EU as you might calculate. Anyway Good luck with your exam and let us know how you do!

@Trying to pass, WC has nothing to do with the value of the asset, they don't affect the asset useful life nor their value, it just affects the cash in/out flow for calculation purposes! if WC increases at the beginning then it will automatically decrease at the end so you treat it as a cash outflow first and then at the ending period you treat it as a cash inflow and take into your account the time value of money for calculating the ending balance inflow. It might also be visa versa WC decreases (inflow) then it will automatically increase (outflow) at the end. Note you don't account for tax effects at all for WC inflows nor for outflows!

My Nick name is sunshine, but the fact is I have not been in touch with it since I started this CPA exam! IT HURTS

AUD - ✔ Passed Becker self study!
BEC - ✔ Passed Becker self study!
FAR - ✔ Passed Becker self study!
REG - TBD

[marqzho]

Total Question Attempts 1000
Average Score 73%
Average Trending Score 74.67%

Game on in the morning. Let's go Warriors !

REG 90
FAR 95
AUD 98
BEC 84

[RE2PECT]

Good luck marqzho! Let us know how it goes.

FAR: 75 Roger & Ninja (notes/flashcards/audio/MCQ)
AUD: 73, 81
BEC: 71, retake 8/29
REG:

[aatoural]

Sorry I disappear for the weekend I needed a break hadn't had a day off from studying since I started. This HW was from chapter 6. So darn complicated chapter!… If you guys are recommending to go to FAR to answer this question then I am just gonna look over it because is just too much.

(‘Can somebody explain to me how they got the $27k EBIT? The answer is C

A company currently has 1,000 shares of common stock outstanding with zero debt. It has the choice of raising an additional $100,000 by issuing 9% long-term debt, or issuing 500 shares of common stock. The company has a 40% tax rate. What level of earnings before interest and taxes (EBIT) would result in the same earnings per share (EPS) for the two financing options?
a.
An EBIT of $10,800 would result in EPS of $7.92 for both.
b.
An EBIT of $27,000 would result in EPS of $7.20 for both.
c.
An EBIT of $27,000 would result in EPS of $10.80 for both.
d.
An EBIT of $18,000 would result in EPS of $7.20 for both.)

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[aatoural]

Good Luck marqzho!

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[Kelleyzt32]

@aatoural

First with the additional debt:
27000
(9000) – 100,000 * .09 interest
= 18000
* .6
=10800 after tax
/ 1000 shares
=10.8 eps

Second with new shares
27000
* .6
= 16,200 after tax
/ 1500 shares
= 10.8 eps

REG - 91
FAR - 86
BEC - 84
AUD - July 2016

[Author]

Replies