[jeff]

Welcome to the Q4 2016 CPA Exam Study Group for BEC.

If this is your first post in the study group – please post your target exam date (just the time frame to preserve your anonymity), and your past history with this exam (optional, of course).

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

[cpa007]

The following information pertains to Base Manufacturing Co.:

Selected Cost Driver Costs
———————————- ———-
Estimated annual overhead $ 900,000
Estimated annual direct labor cost 1,800,000
Actual direct labor cost for March 160,000
Actual overhead for March 90,000
Base Manufacturing Co.'s applied overhead for March is:
A .
$320,000.

B.
$75,000.

C.
$80,000.

D.
$90,000.

Can someone explain this question to me!

[ZacharyAlan14]

@cpa007

What's the answer to your MCQ? I think I know but I want to be sure before I post an explanation.

[Anonymous]

@cpa007

My guess is B. Annual overhead is 900,000. Break it down to monthly cost = 900,000/12 = $75,000 per month. Since actual (90,000) was greater than budget, it was unfavorable. Which means overhead was $15,000 UNDER Applied. Unfavorable = Under applied.

[ZacharyAlan14]

Yep I agree with 75K (900K/12 mos). They aren't asking for a Standard Rate or anything. The only relevant info is the total budgeted OH of 900K, the rest of the information is distraction. Since the actual OH was 90K, they would have underapplied OH for the month.

[lexus423]

Took BEC this morning. Not feeling confident. Nothing related to Econ or Cost accounting. Many ridiculous questions I have not seen before. Do not spend more than 6 weeks studying for this exam. It will not help.

FAR- 2014
AUD- 2014
REG- 2014
BEC- 2014

[qfolmar]

@lexus423, I took BEC this morning as well. I felt completely defeated leaving the testing center. I couldn't have done anything different to prepare me for the exam I was administered today. It is what it is…praying for a miracle on December 8th.

FAR-79
REG-82
AUD-83
BEC- August 31st

[hhung1485]

@cpa007

The following information pertains to Base Manufacturing Co.:
Selected Cost Driver Costs
———————————- ———-
Estimated annual overhead $ 900,000
Estimated annual direct labor cost 1,800,000
Actual direct labor cost for March 160,000
Actual overhead for March 90,000
Base Manufacturing Co.’s applied overhead for March is:

B. $75,000
C. $80,000

Alright I would go with this. ** I am assuming cost driver = labor**

Budget Overhead / Budget Cost Driver (labor) -> $900,000/1,800,000 = .5 -> overhead rate

Then using actual cost driver (labor) * overhead rate = 160,000 * .5 = 80,000

I am also looking at @elad315 answer for 75k. Which sounds good to me also.

I have been using becker and going through the variance chapter. The one issue that seemed to get me was that sometime they applied the cost driver formula and sometimes they just used basic algebra and compared. So I am not sure if I am correct here. If not, I hope someone corrects me.

FAR - 93
REG - TBD
BEC -
AUD -

[nk522]

Do you guys think that 2 weeks is enough for a review of all the BEC content. My exam is the 2nd week of December, and I just finished the book and I am wondering whether I should start to panic or whether its manageable.

[Anonymous]

where do you get the formulas for BEC? I tried pulling out the flashcards using Becker not sure if there is another way of getting all the formulas. I also bought some from Crush the CPA and they are totally different.

[sonja90]

@cmpk i think the best way is to create your own.

Here are some but i'm not sure you should memorize. I think you need to understand them

• APR (annual percentage return) = Effective Interest Rate * # of periods in year
• Asset turnover = Sales / Total Assets
• Breakeven Point in terms of units = fixed costs / Contribution Margin
• Breakeven Point in terms of dollars = fixed costs / contribution margin ratio
• Bond valuations – divide the current market interest rate by the number of payments per year and multiply by corresponding present value factor of (number of years times number of periods in a year). Then take the corresponding bond value amount and multiply it by the corresponding present value factor of ordinary annuity.
• Capital Asset Pricing Model (CAPM) = [( Beta * (expected rate of return – risk free rate of return)] + risk free rate of return
Includes both time value of money and risk.
• Cash conversion cycle = inventory conversion period + receivables collection period – payables deferrable period
• Current ratio = current assets / current liabilities
• Contribution Margin = revenue – variable costs
or = sales – variable costs
• Cost of Goods Sold = Beg. Inventory + Inv. Purchases – End. Inventory
• Dividend Payout Ratio = cash dividend per share / Earnings per share
• Economic Value Added = net operating profit after taxes (NOPAT) – cost of financing
• Effective Interest Rate = (principle * rate * time) / principle
(Principle includes only usable portion, in case of compensating balances)
(Time is = 1 year is 1, less would be .5 for 6 months or so on)
• Gross Margin = revenue – cost of goods sold (or gross profit)
• Inventory conversion period = Average Inventory / Cost of sales per day
Average inventory = (Beginning inventory + Ending inventory) / 2
Make sure to use 365 days per year unless stated otherwise
• Inventory Turnover = cost of goods sold / average inventory
• Marginal propensity to consume = change in spending / change in disposable income
• Marginal propensity to save = change in savings / change in income
• Number of Days Sales in Inventory = # of days in year (usually 365 or 360) / Inventory Turnover
• Payback Method = Initial investment / cash inflows
If the payback period is less than the targeted time period then the investment is acceptable
If the payback period is more than the targeted time period then the investment is not acceptable.
• Present value, Net Present value, and Future value Calculation Tips to solving exam questions
The exam will include future, present, and net present value factors that will be need to be used to solve the problems instead of using a financial calculator like most people learn when they take finance classes in college. After reading the problem, you must choose the corresponding factor to be able to solve the problem based on the following:
1. Ordinary Annuity – where payments are made at the end of the period
2. Annuity Due – where payments are made at the beginning of the period
3. Present Value of $1 received in a certain number of years – where a certain payment is made in full at a certain time or period.

• Price Elasticity = % change in quantity demanded / % change in price.
Elasticity > 1 = demand is elastic and total demand (revenue) will decline if the price is increased.
Elasticity = 1 = demand is unitary and total demand (revenue) will remain the same if price is increased.
Elasticity < 1 = demand is inelastic and total demand (revenue) will increase if price is increased.
• Quick Ratio = Quick assets (cash, marketable securities, and A/R) / current liabilities
• Residual Income (RI) = operating profit – interest on investment (or required rate of return)
• Times interest Earned Ratio = earning before interest and taxes / interest expense
• Total costs = fixed costs + variable costs or y = mx + b, where m = slope, x = variable value, and b = y intercept
• Variances – plug in the corresponding units:
1. Labor Efficiency – SR * (SH – AH). Actual Quantity Purchased/Consumed *(standard price per unit – actual price per unit)
2. Labor Rate – AH * (SR – AR). Standard price per unit * (standard quantity used – actual quantity used)
3. Material Price – AQ * (SP – AP). Actual Quantity Purchased/Consumed *(standard price per unit – actual price per unit)
4. Material Efficiency – SP * (SQ – AQ). Standard price per unit * (standard quantity used – actual quantity used)
In any of the above four formulas or the two located below, if the answer is negative then the variance will be unfavorable or favorable if the opposite occurs. Also, some problems might require you to solve for one of the variables located within the parenthesis.
1. Fixed overhead spending – (budgeted-standard fixed overhead to incur – actual fixed overhead incurred)
2. Fixed overhead volume – (budgeted-standard fixed overhead to incur – ((actual production * standard labor hours)*(budgeted-standard fixed overhead to incur/budgeted labor hours))
• Weighted Average Cost of Capital = [(cost of capital A / Total Amount)(rate of cost)(1-Tax Rate)] + [(cost of capital B / Total cost amount)(rate of cost)]
• Work in process = Direct Material used + Direct Labor + Manufacturing Overhead

• Some of the below formulas are likely to be tested on the exam but should appear, at most, only time.
• Average accounts receivable = (Beg. A/R + End. A/R) / 2
• Average accounts receivable collection period = sales on credit / average accounts receivable
• Average total assets = (Beginning total assets + Ending total assets) / 2
• Book value per share = common stock equity / common stock shares outstanding
• Common stockholders’ equity = stockholders’ equity – preferred stock liquidation value
• Contribution Margin Ratio = (sales – variable costs) / sales
• Cost of financing= (Total assets – current liabilities) * Weighted average cost of capital
• Cross-Elasticity = % change in demand for certain product A / % change in price of certain product B.
• Debt to equity = Total debt / total equity
• Debt to total assets = total liabilities / total assets
• Discounted Payback Period = multiply by Present Value factor until initial invested amount reached. Disregard salvage value
• DuPont ROI= Return on Sales * Asset turnover
• Equivalent Units = Number of partially Completed Units × % of Completion
• Financial leverage= % change in earnings per share / % change in earnings before interest and taxes
• Fixed asset turnover = sales / average net fixed assets
• Gross Profit = revenue – cost of goods sold
• Income Elasticity = % change in quantity demanded / % change in income
• Internal Rate of Return = Initial Investment + Cash Flow in Period n/ (1 + Discount Rate) to the nth power (# of periods).
• Marginal utility = change in total utility / change in quantity
• Market/Book Ratio = common stock price per share (or market value)/ book value per share
• Market Capitalization = Common stock price per share * common stock shares outstanding
• Operating leverage= % change in operating income / % change in unit volume
• Operating Profit Margin = Operating profit / net sales
• Preferred Stock Valuation – dividend per share / required rate of return
• Price/Earning (PE) Ratio = common stock price per share / Earning per share
• Profitability Index = project net present value / cost of project
• Receivables Collection Period = Average Accounts Receivable / Credit Sales per day
• Receivable Turnover = Net credit sales / average accounts receivable
• Reorder Point= delivery time of stock + safety stock or could be stated as = average daily demand * average lead time
• Return on Assets (ROA) = net income / average total assets
• Return on Equity (ROE) = net income / Average common stockholders equity
• Return on Investment (ROI) = Net Income / Total Assets
• Return on sales (ROS) = net income / Sales
• Safety Stock= (Max. Daily demand * Max. Lead time) – reorder point
• Total asset turnover = sales / average total assets

[sonja90]

ps those I've found somewhere online. It did not help me. You need to practice a lot of problems using formulas in order to enforce them.

I am creating my own sheet of formulas and i will share here when i'm done.
Those are not organized in order which makes it confusing to me.

[cpa007]

@ZacharyAlan14 and @hhung1485 And is B

The following information pertains to Base Manufacturing Co.:

Selected Cost Driver Costs
———————————- ———-
Estimated annual overhead $ 900,000
Estimated annual direct labor cost 1,800,000
Actual direct labor cost for March 160,000
Actual overhead for March 90,000
Base Manufacturing Co.’s applied overhead for March is:
A .
$320,000.

B.
$75,000.

C.
$80,000.

D.
$90,000.

Can someone explain this question to me!

According to ninja ans is B. $75000

[cpa007]

A company is considering outsourcing one of the component parts for its product. The company currently makes
10,000 parts per month. Current costs are as follo'NS:
PecIWit
Direct materials $4 $ 40,000
Direct labor 3 30,000
Fixed plant facility cost 2 20,000
The company decides to purchase the part for S8 per unit from another supplier and rents its idle capacity for
$5,000/month. How -Mil the company's monthly costs change?
a. Decrease $15,000.
b. Increase $5,000.
c. Decrease $10,000.
d. Increase $10,000
ANS is B .
Please help me to understand the concept why 5000 is added in calculation of the ans.
Choice “b” is correct. Monthly costs of the company ‘M)uld increase by $5,000 if the company elects to buy rather than make its component part. Change in cost is computed as follo'NS:
Cost of purchased component (10,000 parts x $8 per part) S 80,000
Rental of idle capacity 5,000
Net cost
A\Oidable costs-direct materials $ 40,000
A\Oidable costs-direct labor 30,000
Total costs a\Oided
Cost increase
$ 75,000
$ 70,000
$ 5,000

[Anonymous]

@cpa008

Here's what I think is the best way to break it down. The fixed costs are not avoidable, they will be there no matter what, so you can ignore it if you'd like, or include it. It won't change the answer.

First I'd calculate how much it'd cost if you outsourced it. $8 per part x 10,000 parts = $80,000

Then you must consider the rent they'll receive, $5,000, which will reduce the total cost of outsourcing (80,000-5,000=75,000 total outsourcing cost)

The manufacturing cost is simply Direct materials + Direct labor. $40,000+$30,000 = $70,000.

Outsourcing is therefore $5,000 more expensive per month (75,000-70,000 = 5,000)

In my opinion I'd add the $20,000 of fixed cost, since those are most likely unavoidable whether you're renting out the space or utilizing the space. So it'd be 95,000-90,000 = $5,000. Either way you'd arrive at an increase of $5,000.

[hhung1485]

Well taking my test on tuesday the 26th.

Think the panic phase has sunk in lol. Over just from starbuck overdose.

Anyone have any topics they recommend going over?

I keep doing mcq. But i feel like becker keeps giving me repeats.

FAR - 93
REG - TBD
BEC -
AUD -

[Author]

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