BEC Video 1 of 3: In the first of the 3 Videos below, I narrate and explain the AICPA questions released in October of 2019 regarding BEC. Darius provides the AICPA Answer Explanations for BEC in 3 videos. For the BEC Questions in this video include topics such as targeted selling price from managerial accounting where knowledge of contribution margin is essential. Candidates must be able to calculate contribution margin and then if the question gives you the target contribution margin, you need to be able to back into the unit selling price. The release question required the candidate to back into unit selling price. The next question involved the relationship between cost of goods manufactured and cost of goods sold. Once again, the AICPA required the candidate to back into the correct answer having provided cost of goods sold and asking for cost of goods manufactured. This was a cost accounting question and the BEC exam loves it especially when you have to work backwards. The next question was back to managerial accounting and once again, working backwards was the theme. The target contribution margin was given and the test question asked for the target variable manufacturing costs. Then I covered a release question asking about sunk costs, costs that would not change regardless of which course of action is taken. The question required the candidate to know the difference between prime costs, opportunity costs and incremental costs. The other 3 choices would change depending on which course of action is taken but sunk costs would not. There is also a question on responsibility accounting, where a company is divided into centers of responsibility based on delegation and control and allows for incentive compensation. This type of system for management performance evaluation is favored by decentralized organizations, where managers are evaluated on performance targets that they can directly control thus managers have a greater sense of “ownership” compared to entities with a centralized structure where management performance is judged based on overall performance of the entity.
BEC Video # 2 of 3. In the Video Below, I provide more AICPA Answer Explanations for BEC. Starting with a question on scenario analysis, probabilities are given and the multiple choice question asks for the “expected value” based on probabilities adding up to 100%. The CPA Exam is likely to ask you to calculate scenario analysis in BEC or possibly even in FAR. The next CPA Exam question in the video is about budgeting, the test requires the candidate to calculate the budgeted production in units given the sales forecasts and desired inventory levels. This was a typical budgeting question and a student should prepare for such a question in order to pass BEC. . This concept is often tested in BEC. Then came a question on process costing and asked about equivalent units. This was a tough question because it required two separate calculations on cost per equivalent unit. Make sure to take notes as you watch. The next question was about budgeting also, the third budgeting question in a row but this one provided the accrual basis amount and asked for the cash basis amount so it really tested your knowledge on accrual basis conversion to cash basis rather than any fancy budgeting calculation. The next question was net present value, financial management. Net present value is a concept that a BEC candidate should always expect and prepare for and the question was very straight forward, so I provided an example of where the exam might go next time in the area of net present value, once again take notes as you watch. The next question in the video looked like a tough question on Activity based costing. ABC costing is very mis-understood as a concept so I took some time and explained the concept before answering the question. The question was in the form of regression analysis and therefore appeared more difficult than it was. All you really had to know was to choose the cost driver with the highest co-efficient of correlation. Once you chose the cost driver that was driving the overhead in that department, the rest was do you know the regression formula? Even if you didn’t you could have eliminated several choices just by choosing the correct cost driver and only one answer made sense.
BEC Video # 3 of 3. In this video i provide the AICPA Answer Explanations for BEC ratio questions. Ratios are the most tested topic on the CPA Exam since BEC, FAR and Audit could all be dripping with ratio questions. The first question involved the relationship between profit margin, return on assets and asset turnover, take notes as you watch. I start out by explaining the difference between “return on” and “turnover”. “Return on” always features net income in the numerator but “turnover” features sales or cost of goods sold in the numerator instead of net income. The next ratio question asked for inventory turnover and you had to know that cost of goods sold divided by average inventory equals inventory turnover. I explain why average inventory is used and not ending inventory to calculate inventory turnover, take notes as you watch. Whenever an income statement account such as cost of goods sold is compared to a balance sheet account like inventory, an average is used for the balance sheet. This is because the income statement figure, cost of goods sold, covers a period of time but the balance sheet figure, inventory covers only a moment in time. If an average were not used for the balance sheet figure, the ratio could be manipulated by management. The next ratio question required the BEC candidate to analyze how a transaction would impact two different ratios. The transaction was the issuance of stock for cash. The ratios involved were the total debt to total asset ratio which would see an increase in the denominator, cash, and as a result a decrease in the ratio. This is because whenever a denominator increases, the ratio decreases. The same transaction increased the current or working capital ratio by increasing cash in the numerator and no effect on the denominator. Whenever a numerator increases, the ratio increases. I have a great ratio simulation in the i-75 course that deals with the effect on the ratio when both numerator and denominator increase by the same amount. They did not release a question ask about it but be ready for that, its not so obvious and it depends on whether the ratio began above 1:1 or below 1:1 immediately prior to the transaction. The next release question involved the exam giving the candidate the current ratio and quick ratio and asking the student to calculate the amount of certain current assets that were not part of the quick ratio. This involved working backwards since the AICPA provided the current liabilities figure. The next question asked about working capital but not the ratio, the amount of working capital. Here, you had to add current assets and subtract the current liabilities figure which was given. This was perhaps the easiest question of the set. Who says they don’t ask some easy questions on the CPA Exam once in a while. Then there was a corporate governance question on the board of directors, and one, yes only one question on IT, an older IT topic, EDI. I would anticipate more emerging technology questions on your exam because the exam insists on being relevant. The final question ended right where the AICPA began, with managerial accounting and a difficult looking question on marginal analysis and special orders. Marginal analysis is often tested on BEC, sometimes with regard to a special order, other times the make or buy decision, sell or process further, keep or drop a segment. All of these topics require knowledge of the firm’s fixed and variable costs and sometimes opportunity costs if the plant is at full capacity and wants to accept a special order. Take notes as you watch!
Above are the AICPA Answer Explanations for BEC answering the recently released BEC multiple choice questions. As you probably know, the AICPA recently released many multiple choice questions and their correct letter answer but did not publish any answer explanations. In these videos, I narrate and explain the answers to the BEC multiple choice questions and I will also give you my opinion as to how likely each question is to appear on your exam. As of now, only i-75 CPA Review has the explanatory answers to these questions. No other CPA review course has published explanations to these questions yet. I was surprised to see that the AICPA BEC release questions included no questions on economics, only one on corporate governance, and only one on Information technology.