February 8, 2020 at 3:31 am #2923011JoeyParticipant
I was wondering if anyone knew of a place where I can get some of the explanations for the newly released AICPA questions. There are a few I am struggling with, one of them being:
Spark Co. buys phones for $125 each and sells them for $200 each. Spark pays a sales commission of $25 per phone sold and monthly fixed costs are $3,000. Assuming Spark desired a profit of 10% on sales, how many units must Spark sell? a) 600 b) 400 c) 200 d) 100
I know the formula for a desired profit is Total Fixed Cost+Desired Profit/CM per unit. So I thought it would be (3000 total fixed Cost+(200*.10 profit on the selling price of the item))/(Not sure if it would be SP200-25 Commission which is the Variable cost but do you also subtract the $125?). I know this is long but if anyone can help I would greatly appreciate it.February 8, 2020 at 10:18 am #2923242CPAHOPEParticipant
The answer is D
To do this type of question, you should create a equation to solve
S-VC-FC = Desired profit
S-.75S-3000 = .1(S)
Solve for S and you get 20000 dollars
20000/200 = 100 units
VC = 150/200 = .75February 8, 2020 at 10:49 pm #2924043CPAHOPEParticipant
.1 of sales = 200/.1 = 2000 target profit
3000+2000 / 50 = 100 units
Your way is faster but I like to use my way when theres percentage of something involvedFebruary 13, 2020 at 10:03 pm #2930739Road2CPAParticipant
I'm reviewing the same released questions an I can't quite figure out how they are coming up with $27,400 for the following question. Can someone please provide some insight?
Smith Legal Services has offered to represent a plaintiff in a lawsuit for a retainer of
$20,000 plus 40% of any award over $20,000. Smith expects to incur out-of-pocket expenditures
of $15,000 in litigating the suit. Possible court awards with their associated probabilities are:
What is the expected value to Smith of the lawsuit?
D. $37,000February 14, 2020 at 12:28 am #2930814IcaritoParticipant
100 – 20 = 80 x .4 = 32,000 x .7 = 22,400
5,000 + 22,400 = 27,400February 14, 2020 at 9:10 pm #2932068Road2CPAParticipant
Thank you so much, Icarito!