 Hello and welcome to this session. This is Professor Farhad in which we would look at few CPA questions that deals with BEC. Those CPA questions are covered in my cost accounting and managerial accounting. Simply put, I'm going to go over those questions, I'm going to explain them. If you feel you need additional explanation, you need additional resources, I strongly suggest you check out my cost accounting and managerial accounting because those two courses cover BEC section. As always, I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where you would need to subscribe. I have 1700 plus accounting, auditing, tax, finance, as well as Excel lecture. This is a list of all my courses and I do cover many CPA questions. If you like my lectures, please like them, share them, subscribe to the channel, connect with me on Instagram. On my website farhadlectures.com, I do have additional resources such as the questions, practice questions, CPA questions, true, false, multiple choice exercises. For example, today, I'm going to be covering managerial accounting and cost accounting. Those two topics are covered in depth on my website with a lot of practices. Let's go ahead and take a look at those two questions and see how you fare, how you do on those type of questions. The first question is, what's Gabriel variable overhead efficiency variance? We don't even have to read the remaining of the question. First, we are looking at the efficiency variance. What does that mean? It means, did we use more Q, more quantity or less Q, less quantity? Usually, that quantity is hours when it comes to variable overhead. Basically, before you read the question, you want to make sure you understand it. Did we use more hours or less hours? Because what's going to happen? In the answers, they're going to tell you, they're going to be favorable, favorable, unfavorable, and zero. The first thing is, if you could eliminate two choices, if you know it's going to be favorable, you're down to 50-50 before you even start to analyze the question. That's why what I'm trying to say is, make sure you understand what you are being asked. Let's take a look at what we are being asked and see if we can solve it. So this corporation uses the standard costing system. If you don't know what this is, don't sit for the CPA exam. At the end of the current year, the company provides the following overhead information. Actual direct labor hour, 10,000. This is going to be relevant for us. Why? Because they're asking for the efficiency. It means that they use more or less of the utilities, which is our. So this is the actual 10,000, which is very important for us. Actual overhead incurred 80,000 variable, 52,000 fixed. This is a dollar amount. This could be variable, depending on what we are giving or not. Budgeted fixed overhead 50,000, 55,000. It could be relevant for us, but we'll say variable overhead rate, the rate is nine. They're not asking about the rate, but it could be relevant. Standard hours allowed for actual production is 11,000. Whoa, hold on a second. They're giving me the actual hours and the standard hours allowed for the production. Well, guess what? The actual was 10. I actually spent 10,000 hours. I should have spent 11. Guess what? I spent 1000 hours less. So I spent 1000 less. Immediately, my variance, it's going to be favorable. So I already, I could eliminate zero. I could eliminate the 9,000 and favorable. It's going to be favorable because I spent less time. Now, all what I have to do now is take my quantity, which is a thousand hour and multiply it by my variable overhead rate. What's my variable overhead rate per direct labor hour? It's given to me as $9. Why? Because I'm looking for the difference in the quantity. The difference in the quantity is a thousand multiplied by the rate, which is $9. And I know it's favorable. You just have to be very careful. It's 9,000 favorable. So be careful because if you look, classic mistake will be on the exam. It's 9,000. You see only the 9,000 and you see it's unfavorable. Classic mistake because they do trick you by showing you both favorable and unfavorable. So be careful. Look for the favorable. So two things in a question like this, efficiency means they're looking for the quantity, whether it's favorable or unfavorable, that I use more or less and take it from there. Let's take a look at this question. And this is similar because it's asking you whether something is favorable or unfavorable and it's giving you the same number. So it's going to be, so it's basically just saying it's easy to figure out the answer, but no make sure it's favorable or unfavorable. So let's take a look at this question and see how we would approach a question like this on the exam day. If Gilbert Watches uses a flexible budget to analyze its performance, the variable cost flexible budget variance for the March is how much? Gilbert Watches sells a line of risk where Gilbert's performance report for March year four is as follows. So they're giving us the static budget and they're giving us the actual budget and they're asking for the variable cost flexible budget variance. So first variable cost right here, you are looking at this and they're looking to see the variance between those two figures, variable cost, the static budget and the actual budget. One of the classic mistakes is this. You'll take the difference between those two and you would say it's 3,500 and you would say is it favorable or unfavorable because you do have 3,500. So they will try to trick you by giving you something like this and here you would say well, well it's favorable because it's less for one, one way to look at it, it's favorable, it's less, therefore the answer must be 3,500 favorable. That's one, one classic mistake. The other classic mistake you would say, hold on a second. I sold less watches, therefore it must be unfavorable, then people will go with 3,500 unfavorable. Well it's neither favorable 3,500 nor unfavorable 3,500. So actually if you have a basic understanding of the flexible budget, actually you could eliminate those two because those two cannot be the answer, 3,500 favorable, 3,500 unfavorable. But they're trying to trick you because they're saying well if you know you're focusing on the variable cost, look the difference is 3,500, steady you on the face, choose either favorable or unfavorable. No, you could go down to 50-50 by eliminating those two answers. Now that well the question becomes how do I analyze this problem? How do I analyze this problem? Well how do I analyze it? Well first I have to know how the flexible budget work. Well I have to know what is my variable rate based on my static budget? Well my variable cost under my static budget is 18,000, that's based on a 600 unit sold. And remember there is a direct relationship between unit solds and the variable cost. So if I take 18,000 divided by 600 unit my variable rate for this company is 30 dollars. Now whether whether I sell 600 or 6,000 or 6 variable costs should be 30 dollars. Now I'm going to go to my actual budget. My static budget is I know I already figured out my variable rate is 30 dollars. Well now my actual budget was 500 so my variable cost should be 500 times 30 based on my rate. It should be 15,000. This is what my variable cost should have been based on my static budget, 30 dollars. Well guess what? Now I see the difference. Now I we have another difference. Once we get to this point we have another difference and here we have to be very careful. We have a difference of between 15,000 and 14,500. The difference is 500. The question is is favorable or unfavorable? Look I sold 500 watches. My variable cost should have been 15,000. My variable cost is 14,500. Wow that's great. Now why would that happen? Why would that happen in the real world? You might be asking didn't you say that it should be it should be 30 dollars? Maybe the watch manufacturers what they did they somehow bought some supplies at a lower rate that they use in manufacturing those watches. So guess what happened? Because of that their variable cost went down. They were able to save more on their variable cost and they saved 500 dollars. It means the variance is favorable. It's 500 and favorable. So that's how we figured out figured out the answer for this question. Again you want to make sure you want to make sure you want to go down to 50-50. So immediately by reading the question on the CPA exam you should go down to 50-50 by eliminating at least at least two answers if not more than two. How do I know this? If you have a basic understanding you should be able to do so. Now how do you get that basic understanding or good understanding? Look that's what I do on my lectures. That's what I do on my website. I lecture. I teach you the material. I don't review it. I try to go in the material showing it to you for the first time as if you are sitting in a college classroom. In contrast to a CPA course where they review that information with you just to review it because they assume you know it. Oftentimes you know it. Sometimes you don't. Maybe you did not learn it in college. Maybe you learned it a long time ago. Maybe the professor did not properly teach you that material or you are not mature enough to pay attention. Anyhow please look at my website. It might help you solve questions on the CPA exam which I do have a series of questions like these lectures to help you analyze questions. Good luck, study hard and stay safe especially those coronavirus.