Finance Question - net multiplier

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    Michael Ermann

    I don’t think it’s you…this question looks to me to be wrong in a few places….the good news is if you can CORRECTLY identify bad questions…I’ve found those people are ready for the exam. Hope you have it scheduled for sometime soon!

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    Rakan Ayyoub

    This question is not right, they need to fix numbers so that they align together. 

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    Lauren Gramann

    yeah these numbers are wonky... I know at least for Targeted net multiplier used in profit goal type billing rate questions, it wants you to use the bottom section of the profit plan equation... see AHPP page 442 table 7.12 where it shows this break down.. so for these targeted equations you want to use the projected net multiplier equations, not the current net multiplier from the middle section: net mult = NOR/ Direct labor (not exactly sure why they dont work and are different, I just know you cant use the NOR equation on the targeted net mult equations. It seems sketchy they used this net multiplier since that is not what I got when I solved the equation backwards for the targeted NOR... so that part seems wrong & you can solve it without the NOR anyway.

    the targeted net mult equations are from page 442:   Net mult= (BE/ inverse of prof %) .... and you can also extrapolate from that / I saw on YA lectures this whole part:    net mult = BE + Profit Multiplier 

    so Profit multiplier = Profit Goal / total direct labor

    *the profit goal EQ is on table 7.12*   Profit goal = (Total expenses / inverse profit %) - total expenses.

    for projected total expenses just use total expenses = Total Indirect Expenses + total direct expenses 

    in this equation you can find total Indirect expenses w this eq....   Total Ind Expenses= OH rate x Total direct expenses.....    so plug your numbers into in to find the profit goal, and then the profit multiplier and eventually the Net mult & billing rate.....  This method got me close with a final billing rate of  $122.38 BUT what I think is messy is the overhead rate & the way they solved for the projected profit. you cannot just do NOR out of nowhere x profit % = profit.... the best way is to find  Profit goal with the eq above from AHPP.... 

    I also think the OH rate was pulled out of thin air maybe? And doesn't work like the numbers on a fully filled out profit plan would (so including the real indirect expense total, not just a 1.35 OH rate) maybe?  because if you took the numbers in AHPP  7.12 and solved for the net mult using either equation, you get the same answer

    net mult = BE / profit % inverse    or   net mult= profit multiplier + BE 

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    Valerie Galchenko

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