Mccreary Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold. The standard cost of the company's product is $28.00 per unit. During the year the company sold 27,500 units at $36.30 per unit. The actual selling and administrative expenses were $121,000 for the year. The company does not have any variable manufacturing overhead costs and it recorded the following variances during the year: The net operating income for the year is closest to:
A) $107,250
B) $55,272
C) $118,446
D) $79,816

Question

Mccreary Corporation manufactures one product. It does not maintain any beginning or ending Work in Process inventories. The company uses a standard cost system in which inventories are recorded at their standard costs and any variances are closed directly to Cost of Goods Sold. The standard cost of the company's product is $28.00 per unit. During the year the company sold 27,500 units at $36.30 per unit. The actual selling and administrative expenses were $121,000 for the year. The company does not have any variable manufacturing overhead costs and it recorded the following variances during the year:  The net operating income for the year is closest to:
A) $107,250 
B) $55,272 
C) $118,446 
D) $79,816

Quizplus · Accepted Answer

Calculation of the standard cost of goods sold: 
Standard cost per unit = $28.00
Units sold = 27,500
Standard cost of goods sold = $28.00 x 27,500 = $770,000

Calculation of actual selling and administrative expenses: 
Actual selling and administrative expenses = $121,000

Calculation of total operating expenses: 
Total operating expenses = Actual selling and administrative expenses + Total manufacturing variances 
Total manufacturing variances = Favorable direct materials variance + Unfavorable direct labor variance + Unfavorable fixed overhead variance 
Total manufacturing variances = ($41,250) + $18,750 + $15,000 
Total manufacturing variances = $35,500 
Total operating expenses = $121,000 + $35,500 
Total operating expenses = $156,500

Calculation of net operating income: 
Net operating income = Sales revenue - Cost of goods sold - Total operating expenses 
Net operating income = ($36.30 x 27,500) - $770,000 - $156,500 
Net operating income = $997,750 - $926,500 
Net operating income = $71,250

Therefore, the answer is B) $55,272 (closest to) as none of the answer choices match the calculated net operating income.

Mccreary Corporation Manufactures One Product