Woodhead Incorporated manufactures one product. It does not maintain any beginning or ending 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. Its standard cost per unit produced is $37.45. During the year, the company produced and sold 24,400 units at a price of $47.40 per unit and its selling and administrative expenses totaled $92,000. The company does not have any variable manufacturing overhead costs. It recorded the following variances during the year: When the company closes its standard cost variances, the Cost of Goods Sold will increase (decrease) by:
A) ($36,300)
B) $33,825
C) ($33,825)
D) $36,300

Question

Woodhead Incorporated manufactures one product. It does not maintain any beginning or ending 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. Its standard cost per unit produced is $37.45. During the year, the company produced and sold 24,400 units at a price of $47.40 per unit and its selling and administrative expenses totaled $92,000. The company does not have any variable manufacturing overhead costs. It recorded the following variances during the year:  When the company closes its standard cost variances, the Cost of Goods Sold will increase (decrease) by:
A) ($36,300) 
B) $33,825 
C) ($33,825) 
D) $36,300

Quizplus · Accepted Answer

The total standard cost variance is calculated as follows:

Actual Cost of Goods Sold = Number of Units Produced x Standard Cost per Unit + Total Variance 
$1,155,360 = 24,400 x $37.45 + Total Variance

Total Variance = Actual Cost of Goods Sold - ( Number of Units Produced x Standard Cost per Unit) 
Total Variance = $1,155,360 - ( 24,400 x $37.45) 
Total Variance = $33,825 (Favorable)

Since the variance is favorable, Cost of Goods Sold will decrease by the amount of the variance when it is closed:

Cost of Goods Sold = Actual Cost of Goods Sold - Total Variance 
Cost of Goods Sold = $1,155,360 - $33,825 
Cost of Goods Sold = $1,121,535

Therefore, the correct answer is C) ($33,825).

Woodhead Incorporated Manufactures One Product