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: The net operating income for the year is closest to:
A) $259,859
B) $184,605
C) $151,026
D) $150,780

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:  The net operating income for the year is closest to:
A) $259,859 
B) $184,605 
C) $151,026 
D) $150,780

Quizplus · Accepted Answer

Calculation of operating income:

Sales revenue = 24,400 x $47.40 = $1,155,360
Cost of goods sold:
Standard cost = 24,400 x $37.45 = $914,180
Direct materials price variance = (24,400 x $1.50) - $36,500 = $1,820 F
Direct materials efficiency variance = (24,400 x 0.8 hours x $12.00) - $189,600 = $20,736 U
Direct labor rate variance = (24,400 x $0.50) - $12,200 = $610 F
Direct labor efficiency variance = (24,400 x 1.5 hours x $12.00) - $526,500 = $3,300 U
Total variance = $24,646 U
Actual cost of goods sold = $914,180 + $24,646 = $938,826
Gross margin = $1,155,360 - $938,826 = $216,534
Selling and administrative expenses = $92,000
Operating income = $216,534 - $92,000 = $124,534

Therefore, the net operating income for the year is closest to $184,605.

Woodhead Incorporated Manufactures One Product