Alpine Productions uses a standard cost system for recording transactions.Alpine reported the following data for the year ended December 31: Sales revenues: $550,000
Cost of goods sold (standard costing): $382,000
Selling & admin expenses: $90,000
Variances:
$$\begin{array} { | l | r | c | }
\hline \text { Sales revenue variance } & \$ 4,100 & \mathrm {~F} \
\hline \text { Direct materials cost variance } & 10 & \mathrm { U } \
\hline \text { Direct materials efficiency variance } & 250 & \mathrm {~F} \
\hline \text { Direct labor cost variance } & 65 & \mathrm { U } \
\hline \text { Direct labor efficiency variance } & 30 & \mathrm {~F} \
\hline \text { Variable overhead cost variance } & 225 & \mathrm { U } \
\hline \text { Variable overhead efficiency variance } & 95 & \mathrm {~F} \
\hline \text { Fixed overhead cost variance } & 410 & \mathrm { U } \
\hline \text { Fixed overhead volume variance } & 130 & \mathrm {~F} \
\hline
\end{array}$$ What is the standard net operating income?
A) $77,795
B) $81,895
C) $171,895
D) $78,000

Question

Alpine Productions uses a standard cost system for recording transactions.Alpine reported the following data for the year ended December 31: Sales revenues: $550,000
Cost of goods sold (standard costing): $382,000
Selling & admin expenses: $90,000
Variances:
$$\begin{array} { | l | r | c | } 
\hline \text { Sales revenue variance } & \$ 4,100 & \mathrm {~F} \
\hline \text { Direct materials cost variance } & 10 & \mathrm { U } \
\hline \text { Direct materials efficiency variance } & 250 & \mathrm {~F} \
\hline \text { Direct labor cost variance } & 65 & \mathrm { U } \
\hline \text { Direct labor efficiency variance } & 30 & \mathrm {~F} \
\hline \text { Variable overhead cost variance } & 225 & \mathrm { U } \
\hline \text { Variable overhead efficiency variance } & 95 & \mathrm {~F} \
\hline \text { Fixed overhead cost variance } & 410 & \mathrm { U } \
\hline \text { Fixed overhead volume variance } & 130 & \mathrm {~F} \
\hline
\end{array}$$ What is the standard net operating income?
A) $77,795
B) $81,895
C) $171,895
D) $78,000

Quizplus · Accepted Answer

To calculate the standard net operating income, we start with the sales revenues and subtract the standard cost of goods sold and standard selling & admin expenses. Then, we adjust for variances. The variances that affect the cost of goods sold are the direct materials cost variance, direct materials efficiency variance, direct labor cost variance, direct labor efficiency variance, variable overhead cost variance, variable overhead efficiency variance, fixed overhead cost variance, and fixed overhead volume variance. The sales revenue variance affects the revenue side.1. Start with sales revenues: $550,0002. Subtract standard cost of goods sold: $550,000 - $382,000 = $168,0003. Subtract standard selling & admin expenses: $168,000 - $90,000 = $78,0004. Adjust for variances (subtract unfavorable, add favorable):   - Direct materials cost variance: U $10 (subtract)   - Direct materials efficiency variance: F $250 (add)   - Direct labor cost variance: U $65 (subtract)   - Direct labor efficiency variance: F $30 (add)   - Variable overhead cost variance: U $225 (subtract)   - Variable overhead efficiency variance: F $95 (add)   - Fixed overhead cost variance: U $410 (subtract)   - Fixed overhead volume variance: F $130 (add)   - Sales revenue variance: F $4,100 (add)The calculation of net operating income considering variances:$$ \text{NOI} = 78,000 + 250 + 30 + 95 + 130 + 4,100 - 10 - 65 - 225 - 410 = 81,895 $$Therefore, the standard net operating income is $81,895.

Alpine Productions Uses a Standard Cost System for Recording Transactions