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Gross profit at standard is $86,400 and the net variance from standard cost is $430 favourable. What is gross profit after variances?
A$86,830
B$85,970
C$86,400
D$59,430
Answer & Solution
Correct answer: A. $86,830
1. Cost of goods sold at standard produces a gross profit at standard of $86,400.
2. Six variances are then listed, and their net effect is $430 favourable.
3. A favourable net variance means actual cost came in below standard, so it adds to gross profit.
4. $86,400 plus $430 gives $86,830.
5. Deducting the favourable variance instead would wrongly give $85,970.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.4 Factory Overhead Variances_
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