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Gross profit is $86,830, selling expenses are $18,300 and administrative expenses are $9,100. What is net income before income taxes?
A$68,530
B$59,430
C$77,730
D$86,400
Answer & Solution
Correct answer: B. $59,430
1. Total operating expenses are $18,300 plus $9,100, which is $27,400.
2. Net income before income taxes is gross profit minus total operating expenses.
3. $86,830 minus $27,400 gives $59,430.
4. $68,530 deducts only the selling expenses and leaves administration in.
5. $86,400 is gross profit at standard, which sits above both the variances and the operating expenses.
_Source: Jonick, Principles of Managerial Accounting (UNG Press, CC BY-SA 4.0), section 8.4 Factory Overhead Variances_
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