Kitty Runs a Brothel (Illegal Under State Law) and Has

question 51

Essay

Kitty runs a brothel (illegal under state law) and has the following items of income and expense. What is the amount that she must include in taxable income from her operation? $\begin{array}{lr}\text { Income }&\$200,000\\\text { Expenses: }\\\text { Rent } & 8,000 \\\text { Utilities } & 2,000 \\\text { Bribes to police } & 10,000 \\\text { Office supplies } & 5,000 \\\text { Legal fees } & 20,000 \\\text { Depreciation } & 14,000 \\\text { Illegal kickbacks } & 15,000\end{array}$

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Definitions:

Materials Price Variance

The discrepancy between the real expense of direct materials employed in manufacturing and the anticipated standard expense for those materials.

Materials Quantity Variance

The difference between the budgeted and actual quantities of materials used in production, affecting cost management.

Standard Cost

A predetermined cost of manufacturing, calculated based on the expected costs of material, labor, and overhead for a unit of product.

Materials Price Variance

The difference between the actual cost of materials used in production and the standard cost, reflecting changes in material prices.