Question

Required information [The following information applies to the questions displayed below.] Part 1 of 2 Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the government. The company has provided the following data: 1.66 points Year 1 Year 2 Year 3 Inventories Beginning (units) Ending (units) Variable costing net operating income 210 160 $290,000 160 180 $269,000 180 220 $250,000 eBook The company's fixed manufacturing overhead per unit was constant at $560 for all three years. Hint Print Required: 1. Calculate each year's absorption costing net operating income. (Enter any losses or deductions as a negative value.) References Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Year 3 Variable costing net operating income Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income

Answer 1

3 Reconciliation of variable & absorption costing operating Income Year 1 Year 3 Net Operating income under variable costing Add(Deduct) Fixed Manufacturing OH cost deffered in inventory Net Operating income under absorption costing $ $ 290,000 $ (28,000) $ 262,000 $ Year 2 269,000$ 11,200 $ 280,200 $ 250,000 22,400 272,400 Working Year 1 Year 2 Year 3 Ending Inventory Less Beginning Inventory Change in Inventory Multiply Fixed Mfg overhead per unit Fixed Mfg overhead defferred/realesed in inventory 160 210 -50 180 160 20 560 11,200 220 180 40 560 22,400 560 (28,000) $ $ In absorption costing Fixed overhead per unit is taken into consideration and in variable costing total fixed overhead is considered. So there is difference in income of both the methods. In varaible costing Fixed mfg oh of all units produced is deducted while in absorption costing only Fixed mfg cost of units sold is deducted, so take difference in inventory and multiply with fixed mfg cost per unit, add or deduct this from variable costing to get absorption costing operating income. Year 4 310,000 240,000 70,000 Net Operating income under absorption costing Net Operating income under variable costing Fixed Manufacturing OH cost deffered in inventory Less $ Inventories increase during the year The difference in absorption and variable income is due to fixed manufacturing OH, Variable Operating income takes total fixed Mfg OH into consideration, if Variable income is less than absorption costing income, that means fixed mfg cost in absorption costing was less than same in variable costing, that means units produced are more than units sold which will result into increased inventory in year 4. нь Fixed manufacturing Overhead cost deffered in inventory during year 4 by $70000 Deffered because production is more than sales. 5 Contribution Margin Income statement $ Less Total 1,083,000 290,250 792,750 175,000 617,750 110,000 507,750 Sales Variable Expense Contribution Margin Traceable Fixed Cost Segment Margin Common Fixed Expense Net operating Income $ $ $ $ $ Weedban 522,000 $ 108,750 $ 413,250 $ 131,000 $ 282,250 $ Greengrow 561,000 181,500 379,500 44,000 335,500 Less Working: Sales Variable Expense Weedban 43500 x 12 43500 x 2.5 Greengrow 16500 x 34 16500 x 11