Question

Required information [The following information applies to the questions displayed below.) 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: Year 1 Year 2 Year 3 190 Inventories Beginning (units) Ending (units) Variable costing net operating income 210 150 $290,000 150 190 $269,000 230 $260,000 The company's fixed manufacturing overhead per unit was constant at $560 for all three years. 2. Assume in Year 4 that the company's variable costing net operating income was $250,000 and its absorption costing net operating income was $300,000. a. Did inventories increase or decrease during Year 4? Increase Decrease b. How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4? Fixed manufacturing overhead cost inventory during Year 4

Answer 1

Requirement (1) Reconciliation of Variable Costing and Absorption Costing Net Operating Income Year 1 Year 2 Year 3 Variable Costing net Operating Income $ 290,000 $269,000 $260,000 Add (Deduct) : Fixed Manufacturing Overhead Deferred $ (33,600) $ 22,400 $ 22,400 in (Released from) inventory under absorption costing $ 256,400 $ 291,400 $ 282,400 Absorption Costing net Operating Income Requirement (20) Increase Requirement (2b) Fixed Manufacturing Overhead Cost Inventory During Year 4 (300000-250000) Deferred $ 50,000 Note : Please comment down for any further clarifications