Question

[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 Inventories: Beginning (units) Ending (units) Variable costing net operating income 208 167 $297,900 167 185 $276,000 185 235 $251,800 The company's fixed manufacturing overhead per unit was constant at $552 for all three years.

Answer 1

1)
Reconcilation of Variable Costing and Absorption Costing Net Operating Incomes
	Year 1	Year 2	Year 3
Variable costing net income	$ 297,900	$ 276,000	$ 251,800
Add(deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing	($ 22,632) ( [ $ 167 (-) $ 208] x $ 552 )	$ 9,936 ( [ $ 185 (-) $ 167] x $ 552 )	$ 27,600 ( [ $ 235 (-) $ 185] x $ 552 )
Absorption costing net operating income	$ 275,268	$ 285,936	$ 279,400
2a)
Increase
2b)
Fixed manufectureing overhead cost deferred in inventory during Year 4 $ 17,500	( $ 264,800 (-) $ 247,300 )