Reconciliation of Absorption and Variable Costing Net Operating. Incomes
High Tension Transformers. lnc. manufacture- heavy-duty, transformers for electrical switching stations 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) | 180 | 150 | 160 |
Ending (units) | 150 | 160 | 200 |
Variable costing net operating income | $292,400 | $269,200 | $251 ,800 |
The company’s fixed manufacturing overhead per unit was constant at $450 for all three years.
Required:
1. Determine each year’s absorption costing net operating income. Present your answer in the form of a reconciliation report.
2. In Year 4.the company's variable costing net operating income was $240,200 and its absorption costing net operating income was, $267,200, Did inventories increase or decrease during Year 4?, How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?
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