Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swi
ID: 2421734 • Letter: S
Question
Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swim spas for all-season use. 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 data for their swim spa business in years 1, 2, and 3 shown below.
Determine each year’s absorption costing operating income. Present your answer in the form of a reconciliation report.
In year 4, the company’s variable costing operating income was $254,200 and its absorption costing operating income was $278,200. Did inventories increase or decrease during year 4?
Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swim spas for all-season use. 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 data for their swim spa business in years 1, 2, and 3 shown below.
The company’s fixed manufacturing overhead per unit was constant at $3,900 for all three years:Explanation / Answer
Change in inventories
Variable costing operating income 293,800 270,600 253,200
Add:Fixed cost deferred in closing
inventory(80*3,900) 312,000
(40*3900) 156,000
Deduct : Paid overhead cost
released from inventory under
absorptionc costing
(60*3,900) (234,000)
Absorption costing net
operating income $605,800 36,600 409,200
2a)increase since operating income under absorption costing is more
b) $278,200 - 254,200 = 24,000
Year 1 Year 2 Year 3 160 240 180 240 180 220 80 -60 40Related Questions
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