Required information The following information applies to the questions displaye

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 Year 2 Year 3 Inventories Beginning (units) Ending (units) 170 190 $300,000 $269,000 220 170 190 240 $250,000 Variable costing net operating income The company's fixed manufacturing overhead per unit was constant at $570 for all three years. Required: 1. Calculate each year's absorption costing net operating income. (Enter any losses or deductions as a negative value.) 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

Explanation / Answer

1 Reconciliation of variable costing and absorption costing net operating income year 1 year 2 year 3 A Variable costing net operating income 3,00,000 269000 250000 B Add (deduct) fixed manufacturing overhead 96900 108300 136800 (570*170) (570*190) (570*240) C. Absorption costing net operating income(A+B) 3,96,900 3,77,300 3,86,800 2 a Variable costing net operating income = $250000 Absorption costing net operating income = $260000 Fixed cost per unit=$570 ending inventory for year4 = (260000-250000)/570 17.54 units hence the inventories decreased in year4 b Fixed manufacturing overhead cost = 260000-250000 = 10000 inventory during year4 = 10000/570 = 17.54units

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