Quest IThe following information applies to the questions displayed below Jorgan

Question

Quest IThe following information applies to the questions displayed below Jorgansen Lighting, nc, manufactures heavy-duty street lighting systems for municipalites. The company uses varlable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and the govemment. The company has provided the following data: Inventories 184 231 Varable costing net operating income $297,200 $269,000 $256,900 Beginning (units) Ending (units) 211 154 154 184 The company's fixed manufacturing overhead per unit was constant at $563 for all three years. 3· value 12.50 points Required 1. Determine each year's absorption costing net operating income 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 Hints References eBook & Resources Hint # Check my work

Explanation / Answer

1.

2. a.

Increase

Explanation:

Because absorption costing Net operating income was greater than variable costing Net operating income in year 4, Inventory must have increase during the year and , hence, fixed manufacturing overhead cost deferred in inventory.

B.

Fixed manufacturing overhead deferred in inventory during year 4 is $9,800

Explanation:

The amount of deferral is the difference between the two net operating income:

=$165,100-$255,300

=$9,800

year 1 year 2 year 3 Beginning inventory 211. 154 184 Ending inventory 154 184 231 Change in inventory (57) unit 30 unit 47 unit Fixed manufacturing overhead deferred in (released from) inventory(@563 per unit) (32,091) $16,890 $26,461 Variable costing Net operating income $297,200 $269,000 $256,900 Add (deduct ) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing (32,091) $16,890 $26,461 Absorption costing Net operating income $265,109 $285,890 $283,361 255,300 265,100

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