Required information [The following information applies to the questions display

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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 1 Year 2 Year 3 Inventories Beginning (units) Ending (units) 220 160 $290,000 160 190 $269,000 190 220 $260,000 Variable costing net operating income The company's fixed manufacturing overhead per unit was constant at $560 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

year 1 year 2 year 3 inventories Beginning(units) 220 160 190 Ending (units) 160 190 220 Difference (a) -60 30 30 FOH per unit (b) 560 560 560 Deferred (released)c=a*b -33600 16800 16800 1) Reconciliation of variable costing and Absorption costing Net operating income year 1 year 2 year 3 Variable costing net operating income 29,000 269,000 260,000 Add(Deduct)Fixed manufacturing overhead -33600 16800 16800 deferredin (released from)inventory Absorption costing net operating income -4,600 285,800 276,800 2a) increase (because absorption costing income is more than variable costing) b) fixed manufacturing overhead cost Deferred inventory during year 4 $20,000

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