Problem
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:
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Year 1
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Year 2
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Year 3
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Inventories:
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|
|
|
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Beginning (units)
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205
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165
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180
|
|
Ending (units)
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165
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180
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233
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Variable costing net operating income
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$294,100
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$270,900
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$253,200
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The company's fixed manufacturing overhead per unit was constant at $558 for all three years.
1. Determine each year's absorption costing net operating income.
2. In Year 4, the company's variable costing net operating income was $254,600 and its absorption costing net operating income was $277,900.
a. Did inventories increase or decrease during Year 4?
b. How much fixed manufacturing overhead cost was deferred in or released from inventory during Year 4?