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 $2,700 for all three years: Year 1 Year 2 Year 3 Inventories: Beginning (units) 160 180 160 Ending (units) 180 160 220 Variable costing operating income $ 292,600 $ 269,400 $ 252,000
Required: 1. Determine each year’s absorption costing operating income. Present your answer in the form of a reconciliation report.
2-a. In year 4, the company’s variable costing operating income was $242,200 and its absorption costing operating income was $208,200. Did inventories increase or decrease during year 4?
2-b. How much fixed manufacturing overhead cost was deferred or released from inventory during year 4?