Question

Exercise 6-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO6-3]

[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)	201	160	198
Ending (units)	160	198	236
Variable costing net operating income	$295,100	$270,100	$252,200

  

The company’s fixed manufacturing overhead per unit was constant at $557 for all three years.

Exercise 6-3 Part 1

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	$295,100	$270,100	$252,200
Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing
Absorption costing net operating income	$295,100	$270,100	$252,200

Exercise 6-3 Part 2

2.	In Year 4, the company’s variable costing net operating income was $259,300 and its absorption costing net operating income was $268,400.

  

a.

Did inventories increase or decrease during Year 4?

a.	Increase
b.	Decrease

b.	How much fixed manufacturing overhead cost was deferred in or released from inventory during Year 4?

Fixed manufacturing overhead cost

inventory during Year 4

please solve problem with step by step

Answer 1