Question

A manufacturer reports the information below for three recent years.

	Year 1			Year 2			Year 3
Variable costing income	$	137,000		$	143,200		$	141,450
Beginning finished goods inventory (units)		0			2,100			1,600
Ending finished goods inventory (units)		2,100			1,600			1,700
Fixed manufacturing overhead per unit	$	1.60		$	1.60		$	1.60

Compute income for each of the three years using absorption costing.

ABSORPTION COSTING INCOME FOR YEAR 1 YEAR 2 and YEAR 3

Answer 1

Answer
	Year 1	Year 2	Year 3
Variable costing income	$     137,000	$     143,200	$     141,450
Fixed manufacturing overhead deferred in (released from)	$         3,360	-$            800	$            160
Absorption costing income	$     140,360	$     142,400	$     141,610
Working:
Fixed manufacturing overhead deferred in (released from):
Year 1 = 2100*1.6 = $3360
Year 2 = (1600-2100)*1.6 = (800)
Year 3 = (1700-1600)*1.6 = $160
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