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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)	200	150	180
Ending (units)	150	180	220
Variable costing net operating income	$290,000	$269,000	$260,000

The company’s fixed manufacturing overhead per unit was constant at $400 for all three years.

rev: 03_09_2019_QC_CS-162392

Required:

1. Calculate each year’s absorption costing net operating income. (Enter any losses or deductions as a negative value.)

Answer 1

Solution :

Absorption Costing Net Operating Income :

	Year 1	Year 2	Year 3
(a) Variable Costing Net Operating Income	$ 290,000	$ 269,000	$ 260,000
(b) Add (Deduct) Fixed Overhead Deferred in / (Released from) inventory under Absorption Costing	($ 20,000)	$ 12,000	$ 16,000
(c) Absorption Costing Net Operating Income	$ 270,000	$ 281,000	$ 276,000

Working :

	Year 1	Year 2	Year 3
(a) Beginning Units	200	150	180
(b) Ending Units	150	180	220
(c) Difference (b -c)	(50)	30	40
(d) Fixed Manufacturing OH cost per Unit	$ 400	$ 400	$ 400
(e) Fixed Over (Released) / Deferred	($ 20,000)	$ 12,000	$ 16,000

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