Required information
Exercise 6-3 (Algo) Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO6-3]
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[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) | 210 | 150 | 200 |
| Ending (units) | 150 | 200 | 230 |
| Variable costing net operating income | $290,000 | $269,000 | $260,000 |
The company’s fixed manufacturing overhead per unit was constant at $560 for all three years.
rev: 03_09_2019_QC_CS-162392
Exercise 6-3 (Algo) Part 1
Required:
1. Calculate each year’s absorption costing net operating income. (Enter any losses or deductions as a negative value.)
Required information
Exercise 6-3 (Algo) Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO6-3]
Skip to question
[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) | 210 | 150 | 200 |
| Ending (units) | 150 | 200 | 230 |
| Variable costing net operating income | $290,000 | $269,000 | $260,000 |
The company’s fixed manufacturing overhead per unit was constant at $560 for all three years.
rev: 03_09_2019_QC_CS-162392
Exercise 6-3 (Algo) Part 2
2. Assume in Year 4 that the company’s variable costing net operating income was $260,000 and its absorption costing net operating income was $290,000.
a. Did inventories increase or decrease during Year 4?
multiple choice
Increase
Decrease
b. How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?
Required information
Exercise 6-3 (Algo) Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO6-3]
Skip to question
[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) | 210 | 150 | 200 |
| Ending (units) | 150 | 200 | 230 |
| Variable costing net operating income | $290,000 | $269,000 | $260,000 |
The company’s fixed manufacturing overhead per unit was constant at $560 for all three years.
rev: 03_09_2019_QC_CS-162392
Exercise 6-3 (Algo) Part 2
2. Assume in Year 4 that the company’s variable costing net operating income was $260,000 and its absorption costing net operating income was $290,000.
a. Did inventories increase or decrease during Year 4?
multiple choice
Increase
Decrease
b. How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?
| YEAR 1 | YEAR 2 | YEAR 3 | |
| Variable costing net operating income | 290,000 | 269,000 | 260,000 |
| +(-) FMOH deferred(released) from ending inventory | -33,600 | 28,000 | 16,800 |
| Absorption costing net operating income | 256,400 | 297,000 | 276,800 |
* (210-150)*560 = 33,600
* (150-200)*560 = 28,000
* (200-230)*560 = 16,800
.
.
|
2a. Increase (as the net operating income under absorption costing is higher than the net operating income under variable costing) 2b. Fixed manufacturing overhead deferred in inventory is $30,000 (290,000-260,000) |
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