Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for mu
ID: 2464004 • Letter: J
Question
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) . . . . . . . . . . . . . . . . . . . . . 200 170 180
Ending (units) . . . . . . . . . . . . . . . . . . . . . . . 170 180 220
Variable costing net operating income . . . . . . $1,080,400 $1,032,400 $996,400
The company’s fixed manufacturing overhead per unit was constant at $560 for all three years.
Required:
1. Determine each year’s absorption costing net operating income. Present your answer in the
form of a reconciliation report.
2. In Year 4, the company’s variable costing net operating income was $984,400 and its absorption
costing net operating income was $1,012,400. Did inventories increase or decrease during
Year 4? How much fixed manufacturing overhead cost was deferred or released from
inventory during Year 4?
Explanation / Answer
Answer:1
Answer:2
Because absorption costing net operating income was greater than variable costing net operating income in year 4 , the inventories must have increased during the year.
Since inventories increased in year 4, fixed manufacturing overhead was deferred in inventories. The amount of deferral is the difference between the two net operating income.
1,012,400-984,400= $28000
year 1 year2 year3 Beginning inventories 200 170 180 Ending inventories 170 180 220 Change in inventories 30 -10 -40 Fixed manufacturing overhead in beginning inventories (@$560 per unit) 112000 95200 100800 Fixed manufacturing overhead in ending inventories (@$560 per unit) 95200 100800 123200 Variable costing operating income 1080400 1032400 996400 Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory under absorption costing -16800 5600 22400 Absorption costing net operating income 1063600 1038000 1018800Related Questions
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