Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for mu
ID: 2540867 • 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:
The company’s fixed manufacturing overhead per unit was constant at $568 for all three years.
Determine each year’s absorption costing net operating income.
In Year 4, the company’s variable costing net operating income was $242,900 and its absorption costing net operating income was $262,400.
How much fixed manufacturing overhead cost was deferred in or released from inventory during Year 4?
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:
Explanation / Answer
Req 1: Year1 Year2 Year3 Net Income as per Variable costing 294000 277400 256100 Add: Fixed manufacturing cost deferred 27264 17608 Less: Fixed cost released -33512 Income as per Absorption costing 260488 304664 273708 Note: When the inventory level increases a the year end, the fixed cost per unit on increassed inventory is deferred, resulting in increase in income under Absorption costin. Note: when inventory level decrease, the fixed cost for decreased level of inventory released, resulting in decreased income under Absorption costing. Req 2a: As the income under Abosption costing is higher than variable costing, this suggests that the fixed cost is defferred which is because of increased inventory level. INCREASE in inventory level. Req 2b: Income under Absorption costing 262400 Less: Income under variable costing -242900 Fixed overheads defferred 19500
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