Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for mu
ID: 3207851 • 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:
Determine each year’s absorption costing net operating income.
In Year 4, the company’s variable costing net operating income was $244,900 and its absorption costing net operating income was $262,700.
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
1.
Year1
Year 2
Year 3
Beginning inventories
210
154
197
Ending inventories
154
197
226
Change in inventories
(56)
43
29
Fixed manufacturing overhead in beginning inventories(566 unit)
1,18,860
87,164
1,11,502
Fixed manufacturing overhead in ending inventories(566 unit)
87,164
1,11,502
1,27,916
Fixed manufacturing overhead in deferred in inventories(566 unit)
(31,696)
24338
16,414
Variable costing net operating income
$290,500
$278,900
$250,500
Add Fixed manufacturing overhead in deferred in inventory under absorption costing
(31,696)
24338
16,414
Absorption costing net operating income
2,58,804
3,03,238
2,66,914
2.because absorption costing net operating income was greater than variable costing net
operating income in year 4, inventories must have increased during the year
3.the amount of the deferral or released from inventory during Year 4 is the difference between the two net operating incomes or 17,800
Year1
Year 2
Year 3
Beginning inventories
210
154
197
Ending inventories
154
197
226
Change in inventories
(56)
43
29
Fixed manufacturing overhead in beginning inventories(566 unit)
1,18,860
87,164
1,11,502
Fixed manufacturing overhead in ending inventories(566 unit)
87,164
1,11,502
1,27,916
Fixed manufacturing overhead in deferred in inventories(566 unit)
(31,696)
24338
16,414
Variable costing net operating income
$290,500
$278,900
$250,500
Add Fixed manufacturing overhead in deferred in inventory under absorption costing
(31,696)
24338
16,414
Absorption costing net operating income
2,58,804
3,03,238
2,66,914
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