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)	217	166	193
Ending (units)	166	193	234
Variable costing net operating income	$295,000	$275,500	$259,500

The company’s fixed manufacturing overhead per unit was constant at $555 for all three years.

3.

value:
2.00 points

Required information

Required:

1. Determine each year’s absorption costing net operating income.

 

4.

value:
1.00 points

Required information

2. In Year 4, the company’s variable costing net operating income was $248,400 and its absorption costing net operating income was $279,300.

  

a. Did inventories increase or decrease during Year 4?

	Decrease
	Increase

b. How much fixed manufacturing overhead cost was deferred in or released from inventory during Year 4?

 

 

Answer 1

1.

	Year 1	Year 2	Year 3
Beginning Inventories	217.00	166.00	193.00
Ending Inventories	166.00	193.00	234.00
Change in inventories	-            51.00	27.00	41.00
Fixed manufacturing overhead in beginning inventories (@$555 per unit)	120,435.00	92,130.00	107,115.00
Fixed manufacturing overhead in ending inventories (@$555 per unit)	92,130.00	107,115.00	129,870.00
Fixed manufacturingoverhead deferred in (released from) inventories (@$555 per unit)	-   28,305.00	14,985.00	22,755.00
Variable costing net operating income	295,000.00	275,500.00	259,500.00
Absorption costing net operating income	266,695.00	290,485.00	282,255.00

2a.

Increase

2b.The Amount of Deferral =  279,300 - 248,400

=30,900