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In: Accounting
Exercise 6-3 (Algo) Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO6-3] [The following information...
Exercise 6-3 (Algo) Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO6-3]
[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) | 220 | 150 | 180 |
| Ending (units) | 150 | 180 | 230 |
| Variable costing net operating income | $290,000 | $269,000 | $250,000 |
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.)
2. Assume in Year 4 that the company’s variable costing net operating income was $250,000 and its absorption costing net operating income was $310,000.
a. Did inventories increase or decrease during Year 4?
b. How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?
Solutions
Expert Solution
1.
| Reconciliation | |||
| Year 1 | Year 2 | Year 3 | |
| Income as per Variable Costing | $ 290,000 | $ 269,000 | $ 250,000 |
| Add : Fixed Manufacturing Overhead carried forward | $ 84,000 | $ 100,800 | $ 128,800 |
| Less : Fixed Manufacturing Overhead released | $ 123,200 | $ 84,000 | $ 100,800 |
| Income as per Absorption Costing | $ 250,800 | $ 285,800 | $ 278,000 |
2.a.
Inventories increase during the year 4
Fixed Overhead released = $128800
Fixed Overhead deferred = $188800
Net Fixed Overhead deferred = $60000
ekkarill92 answered 2 years agoRelated Solutions
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