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 dа ta:
Year 1 Year 2 Year 3
Inventories Beginning (units) 200 160 180
Ending (units) 160 180 220
Variable costing net operating income $300,000 $269,000 $250,000
The company's fixed manufacturing overhead per unit was constant at $564 for all three years.
Required:
a. Determine each year's absorption costing net operating income.
b. In Year 4, the company's variable costing net operating income was $249,100 and its absorption costing net operating income was $261,600.
i. Did inventories increase or decrease during Year 4?
ii. How much fixed manufacturing overhead cost was deferred in or released from inventory during Year 4?
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