Exercise 6-3 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	170	190
Ending (units)	170	190	220
Variable costing net operating income	$290,000	$279,000	$250,000

The companys fixed manufacturing overhead per unit was constant at $550 for all three years.

Exercise 6-3 Part 2

2. Assume in Year 4 that the companys variable costing net operating income was $240,000 and its absorption costing net operating income was $270,000.

a. Did inventories increase or decrease during Year 4?

Increase

Decrease

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