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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

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 thegovernment. The company has provided the following data:

Year 1

Year 2

Year 3

Inventories:

Beginning (units)

200

170

180

Ending (units)

170

180

220

Variable costing net operating income

$1,080,400

$1,032,400

$996,400

The companys fixed manufacturing overhead per unit was constant at $560 for all three years.

Required:

  1. Calculate each years absorption costing net operating income. Present your answer in the form of a reconciliation report.

  2. Assume in Year 4 that the companys variable costing net operating income was $984,400 and its absorption costing net operating income was $1,012,400.

    • Did inventories increase or decrease during Year 4?

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

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