Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swim spas for all-season use. 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 data for their swim spa business in years 1, 2, and 3 shown below.

The companys fixed manufacturing overhead per unit was constant at $3,500 for all three years:

	Year 1	Year 2	Year 3
Inventories:
Beginning (units)		200			260			200
Ending (units)		260			200			300
Variable costing operating income	$	293,400		$	270,200		$	252,800

Required:

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

2-a. In year 4, the companys variable costing operating income was $250,200 and its absorption costing operating income was $220,200. Did inventories increase or decrease during year 4?

multiple choice

Increase

Decrease

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