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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 to shareholders, creditors, and the government. The company has provided the following data: Year 1 Year 2 Year 3 Inventories Beginning (units) 210 150 200 Ending (units) 150 200 240 Variable costing net operating income $290,000 $279,000 $260,000 The company’s fixed manufacturing overhead per unit was constant at $550 for all three years. rev: 03_09_2019_QC_CS-162392 Required: 1. Calculate each year’s absorption costing net operating income.

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Answer and Explanation:

The computation of each year’s absorption costing net operating income is shown below:-

Particulars                         Year 1           Year 2          Year 3

Beginning inventories       210             150                  200

Less: Ending inventories   150             200                  240

Change in inventories       60               -50                  -40

Fixed Manufacturing Overhead

Beginning Inventory       $115,500      $82,500        $110,000

                             ($550 × 210) ($550 × 150) ($550 × 200)

Less: Fixed Manufacturing

Overhead in ending

inventory                          $82,500     $110,000         $132,000

                             ($550 × 150) ($550 × 200) ($550 × 240)

Fixed Manufacturing

Overhead deferred

in (released from)

inventory                         $33,000     -$27,500         -$22,000

Variable Costing

net Operating

income                             $290,000   $279,000      $260,000

Add (deduct) Fixed MOH cost

deferred in (released from)

inventory under absorption

costing                              -$33,000     +$27,500         +$22,000

Absorption costing net

operating income             $257,000  $306,500         $282,000