2 In Year 4 the companys variable costing net operating inco

2. In Year 4, the company\'s variable costing net operating income was $243,300 and its absorption costing net operating income was $273,000. a. Did inventories increase or decrease during Year 4? Decrease Increase b. How much fixed manufacturing overhead cost was deferred in or released from inventory during Year 4? Fixed manufacturing overhead cost inventory during Year 4

Solution

2. Since the net operating income under absorption costing is more than the net operating income under variable costing, we can say that some of the fixed overheads have been absorbed by the ending inventory and have been deferred to the next year.

a. The answer is Increase.

b.

This can be calculated from the difference between the net operating incomes under both the systems.

1.

2-a.

2-b. Answer is Yes.

Since the divisional operating income in increasing by $9,117 and laso the overall net operatin loss is reduced by $9,117 it is recommended to increase the advertising .

Fixed manufacturing overhead cost

was deferred in

inventory during year 4

$29,700