Jorgansen Lighting Inc manufactures heavyduty street lightin

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 188 228 $257,900 164 Beginning (units) Ending (units) 219 164 $296,300 Variable costing net operating income $277,800 The company\'s fixed manufacturing overhead per unit was constant at $550 for all three years value 10.00 points Required: 1. Determine each year\'s absorption costing net operating income Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes Year 1 Year 2 Year 3 Variable costing net operating income Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing Absorption costing net operating income

Solution

1. The formula was variable cost operating income + Fixed manf OH(Closing inventory - opening Inventory)*Fixed cost per unit = Absorption cost operating income.

2.

a. Absorption cost operating costing was more than variable cost operating income, it means fixed manf oh is added to variable income. So ending inventory should be higher than opening inventory to get a positive value. So the answer is increase.

b. Fixed Manufacturing OH Cost = 29700(Balance Figure in above calculation)

Inventory during year 4, Assume X as closing inventory for year 4 and opening inventory will be closing inventory of year 3 i.e 228. So the calculation will be (X-228)*550 = 29700.

So X = Closing Inventory = 282.((29700/550)+228)

Reconciliation of Variable Costing and Absorption Costing Net Operating Income
Particulars	Year1	Year2	Year3
Variable Costing Net Operating Income	2,96,300.00	2,77,800.00	2,57,900.00
Add (Deduct) Fixed Manfacturing overhead deferred in (released from) inventory under absorption costing	-30,250.00	13,200.00	22,000.00
	(164-219)*550	(188-164)*550	(228-188)*550
Absorption Costing Net Operating Income	2,66,050.00	2,91,000.00	2,79,900.00