Help Save E Che The following information applies to the qu

Help Save & E Che (The following information applies to the questions displayed below] Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The company uses varlable costing for internal management reports and a government. The company has provided the following data: costing for external reports to shareholders, creditors, and the ing (units) 210 160 160 190 190 240 Variable costing net operating inc $290,000 $269,000 $260,000 The company\'s fixed manufacturing overhead per unit was constant at $560 for all three years. 2. Assume in Year 4 that the company\'s variable costing net operating income was $250,000 and its absorption costing net operating income was $270,000. a. Did inventories increase or decrease during Year 4? O Increase O Decrease b. How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4? KPre3E Next

Solution

2a)since the absorption costing income is higher than income under variable costing ,it meanse some of the fixed manufacturing overhead is deferred in ending inventory (increase) resulting in difference in net income under two methods

Under variable costing ,whole of fixed manufacturing overhead cost is charged as period cost to income statement in the year in which it is incurred whereas under absorption costing ,fixed overhead cost is a part of product cost and thus whole cost is not charged to income statement.

correct option is \" Increase in ending inventory

b) $ 20,000     [270000-250000]    Is deferred in ending inventory