Exercise 6-3 Reconciliation of Absorption and Variable Costing Net Operating Inc

Question

Exercise 6-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO6-3]

[The following information applies to the questions displayed below.]

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:

The company’s fixed manufacturing overhead per unit was constant at $550 for all three years.

Exercise 6-3 Part 1

Required:

1. Calculate each year’s absorption costing net operating income. (Enter any losses or deductions as a negative value.)

Year 1 Year 2 Year 3 Inventories Beginning (units) 220 170 190 Ending (units) 170 190 220 Variable costing net operating income $290,000 $279,000 $250,000

Explanation / Answer

year 1 Year 2 Year 3 Inventories Beginning units 220 170 190 Ending Units 170 190 220 Change in inventories -50 20 30 Fixed manufacturing overhead per unit@$550 -27500 11000 16500 Variable costing net operating income 290000 279000 250000 Absorption costing net operating income 262500 290000 266500

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