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Reconciliation of Absorption and Variable Costing Net Operating Incomes LO3 High Tension Transformers, Inc., manufactures heavy-duty transformers for electrical switching stations The company uses

Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO3] High Tension Transformers, Inc., manufactures heavy-duty transformers for electrical switching stations. The company uses variable costing for internal management reports and absorption cost- ing 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) . . . . . . . . . . . . . . . . . . . .

 

180

 

150

 

160

Ending (units) . . . . . . . . . . . . . . . . . . . . . .

150

160

200

Variable costing net operating income . . . . .

$292,400

$269,200

$251,800

 

The company’s fixed manufacturing overhead per unit was constant at $450 for all three years.

Required:

1.       Determine each year’s absorption costing net operating income. Present your answer in the form of a reconciliation report.

2.       In Year 4, the company’s variable costing net operating income was $240,200 and its absorp- tion costing net operating income was $267,200. Did inventories increase or decrease during Year 4? How much fixed manufacturing overhead cost was deferred or released from inven- tory during Year 4?

Jun 28 2020 View more View Less

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