question archive Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swim spas for all-season use
Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swim spas for all-season use
Subject:AccountingPrice:4.87 Bought7
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Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swim spas for all-season use. 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 data for their swim spa business in years 1, 2, and 3 shown below. |
| The company’s fixed manufacturing overhead per unit was constant at $3,900 for all three years: |
| Year 1 | Year 2 | Year 3 | |||||||
| Inventories: | |||||||||
| Beginning (units) | 160 | 240 | 180 | ||||||
| Ending (units) | 240 | 180 | 220 | ||||||
| Variable costing operating income | $ | 293,800 | $ | 270,600 | $ | 253,200 | |||
| Required: |
| 1. |
Determine each year’s absorption costing operating income. Present your answer in the form of a reconciliation report. |
| 2-a. |
In year 4, the company’s variable costing operating income was $254,200 and its absorption costing operating income was $278,200. Did inventories increase or decrease during year 4? |
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| 2-b. | How much fixed manufacturing overhead cost was deferred or released from inventory during year 4? |
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Answer:
Change in inventories
| Year 1 | Year 2 | Year 3 |
| 160 | 240 | 180 |
| 240 | 180 | 220 |
| 80 | -60 | 40 |
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Variable costing operating income 293,800 270,600 253,200 Add:Fixed cost deferred in closing inventory(80*3,900) 312,000 (40*3900) 156,000 Deduct : Paid overhead cost released from inventory under absorptionc costing (60*3,900) (234,000) Absorption costing net operating income $605,800 36,600 409,200 |
2a)increase since operating income under absorption costing is more
b) $278,200 - 254,200 = 24,000
