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Exercise 5-3 reconciliation of absorption and variable costing net

EXERCISE 5-3 Reconciliation of Absorption and Variable Costing Net Operating Incomes [LO 5-3J

Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities. The 

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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:

Inventories: Year 1 Year 2 Year 3

Beginning (units) 200 170 180

Ending (units) 170 180 220

Variable costing net operating Income $1,080,400 $1,032,400 $996,400

The company’s fixed manufacturing overhead per unit was constant at $560 for all three years. Required:

L 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 $984,400 and its absorp¬tion costing net operating income was $1,012,400. Did inventories increase or decrease dur-

ing Year 4? How much fixed manufacturing overhead cost was deferred or released front inventory during Year 4.?

EXERCISE 5-4 Basle Segmented Income Statement [LO 5-11

Royal Lawncare Company produces and sells two packaged products, weedban and Greengrow. Revenue and cost information relating to the products follow:

Product

Selling price per unit ……….. Vat Int)le expenses per unit . .

Tracecable fixed oxpenses pet yemt Weedban Greengrow

$6.00 $7.50

$2.40 $5.25

$45,000 $21,000

 

Variable Costing and Segment Reporting: Tools for Management Common fixed expenses in the company total $33.(XX) annually. Last year the company produced and sold 15,000 units of Weedban and 28,0(X) units of Grccngrow.

Required:

Prepare a contribution format income statement segmented by product lines.

EXERCISE 5-6 Variable and Absorption Costing Unit Product Costs and Income Statements [LO 5-1, 10 5-2]

Lynch Company manufactures and sells a single product. The following costs were incurred during the company’s first year of operations:

Variable costs per unit: Manufacturing:

Direct materials   $6

Direct labor $9

Variable manufacturing overhead   $3

Variable selling and administrative $4

Fixed costs per year:

Fixed manufacturing overhead $300,000

Fixed selling and administrative $190,000

During the year, the company produced 25,000 units and sold 20,000 units. The selling price of the company’s product is $50 per unit.

Required:

1. Assume that the company uses absorption costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

2. Assume that the company uses variable costing:

a. Compute the unit product cost.

b. Prepare an income statement for the year.

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