answer in text form please (without image) **Jorgansen Lighting, Incorporated** manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports. The company provided the following data:| | Year 1 | Year 2 | Year 3 ||----------------|--------|--------|--------|| **Inventories**| | | || Beginning (units) | 210 | 150 | 200 || Ending (units) | 150 | 200 | 240 || **Variable costing net operating income** | $290,000 | $279,000 | $250,000 |The company's fixed manufacturing overhead per unit was constant at $560 for all three years.---**2. Analysis for Year 4:**Assume in Year 4 the company's variable costing net operating income was $240,000 and its absorption costing net operating income was $310,000.a. **Inventory Change in Year 4:**Determine whether inventories increased or decreased in Year 4.b. **Fixed Manufacturing Overhead Cost in Year 4:**Calculate how much fixed manufacturing overhead cost was deferred or released from inventory.--- This data allows the company to assess inventory and costing strategies over the years, providing insights into financial trends and decision-making for future operations.

Answered: Jorgansen Lighting, Incorporated,…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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answer in text form please (without image)

**Jorgansen Lighting, Incorporated** manufactures heavy-duty street lighting systems for municipalities. The company uses variable costing for internal management reports and absorption costing for external reports. The company provided the following data:

| | Year 1 | Year 2 | Year 3 |
|----------------|--------|--------|--------|
| **Inventories**| | | |
| Beginning (units) | 210 | 150 | 200 |
| Ending (units) | 150 | 200 | 240 |
| **Variable costing net operating income** | $290,000 | $279,000 | $250,000 |

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

---

**2. Analysis for Year 4:**

Assume in Year 4 the company's variable costing net operating income was $240,000 and its absorption costing net operating income was $310,000.

a. **Inventory Change in Year 4:**

Determine whether inventories increased or decreased in Year 4.

b. **Fixed Manufacturing Overhead Cost in Year 4:**

Calculate how much fixed manufacturing overhead cost was deferred or released from inventory.

---

This data allows the company to assess inventory and costing strategies over the years, providing insights into financial trends and decision-making for future operations.

Expert Solution

Step 1: Introduction

The consideration of fixed manufacturing overhead expenses is the primary distinction between absorption costing revenue and variable costing income. Fixed overhead is included in product costs in absorption costing, but variable overhead is considered a period expense in variable costing. This divergence can result in disparities in reported revenue and is particularly important for examining cost behavior, decision-making, and understanding how expenses impact profitability.

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