Chapter 4, Problem 4.3E

1.

To determine

Concept introduction:

Cost reconciliation report:

The main aim behind the creation of the cost reconciliation report is to state the beginning work in progress cost and the costs added during the period.

Requirement 1:

Prepare a reconciliation report showing the absorption costing net operating income for years 1, 2 and 3.

2.

To determine

Concept introduction:

Absorption costing:

The method of costing where both fixed and variable costs are charged to the products Absorption costing absorbs the costs which are directly related to the product. The fixed overheads are charged to all units manufactured regardless of the output.

Requirement 2:

Calculate the change in the inventory in year four and ascertain the fixed manufacturing overhead deferred during year 4.