Sunrise Pools and Spas manufactures fibreglass forms for in-ground pools and swim spas for all-season use. The company usesvariable costing for internal management reports and absorption costing for external reports to shareholders, creditors, and thegovernment. 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 $4,500 for all three years:Year 1Year 2Year 3Inventories:Beginning (units)190210Ending (units)Variable costing operating income210$294,400150$271,200150280$253,800Required:1. Determine each year's absorption costing operating income. Present your answer in the form of a reconciliation report.Absorption Costing Operating IncomesYear 1Year 2Year 3Variable costing operating incomeAdd Fixed manufacturing overhead cost deferred ininventory under absorption costingDeduct Fixed manufacturing overhead cost releasedfrom inventory under absorption costingAbsorption costing net operating incomeS0 S0 $2-a. In year 4, the company's variable costing operating income was $260,200 and its absorption costing operating income was$230,200. Did inventories increase or decrease during year 4?O IncreaseO Decrease2-b. How much fixed manufacturing overhead cost was deferred or released from inventory during year 4?Fixed manufacturing overhead costinventory during year 4

Absorption costing:The absorption costing is different from the variable costing because absorption…

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erhead per unit was constant at $4,500 fc Year 1 Year 2 Year 3 198 210 150 210 150 280 $294,400 $271,200 $253.800

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Question

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 $4,500 for all three years:
Year 1
Year 2
Year 3
Inventories:
Beginning (units)
190
210
Ending (units)
Variable costing operating income
210
$294,400
150
$271,200
150
280
$253,800
Required:
1. Determine each year's absorption costing operating income. Present your answer in the form of a reconciliation report.
Absorption Costing Operating Incomes
Year 1
Year 2
Year 3
Variable costing operating income
Add Fixed manufacturing overhead cost deferred in
inventory under absorption costing
Deduct Fixed manufacturing overhead cost released
from inventory under absorption costing
Absorption costing net operating income
S
0 S
0 $
2-a. In year 4, the company's variable costing operating income was $260,200 and its absorption costing operating income was
$230,200. Did inventories increase or decrease during year 4?
O Increase
O Decrease
2-b. How much fixed manufacturing overhead cost was deferred or released from inventory during year 4?
Fixed manufacturing overhead cost
inventory during year 4

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