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High Tension Transformers, Inc., manufactures heavy duty transformers for electrical switching stations. 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 following data:

Year 1

Year 2

Year 3

Inventories:

Beginning (units)

180

150

160

Ending (units)

150

160

200

Variable costing net operating income

$292,400

$269,200

$251,800

The company’s fixed manufacturing overhead per unit was constant at $450 for all three years.

Required:

1.

Determine each year’s absorption costing net operating income. (Amounts to be deducted should be indicated with a minus sign.)

Reconciliation of Variable Costing and Absorption Costing Net Operating Incomes

Year 1

Year 2

Year 3

Variable costing net operating income

$

$

$

Add (deduct) fixed manufacturing overhead cost deferred in (released from) inventory
under absorption costing

Absorption costing net operating income

$

$

$

2.

In Year 4, the company’s variable costing net operating income was $240,200 and its absorption costing net operating income was $267,200.

a.

Did inventories increase or decrease during Year 4?

b.

How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?

Fixed manufacturing overhead cost (Click to select) released from deferred in inventory during Year 4

$ .