Phinisee Corporation manufactures a single product. The following data pertain to the company's operations over the last two years: Variable costing net operating income, last year$82,700 Variable costing net operating income, this year$87,800 Beginning inventory, last year 0unitsEnding inventory, last year 900unitsEnding inventory, this year 500unitsFixed manufacturing overhead cost per unitboth last year and this year$2unit Required:a. Determine the absorption costing net operating income for last year.b. Determine the absorption costing net operating income for this year.
What will be an ideal response?
a. & b.
Year 1:
Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($2 per unit × 900 units) - $0 = $1,800
Year 2:
Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory - Fixed manufacturing overhead in beginning inventory = ($2 per unit × 500 units) - ($2 per unit × 900 units) = -$800
| Last Year | This Year | |||||
| Variable costing net operating income | $ | 82,700 | $ | 87,800 | ||
| Add fixed manufacturing overhead costs deferred in inventory under absorption costing | 1,800 | 0 | ||||
| Deduct fixed manufacturing overhead costs released from inventory under absorption costing | 0 | (800 | ) | |||
| Absorption costing net operating income | $ | 84,500 | $ | 87,000 | ||
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