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Required information [The following information applies to the questions displayed below] Jorgansen Lighting, Inc
Required information [The following information applies to the questions displayed below] Jorgansen Lighting, Inc., manufactures heavy-duty street lighting systems for municipalities_ 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:
Inventories Year 1 Year 2 Year 3 Beginning (units) 220 160 200 Ending (units) 160 200 230 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_ Assume in Year 4 that the company's variable costing net operating income was $240,000 and its absorption costing net operating income was $290.000.
a_ Did inventories increase or decrease during Year 4?
Klavt S
Expert Solution
As the net operating income under absorption costing is greater than the net operating income under variable costing and it is only possible when the inventories must have increase in Year 4.
So, the answer is option "Increase".
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