Answer:
a.Year 1 = $277,440, Year 2 = $280,280, Year 3 = $272,560
b.i. Inventory Increased in year 4
b.ii $12,500 deferred in inventory
Explanation:
<u>Absorption Costing Income for Year 1, Year 2, Year 3</u>
<em>Hint: Reconcile the Variable Costing Income to Absorption Costing Income</em>
Year 1 Year 2 Year 3
Variable Costing Income $300,000 $269,000 $250,000
Add Closing Inventory $90,240 $101,520 $124,080
Less Opening Inventory ($112,800) ($90,240) ($101,520)
Absorption Costing Income $277,440 $280,280 $272,560
Here we are adding and subtracting the fixed manufacturing overhead in closing and opening inventory.
This is because difference in Variable Costing Income and Absorption Costing Income lies within fixed manufacturing costs included in inventory.
Inventory Increased in year 4
Inventory deferred in Inventory = $261,600 - $249,100
= $12,500
