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:

The company’s fixed manufacturing overhead per unit was constant at $560 for all three years.

Required:

1.         Determine each year? s absorption costing net operating income. Present your answer in the form of a reconciliation report as shown in Exhibit 7—4.

2.         In Year 4, the company’s variable costing net operating income was $984,400 and its absorption costing net operating income was $1,012,400. Did inventories increase or decrease during Year 4? How much fixed manufacturing overhead cost was deferred or released from inventory during Year 4?

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Year 1 Year 2 Year 3 Inventories: Beginning (units) Ending (units) 200 170 180 170 220 180 Variable costing net operating income $1,080,400 $1,032,400 $996,400