Sunrise Pools and Spas manufactures fiber glass forms for in-ground pools and swim spas for all-season use. 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 data for their swim spa business in years 1, 2, and 3 shown below. The company€™s fixed manufacturing overhead per unit was constant at $2,500 for all three years:

Required:
1. Determine each year€™s absorption costing operating income. Present your answer in the form of a reconciliation report, such as the one shown in Exhibit 8€“6.
2. In year 4, the company€™s variable costing operating income was $240,200 and its absorption costing operating income was $205,200. 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).. Variable costing operating income. 150 160 $292,400 180 150 160 200 $251,800 $269,200