4. The fixed manufacturing overhead cost deferred in inventory from Year
2 was charged against Year 3 operations, as shown in the reconciliation
in (2b). This added charge against Year 3 operations was offset some-
what by the fact that part of Year 3’s fixed manufacturing overhead
costs were deferred in inventory to future years [again see (2b)]. Over-
all, the added costs charged against Year 3 were greater than the costs
deferred to future years, so the company reported less income for the
year even though the same number of units was sold as in Year 1.
© The McGraw-Hill Companies, Inc., 2006. All rights reserved.
Solutions Manual, Chapter 7 379
Problem 7-17 (continued)
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