EXERCISE 7-3 (20 MINUTES)

2. Since absorption costing net operating income was greater than variable

costing net operating income in Year 4, inventories must have increased

during the year and hence fixed manufacturing overhead was deferred

in inventories. The amount of the deferral is just the difference between

the two net operating incomes or $28,000 = $1,012,400 – $984,400.

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Solutions Manual, Chapter 7 351