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Sunrise Pools and Spas manufactures fibreglass 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 $3,600 for all three years: Year 1 Year 2 Year 3 Inventories: Beginning (units) 145 255 195 Ending (units) 255 205 Variable costing operating income $293,500 $270,300 $252,900 195 Required: 1. Determine each year's absorption costing operating income. Present your answer in the form of a reconciliation report. Absorption Costing Operating Incomes Year 1 Year 2 Year 3 Variable costing operating income $ 293,500 $ 270,300 $ 252,900 Add: Fixed manufacturing overhead cost deferred in 396,000 Inventory under absorption costing 36,000 Deduct: Fixed manufacturing overhead cost released from inventory under absorption costing (216,000) Absorption costing net operating income $ 689,500 $ 54,300 $ 288,900 2-a. In year 4, the company's variable costing operating income was $251,200 and its absorption costing operating income was $225,700. Did inventories increase or decrease during year 4? Increase Decrease 2-b. How much fixed manufacturing overhead cost was deferred or released from inventory during year 4? Fixed manufacturing overhead cost deferred in inventory during year 4 S (25,500)

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