Answer:
The absorption costing NOI (net operating income) of Year 1
Change in inventory = Beginning Inventory - Ending Inventory
= 200 units - 170 units
= 30 units
Fixed Manufacturing Overhead Beginning = Beginning Inventory units * Fixed manufacturing overhead per unit
= 200 units * $560
= $112,000
Fixed Manufacturing Overhead Ending = Ending Inventory units * Fixed manufacturing overhead per unit
= 170 units * $560
= $95,200
Deferred in/(release) =Fixed Manufacturing Overhead Ending - Fixed Manufacturing overhead Beginning
= $95,200 - $112,00
= -$16,800
Absorption Costing NOI = Variable Costing NOI + Fixed manufacturing overhead from inventory deferred during the period
= $1,012,400 + -$16,800
= $1,063,000
The absorption costing NOI (net operating income) of Year 2
Change in inventory = Beginning Inventory - Ending Inventory
= 170 units - 180 units
= -10 units
Fixed Manufacturing Overhead Beginning = Beginning Inventory units * Fixed manufacturing overhead per unit
= 170 units * $560
= $95,200
Fixed Manufacturing Overhead Ending = Ending Inventory units * Fixed manufacturing overhead per unit
= 180 units * $560
= $100,800
Deferred in/(release) =Fixed Manufacturing Overhead Ending - Fixed Manufacturing overhead Beginning
= $100,800 - $95,200
= $5,600
Absorption Costing NOI = Variable Costing NOI + Fixed manufacturing overhead from inventory deferred during the period
= $1,032,400 + $5,600
= $1,038,000
The absorption costing NOI (net operating income) of Year 3
Change in inventory = Beginning Inventory - Ending Inventory
= 180 units - 220 units
= -40 units
Fixed Manufacturing Overhead Beginning = Beginning Inventory units * Fixed manufacturing overhead per unit
= 180 units * $560
= $100,800
Fixed Manufacturing Overhead Ending = Ending Inventory units * Fixed manufacturing overhead per unit
= 220 units * $560
= $123,200
Deferred in/(release) =Fixed Manufacturing Overhead Ending - Fixed Manufacturing overhead Beginning
= $123,200 - $100,800
= $22,400
Absorption Costing NOI = Variable Costing NOI + Fixed manufacturing overhead from inventory deferred during the period
= $996,400 + $22,400
= $1,018,800
