Chataqua Can Company manufactures metal cans used in the food processing industry. A case of cans sells for $40. The variable costs of production for one case of cans are as follows: Direct material Direct labor Variable manufacturing overhead Total variable manufacturing cont per care $10.00 5.00 9.50 $24.50 Varlable selling and administrative costs amount to $0.40 per case. Budgeted fixed manufacturing overhead is $632,000 per year, and fixed selling and administrative cost is $40,000 per year. The following data pertain to the company's first three years of operation, Year 1 79,000 Planned production in unita) Finished-goods inventory (in unita), January 1 Actual production (in unita) Sales in units) Tinished-goods Inventory (in unite), December 31 79,000 79.000 Year 2 79,000 0 79,000 56,500 22.500 Year 3 79,000 22,500 79,000 90,250 11.250 Actual costs were the same as the budgeted costs. Required: 1. Prepare operating income statements for Chataqua Can Company for its first three years of operations using: a. Absorption costing b. Variable costing. 2. Reconcile Chataqua Can Company's operating income reported under absorption and varlable costing for each of its first three years of operation. Use the shortcut method. 3. Suppose that during Chotaqua's fourth year of operation actual production equals planned production, actual costs are as expected. and the company ends the year with no Inventory on hand a. What will be the difference between absorption costing Income and variable-costing income in year 4? b. What will be the relationship between total operating income for the four-year period as reported under absorption and variable costing? Prepare operating income statements for Chataqua Can Company for its first three years of operations using absorption costing. Year 1 Year 2 Year 3 Sales revenue Less: Cost of goods sold Gross margin $ 0 $ $ Selling and Administrative Expenses Variable selling and administrative Fixed selling and administrative 0 Operating income S 0$ 0$ Req 18 > Req 1A Reg 1B Reg 2 Req 3A Reg 38 Prepare operating income statements for Chataqua Can Company for its first three years of operations using variable costing. Year 1 Year 2 Year 3 Variable expenses $ 0 $ 0 $ Fixed expenses $ 0 $ 0 $ 0 Req 1A Reg 1B Reg 2 Reg 3A Req 3B Reconcile Chataqua Can Company's operating income reported under absorption and variable costing for each of its first three years of operation. Use the shortcut method. Year Change in inventory (in units) Predetermined fixed overhead rato Difference in fixed overhead expensed under absorption and variable costing 1 2 3 Reg 1A Reg 1B Req 2 Reg 3A Reg 3B Suppose that during Chataqua's fourth year of operation actual production equals planned production, actual costs are as expected, and the company ends the year with no inventory on hand. What will be the difference between absorption-costing income and variable-costing income in year 42 Difference in reported income
