Chataqua Can Company manufactures metal cans used in the food-processing industry. A case of cans sells for $25. The variable costs of production for one case of cans are as follows: Direct material 7.00 Direct labor 2.50 Variable manufacturing overhead 6.00 $15.50 Total variable manufacturing cost per case Variable selling and administrative costs amount to $0.50 per case. Budgeted fixed manufacturing overhead is $430,000 per year, and fixed selling and administrative cost is $43,500 per year. The following data pertain to the company's first three years of operation. Year 3 86,000 26,000 86,000 99,000 13,000 Year 1 Year 2 Planned production (in units) Finished-goods inventory (in units), January 1 Actual production Sales (in units) Finished-goods inventory (in units), December 31 86,000 86,000 C (in units) 86,000 86,000 86,000 60,000 C 26,000 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 variable costing for each of its first three years of operation. Use the shortcut method 3. 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. 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? Complete this question by entering your answers in the tabs below. Req 3B Req 1A Req 1B Reqd 2 Req 3A Prepare operating income statements for Chataqua Can Company for its first three years of operations using absorption costing. Year 1 Year 2 Year 3 Selling and Administrative Expenses Req 1A Req 1B Complete this question by entering your answers in the tabs below. Req 1A Reqd 2 Req 3A Req 3B Req 1B Prepare operating income statements for Chataqua Can Company for its first three years of operations using variable costing. Year 3 Year 1 Year 2 Variable expenses: Fixed expenses: Req 1A Reqd 2 Complete this question by entering your answers in the tabs below. Reqd 2 Req 1A Req 1B Req 3A Req 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 4? Difference in reported income Reqd 2 Req 3B Complete this question by entering your answers in the tabs below. Req 1A Req 1B Reqd 2 Req 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 Difference in fixed Change in inventory (in units) Predetermined fixed overhead expensed under absorption and variable costing overhead rate 1 3 > Req 1B Req 3A Complete this question by entering your answers in the tabs below. Req 1A Req 1B Reqd 2 Req 3A Req 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 relationship between total operating income for the four-year period as reported under absorption and variable costing? Total operating income will be higher under variable costing. Total operating income will be higher under absorption costing. Total operating income will be same under absorption and variable costing. Req 3A Req 3B
