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Question: Required information [The following information applies to the questions displayed below.] Lehigh...
Required information
[The following information applies to the questions displayed below.]
Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $27 per unit. Lehighton uses an actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overhead are entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed each year; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Information for Lehightons first two years of operation is as follows:
Year 1 | Year 2 | ||||||
Sales (in units) | 2,900 | 2,900 | |||||
Production (in units) | 3,400 | 2,400 | |||||
Production costs: | |||||||
Variable manufacturing costs | $ | 18,020 | $ | 12,720 | |||
Fixed manufacturing overhead | 21,420 | 21,420 | |||||
Selling and administrative costs: | |||||||
Variable | 11,600 | 11,600 | |||||
Fixed | 10,600 | 10,600 | |||||
Selected information from Lehightons year-end balance sheets for its first two years of operation is as follows:
LEHIGHTON CHALK COMPANY | ||||||
Selected Balance Sheet Information | ||||||
Based on absorption costing | End of Year 1 | End of Year 2 | ||||
Finished-goods inventory | $ | 5,800 | $ | 0 | ||
Retained earnings | 16,960 | 30,420 | ||||
Based on variable costing | End of Year 1 | End of Year 2 | ||||
Finished-goods inventory | $ | 2,650 | $ | 0 | ||
Retained earnings | 13,810 | 30,420 | ||||
Required:
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Reconcile Lehightons operating income reported under absorption and variable costing, during each year, by comparing the following two amounts on each income statement:
- Cost of goods sold
- Fixed cost (expensed as a period expense)
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What was Lehightons total operating income across both years under absorption costing and under variable costing?
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What was the total sales revenue across both years under absorption costing and under variable costing?
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What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?
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Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.
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Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X".
Please bold the answer to each question.
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