Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $22 per unit Huron 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 Hurons first two years of operations is as follows Year 1 Year 2 Sales (in units) 2,300 2,300 Production (in units) 2,700 1,900 Production costs Variable manufacturing costs $ 9,720 $ 6,840 Fixed manufacturing overhead 13,230 13,230 Selling and administrative expenses Variable 9,200 9,200 Fixed 8,200 8,200 Selected information from Hurons year end balance sheets for its first two years of operation is as follows HURON CHALK COMPANY Selected Balance Sheet Information Based on absorption costing End of Year 1 End of Year 2 Finished goods inventory $ 3,400 $ 0 Retained earnings 8,150 15,180 Based on variable costing End of Year 1 End of Year 2 Finished goods inventory $ 1,440 $ 0 Retained earnings 6,190 15,180 For convenience, assume that dividends for Year 1 is $5,500 and Year 2 is $2,700 No taxes or other expenses were incurred for both the years 4 Compute the amount by which the year end balance in finished goods inventory declined during year 2 (i e , between December 31 of year 1 and December 31 of year 2) Using the data from the balance sheet prepared under absorption costing Using the data from the balance sheet prepared under variable costing Refer to your calculations from requirement (4) Compute the difference in the amount by which the year end balances in finished goods inventory declined under absorption versus variable costing Then compare the amount of this difference with the difference in the companys reported income for year 2 under absorption versus variable costing (Negative amounts should be indicated by a minus sign )

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Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $22 per unit. Huron uses an actual costing system, which means

Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $22 per unit. Huron 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 Hurons first two years of operations is as follows:

	Year 1		Year 2
Sales (in units)		2,300		2,300
Production (in units)		2,700		1,900
Production costs:
Variable manufacturing costs	$	9,720	$	6,840
Fixed manufacturing overhead		13,230		13,230
Selling and administrative expenses:
Variable		9,200		9,200
Fixed		8,200		8,200

Selected information from Hurons year-end balance sheets for its first two years of operation is as follows:

HURON CHALK COMPANY
Selected Balance Sheet Information
Based on absorption costing	End of Year 1		End of Year 2
Finished-goods inventory	$	3,400	$	0
Retained earnings*		8,150		15,180

Based on variable costing	End of Year 1		End of Year 2
Finished-goods inventory	$	1,440	$	0
Retained earnings*		6,190		15,180

*	For convenience, assume that dividends for Year 1 is $5,500 and Year 2 is $2,700. No taxes or other expenses were incurred for both the years.

Compute the amount by which the year-end balance in finished-goods inventory declined during year 2 (i.e., between December 31 of year 1 and December 31 of year 2):

Using the data from the balance sheet prepared under absorption costing.

Using the data from the balance sheet prepared under variable costing.

Refer to your calculations from requirement (4). Compute the difference in the amount by which the year-end balances in finished-goods inventory declined under absorption versus variable costing. Then compare the amount of this difference with the difference in the companys reported income for year 2 under absorption versus variable costing. (Negative amounts should be indicated by a minus sign.)