Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $25 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-progress 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 operation is as follows:

	Year 1	Year 2
Sales (in units)	2,500	2,500
Production (in units)	3,000	2,000
Production Costs:
Variable Manufacturing Costs	$10,500	$7,000
Fixed Manufacturing Overhead	21,000	21,000
Selling and Administrative Expenses
Variable	12,500	12,500
Fixed	10,000	10,000

Reconcile Hurons operating income reported under absorptions and variable costing, during each year, by computing the following two amounts on each income statement:

Cost of goods sold

Fixed cost (expensed as period expense)

What was Hurons total operating income across both years under absorption costing and under variable costing?

What was the total sales revenue across both years under absorption costing and under variable costing?

What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?

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.

Comment on the results obtained in requirements 1, 2, 3, and 4 in light of the following assertion: Timing is the key in distinguishing between absorption and variable costing.