I need help!! I am not sure how to begin on this to even get started in the correct direction.

Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $22 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 Legighton's first two years of operation 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 costs:

Variable $9,200 $9,200

Fixed $8,200 $8,200

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

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-good inventory $1,440 $0

Retained earnings $6,190 $15,180

Question 1. Reconcile Legighton's operating income reported under absorption and variable costing, during each ear, by comparing the following two amounts on each income statement:

• Cost of goods sold
• Fixed cost (expensed as a period expense)