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 Lehightons first two years of operation is as follows:

1. 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)

Sales (in units) Production (in units) Production costs: Year 1 2, 300 2,700 Year 2 2, 300 1,900 Variable manufacturing costs Fixed manufacturing overhead $ 9,720 6,840 13,230 13,230 Selling and administrative costs: Variable Fixed 9,200 8, 200 9,200 8, 200 Selected information from Lehighton's year-end balance sheets for its first twyears of operation is as follows LEHIGHTON CHALK COMPANY Selected Balance Sheet Information Based on absorption costing Finished-goods inventory Retained earnings End of Year 1 8,150 End of Year 1 6,190 End of Year 2 15,180 End of Year 2 15,180 $3,400 Based on variable costing Finished-goods inventory Retained earnings $1,440 Reconcile Lehighton's 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) Show lessA Year 1 Year 2 Subtotal Total Difference in operating income 0