Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $25 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) 3,300 2,500 Production costs: Variable manufacturing costs $ 13,860 $ 10,500 Fixed manufacturing overhead 17,160 17,160 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 $ 3,760 $ 0 Retained earnings 17,540 33,720 Based on variable costing End of Year 1 End of Year 2 Finished-goods inventory $ 1,680 $ 0 Retained earnings 15,460 33,720 Required: Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year. Prepare operating income statements for both years based on absorption costing. Prepare operating income statements for both years based on variable costing. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).