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Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $23 per unit. Lehighton uses an actual costing system, which means
Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $23 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 Lehighton's first two years of operation is as follows: Sales (in units) Production (in units) Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: Variable Fixed Year 1 2,500 Year 2 2,500 3,100 1,900 $14,260 $ 8,740 17,360 17,360 10,000 10,000 9,000 9,000 Selected information from Lehighton's 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 Finished-goods inventory Retained earnings Based on variable costing Finished-goods inventory Retained earnings End of Year 1 End of Year 2 $ 0 11,080 $ End of Year 2. 0 11,080 $ 6,120 7,500 End of Year 1 $ 2,760 4,140 Case 8-42 Comparison of Absorption and Variable Costing; Actual Costing (LO 8-2, 8-3,8-4) Required: Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year. 1. Prepare operating income statements for both years based on absorption costing. 2. Prepare operating income statements for both years based on variable costing. 3. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements 1 and Case 8-42 Comparison of Absorption and Variable Costing; Actual Costing (LO 8-2,8-3, 8-4) Required: Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year. 1. Prepare operating income statements for both years based on absorption costing. 2. Prepare operating income statements for both years based on variable costing. 3. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements 1 and 2. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare operating income statements for both years based on absorption costing. LEHIGHTON CHALK COMPANY Income Statement Year 1 Year 2 Sales revenue $ 57,500 $ 57,500 Cost of goods sold: Beginning finished-goods inventory $ 0 $ 6,120 Cost of goods manufactured 32,000 11,480 Cost of goods available for sale $ 32,000 $ 17,600 Ending finished-goods inventory $ 6,120 $ 0 Cost of goods sold $ 25,880 $ 17,600 Gross margin $ 31,620 $ 39,900 Selling and administrative expenses 19,000 19,000 Operating income $ 12,620 $ 20,900 < Required 1 Required 2 > Required 1 Required 2 Required 3 Prepare operating income statements for both years based on variable costing. LEHIGHTON CHALK COMPANY Sales revenue Cost of goods sold: Income Statement Beginning finished-goods inventory Cost of goods manufactured Year 1 Year 2 Cost of goods available for sale 0 $ 0 Ending finished-goods inventory Cost of goods sold Variable selling and administrative costs Total variable costs: $ 0 $ 0 Contribution margin $ 0 $ 0 Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income 6969 0 0 $ 0 $ 0 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements 1 and 2. Year Change in Inventory (in units) Actual Difference in fixed- overhead Absorption- minus rate fixed overhead expensed variable- costing operating income 1 2 < Required 2 Required 3 >
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