Question
Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $28 per unit. Lehighton uses an actual costing system, which means
Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $28 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:
Year 1Year 2Sales (in units)3,1003,100Production (in units)3,7002,500Production costs:Variable manufacturing costs$20,350$13,750Fixed manufacturing overhead24,79024,790Selling and administrative costs:Variable12,40012,400Fixed11,40011,400
Selected information from Lehighton's year-end balance sheets for its first two years of operation is as follows:
LEHIGHTON CHALK COMPANYSelected Balance Sheet InformationBased on absorption costingEnd of Year 1End of Year 2Finished-goods inventory$7,320$0Retained earnings19,68034,120Based on variable costingEnd of Year 1End of Year 2Finished-goods inventory$3,300$0Retained earnings15,66034,120
Required:
- 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)
- What was Lehighton's 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?
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