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 Lehighton's first two years of operation is as follows:

Year 1 Year 2 Sales (in units) 3,000 3,000 Production (in units) 3,600 2,400 Production costs: Variable manufacturing costs $ 15,480 $ 10,320 Fixed manufacturing overhead 19,080 19,080 Selling and administrative costs: Variable 12,000 12,000 Fixed 11,000 11,000

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 End of Year 1 End of Year 2 Finished-goods inventory $ 5,760 $ 0 Retained earnings 8,700 13,840 Based on variable costing End of Year 1 End of Year 2 Finished-goods inventory $ 2,580 $ 0 Retained earnings 5,520 13,840

Required:

1. 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)

1. What was Lehighton's total operating income across both years under absorption costing and under variable costing?
2. What was the total sales revenue across both years under absorption costing and under variable costing?
3. What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing?
4. Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years [requirement (3)]: (a) under absorption costing and (b) under variable costing.
5. Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X".

(Please show work)