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 Lehightons first two years of operation is as follows:
Year 1 | Year 2 | ||||||
Sales (in units) | 3,100 | 3,100 | |||||
Production (in units) | 3,700 | 2,500 | |||||
Production costs: | |||||||
Variable manufacturing costs | $ | 20,350 | $ | 13,750 | |||
Fixed manufacturing overhead | 24,790 | 24,790 | |||||
Selling and administrative costs: | |||||||
Variable | 12,400 | 12,400 | |||||
Fixed | 11,400 | 11,400 | |||||
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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 | $ | 7,320 | $ | 0 | ||
Retained earnings | 19,680 | 34,120 | ||||
Based on variable costing | End of Year 1 | End of Year 2 | ||||
Finished-goods inventory | $ | 3,300 | $ | 0 | ||
Retained earnings | 15,660 | 34,120 | ||||
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Required:
Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year.
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Prepare operating income statements for both years based on absorption costing.
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Prepare operating income statements for both years based on variable costing.
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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.
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Prepare operating income statements for both years based on variable costing.
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Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).
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