Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the case 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 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 Year 2 2,500 2,500 3,100 1,900 $ 15,190 $ 9,310 18,290 18,290 10,000 10,000 9,000 9,000 Based on absorption costing Finished-goods inventory Retained earnings LEHIGHTON CHALK COMPANY Selected Balance Sheet Information End of Year 1 $ 6,480 11,000 End of Year $0 17,720 LEHIGHTON CHALK COMPANY Selected Balance Sheet Information Based on variable costing Finished-goods inventory Retained earnings End of Year 1 $ 2,940 7,460 End of Year $ 0 17,720 Required: 4. Compute the amount by which the year-end balance in finished-goods inventory declined during year 2 (i.e., between December 31 of year 1 and December 31 of year 2): Using the data from the balance sheet prepared under absorption costing. Using the data from the balance sheet prepared under variable costing. 5. Refer to your calculations from requirement 4. Compute the difference in the amount by which the year-end balances in finished-goods inventory declined under absorption versus variable costing. Then compare the amount of this difference with the difference in the company's reported operating income for year 2 under absorption versus variable costing. 6. Notice that the retained earnings balance at the end of both years 1 and 2 on the balance sheet prepared under absorption costing is greater than or equal to the corresponding retained earnings balance on the statement prepared under variable costing. Will this relationship hold true at any balance sheet date? Complete this question by entering your answers in the tabs below. Required 4 Required 5 Required 6 Compute the amount by which the year-end balance in finished-goods inventory declir December 31 of year 1 and December 31 of year 2): Using the data from the balance sheet prepared under absorption costing. Using the data from the balance sheet prepared under variable costing. Absorption costing Variable costing Amount of Decline Required 4 Required 5 Required 6 Refer to your calculations from requirement 4. Compute the difference in the amount by which the year-end balances in finished-goods inventory declined under absorption versus variable costing. Then compare the amount of this difference with the difference in the company's reported operating income for year 2 under absorption versus variable costing. Note: Negative amounts should be indicated by a minus sign. Amount of decline in finished-goods inventory balance during year 2 Reported operating income for year 2 (absorption versus variable costing) Amount of Difference Show less