Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box 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 Lehightons first two years of operation is as follows:

	Year 1			Year 2
Sales (in units)		2,600			2,600
Production (in units)		3,100			2,100
Production costs:
Variable manufacturing costs	$	15,500		$	10,500
Fixed manufacturing overhead		18,600			18,600
Selling and administrative costs:
Variable		10,400			10,400
Fixed		9,400			9,400

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	$	5,500		$	0
Retained earnings		11,100			19,000
Based on variable costing	End of Year 1			End of Year 2
Finished-goods inventory	$	2,500		$	0
Retained earnings		8,100			19,000

Required:

1. Reconcile Lehightons 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)

Reconcile Lehightons 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)

Year 2 Year 1 Choose 2 Below Cost of Goods Sold Under Obsorption Costing; or Fixed Manufacturing Overhead as Period Expense Under Variable Costing; or Sales Revenue; or Variable Manufacturing Costs Under Variable Costing; Variable Selling and Administrative Costs or Subtotal Choose 1 Below: Cost of Goods Sold Under Absorption Costing; or Fixed Manufacturing Overhead as Period Expense Under Variable Costing; or Sales Revenue; or Variable Manufacturing Costs Under Variable Costing; or Variable Selling and Administrative Costs Total Choose 1 Below: Operating Income Under Variable Costing; Operating Loss Under Variable Costing or Choose 1 Below: Add: Operating Income Under Absorption Costing Less: Operating Income Under Absorption Costing Difference In Operating Income