Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $23 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 2,500 Year 2 2,500 Sales (in units) Production (in units) Production costs: 3,100 1,900 Variable manufacturing costs $14,260 $ 8,740 17,360 17,360 Fixed manufacturing overhead Selling and administrative costs: Variable. 10,000 10,000 Fixed 9,000 9,000 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 End of Year 2 Based on absorption costing Finished-goods inventory Retained earnings. End of Year 1 $ 6,120 $ 0 11,080 7,500 Based on variable costing Finished-goods inventory Retained earnings End of Year 1 $ 2,760 4,140 End of Year 2 $ 0 11,080 Case 8-43 Analysis of Differences in Absorption-Costing and Variable-Costing Income Statements; Continuation of Preceding Case (LO 8-1, 8-6) 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) 2. What was Lehighton's total operating income across both years under absorption costing and under variable costing? 3. What was the total sales revenue across both years under absorption costing and under variable costing? 4. What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing? 5. 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. 6. Considering the results obtained in requirements 1-5 above, evaluate the following statements. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 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) Show less A Year 1 Year 2 Subtotal Total Difference in operating income 0 $ 0 $ 0 0 Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 What was Lehighton's total operating income across both years under absorption costing and under variable costing? Total Operating Income Absorption costing Variable costing Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 What was the total sales revenue across both years under absorption costing and under variable costing? Total Sales Revenue Absorption costing Variable costing Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 What was the total of all costs expensed on the operating income statements across both years under absorption costing and under variable costing? Costs Expensed Absorption costing Variable costing Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 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. Amount Absorption costing Variable costing Required 1 Required 2 Required 3 Required 4 Required 5 Required 6 Considering the results obtained in requirements 1-5 above, evaluate the following statements. (Select "Yes" if the statement is true, and "No" if it is not.) Sales revenue is different depending on the costing method used. Timing is the key in distinguishing between absorption and variable costing. Since Lehighton's combined operating income, across the two-year period, is the same under both absorption and variable costing, then the operating income must be the same within each year under both methods. The difference between absorption and varible costing is caused by the timing with which expenses are recognized.