Lehlghton Chalk Company manufactures sldewalk chalk, which It sells online by the box at $28 per unlt. Lehighton uses an actual costing system, which means that the actual costs of direct materlal, 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: Year 1 3,1e0 3,7ee Year 2 3,100 2,5ee Variable manufacturing costs Fixed manufacturing overhead $2,350 $13,750 24,79 24,79e Selling and administrative costs: Variable Fixed 12,40 12,4ee 11,400 11,4ee Selected Information from Lehighton's year-end balance sheets for its first two years of operation is as follows: LEHGHTON CHALK COMPA Selected Balance Sheet Information Based on absorption costing Finished-goods inventory Retained earnings End of Year 1 $ 7,32e 19,683 End of Year 2 34,12e End of Year 2 34,12e Based on variable costing Finished-goods inventory Retained earnings End of Year 1 $ 3,3ee 15, 668 Requirec 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 varlable costing? 3. What was the total sales revenue across both years under absorption costing and under varlable costing? 4. What was the total of all costs expensed on the operating Income statements across both years under absorption costing and under varlable costing? 5. Subtract the total costs expensed across both years [requlrement (4)] from the total sales revenue across both years [requirement (3)] (a) under absorption costing and (b) under varlable costing 6. Considering the results obtained in requirements 1-5 above, select which of the following statements (is) are true by selecting an "X" 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 Year 1 Year 2 ,edi Subtotal 0 S Total Difference in operating income What was Lehighton's total operating income across both years under absorption costing and under variable costing? Total Operating Income Absorption costing Variable costing What was the total sales revenue across both years under absorption costing and under variable costing? Total Sales Revenue Absorption costing Variable costing What was the total of all costs expensed on the operating income statements across both years under absorption costing and nder variable costing? Costs Expensed Absorption costing Variable costing Subtract the total costs expensed across both years [requirement (4)] from the total sales revenue across both years reguirem ent (3)1: (a) under absorption costing and (b) under variable costing Amount Absorption costing Variable costing Considering the results obtained in reguirements 1-5 above, select which of the following statements (is are true by selecting aX 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
