Problem 8-38 Variable Costing and Absorption Costing Income Statements; Reconciling Reported Operating Income (LO 8-2, 8-3, 8-4) Chataqua Can Company manufactures metal cans used in the food processing industry. A case of cans sells for $30. The variable costs of production for one case of cans are as follows: Direct material Direct labor Variable manufacturing overbead $ 6.00 2.09 7.00 $ 15.00 Total variable manufacturing cost per case Variable selling and administrative costs amount to $0.80 per case. Budgeted fixed manufacturing overhead is $623,000 per year, and fixed selling and administrative cost is $45,000 per year. The following data pertain to the company's first three years of operation Year 1 Year 2 Year 3 Planned production (in units) 89.ee 89,000 89,000 Finished-goods inventory (in units), January 1 0 27. See Actual production (in units) 89,000 89,000 89,000 Sales (in units) 89,000 61,500 102,750 Finished goods inventory (in units), December 31 @ 27.500 13,750 Actual costs were the same as the budgeted costs Required: 1. Prepare operating income statements for Chataqua Can Company for its first three years of operations using a. Absorption costing b. Variable costing 2. Reconcile Chataqua Can Company's operating income reported under absorption and variable costing for each of its first three years of operation Use the shortcut method 3. Suppose that during Chataqua's fourth year of operation actual production equais planned production, actual costs are as expected, and the company ends the year with no inventory on hand, a. What will be the difference between absorption-costing income and variable-costing income in year 4? b What will be the relationship between total operating income for the four-year period as reported under absorption and variable costing? Complete this question by entering your answers in the tabs below. operating income for the four-year period as reported costing? Complete this question by entering your answers in the tabs below. Req 1A Reg 1B Req 2 Req Req 3B Prepare operating income statements for Chataqua Can Company for its first three years of operations us costing. Year 1 Year 2 Year 3 0 $ 0 $ 0 Selling and Administrative Expenses 0 $ 0 $ Req1A Req 1B > Complete this question by entering your answers in the tabs below. Req 1A Reg Reg 2 Req 3A Reg 3B Prepare operating income statements for Chataqua Can Company for its first three years of operations Year 1 Year 2 Year 3 Variable expenses $ 0 $ 0 $ 0 Fixed expenses 0 $ 0 $ 0 Actual costs were the same as the budgeted costs. Required: 1. Prepare operating income statements for Chataqua Can Company for its first three years of operations using a Absorption costing. b. Variable costing 2. Reconcile Chataqua Can Company's operating income reported under absorption and variable costing for each of its first three years of operation. Use the shortcut method. 3. Suppose that during Chataqua's fourth year of operation actual production equals planned production, actual costs are as expech and the company ends the year with no inventory on hand. a. What will be the difference between absorption-costing income and variable-costing income in year 42 b. What will be the relationship between total operating income for the four-year period as reported under absorption and variable costing? Complete this question by entering your answers in the tabs below. Reg 3B Req 1A Req 1B Reg 2 Reg Suppose that during Chataqua's fourth year of operation actal production equals planned production, actual costs are as expected, and the company ends the year with no inventory on hand. What will be the relationship between total operating income for the four-year period as reported under absorption and variable costing? Total operating income will be higher under variable costing Total operating income will be higher under absorption casting Total operating income will be same under absorption and variable costing
