The following information applies to the questions displayed below Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $22 per unit Huron 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 Hurons first two years of operations is as follows Year 1 Year 2 Sales (in units) 3,100 3,100 Production (in units) 3,600 2,600 Production costs Variable manufacturing costs $ 15,840 $ 11,440 Fixed manufacturing overhead 19,440 19,440 Selling and administrative expenses Variable 12,400 12,400 Fixed 11,400 11,400 Selected information from Hurons year end balance sheets for its first two years of operation is as follows HURON CHALK COMPANY Selected Balance Sheet Information Based on absorption costing End of Year 1 End of Year 2 Finished goods inventory $ 4,900 $ 0 Retained earnings 8,520 14,440 Based on variable costing End of Year 1 End of Year 2 Finished goods inventory $ 2,200 $ 0 Retained earnings 5,820 14,440 For convenience, assume that dividends for Year 1 is $5,500 and Year 2 is $2,700 No taxes or other expenses were incurred for both the years Case 8 44 Absorption and Variable Costing Effect on the Balance Sheet Continuation of Preceding Case (LO 8 1, 8 4) 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 companys reported income for year 2 under absorption versus variable costing (Negative amounts should be indicated by a minus sign )

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[The following information applies to the questions displayed below.] Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $22 per

[The following information applies to the questions displayed below.]

Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $22 per unit. Huron 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 Hurons first two years of operations is as follows:

	Year 1		Year 2
Sales (in units)		3,100		3,100
Production (in units)		3,600		2,600
Production costs:
Variable manufacturing costs	$	15,840	$	11,440
Fixed manufacturing overhead		19,440		19,440
Selling and administrative expenses:
Variable		12,400		12,400
Fixed		11,400		11,400

Selected information from Hurons year-end balance sheets for its first two years of operation is as follows:

HURON CHALK COMPANY
Selected Balance Sheet Information
Based on absorption costing	End of Year 1		End of Year 2
Finished-goods inventory	$	4,900	$	0
Retained earnings*		8,520		14,440

Based on variable costing	End of Year 1		End of Year 2
Finished-goods inventory	$	2,200	$	0
Retained earnings*		5,820		14,440

*	For convenience, assume that dividends for Year 1 is $5,500 and Year 2 is $2,700. No taxes or other expenses were incurred for both the years.

Case 8-44 Absorption and Variable Costing; Effect on the Balance Sheet; Continuation of Preceding Case (LO 8-1, 8-4)

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.

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 companys reported income for year 2 under absorption versus variable costing. (Negative amounts should be indicated by a minus sign.)