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.

Absorption costing ? amount of decline

variable costing ? amount of decline

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.)
	Amount decline in finished-goods inventory balance during year 2? Reported operating income for year 2 (absorption versus vatiable costing?