What was lehighton total operating income across both years

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Reference no: EM131917589

Question - 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-An-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	Year 2
Sales (in units)	2,500	2,500
Production (in units)	3,000	2,000
Production costs:
Variable manufacturing costs	$11,400	$7,600
Fixed manufacturing overhead	14,400	14,400
Selling and administrative costs:
Variable	10,000	10,000
Fixed	9,000	9,000

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

LEHIGHTON CHALK COMPANY Selected Balance Sheet Information
Based on absorption costing	End of Year 1	End of Year 2
Finished-goods inventory	$4,300	$0
Retained earnings	11,500	21,000
Based on variable costing	End of Year 1	End of Year 2
Finished-goods inventory	$1,900	$0
Retained earnings	9,100	21,000

Required -

Part A -

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, select which of the following statements (is) are true by selecting an "X".

Part B - Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year

1. Prepare operating income statements for both years based on absorption costing.

2. Prepare operating income statements for both years based on variable costing.

3. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2).

Reference no: EM131917589

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