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ID: 2397802 • Letter: R
Question
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Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $26 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-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:
Year 1
Year 2
Sales (in units)
2,800
2,800
Production (in units)
3,400
2,200
Production costs:
Variable manufacturing costs
$
17,680
$
11,440
Fixed manufacturing overhead
21,080
21,080
Selling and administrative costs:
Variable
11,200
11,200
Fixed
10,200
10,200
Selected information from Lehighton’s 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
$
6,840
$
0
Retained earnings
13,980
23,320
Based on variable costing
End of Year 1
End of Year 2
Finished-goods inventory
$
3,120
$
0
Retained earnings
10,260
23,320
Required:
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".
Year 1
Year 2
Sales (in units)
2,800
2,800
Production (in units)
3,400
2,200
Production costs:
Variable manufacturing costs
$
17,680
$
11,440
Fixed manufacturing overhead
21,080
21,080
Selling and administrative costs:
Variable
11,200
11,200
Fixed
10,200
10,200
Explanation / Answer
Solution 1:
Solution 2:
Solution 3:
Absorption costing:
Sales revenue - Year 1 = $72,800
Sales revenue - Year 2 = $72,800
Total sales revenue for both years = $72,800 + $72,800 = $145,600
Variable costing:
Sales revenue - Year 1 = $72,800
Sales revenue - Year 2 = $72,800
Total sales revenue for both years = $72,800 + $72,800 = $145,600
Solution 4:
Absorption costing:
Total of all costs expensed on the operating income statements - Year 1 = $31,920 + $11,200 + $10,200 = $53,320
Total of all costs expensed on the operating income statements - Year 2 = $39,360 + $11,200 + $10,200 = $60,760
Total of cost for year 1 & 2 = $53,320 + $60,760 = $114,080
Variable costing:
Total of all costs expensed on the operating income statements - Year 1 = $14,560 + $11,200 + $21,080 + $10,200 = $57,040
Total of all costs expensed on the operating income statements - Year 2 = $14,560 + $11,200 + $21,080 + $10,200 = $57,040
Total of cost for year 1 & 2 = $57,040 + $57,040 = $114,080
Note: I have answered first 4 parts of the question as per chegg policy, kindly post separate question for answer of remaining parts.
Reconciliation of operating income under variable costing and absorption costing Particulars Year 1 Year 2 Cost of goods sold under absorption costing $31,920.00 $39,360.00 Less: Variable manufacturing cost under variable costing $14,560.00 $14,560.00 $17,360.00 $24,800.00 Fixed manufacturing overhead as period expense under variable costing $21,080.00 $21,080.00 Difference in income under variable costing and absorption costing -$3,720.00 $3,720.00 Add: Operating income under absorption costing $19,480.00 $12,040.00 Operating income under variable costing $15,760.00 $15,760.00Related Questions
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