Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by th

Question

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:

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

Required:

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

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

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

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

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

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

Working

Variable Costing Year 1 Year 2 Sales Revenue 2800*26 72800 72800 Variable Cost Beginning Inventory Given 0 3120 Variable Manufacturing cost 17680 11440 Cost of Goods available for Sale Beginning+Variable 17680 14560 Ending Inventory 600*5.2 3120 0 Variable Cost of goods Sold 14560 14560 Variable Selling Cost 11200 11200 Total Variable Cost 25760 25760 Contributiofn Margin 47040 47040 Fixed Cost: Fixed Manuf GIven 21080 21080 Fixed Selling GIven 10200 10200 Net Operating Income 15760 15760 Absorption Costing Year 1 Year 2 Sales Revenue 2800*26 72800 72800 Fixed Cost/Prod*Sale unit Variable Cost Beginning Inventory Given 0 6840 Variable Manufacturing cost 17680 11440 Allocated Fixed Manu Cost 2800*per unit cost 6.2 and 9.58 17360 17360 Cost of Goods available for Sale Beginning+Variable+Fixed 35040 35640 Ending Inventory 600*11.4 6840 0 Adjustment for prod vol variance 3720 3720 Cost of goods Sold 31920 39360 Gross Margin 40880 33440 Operating Cost: Variable Selling 11200 11200 Fixed Selling 10200 10200 Net Operating Income 19480 12040 Net Operating Income Year 1 Year 2 Absorption 19480 12040 Variable 15760 15760 Difference 3720 -3720 Less: Fixed Manu cost in Ending inventory 3720 0 (600*5.2) Add: Fixed Manu cost in beginning inventory 3720 (600*5.2) Reco 0 0

Related Questions

Navigate

• Browse (All)
• Browse L
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.