Refer to the information given in the preceding case for Huron Chalk Company.

In the preceding case

Required: 

1. Reconcile Huron’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 Huron’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. Comment on the results obtained in requirements (1), (2), (3), and (4) in light of the following assertion: Timing is the key in distinguishing between absorption and variable costing.

Year 1 Sales (In units) Production (in units) Production costs: Year 2 2,500 2,000 2,500 3,000 $10,500 21,000 7,000 21,000 Variable manufacturing costs Fixed manufacturing overhead Selling and administrative expenses: Variable Fixed 12,500 10,000 12,500 10,000