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)

  

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Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $22 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) Production (in units) 3,000 3,600 3,000 2,400 Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: $15,480 19,080 $10,320 19,080 Variable 12,000 11,000 12,000 11,000 Fixed Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $22 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) Production (in units) 3,000 3,600 3,000 2,400 Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: $15,480 19,080 $10,320 19,080 Variable 12,000 11,000 12,000 11,000 Fixed

Answer rating: 100% (QA)

Absorption costing operating income Year 1 Year 2 Sales units 3000 3000 production units 3600 2400 S... View the full answer