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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:

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

Required:

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)

I finished the problem but I am having an issue with completing 1. Can someone please check my work and help me fill in the empty spaces. Thank you

Year 1 Year 2 Sales (in units) 3,000 3,000 Production (in units) 3,600 2,400 Production costs: Variable manufacturing costs $ 15,480 $ 10,320 Fixed manufacturing overhead 19,080 19,080 Selling and administrative costs: Variable 12,000 12,000 Fixed 11,000 11,000 Required1Required 2Required 3 Required 4Required 5 Required 6 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) Show less Year 1 Year 2 35,160 12,900 48,060 30,080 17,980 Cost of goods sold under absorption costing 28,800$ 12,900 41,700 $ 30,080 11,620 $ riable manufacturing costs under variable costing Subtotal ixed manufacturing overhead as period expense under variable costing Total 0 Operating income under variable costing Required 2> Operating loss under variable costing

Explanation / Answer

Solution 1:

Reconciliation of operating income under variable costing and absorption costing Particulars Year 1 Year 2 Cost of goods sold under absorption costing $28,800.00 $35,160.00 Less: Variable manufacturing cost under variable costing $12,900.00 $12,900.00 $15,900.00 $22,260.00 Fixed manufacturing overhead as period expense under variable costing $19,080.00 $19,080.00 Difference in income under variable costing and absorption costing -$3,180.00 $3,180.00 Add: Operating income under absorption costing $14,200.00 $7,840.00 Operating income under variable costing $11,020.00 $11,020.00

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