Solution for QID #1761: Lehighton Chalk Company manufactures sidewalk chalk, which i | StudyHelpMe

Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $28 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)   3,100     3,100   Production (in units)   3,700     2,500   Production costs:             Variable manufacturing costs $ 20,350   $ 13,750   Fixed manufacturing overhead   24,790     24,790   Selling and administrative costs:             Variable   12,400     12,400   Fixed   11,400     11,400       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 $ 7,320   $ 0   Retained earnings   19,680     34,120                 Based on variable costing End of Year 1 End of Year 2 Finished-goods inventory $ 3,300   $ 0   Retained earnings   15,660     34,120     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).