Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $25 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 2,600 3,100 Year 2 2,600 2,100 Sales (in units) Production (in units) Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: Variable Fixed $15,500 $10,500 18,600 18,600 10,400 9,400 10,400 9,400 Selected information from Lehighton's year-end balance sheets for its first two years of operation is as follows: LEHIGHTON CHALK COMPANY

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required information
Use the following information to answer questions 42-44
(The following information applies to the questions displayed below.]
Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $25 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
2,600
3,100
Year 2
2,600
2,100
Sales (in units)
Production (in units)
Production costs:
Variable manufacturing costs
Fixed manufacturing overhead
Selling and administrative costs:
Variable
$15,500
18,600
$10,500
18,600
10,400
9,400
10,400
9,400
Fixed
Selected information from Lehighton's year-end balance sheets for its first two years of operation is as follows:
Based on absorption costing
Finished-goods inventory
Retained earnings
LEHIGHTON CHALK COMPANY
Selected Balance Sheet Information
End of Year 1
$ 5,500
11, 100
End of Year 2
19,000
Based on variable costing
Finished-goods inventory
Retàined earnings
End of Year 1
$ 2,500
8,100
End of Year 2
$
19,000
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Transcribed Image Text:Required information Use the following information to answer questions 42-44 (The following information applies to the questions displayed below.] Lehighton Chalk Company manufactures sidewalk chalk, which it sells online by the box at $25 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 2,600 3,100 Year 2 2,600 2,100 Sales (in units) Production (in units) Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: Variable $15,500 18,600 $10,500 18,600 10,400 9,400 10,400 9,400 Fixed Selected information from Lehighton's year-end balance sheets for its first two years of operation is as follows: Based on absorption costing Finished-goods inventory Retained earnings LEHIGHTON CHALK COMPANY Selected Balance Sheet Information End of Year 1 $ 5,500 11, 100 End of Year 2 19,000 Based on variable costing Finished-goods inventory Retàined earnings End of Year 1 $ 2,500 8,100 End of Year 2 $ 19,000 Prev 1 2 of 3 Next > MacBook Pro %24 %23 2 4 8. 10 W R Y S D F K LI
Case 8-42 Comparison of Absorption and Variable Costing; Actual Costing (LO 8-2, 8-3, 8-4)
Required:
Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year.
1. Prepare operating income statements for both years based on absorption costing.
2. Prepare operating income statements for both years based on variable costing.
3. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements 1 and
2.
Complete this question by entering your answers in the tabs below.
Transcribed Image Text:Case 8-42 Comparison of Absorption and Variable Costing; Actual Costing (LO 8-2, 8-3, 8-4) Required: Lehighton Chalk Company had no beginning or ending work-in-process inventories for either year. 1. Prepare operating income statements for both years based on absorption costing. 2. Prepare operating income statements for both years based on variable costing. 3. Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements 1 and 2. Complete this question by entering your answers in the tabs below.
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