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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: Sales (in units) Production (in units) Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: Variable Fixed Based on absorption costing Finished-goods inventory Retained earnings Year 1 2,600 3,100 Based on variable costing Finished-goods inventory Retained earnings $15,500 18,600 10,400 9,400 Year 2 2,600 2,100 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 End of Year 1 $5,500 11,100 End of Year 1 $ 2,500 8,100 $10,500 18,600 10,400 9,400 End of Year 2 $ 0 19,000 End of Year 2 $ 0 19,000

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: Sales (in units) Production (in units) Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: Variable Fixed Based on absorption costing Finished-goods inventory Retained earnings Year 1 2,600 3,100 Based on variable costing Finished-goods inventory Retained earnings $15,500 18,600 10,400 9,400 Year 2 2,600 2,100 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 End of Year 1 $5,500 11,100 End of Year 1 $ 2,500 8,100 $10,500 18,600 10,400 9,400 End of Year 2 $ 0 19,000 End of Year 2 $ 0 19,000

FINANCIAL ACCOUNTING
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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**Lehighton Chalk Company Overview:** Lehighton Chalk Company manufactures sidewalk chalk, selling it online at $25 per unit. The company employs an actual costing system, capturing the real costs of direct materials, direct labor, and manufacturing overhead as they occur. Manufacturing overhead is applied based on actual production. Below is a summary of Lehighton’s operations for its first two years. **Operational Data:** - **Year 1:** - Sales (units): 2,600 - Production (units): 3,100 - Production Costs: - Variable manufacturing costs: $15,500 - Fixed manufacturing overhead: $18,600 - Selling and Administrative Costs: - Variable: $10,400 - Fixed: $9,400 - **Year 2:** - Sales (units): 2,600 - Production (units): 2,100 - Production Costs: - Variable manufacturing costs: $10,500 - Fixed manufacturing overhead: $18,600 - Selling and Administrative Costs: - Variable: $10,400 - Fixed: $9,400 **Balance Sheet Highlights:** - **Based on Absorption Costing:** - **End of Year 1:** - Finished-goods inventory: $5,500 - Retained earnings: $11,100 - **End of Year 2:** - Finished-goods inventory: $0 - Retained earnings: $19,000 - **Based on Variable Costing:** - **End of Year 1:** - Finished-goods inventory: $2,500 - Retained earnings: $8,100 - **End of Year 2:** - Finished-goods inventory: $0 - Retained earnings: $19,000 **Explanation of Graphs/Diagrams:** The data is presented in tabular format, comparing two costing methods over two years. Absorption costing includes both variable and fixed manufacturing costs in product costs, while variable costing includes only variable manufacturing costs. The differences impact inventory valuation and retained earnings.
Transcribed Image Text:**Lehighton Chalk Company Overview:** Lehighton Chalk Company manufactures sidewalk chalk, selling it online at $25 per unit. The company employs an actual costing system, capturing the real costs of direct materials, direct labor, and manufacturing overhead as they occur. Manufacturing overhead is applied based on actual production. Below is a summary of Lehighton’s operations for its first two years. **Operational Data:** - **Year 1:** - Sales (units): 2,600 - Production (units): 3,100 - Production Costs: - Variable manufacturing costs: $15,500 - Fixed manufacturing overhead: $18,600 - Selling and Administrative Costs: - Variable: $10,400 - Fixed: $9,400 - **Year 2:** - Sales (units): 2,600 - Production (units): 2,100 - Production Costs: - Variable manufacturing costs: $10,500 - Fixed manufacturing overhead: $18,600 - Selling and Administrative Costs: - Variable: $10,400 - Fixed: $9,400 **Balance Sheet Highlights:** - **Based on Absorption Costing:** - **End of Year 1:** - Finished-goods inventory: $5,500 - Retained earnings: $11,100 - **End of Year 2:** - Finished-goods inventory: $0 - Retained earnings: $19,000 - **Based on Variable Costing:** - **End of Year 1:** - Finished-goods inventory: $2,500 - Retained earnings: $8,100 - **End of Year 2:** - Finished-goods inventory: $0 - Retained earnings: $19,000 **Explanation of Graphs/Diagrams:** The data is presented in tabular format, comparing two costing methods over two years. Absorption costing includes both variable and fixed manufacturing costs in product costs, while variable costing includes only variable manufacturing costs. The differences impact inventory valuation and retained earnings.
**Educational Resource: Variable Costing and Absorption Costing** --- **Instructions for Students:** 1. **Prepare Operating Income Statements** - Develop operating income statements for both years using variable costing. 2. **Reconcile Income Differences** - Create a numerical reconciliation to identify the differences in income as reported under the two costing methods from requirements 1 and 2. **Note:** Be sure to complete and input your answers in the table provided below. --- **Answer Section:** - **Status:** Answer is not complete. **Instructions:** Complete this question by entering your answers in the table below. **Task Overview:** Prepare a numerical reconciliation of the difference in income reported using the two costing methods specified in requirements 1 and 2. --- **Table Analysis:** | Year | Change in Inventory (in units) | Actual Fixed-Overhead Rate | Difference in Fixed Overhead Expensed | Absorption-Minus Variable-Costing Operating Income | |------|-------------------------------|-----------------------------|----------------------------------------|----------------------------------------------------| | 1 | | x | | | | 2 | | x | | | --- - **Table Description:** The table provided requires you to analyze changes in inventory units over two years, denote respective fixed overhead rates, identify any differences in fixed overhead expenses, and finally assess the difference between absorption and variable costing operating income. **Navigation:** Use the "Prev" and "Next" buttons to move through different sections if needed. --- **End of Educational Resource**
Transcribed Image Text:**Educational Resource: Variable Costing and Absorption Costing** --- **Instructions for Students:** 1. **Prepare Operating Income Statements** - Develop operating income statements for both years using variable costing. 2. **Reconcile Income Differences** - Create a numerical reconciliation to identify the differences in income as reported under the two costing methods from requirements 1 and 2. **Note:** Be sure to complete and input your answers in the table provided below. --- **Answer Section:** - **Status:** Answer is not complete. **Instructions:** Complete this question by entering your answers in the table below. **Task Overview:** Prepare a numerical reconciliation of the difference in income reported using the two costing methods specified in requirements 1 and 2. --- **Table Analysis:** | Year | Change in Inventory (in units) | Actual Fixed-Overhead Rate | Difference in Fixed Overhead Expensed | Absorption-Minus Variable-Costing Operating Income | |------|-------------------------------|-----------------------------|----------------------------------------|----------------------------------------------------| | 1 | | x | | | | 2 | | x | | | --- - **Table Description:** The table provided requires you to analyze changes in inventory units over two years, denote respective fixed overhead rates, identify any differences in fixed overhead expenses, and finally assess the difference between absorption and variable costing operating income. **Navigation:** Use the "Prev" and "Next" buttons to move through different sections if needed. --- **End of Educational Resource**
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