Please don't give image format Required 4Required 5 Required 6Compute the amount by which the year-end balance in finished-goods inventory declined during year 2 (i.e., betweenDecember 31 of year 1 and December 31 of year 2):• Using the data from the balance sheet prepared under absorption costing.• Using the data from the balance sheet prepared under variable costing.Absorption costingVariable costingAmount ofDeclineRequired 4 Required 5 Required 6Refer to your calculations from requirement 4. Compute the difference in the amount by which the year-end balances infinished-goods inventory declined under absorption versus variable costing. Then compare the amount of this difference withthe difference in the company's reported operating income for year 2 under absorption versus variable costing. (Negativeamounts should be indicated by a minus sign.)Amount of decline in finished-goods inventory balance during year 2Reported operating income for year 2 (absorption versus variable costing)Show lessAmount ofDifferenceShow lessRequired 4 Required 5 Required 6Notice that the retained earnings balance at the end of both years 1 and 2 on the balance sheet prepared under absorption costing isgreater than or equal to the corresponding retained earnings balance on the statement prepared under variable costing. Will thisrelationship hold true at any balance sheet date?OYes, this relationship will always hold true at any balance sheet date.OYes, this relationship will hold true at any balance sheet date because income reported under variable costing will exceed income reported underabsorption costing during any period that inventory increases.ONo, this relationship will not always hold true at any balance sheet date because of timing differences. Increases and decreases in inventoryhave no effect on reported income between the two costing methods. Required informationUse 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 $23 per unit. Lehighton usesan actual costing system, which means that the actual costs of direct material, direct labor, and manufacturing overheadare entered into work-in-process inventory. The actual application rate for manufacturing overhead is computed eachyear; actual manufacturing overhead is divided by actual production (in units) to compute the application rate. Informationfor Lehighton's first two years of operation is as follows:Sales (in units)Production (in units)Production costs:Variable manufacturing costsFixed manufacturing overheadSelling and administrative costs:VariableFixedBased on absorption costingFinished-goods inventoryRetained earningsYear 12,6003,000Based on variable costingFinished-goods inventoryRetained earnings$11,70014,70010,4009,400Selected information from Lehighton's year-end balance sheets for its first two years of operation is as follows:LEHIGHTON CHALK COMPANYSelected Balance Sheet InformationEnd of Year 1$ 3,52011,620Year 22,6002,200End of Year 1$ 1,5609,660$ 8,58014,70010,4009,400End of Year 2$ 022, 120End of Year 222,120Case 8-44 Absorption and Variable Costing; Effect on the Balance Sheet; Continuation of PrecedingCase (LO 8-1, 8-4)Required:4. Compute the amount by which the year-end balance in finished-goods inventory declined during year 2 (i.e., between December 31of year 1 and December 31 of year 2):Using the data from the balance sheet prepared under absorption costing.• Using the data from the balance sheet prepared under variable costing.5. Refer to your calculations from requirement 4. Compute the difference in the amount by which the year-end balances in finished-goods inventory declined under absorption versus variable costing. Then compare the amount of this difference with the difference inthe company's reported operating income for year 2 under absorption versus variable costing.6. Notice that the retained earnings balance at the end of both years 1 and 2 on the balance sheet prepared under absorption costingis greater than or equal to the corresponding retained earnings balance on the statement prepared under variable costing. Will thisrelationship hold true at any balance sheet date?

The variable costing method assumes that only the variable costs of production must be treated as…

Required 4 Required 5 Required 6 Compute the amount by which the year-end balance in finished-goods inventory declined during year 2 (i.e., between December 31 of year 1 and December 31 of year 2): • Using the data from the balance sheet prepared under absorption costing. Using the data from the balance sheet prepared under variable costing. Absorption costing Variable costing Amount of Decline Required 4 Required 5 Required 6 Refer to your calculations from requirement 4. Compute the difference in the amount by which the year-end balances in finished-goods inventory declined under absorption versus variable costing. Then compare the amount of this difference with the difference in the company's reported operating income for year 2 under absorption versus variable costing. (Negative amounts should be indicated by a minus sign.) Amount of decline in finished-goods inventory balance during year 2 Reported operating income for year 2 (absorption versus variable costing) Show less A Amount of Difference Show less A Required 4 Required 5 Required 6 Notice that the retained earnings balance at the end of both years 1 and 2 on the balance sheet prepared under absorption costing is greater than or equal to the corresponding retained earnings balance on the statement prepared under variable costing. Will this relationship hold true at any balance sheet date? OYes, this relationship will always hold true at any balance sheet date. OYes, this relationship will hold true at any balance sheet date because income reported under variable costing will exceed income reported under absorption costing during any period that inventory increases. ONo, this relationship will not always hold true at any balance sheet date because of timing differences. Increases and decreases in inventory have no effect on reported income between the two costing methods.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q