Explanation At the end of year 1 under absorption costing 2440 of fixed

Explanation at the end of year 1 under absorption

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calculation, not the year 2 rate. Explanation: At the end of year 1, under absorption costing, $2,440 of fixed overhead remained stored in finished-goods inventory as a product cost (year 1 fixed-overhead rate of $6.10 per unit × 400 units = $2,440). However, in year 1, under variable costing, that fixed overhead was expensed as a period cost. In year 2, under absorption costing, that same $2,440 of fixed overhead was expensed when the units were sold. However, under variable costing, that $2,440 of fixed overhead cost had already been expensed in year 1 as a period cost. Prepare operating income statements for both years based on absorption costing . LEHIGHTON CHALK COMPANY Income Statement Year 1 Year 2 Sales revenue $70,200 $70,200 Cost of goods sold: Beginning finished-goods inventory $4,480 Cost of goods manufactured 34,720 30,640 Cost of goods available for sale $34,720 $35,120 Ending finished-goods inventory 4,480 Cost of goods sold $30,240 $35,120 Gross margin $39,960 $35,080 Selling and administrative expenses 20,600 20,600 Operating income $19,360 $14,480 Prepare operating income statements for both years based on variable costing. LEHIGHTON CHALK COMPANY Income Statement
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Year 1 Year 2 Sales revenue $70,200 $70,200 Cost of goods sold: Beginning finished-goods inventory $2,040 Cost of goods manufactured 15,810 11,730 Cost of goods available for sale $15,810 $13,770 Ending finished-goods inventory 2,040 Cost of goods sold $13,770 $13,770 Variable selling and administrative costs 10,800 10,800 Total variable costs: $24,570 $24,570 Contribution margin $45,630 $45,630 Fixed costs: Fixed manufacturing costs $18,910 $18,910 Fixed selling and administrative expenses 9,800 9,800 Total fixed costs $28,710 $28,710 Operating income $16,920 $16,920 Prepare a numerical reconciliation of the difference in income reported under the two costing methods used in requirements (1) and (2). Year Change in Inventory (in units) Actual fixed- overhead rate Difference in fixed overhead expensed Absorption- minus variable- costing operating income 1 400 increase × $6.10 $2,440 2,440 2 400 decrease × $6.10 $(2,440) (2,440)
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  • Spring '14
  • Zeeshan
  • Revenue, Lehighton Chalk Company, actual costs of direct material, Lehighton’s year-end balance sheets

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