Question

[The following information applies to the questions displayed below.) Huron Chalk Company manufactures sidewalk chalk which it sells online by the box at $26 per unit. Huron 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 Huron's first two years of operations is as follows: Year 1 2,700 3,100 Year 2 2,700 2,300 $15.810 $ 11,730 Sales (in units) Production (in units) Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative expenses: Variable Fixed 18,910 18,910 10,800 9,800 10,800 9,800 Selected information from Huron's year-end balance sheets for its first two years of operation is as follows: HURON CHALK COMPANY Selected Balance Sheet Information Based on absorption End of Year 1 End of Year 2 costing Finished-goods inventory $ 4,480 $ 0 Retained earnings* 13,860 25,640 Based on variable costing End of Year 1 End of Year 2 Finished-goods inventory $ 2,040 $ 0 Retained earnings* 11,420 25,640 * For convenience, assume that dividends for Year 1 is $5,500 and Year 2 is $2,700. No taxes or other expenses were incurred for both the years.

Answer 1

From the information given above I have answered the first four questions

G H B C D E F 1 Huron Chalk Company 2 1. Reconciliation of Huron's operating income reported under Absorption and 3 Variable costing each year. 4. Absorption Costing Variable Costing 5 Year 1 Year 2 Year 1 Year 2 6 Retained Earnings | 13860 25640 11420 25640 7 Add: Dividends paid 5500 2700 5500 2700 8 Less: Opening balance 13860 11420 9 operating income 19360 14480 16920 16920 10 3100 18 11 Calculation of predetermined fixed manufacturing overhead rate based on actual production 12 13 Predetermined fixed manufacturing overhead rate: Year 1 Year 2 14 Fixed manufacturing overhead 18910 18910 15 actual production 2300 16 6.1 8.22 17 Reconciliation Year 1 Year 2 19 Operating Income as per Absorption costing 19360 14480 20 Less: Fixed manufacturing overhead included 21 in closing inventory( 400* 6.1) 2440 22 Add: Fixed manufacturing overhead included 23 in cost of goods sold in Absorption cost( 400* 6.1) 2440 24 Operating Income as per variable costing 16920 16920 25 Note: Fixed manufacturing overhead is expensed in the year incurred under variable costing 26 whereas in Absorption costing it is included in the closing inventory.

3 Year 2 16920 1 2 Calculation of Sales Revenue under Absorption Costing Year 1 Year 2 4 Operating Income as per Absorption costing 19360 14480 5 Add: Selling and Administrative expenses 6 Variable 10800 10800 7 Fixed 9800 9800 8 Gross Profit 39960 35080 9 Add: Cost of goods sold 10 Variable manufacturing overhead 137701 3770 (2700*5.1) (2700*5.1) 12 Fixed manufacturing overhead 21350 13 (2700*6.1) (18910+400*6.1) 14 Sales Revenue 70200 | 70200 Calculation of Sales Revenue under Variable Costing Year 1 Operating Income as per Variable costing 16920 Add: Fixed Costs Fixed Selling and Administrative expenses 9800 Fixed manufacturing overhead 18910 Contribution 45630 Add: Variable costs Variable Selling and Administrative expenses 10800 Variable manufacturing overhead 13770 (2700*5.1) Sales Revenue 70200 9800 18910 45630 10800 13770 (2700*5.1) 70200 15 16 Calculation of variable manufacturing overhead 17 Variable manufacturing overhead 18 actual production Year 1 15810 3100 5.1 Year 2 1 1730 2300 5.1 19 21 Note: Calculation of Closing inventory 22 Year 1 23 Opening inventory 24 Production in units 25 Less: Sales in units 26 Closing inventory in units 27 Year 2 400 2300 2700 3100 2700 400

Refer Income statement under Absorption & Variable Costing that is the above workings to fill the following details

2 Huron's total operation income across both the years under Absorption costing and Variable costing Year 1 Year 2 Total Operating Income 5 Absorption Costing 193601448033840 6 Variable Costing 16920 16920 33840 7 8 Huron's total sales revenue across both the years under Absorption costing and Variable costing 9 10 Year 1 Year 2 Total Sales Revenue 11 Absorption Costing 70200 70200 140400 12 Variable Costing 70200 70200 140400 13 14 Huron's total costs expensed across both the years under Absorption costing and Variable costing 15 16 Year 1 Year 2 Total Costs expensed 17 Absorption Costing 50840 55720 106560 18 Variable Costing 53280 53280 106560 19 20 Huron's less total costs expensed from total sales revenue across both the years under Absorption costing and Variable costing 21 22 23 Absorption Costing 24 Variable Costing Year 1 Year 2 Net operating income 193601448033840 16920 16920 33840 25 26