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

Answer with working notes is given below

Year 2 $70,200 $4,480 Huron Chalk Company Income Statement Absorption Costing Year 1 Sales $70,200 Less: Cost of Goods Sold Beginning FG Inventory Cost of Goods manufactured Variable Manufacturing cost $15,810 Fixed Manufacturing Overheads $18,910 Cost of Goods available for sale $34,720 Less: Closing Stock $4,480 Cost of Goods Sold $30,240 Gross Profit $39,960 $11,730 $18,910 $35,120 $35,120 $35,080 Less :Selling and administration expenses Variable Operating (S & A) expense Fixed Operating (S & A) expense $10,800 $9,800 $20,600 $10,800 $9,800 $20,600 Operating Profit $19,360 $14,480 Closing stock valuation Variable manufacturing cost Fixed manufacturing cost Total production cost Total production units Product cost per unit Closing stock Value of Closing stock $15,810 $18,910 $34,720 3,100 $11.20 400 $4,480 400 * $11.20 Year 2 $70,200 $2,040 Huron Chalk Company Income Statement Variable Costing Year 1 Sales $70,200 Less : Variable Cost of Goods Sold Beginning FG Inventory Variable Cost of Goods manufactured Variable Manufacturing cost $15,810 Cost of Goods available for sale $15,810 Less: Closing Stock $2,040 Variable Cost of Goods Sold $13,770 Variable Operating (S & A) cost $10,800 Contribution Margin $45,630 $11,730 $13,770 $13,770 $10,800 $45,630 Fixed Cost Fixed Manufacturing Cost Fixed Operating (S &A) $18,910 $9,800 $28,710 $18,910 $9,800 $28,710 Operating profit $16,920 $16,920 Closing stock valuation Variable manufacturing cost Total production units Product cost per unit Closing stock Value of Closing stock $15,810 3,100 $5.10 400 $2,040 400 * $5.10

Change in inventory (in Units) Actual Difference Absorption minus Fixed in fixed Overhead overhead Variable costing expense operating income Rate $6.10 $2,440 $2,440 $6.10 -$2,440 -$2,440 Year 1 400 -400 Year 2 X