Question

[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 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: Year 1 Year 2 3,2003 ,200 3,600 2,800 Sales (in units) Production (in units) Production costs: Variable manufacturing costs Fixed manufacturing overhead Selling and administrative costs: Variable Fixed $16,200 19,800 $12,600 19,800 12,800 11,800 12,800 11,800

1. Prepare operating income statements for both years based on variable costing.

Answer 1

	Year 1	Year 2
Sales in units	3200	3200
Production in units	3600	2800
Sales [At $23 per unit]	$                         73,600	$                    73,600
Cost of goods sold:
Beginning finished goods inventory	$                                   -	$                      1,800
Cost of goods manufactured	$                         16,200	$                    12,600
Cost of goods available for sale	$                         16,200	$                    14,400
Ending finished goods inventory	$                           1,800	$                              -
	[16200*400/3600]
Cost of goods sold	$                         14,400	$                    14,400
Variable selling and administrative costs	$                         12,800	$                    12,800
Total variable costs	$                         27,200	$                    27,200
Contribution margin	$                         46,400	$                    46,400
Fixed costs:
Fixed manufacturing costs	$                         19,800	$                    19,800
Fixed sellig and administrative expenses	$                         11,800	$                    11,800
Total fixed costs	$                         31,600	$                    31,600
Operating income	$                         14,800	$                    14,800