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1 March, 01:25

Lawn RX, Inc. prepares a variable costing income statement for internal management and an absorption costing income statement for its bank. Lawn RX provides a quarterly lawn care service that is sold for $140. The variable and fixed cost data are as follows:

Direct labor $100.00

Overhead

Variable cost per unit $5.00

Fixed cost $100,000

Marketing, general and administrative

Variable cost (per service contract completed) $6.00

Administrative expenses (fixed - per month) $42,000

During 2016, 10,000 service contracts were signed and 9,500 service contracts were completed. Lawn RX had no service contracts at the beginning of the year.

Calculate reported income for management.

Do not use negative signs with any answers.

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  1. 1 March, 03:55
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    Net Operating Income = $233,500

    Explanation:

    The question is to compute the The Reported Income for Management

    First we determine the Unit Product Cost as follows:

    DIrect Cost of Labour Per Unit $100

    Variable Manufacturing Overhead Cost $5

    Fixed manufacturing Overhead Montly $10

    (100,000/10,000)

    The Unit Product Cost $115

    Based on these Total Unit Cost, We determine the Absorption Costing Statement

    Lawn RX

    Absorption Costing Income Statement

    Description Amount Amount

    Sales ($150 x 9,500 Contracts 1,425,000

    Subtract: Cost of Goods Sold

    Opening Inventory 0

    Produced Units ($115 x 10,000) 1,150,000

    Subtract: Closing Inventory ($115 x 500) 57,500

    Cost of Goods Sold (1,092,500)

    Gross margin 332,500

    Selling and Administrative Expenses

    Variable Expenses ($6 x 9,500) (57,000)

    Fixed Expenses (42,000)

    Net Operating Income 233,500
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