Variable and Absorption Costing-Service Company 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 $155. The variable and fixed cost data are as follows:

Direct labor $100.00

Overhead Variable cost per unit $7

Fixed cost (annual) $100,000

Marketing, general and administrative Variable cost (per service contract completed) $8

Administrative expenses (fixed - annual cost) $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.

Required:

a. Calculate reported income for management. Do not use negative signs with any answers.

b. Calculate reported income for the bank. Do not use negative signs with any answers.

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7 December, 01:23

Variable and Absorption Costing-Service Company 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 $155. The variable and fixed cost data are as follows:

Direct labor $100.00

Overhead Variable cost per unit $7

Fixed cost (annual) $100,000

Marketing, general and administrative Variable cost (per service contract completed) $8

Administrative expenses (fixed - annual cost) $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.

Required:

a. Calculate reported income for management. Do not use negative signs with any answers.

b. Calculate reported income for the bank. Do not use negative signs with any answers.

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Answers (1)

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Malia Calderon · Answer 1

variable costyng net income 238,000

under absorption 239,000

Explanation:

Variable costing:

Sales revenue 1.472.500‬

variable expense 1.092.500‬

contribution margin 380,000

manufacturing fixed cost 100,000

adminsitrative fixed cost 42,000

net gain 238,000

Absorption costing:

units cost:

100 + 7 + 100,000 / 10,000 = 117

Sales revenue 1.472.500‬

Cost of goods sold 1.111.500‬‬

Gross profit 361,000

G&A expense (variable) 80,000

G&A fixed 42,000

Net income 239,000