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10 December, 17:45

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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  1. 10 December, 17:49
    0
    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
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