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.

Question

Business

Kennedy Montes

17 August, 20:04

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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Pooch · 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