E7-2AVariable 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 $140. The variable and fixed cost data are as follows: Direct labor $ 80 Overhead: Variable cost per unit $ 5 Fixed cost $ 100,000 Marketing, general, and administrative: Variable cost (per contract completed) $ 6 Administrative expense (fixed) (per month) $ 42,000 During 2019, 10,000 service contracts were signed and 9,800 service contracts were completed. Lawn RX had no service contracts at the beginning of the year. Required a. Calculate reported income for management. b. Calculate reported income for the bank. c. Reconcile the two income amounts.

Variable costing usually used for management reporting while absorption costing primarily used for external reporting. The main difference between in absorption costing fixed costs are considered as part of product cost but in variable costing only variable costs considered as product cost not any fixed cost.Req A Income Statement for Management Using Variable Costing Sales (9,800 * $140) 1372000 Less: Variable cost Direct labor (9,800 x $80) 784000 Overhead (9,800 x $5) 49000 Marketing, general and admin (9,800 x $6) 58800 Total variable cost 891800 Contribution margin 480200 Less: Fixed cost Overhead 1,00,000 Admin expenses 42,000 Total fixed cost 142000 Operating income 338200Req B Fixed cost per unit = Total fixed cost ÷ Total no. of contracts = 10 per contract Total overhead cost = Variable overhead per unit + Fixed overhead per unit = 5 + 10 = 15 Income Statement for Bank Using Absorption Costing Sales (9,800 * $140) 1372000 Less: Cost of goods sold Direct labor (9,800 x $80) 784000 Overhead (9,800 x $15) 147000 Total Cost of goods sold 931000 Gross profit 441000 Less: Operating expenses Marketing, general and admin (9,800 x $6) 58800 Admin expenses 42000 Total operating expenses 100800 Operating income 340200 Req C Operating income under variable costing 338200 Add: Fixed manufacturing overhead deferred (200 * $10) 2000 Operating income under absorption costing 340200

Answered: Required a.…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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1. COMPUTE THE UNIT PRODUCT COST UNDER ABSORPTION COSTING 2. COMPUTE THE UNIT PRODUCT COST UNDER VARIABLE COSTING
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Variable and Absorption Costing-Service CompanyReally BC, Inc. prepares a variable costing income statement for internal management and an absorption costing income statement for its bank. Really BC provides a quarterly lawn care service that is sold for $190. The variable and fixed cost data are as follows: Direct labor $100.00 Overhead Variable cost per unit $33.00 Fixed cost (annual) $100,000 Marketing, general and administrative Variable cost (per service contract completed) $34.00 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. a. Calculate reported income for management.Do not use negative signs with any answers. Absorption Costing Income Statement Sales Answer Cost of Goods Sold: Beginning Inventory Answer Variable…
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Income Statements under Absorption Costing and Variable Costing Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July: Sales (4,000 units) $2,600,000 Production costs (4,350 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead Selling and administrative expenses: Variable selling and administrative expenses Fixed selling and administrative expenses Sales a. Prepare an income statement according to the absorption costing concept. Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 $ 2,600,000 Cost of goods sold Gross profit 1,800,000 $1,218,000 522,000 87,000 130,500 1,957,500 $ 800,000 $60,000 25,000 85,000
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E7-2A	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 $140. The variable and fixed cost data are as follows:


	Direct labor	$ 80
	Overhead:
	Variable cost per unit	$ 5
	Fixed cost	$ 100,000
	Marketing, general, and administrative:
	Variable cost (per contract completed)	$ 6
	Administrative expense (fixed) (per month)	$ 42,000

	During 2019, 10,000 service contracts were signed and 9,800 service contracts were completed. Lawn RX had no service contracts at the beginning of the year.

	Required
	a. Calculate reported income for management.
	b. Calculate reported income for the bank.
	c. Reconcile the two income amounts.