Question

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.

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 Costs			Answer
Fixed Cost			Answer
Less: Ending Inventory			Answer
Cost of Goods Sold				Answer
Answer				Answer
Answer				Answer
Administrative expense				Answer
Net Income				Answer

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

Variable Costing Income Statement
Sales				Answer
Cost of Goods Sold:
Beginning Inventory			Answer
Variable Costs			Answer
Answer			Answer
Variable cost of goods sold				Answer
Answer				Answer
Answer				Answer
Fixed costs:
Answer			Answer
Administrative Expense			Answer
Total Fixed Cost				Answer
Net Income				Answer

Answer 1

Direct labor	$100
Overhead costs:
Variable	7
Fixed ($100,000/10,000)	10
Unit product cost	$117

1.

Absorption Costing Income Statement
Sales (9,500*$155)		$1,472,500
Cost of goods sold:
Beginning inventory	$0
Variable costs (10,000*$107)	1,070,000
Fixed cost	100,000
Less: Ending inventory (500*$117)	(58,500)
Cost of goods sold		1,111,500
Gross profit		361,000
Selling expense (9,500*$8)		(76,000)
Administrative expense		(42,000)
Net income		$243,000

2.

Variable Costing Income Statement
Sales		$1,472,500
Cost of goods sold:
Beginning inventory	$0
Variable costs (10,000*$107)	1,070,000
Less: Ending inventory (500*$107)	(53,500)
Variable cost of goods sold		(1,016,500)
Variable selling expense (9,500*$8)		(76,000)
Contribution margin		380,000
Fixed costs:
Overhead fixed costs	100,000
Fixed administrative expense	42,000
Total fixed cost		142,000
Net income		$238,000