Question

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 $165. The variable and fixed cost data are as follows:

Direct labor				$100.00
Overhead
Variable cost per unit				$14.00
Fixed cost				$100,000
Marketing, general and administrative
Variable cost (per service contract completed)				$15.00
Administrative expenses (fixed- per month)				$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
AnswerContribution marginGross profitLess: Ending inventorySelling expenseOverhead cost				Answer
AnswerContribution marginGross profitLess: Ending inventorySelling expenseOverhead cost				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
AnswerContribution marginGross profitLess: Ending inventoryOverhead costVariableselling expense			Answer
Variable cost of goods sold				Answer
AnswerContribution marginGross profitLess: Ending inventoryOverhead costVariable sellingexpense				Answer
AnswerContribution marginGross profitLess: Ending inventoryOverhead costVariableselling expense				Answer
Fixed costs:
AnswerContribution marginGross profitLess: Ending inventoryOverhead costVariable sellingexpense			Answer
Administrative Expense			Answer
Total Fixed Cost				Answer
Net Income				Answer

Answer 1

a) Absorption costing income statement :-

Sales(165*9,500)		$ 1,567,500
Cost of goods sold
Beginning inventory	$                   -
Variable costs (10,000*($100+$14)	$ 1,140,000
Fixed costs	$     100,000
Less: Ending inventory ((1,140,000+100,000)/10,000)*500	$     (62,000)
Cost of goods sold		$ 1,178,000
Gross profit		$     389,500
Selling expense (9,500*$15)		$     142,500
Administrative expense		$        42,000
Net income		$        205,000

b) Variable costing income statement:-

Sales		$ 1,567,500
Cost of goods sold
Beginning inventory	$                   -
Variable costs (10,000*($100+$14)	$ 1,140,000
Less: Ending inventory (1,140,000/10,000)*500	$     (57,000)
Variable cost of goods sold		$ 1,083,000
Variable selling expense (9,500*$15)		$     142,500
Contribution margin		$     342,000
Fixed costs
Overhead cost	$     100,000
Administrative expense	$        42,000
Total fixed cost		$     142,000
Net income		$        200,000