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 $100.00
Overhead
Variable cost per unit $5.00
Fixed cost $100,000
Marketing, general and administrative
Variable cost (per service contract completed) $6.00
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.
Calculate reported income for management.
Do not use negative signs with any answers.

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anijesuajayi anijesuajayi · Answer 1 · 2020-03-12T08:59:40+01:00

Answer:

Net Operating Income = $233,500

Explanation:

The question is to compute the The Reported Income for Management

First we determine the Unit Product Cost as follows:

DIrect Cost of Labour Per Unit $100

Variable Manufacturing Overhead Cost $5

Fixed manufacturing Overhead Montly $10

(100,000/10,000)

The Unit Product Cost $115

Based on these Total Unit Cost, We determine the Absorption Costing Statement

Lawn RX

Absorption Costing Income Statement

Description Amount Amount

Sales ($150 x 9,500 Contracts 1,425,000

Subtract: Cost of Goods Sold

Opening Inventory 0

Produced Units ($115 x 10,000) 1,150,000

Subtract: Closing Inventory ($115 x 500) 57,500

Cost of Goods Sold (1,092,500)

Gross margin 332,500

Selling and Administrative Expenses

Variable Expenses ($6 x 9,500) (57,000)

Fixed Expenses (42,000)

Net Operating Income 233,500