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…

Answered: Required a.…

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter3: Cost Behavior And Cost Forecasting

Section: Chapter Questions

Problem 54E: Income Statements under Absorption and Variable Costing In the coming year, Kalling Company expects...

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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.