FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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.                

 

 

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