Question

Ansara Company had the following abbreviated income statement for the year ended December 31, 20Y2:

1		(in millions)
2	Sales	$18,838.00
3	Cost of goods sold	$15,495.00
4	Selling, administrative, and other expenses	2,002.00
5	Total expenses	$17,497.00
6	Income from operations	$1,341.00

Assume that there were $3,804 million fixed manufacturing costs and $1,166 million fixed selling, administrative, and other costs for the year.

The finished goods inventories at the beginning and end of the year from the balance sheet were as follows:

January 1	$2,364 million
December 31	$2,446 million

Assume that 30% of the beginning and ending inventory consists of fixed costs. Assume work in process and materials inventory were unchanged during the period.

Required:

a.

Prepare an income statement according to the variable costing concept for Ansara Company for 20Y2. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. A colon (:) will automatically appear if required. Enter ending inventory as a negative number using a minus sign. If a net loss is incurred, enter that amount as a negative number using a minus sign. Round to the nearest million.

b.

Explain the difference between the amount of income from operations reported under the absorption costing and variable costing concepts.

Labels
Fixed costs
For the Year Ended December 31, 20Y2 (in millions)
December 31, 20Y2 (in millions)
Amount Descriptions
Beginning inventory
Contribution margin
Contribution margin ratio
Ending inventory
Fixed manufacturing costs
Fixed selling and administrative expenses
Income from operations
Loss from operations
Manufacturing margin
Planned contribution margin
Sales
Sales mix
Total fixed costs
Total variable cost of goods sold
Variable cost of goods manufactured
Variable cost of goods sold
Variable selling and administrative expenses

Answer 1

Variable costing Income Statement
		2012
Sales		18838
Less: Variable cost of goods sold
Beginning Inventory	1654.8
Add: Variable cost of goods manufactured	11715.6
Variable cost of good available for sale	13370.4
Less: Ending Inventory	1654.8
Variable Cost of goods sold		11715.6
Less: Variable selling and administrative expenses		836
Contribution margin		6286.4
Less: Fixed expenses
Fixed Manufacturing costs		3804
Fixed Selling and administrative costs		1166
Income from operations		1316.4
Amount of Income reported under absorption	1341
Amount of Income reported under Variable	1316.4
Difference in Income from operations	24.6
Difference is due to deferral of fixed manufacturing overhead to nex year under absorption.