Answer:
Ansara Company
a. Ansara Company Variable Costing Income Statement
For the Year Ended December 31, 20Y2 (in millions)
Sales $ 21,920
Variable cost of goods sold:
Beginning inventory $ 1,841
Variable cost of goods manufactured 13,810
Ending inventory 2,149
Total variable cost of goods sold 17,800
Manufacturing margin $4,120
Variable selling and administrative expenses 870
Contribution margin $3,250
Fixed costs:
Fixed manufacturing costs $ 4,820
Fixed selling and administrative expenses 1,100
Total fixed costs 5,920
Income from operations $2,670
b. Explanation of the difference between the amount of income from operations reported under absorption costing and variable costing concepts:
The difference occurs as a result of cost of inventory at the beginning and at the end. Under variable costing concept, the fixed manufacturing costs does not form part of the product costs. They are treated as period costs. But under absorption costing, fixed manufacturing costs form part of the product costs.
Explanation:
a) Data:
Ansara Company Abbreviated Income Statement for the year ended December 31, 20Y2: (in millions):
Sales $21,920
Cost of goods sold $18,630
Gross profit $3,290
Selling, administrative, and
other expenses 1,970
Income from operations $1,320
b) Absorption costing concept is a costing technique that includes the full cost of manufacturing (i.e. cost of direct materials, direct labor, and all fixed production costs or overheads) in the product costs. Under variable costing concept, the full cost of manufacturing is not included in the product costs. Instead, all the variable costs (direct materials, direct labor, and variable overhead, whether factory or not) are included, while fixed manufacturing overheads are treated as period costs and expensed.
