The following data were adapted from a recent income statement of Ansara Company for the year ended December 31:(in millions)$22,240Sales$(18,900)(2,000)Cost of goods soldSelling, administrative, and other expenses$(20,900)Total expensesOperating income$1,340Assume that $4,840 million of cost of goods sold and $1,100 million of selling, administrative, and other expenses were fixed costs. Inventories at thebeginning and end of the year were as follows:Beginning inventoryEnding inventory$2,640$3,080Also, assume that 20% of the beginning and ending inventories were fixed costs. a. Prepare an income statement according to the variable costing concept for Ansara Company. Round numbers to nearest million.Ansara CompanyVariable Costing Income Statement (assumed)For the Year Ended December 31Variable cost of goods sold:Beginning inventoryFixed costs:b. Explain the difference between the amount of operating income reported under the absorption costing and variable costing concepts.The income from operations under the variable costing conceptbe the same as the income from operations under the absorptioncosting concept when the inventories either increase or decrease during the year. In this case, Ansara's inventorymeaning it soldthan it produced. As a result, the income from operations under the variable costing concept will bethan theincome from operations under the absorption costing concept. The reason is because the variable costing conceptdeduct the fixedcosts in the period that they are incurred, regardless of changes in inventory balances.

Question
Asked Feb 1, 2020
26 views

Variable and Absorption Costing

The following data were adapted from a recent income statement of Ansara Company for the year ended December 31:

The following data were adapted from a recent income statement of Ansara Company for the year ended December 31:
(in millions)
$22,240
Sales
$(18,900)
(2,000)
Cost of goods sold
Selling, administrative, and other expenses
$(20,900)
Total expenses
Operating income
$1,340
Assume that $4,840 million of cost of goods sold and $1,100 million of selling, administrative, and other expenses were fixed costs. Inventories at the
beginning and end of the year were as follows:
Beginning inventory
Ending inventory
$2,640
$3,080
Also, assume that 20% of the beginning and ending inventories were fixed costs.
help_outline

Image Transcriptionclose

The following data were adapted from a recent income statement of Ansara Company for the year ended December 31: (in millions) $22,240 Sales $(18,900) (2,000) Cost of goods sold Selling, administrative, and other expenses $(20,900) Total expenses Operating income $1,340 Assume that $4,840 million of cost of goods sold and $1,100 million of selling, administrative, and other expenses were fixed costs. Inventories at the beginning and end of the year were as follows: Beginning inventory Ending inventory $2,640 $3,080 Also, assume that 20% of the beginning and ending inventories were fixed costs.

fullscreen
a. Prepare an income statement according to the variable costing concept for Ansara Company. Round numbers to nearest million.
Ansara Company
Variable Costing Income Statement (assumed)
For the Year Ended December 31
Variable cost of goods sold:
Beginning inventory
Fixed costs:
b. Explain the difference between the amount of operating income reported under the absorption costing and variable costing concepts.
The income from operations under the variable costing concept
be the same as the income from operations under the absorption
costing concept when the inventories either increase or decrease during the year. In this case, Ansara's inventory
meaning it sold
than it produced. As a result, the income from operations under the variable costing concept will be
than the
income from operations under the absorption costing concept. The reason is because the variable costing concept
deduct the fixed
costs in the period that they are incurred, regardless of changes in inventory balances.
help_outline

Image Transcriptionclose

a. Prepare an income statement according to the variable costing concept for Ansara Company. Round numbers to nearest million. Ansara Company Variable Costing Income Statement (assumed) For the Year Ended December 31 Variable cost of goods sold: Beginning inventory Fixed costs: b. Explain the difference between the amount of operating income reported under the absorption costing and variable costing concepts. The income from operations under the variable costing concept be the same as the income from operations under the absorption costing concept when the inventories either increase or decrease during the year. In this case, Ansara's inventory meaning it sold than it produced. As a result, the income from operations under the variable costing concept will be than the income from operations under the absorption costing concept. The reason is because the variable costing concept deduct the fixed costs in the period that they are incurred, regardless of changes in inventory balances.

fullscreen
check_circle

Expert Answer

Step 1

a. Income statement according to the variable costing is prepared as follows:

 

Accounting homework question answer, step 1, image 1

 

Ending results are as follows:

Accounting homework question answer, step 1, image 2

 

Working note:

 

Calculation of variable cost of goods manufactured:

 

Accounting homework question answer, step 1, image 3

Ending results are as follows:

 

Accounting homework question answer, step 1, image 4

 

 

 

 

...

Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in

Business

Accounting

Related Accounting Q&A

Find answers to questions asked by student like you
Show more Q&A
add
question_answer

Q: Describe the procedure(s) involved in classifying deferred tax amounts on the statement of financial...

A: Deferred tax accounts nature must be analyzed and classified either as net current amount or as net ...

question_answer

Q: Wise Company began operations at the beginning of 2021. The ­following information pertains to this ...

A: A.Compute taxable income for 2021.

question_answer

Q: What are the two basic requirements applied to the measurement of current and deferred income taxes ...

A: Click to see the answer

question_answer

Q: The following article appeared in the Wall Street Journal. Washington—The Securities and Exchange Co...

A: Click to see the answer

question_answer

Q: Marshall Company orgainzed in 2016 has set up a single account for all intangible assets. The follow...

A: Prepare the journal entry:

question_answer

Q: Wainwright Corporation had the following activities in 2020. Sale of land $180,000. Purchase of inv...

A: Investing activities:

question_answer

Q: Dexter Company appropriately uses the asset-liability method to record deferred income taxes. Dexter...

A: a.The following basic principles are applied in accounting for income taxes at the date of the finan...

question_answer

Q: A lease agreement that qualifies as a capital lease calls for annual lease payments of $26,269 over ...

A: Click to see the answer

question_answer

Q: Roberson Corporation uses a periodic inventory system and the retail inventory method. Accounting re...

A: Conventional Retail Method: Conventional retail method refers to the estimation of the lower of aver...