# 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.

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Variable and Absorption Costing

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

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Step 1

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

Ending results are as follows:

Working note:

Calculation of variable cost of goods manufactured:

Ending results are as follows:

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