Variable and absorption costing OBJ. 1 Ansara Company had the following abbreviated income statement for the year ended December 31, 2016:

(in millions)

Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,769 Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,471 Selling, administrative, and other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,049 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,520 Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,249 Assume that there were $3,860 million fixed manufacturing costs and $1,170 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 $2,354 million December 31 $2,408 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.

a. Prepare an income statement according to the variable costing concept for Ansara Company for 2016.

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