Variable and absorption costing

Instructions

Ansara Company had the following abbreviated income statement for the year ended December 31, 2016:

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 2016. 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. Less, Plus or colons (:) 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.