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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 3 1 :
Variable and Absorption Costing The following data were adapted from a recent income statement of Ansara Company for the year ended December : in millions Sales $ Cost of goods sold $ Selling, administrative, and other expenses Total expenses $ Operating income $ Assume that $ million of cost of goods sold and $ 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 $ Also, assume that of the beginning and ending inventories were fixed costs. Question Content Area 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 Sales $Sales Variable cost of goods sold: Beginning inventory $fill in the blank bdebbfbef Variable cost of goods manufactured Variable cost of goods manufactured Ending inventory Ending inventory Total variable cost of goods sold Total variable cost of goods sold Manufacturing margin $Manufacturing margin Variable selling and administrative expenses Variable selling and administrative expenses Contribution margin $Contribution margin Fixed costs: Fixed manufacturing costs $Fixed manufacturing costs Fixed selling and administrative expenses Fixed selling and administrative expenses Total fixed costs Total fixed costs Operating income $Operating income Feedback Area Feedback Sales variable cost of goods sold Manufacturing margin; Variable cost of goods sold beginning inventory of x $ million variable cost of goods manufacturedending inventory of x $ million; Manufacturing margin variable selling and administrative expenses Contribution margin; Contribution margin fixed manufacturing costs fixed selling, administrative and other expenses income from operations Variable cost of goods manufactured cost of goods sold ending inventory beginning inventory fixed manufacturing costs Variable selling and administrative expenses selling and administrative expenses fixed selling, administrative and other expenses Question Content Area 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 will not 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, Ansaras inventory increased meaning it sold less than it produced. As a result, the income from operations under the variable costing concept will be less than the income from operations under the absorption costing concept. The reason is because the variable costing concept does deduct the fixed costs in the period that they are incurred, regardless of changes in inventory balances. Feedback Area Feedback Absorption costing will match costs with sales by allocating the fixed costs to the beginning and ending inventories. Therefore, when inventories decrease, fixed costs from the beginning inventory are deducted in determining cost of goods sold under absorption costing.
Variable and Absorption Costing
The following data were adapted from a recent income statement of Ansara Company for the year ended December :
in millions
Sales $
Cost of goods sold $
Selling, administrative, and other expenses
Total expenses $
Operating income $
Assume that $ million of cost of goods sold and $ 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 $
Also, assume that of the beginning and ending inventories were fixed costs.
Question Content Area
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
Sales
$Sales
Variable cost of goods sold:
Beginning inventory $fill in the blank bdebbfbef
Variable cost of goods manufactured
Variable cost of goods manufactured
Ending inventory
Ending inventory
Total variable cost of goods sold
Total variable cost of goods sold
Manufacturing margin
$Manufacturing margin
Variable selling and administrative expenses
Variable selling and administrative expenses
Contribution margin
$Contribution margin
Fixed costs:
Fixed manufacturing costs
$Fixed manufacturing costs
Fixed selling and administrative expenses
Fixed selling and administrative expenses
Total fixed costs
Total fixed costs
Operating income
$Operating income
Feedback Area
Feedback
Sales variable cost of goods sold Manufacturing margin; Variable cost of goods sold beginning inventory of x $ million variable cost of goods manufacturedending inventory of x $ million; Manufacturing margin variable selling and administrative expenses Contribution margin; Contribution margin fixed manufacturing costs fixed selling, administrative and other expenses income from operations
Variable cost of goods manufactured cost of goods sold ending inventory beginning inventory fixed manufacturing costs
Variable selling and administrative expenses selling and administrative expenses fixed selling, administrative and other expenses
Question Content Area
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
will not
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, Ansaras inventory
increased
meaning it sold
less
than it produced. As a result, the income from operations under the variable costing concept will be
less
than the income from operations under the absorption costing concept. The reason is because the variable costing concept
does
deduct the fixed costs in the period that they are incurred, regardless of changes in inventory balances.
Feedback Area
Feedback
Absorption costing will match costs with sales by allocating the fixed costs to the beginning and ending inventories. Therefore, when inventories decrease, fixed costs from the beginning inventory are deducted in determining cost of goods sold under absorption costing.
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