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. 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.
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. 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.
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter5: Accounting For Retail Businesses
Section: Chapter Questions
Problem 41E: Cost of goods sold and related items The following data were extracted from the accounting records...
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Concept explainers
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Variable and Absorption Costing
The following data were adapted from a recent income statement of Ansara Company for the year ended December 31:
Transcribed Image Text: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.
Transcribed Image Text: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.
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