Ansara Company had the following abbreviated income statement for the year ended December 31, 20Y2: (in millions)
Sales $25,790
Cost of goods sold $21,920
Selling, administrative, and other expenses 2,320
Total expenses $24,240
Income from operations $1,550
Assume that there were $5,620 million fixed manufacturing costs and $1,280 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 $3,060 million
December 31 $3,570 million
Assume that 20% of the beginning and ending inventory consists of fixed costs. Assume work in process and materials inventory were unchanged during the period.
Prepare an income statement according to the variable costing concept for Ansara Company for 20Y2.
Ansara Company
Variable Costing Income Statement
For the Year Ended December 31, 20Y2 (in millions)
Sales $ 21,920
Variable cost of goods sold:
Beginning inventory $ 1,841
Variable cost of goods manufactured 12,710
Ending inventory 2,149
Total variable cost of goods sold 18,670
Manufacturing margin $ 3,250
Variable selling and administrative expenses 870
Contribution margin $ 2,380
Fixed costs:
Fixed manufacturing costs $ 4,820
Fixed selling and administrative expenses 1,100
Total fixed costs 5,920
Income from operations $

Ansara Company

Variable Costing Income Statement

For the Year Ended December 31, 20Y2 (in millions)

Sales                                                                                                    $25,790

Variable cost of goods sold:

Beginning inventory ($3,060 × 80%)                                $2,448

Variable cost of goods manufactured ($21,920 × 80%) $17,536

Ending inventory ($3,570 × 80%)                                     ($2,856)

Total variable cost of goods sold                                                     ($17,128 )

Contribution margin                                                                           $ 8,662

Less (Period) Expenses :

Fixed manufacturing costs                                                               ($5,620)

Selling and administrative expenses :

Fixed selling and administrative expenses                                      ($1,280)

Variable selling and administrative expenses                                 ($1,040)

Income from operations                                                                        $772

Explanation:

Variable Costing :

Product Cost = Only Variable Manufacturing Cost

                      = This is 80% of Cost of Goods Sold from our senario.

Period Cost   = Fixed Manufacturing Costs + All Non - Manufacturing Cost (Variable and Fixed)

Note : Variable selling and administrative expenses is what remains after fixed selling, administrative, and other costs are removed from the total of selling, administrative, and other costs.