Question

The following data were adapted from a recent income statement of Procter & Gamble Company: (in millions) Sales $83,062 Operating costs: Cost of products sold $42,460 Marketing, administrative, and other expenses 25,314 Total operating costs $67,774 Income from operations $15,288 Assume that the variable amount of each category of operating costs is as follows: (in millions) Cost of products sold $23,778 Marketing, administrative, and other expenses 10,125 a. Based on the data given, prepare a variable costing income statement for Procter & Gamble Company, assuming that the company maintained constant inventory levels during the period. Procter and Gamble Company Variable Costing Income Statement (assumed) (in millions) $ $ $ Fixed costs: $ $ b. If Procter & Gamble reduced its inventories during the period, what impact would that have on the income from operations determined under absorption costing? If Procter & Gamble Company reduced its inventories during the period, then the cost of products sold would fixed costs allocated to the beginning inventories. Thus, the total fixed costs of products sold on the absorption costing income statement would be , and the income from operations would be .

Answer 1