Question

Procter & Gamble Company is a Cincinnati-based company that produces household products under brand names such as Gillette, Bounty, Crest, Folgers, and Tide. The company’s 2011 income statement showed the following (in millions):
Net sales ............... $82,559
Costs of products sold ........... 40,768
Selling, general, and administrative expense . 25,973
Operating income ........... $15,818

Suppose that the cost of products sold is the only variable cost; selling, general, and administrative expenses are fixed with respect to sales.
Suppose Procter & Gamble has a 10% decrease in sales next year and there is no change in costs except for decreases associated with the lower volume of sales. Compute the predicted operating income for Procter & Gamble and its percentage decrease. Explain why the percentage decrease in income differs from the percentage decrease in sales.



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  • CreatedNovember 19, 2014
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