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.