1. Variable Costing Income Statement

   The following data were adapted from a recent income statement of Bluth Company:

   	(in millions)
   Sales	$244,550
   Operating costs:
   Cost of products sold	$117,380
   Marketing, administrative, and other expenses	78,260
   Total operating costs	$195,640
   Income from operations	$48,910

   Assume that the variable amount of each category of operating costs is as follows:

   			(in millions)
   Cost of products sold			$66,030
   Marketing, administrative, and other expenses			31,790

   a. Based on the data given, prepare a variable costing income statement for Bluth Company, assuming that the company maintained constant inventory levels during the period.

   Bluth Company
   Variable Costing Income Statement
   (in millions)
   		$
   		$
   		$
   Fixed costs:
   	$
   Income from operations		$

   b. If Bluth Company reduced its inventories during the period, what impact would that have on the income from operations determined under absorption costing?

   If Bluth 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 .