Variable Costing Income Statement

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

	(in millions)
Sales	$205,190
Operating costs:
Cost of products sold	$98,490
Marketing, administrative, and other expenses	65,660
Total operating costs	$164,150
Income from operations	$41,040

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

			(in millions)
Cost of products sold			$55,400
Marketing, administrative, and other expenses			26,670

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 (assumed)
(in millions)
		$
		$
		$
Fixed costs:
	$
		$

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 .