The following data were adapted from a recent income statement of Procter & Gamble Company:
___ (In millions)
Net sales ..................... $82,559
Operating costs:
Cost of products sold............. $40,768
Marketing, administrative, and other expenses.... 25,973
Total operation costs.............. $66,741
Income from operations............... $15,818
Assume that the variable amount of each category of operating costs is as follows:
___ (In millions)
Cost of products sold................. $22,830
Marketing, administrative, and expenses......... 10,400
a. Based on the above data, prepare a variable costing income statement for Procter & Gamble Company, assuming that the company maintained constant inventory levels during the period.
b. If Procter & Gamble reduced its inventories during the period, what impact would that have on the income from operations determined under absorption costing?