The following data were adapted from a recent income statement of Procter & Gamble
Company:
(in millions)
Sales............................................................... $84,167
Operating costs:
Cost of products sold............................................$42,428
Marketing, administrative, and other expenses............... 30,337
Total operating costs.............................................$72,765
Income from operations..........................................$11,402
Assume that the variable amount of each category of operating costs is as follows:
(in millions)
Cost of products sold..........................................$23,760
Marketing, administrative, and other expenses............ 12,135
a. Based on the data given, 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?