Variable Costing Income Statement The following data were adapted from a recent income statement of The Procter & Gamble Company (PG): (in millions) Sales $65,058 Operating costs: Cost of products sold $(32,535) Marketing, administrative, and other expenses (18,568) Total operating costs $(51,103) Operating income $13,955 Assume that the variable amount of each category of operating costs is as follows: (in millions) Cost of products sold $19,500 Marketing, administrative, and other expenses 14,000 a. Based on the data given, prepare a variable costing income statement for Procter & Gamble, assuming that the company maintained constant inventory levels during the period. The Procter & Gamble Company Variable Costing Income Statement (assumed) (in millions) Sales Variable cost of products sold Manufacturing margin Variable marketing, administrative, and other expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed marketing, administrative, and other expenses Total fixed costs Operating income b. If Procter & Gamble reduced its inventories during the period, what impact would that have on the operating income determined under absorption costing?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 7E: The following data were adapted from a recent income statement of The Procter Gamble Company (PG):...

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Variable Costing Income Statement

The following data were adapted from a recent income statement of The Procter & Gamble Company (PG):

	(in millions)
Sales	$65,058
Operating costs:
Cost of products sold	$(32,535)
Marketing, administrative, and other expenses	(18,568)
Total operating costs	$(51,103)
Operating income	$13,955

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

	(in millions)
Cost of products sold	$19,500
Marketing, administrative, and other expenses	14,000

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

The Procter & Gamble Company
Variable Costing Income Statement (assumed)
(in millions)
Sales
Variable cost of products sold
Manufacturing margin
Variable marketing, administrative, and other expenses
Contribution margin
Fixed costs:
Fixed manufacturing costs
Fixed marketing, administrative, and other expenses
Total fixed costs
Operating income

b. If Procter & Gamble reduced its inventories during the period, what impact would that have on the operating income determined under absorption costing?

If Procter & Gamble Company reduced its inventories during the period, then the cost of products sold would include fixed costs allocated to the beginning inventories. Thus, the total fixed costs of products sold on the absorption costing income statement would be higher , and the operating income would be lower .

Chapter 21
еВook
Variable Costing Income Statement
The following data were adapted from a recent income statement of The Procter & Gamble Company (PG):
(in millions)
Sales
$65,058
Operating costs:
Cost of products sold
$(32,535)
Marketing, administrative, and other expenses
(18,568)
Total operating costs
$(51,103)
Operating income
$13,955
Assume that the variable amount of each category of operating costs is as follows:
(in millions)
Cost of products sold
$19,500
Marketing, administrative, and other expenses
14,000
a. Based on the
given, prepare
variable costing income statement
& Gamble, assuming
the company maintained constant inventor
levels during
period.
The Procter & Gamble Company
Variable Costing Income Statement (assumed)
(in millions)
Sales v
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Chapter 21
еBok
The Procter & Gamble Company
Variable Costing Income Statement (assumed)
(in millions)
Sales v
Variable cost of products sold v
Manufacturing margin v
Variable marketing, administrative, and other expenses v
Contribution margin v
Fixed costs:
Fixed manufacturing costs v
>
Fixed marketing, administrative, and other expenses v
Total fixed costs v
Operating income v
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b. If Procter & Gamble reduced its inventories during the period, what impact would that have on the operating income determined under absorption costing?
If Procter & Gamble Company reduced its inventories during the period, then the cost of products sold would include v fixed costs allocated to the beginning inventories. Thus, the total fixed
costs of products sold on the absorption costing income statement would be higher v , and the operating income would be lower v
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