The following data were adapted from a recent income statement of Procter & Gamble Company: (in millions)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $76,476
Operating costs:
Cost of products sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,686
Marketing, administrative, and other expenses . . . . . . . . . . . . . . . . . . . . . . 24,340
Total operating costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $61,026
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,450
Assume that the variable amount of each category of operating costs is as follows: (in millions)
Cost of products sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $20,500
Marketing, administrative, and other expenses . . . . . . . . . . . . . . . . . . . 9,700
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?