Question

Variable Costing Income Statement

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

	(in millions)
Sales	$193,810
Operating costs:
Cost of products sold	$(93,030)
Marketing, administrative, and other expenses	(62,020)
Total operating costs	$(155,050)
Operating income	$38,760

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

			(in millions)
Cost of products sold			$52,330
Marketing, administrative, and other expenses			25,200

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

The Bluth Company
Variable Costing Income Statement (assumed)
(in millions)
		$
		$
		$
Fixed costs:
	$
		$

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

If the 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 operating income would be  .

Answer 1

Req. A

The Bluth Company
Variable Costing Income Statement (assumed)
(in millions)
Sales		$ 193,810
Variable Cost of Product Sold		(52,330)
Manufacturing Margin		$141,480
Variable Marketing, administrative, and other expenses		(25,200)
Contribution Margin		$116,280
Fixed Cost:
Fixed Manufacturing Cost( $93,030- 52,330)	$40,700
Fixed Marketing, administrative, and other expenses( $ 62,020 - 25,200)	36,820
Total Fixed Cost		(77,520)
Income From Operation		$ 38,760

Req. B

1) Include

2) Higher

3) Lower