Procter & Gamble Company is a Cincinnati-based company that produces household products under
brand names such as Gillette, Bounty, Crest, Folgers, and Tide. The company's 2006 income statement
showed the following (in millions):
Net sales $68,222
Costs of products sold 33,125
Selling, general, and administrative expense 21,848
Operating income $13,249
Suppose that the cost of products sold is the only variable cost; selling, general, and administrative
expenses are fixed with respect to sales.
Assume that Procter & Gamble had a 10% increase in sales in 2007 and that there was no change
in costs except for increases associated with the higher volume of sales. Compute the predicted 2007
operating income for Procter & Gamble and its percentage increase. Explain why the percentage
increase in income differs from the percentage increase in sales.
Solution is provided in a separate Excel file attached supported by comparative percentage calculation and explanatory notes.
Procter and Gambler Company
Statement of Operating Income (CVP Approach)
2006 2007 Increase P.C. increase
Sales $68,222 $75,044 $6,822 ...
The solution computes the operating income for Procter and Gamble Company and its percentage increase.