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    Computing the Operating Income and Its Percentage Increase

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    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.

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    Solution Preview

    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 ...

    Solution Summary

    The solution computes the operating income for Procter and Gamble Company and its percentage increase.