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Variable and Absorption Costing The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the year ended December 31: (in millions) $41,748 $(29,082) (8,113) $(37,195) Operating income $4,553 Assume that $10,575 million of cost of goods sold and $5,000 million of selling, administrative, and other expenses were fixed costs. Inventories at the beginning and end of the year were as follows: Beginning inventory $11,266 11,402 Ending inventory Also, assume that 30% of the beginning and ending inventories were fixed costs. Sales Cost of goods sold Selling, administrative, and other expenses Total expenses a. Prepare an income statement according to the variable costing concept for Caterpillar Inc. Round numbers to nearest million. Caterpillar Inc. Variable Costing Income Statement (assumed) For the Year Ended December 31 Line Item Description Sales Variable cost of goods sold: Beginning inventory Variable cost of goods manufactured Ending inventory Total variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income Amount Amount 41,748

Variable and Absorption Costing The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the year ended December 31: (in millions) $41,748 $(29,082) (8,113) $(37,195) Operating income $4,553 Assume that $10,575 million of cost of goods sold and $5,000 million of selling, administrative, and other expenses were fixed costs. Inventories at the beginning and end of the year were as follows: Beginning inventory $11,266 11,402 Ending inventory Also, assume that 30% of the beginning and ending inventories were fixed costs. Sales Cost of goods sold Selling, administrative, and other expenses Total expenses a. Prepare an income statement according to the variable costing concept for Caterpillar Inc. Round numbers to nearest million. Caterpillar Inc. Variable Costing Income Statement (assumed) For the Year Ended December 31 Line Item Description Sales Variable cost of goods sold: Beginning inventory Variable cost of goods manufactured Ending inventory Total variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income Amount Amount 41,748

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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### Variable and Absorption Costing **Introduction:** The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the year ended December 31: #### Financial Overview (in millions) - **Sales:** $41,748 - **Cost of Goods Sold:** $(29,082) - **Selling, Administrative, and Other Expenses:** $(8,113) - **Total Expenses:** $(37,195) - **Operating Income:** $4,553 *Assumptions:* - $10,575 million of the cost of goods sold and $5,000 million of selling, administrative, and other expenses were fixed costs. - Inventories at the beginning and end of the year: - **Beginning Inventory:** $11,266 - **Ending Inventory:** $11,402 - 30% of the beginning and ending inventories were fixed costs. **Objective:** Prepare an income statement using the variable costing concept for Caterpillar Inc. Round numbers to the nearest million. #### Variable Costing Income Statement **Caterpillar Inc. Variable Costing Income Statement (Assumed) For the Year Ended December 31** | Line Item Description | Amount | | -------------------------------------- | --------- | | **Sales** | $41,748 | | **Variable Cost of Goods Sold:** | | | - Beginning Inventory | | | - Variable Cost of Goods Manufactured | | | - Ending Inventory | | | **Total Variable Cost of Goods Sold** | | | **Manufacturing Margin** | | | **Variable Selling and Administrative Expenses** | | | **Contribution Margin** | | | **Fixed Costs:** | | | - Fixed Manufacturing Costs | | | - Fixed Selling and Administrative Expenses | | | **Total Fixed Costs** | | | **Operating Income** | $ | This simulated financial statement is useful for understanding how variable costing influences the calculation of operating income, as it separates fixed and variable costs for more detailed financial analysis.
Transcribed Image Text:### Variable and Absorption Costing **Introduction:** The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the year ended December 31: #### Financial Overview (in millions) - **Sales:** $41,748 - **Cost of Goods Sold:** $(29,082) - **Selling, Administrative, and Other Expenses:** $(8,113) - **Total Expenses:** $(37,195) - **Operating Income:** $4,553 *Assumptions:* - $10,575 million of the cost of goods sold and $5,000 million of selling, administrative, and other expenses were fixed costs. - Inventories at the beginning and end of the year: - **Beginning Inventory:** $11,266 - **Ending Inventory:** $11,402 - 30% of the beginning and ending inventories were fixed costs. **Objective:** Prepare an income statement using the variable costing concept for Caterpillar Inc. Round numbers to the nearest million. #### Variable Costing Income Statement **Caterpillar Inc. Variable Costing Income Statement (Assumed) For the Year Ended December 31** | Line Item Description | Amount | | -------------------------------------- | --------- | | **Sales** | $41,748 | | **Variable Cost of Goods Sold:** | | | - Beginning Inventory | | | - Variable Cost of Goods Manufactured | | | - Ending Inventory | | | **Total Variable Cost of Goods Sold** | | | **Manufacturing Margin** | | | **Variable Selling and Administrative Expenses** | | | **Contribution Margin** | | | **Fixed Costs:** | | | - Fixed Manufacturing Costs | | | - Fixed Selling and Administrative Expenses | | | **Total Fixed Costs** | | | **Operating Income** | $ | This simulated financial statement is useful for understanding how variable costing influences the calculation of operating income, as it separates fixed and variable costs for more detailed financial analysis.
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