Chapter 7, Problem 9E

The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the year ended December 31:

Assume that $8,500 million of cost of goods sold and $4,000 million of selling, administrative, and other expenses were fixed costs. Inventories at the beginning and end of the year were as follows:

Also, assume that 30% of the beginning and ending inventories were fixed costs.

1. a. Prepare an income statement according to the variable costing concept for Caterpillar Inc. Round numbers to nearest million.
2. b. Explain the difference between the amount of operating income reported under the absorption costing and variable costing concepts. Round numbers to nearest million.