Variable and Absorption Costing

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

Line Item Description	(in millions)
Sales	$27,350
Cost of goods sold	$(23,250)
Selling, administrative, and other expenses	(2,460)
Total expenses	$(25,710)
Operating income	$1,640

Assume that $6,020 million of cost of goods sold and $1,370 million of selling, administrative, and other expenses were fixed costs. Inventories at the beginning and end of the year were as follows:

Line Item Description	Amount
Beginning inventory	$3,280
Ending inventory	3,830

Also, assume that 40% of the beginning and ending inventories were fixed costs.

Question Content Area

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 (In millions)

sales	?	$27350
Variable Cost of goods Sold:	-	-
beginning Inventory	?
Variable cost of goods manufactured	$17780
Ending Inventory	?
Total variable cost of goods sold		?
Manufacturing margin		?
Variable selling and administrative expenses		$1090
Fixed Cost:		?
Fixed manufacturing cost	$6020
Fixed selling and administrative expenses	1370
Total fixed cost		7390
Operating income		?