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

Also, assume that $20\%$ of the beginning and ending inventories were fixed costs.

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$)$

Line Item Description Amount Amount

Variable cost of goods sold:

Fixed costs:

b$.$ Explain the difference between the amount of operating income reported under the absorption costing and variable costing concepts.

$,$ meaning it sold

than it manufactured. As a result, the operating income under the variable costing concept will be $.$

I than the operating income under the absorption costing concept. The reason is because the variable costing concept

deduct the fixed costs in the period that they are incurred,

reoardless of changes in inventory balances.