Variable and Absorption Costing The following data were adapted from a recent income statement of Caterpillar Inc. (CAT) for the year ended December 31: Sales Cost of goods sold Selling, administrative, and other expenses Total expenses (in millions) $27,900 $(23,720) (2,510) $(26,230) $1,670 Operating income Assume that $6,080 million of cost of goods sold and $1,380 million of selling, administrative, and other expenses were fixed costs. Inventories at the beginning and end of the year were as follows: Beginning inventory Ending inventory $3,310 3,870 Also, assume that 40% 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 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 b. Explain the difference between the amount of operating income reported under the absorption costing and variable costing concepts. The operating income under the variable costing concept be the same as the operating income under the absorption costing concept when the meaning it sold than it than the operating income under the absorption costing deduct the fixed costs in the period that they are incurred, regardless of changes in inventories either increase or decrease during the year. In this case, Caterpillar's inventory manufactured. As a result, the operating income under the variable costing concept will be concept. The reason is because the variable costing concept inventory balances