Crazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March:

a. Prepare an income statement according to the absorption costing concept.
b. Prepare an income statement according to the variable costing concept.
c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?

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Sales (12,500 units) .... Production costs (15,000 units): Direct materials ...... Direct labor....... Variable factory overhead. Fixed factory overhead..... Selling and administrative expenses: Variable selling and administrative expenses. Fixed selling and administrative expenses... $1,800,000 1,275,000 225,000 600,000 $ 125,000 45,000 $6,250,000 3,900,000 170,000