Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 24,700 hats, of which 23,000 were sold. Operating data for the month are summarized as follows: $161,000 Sales Manufacturing costs: Direct materials $98,800 Direct labor 27,170 Variable manufacturing cost 12,350 Fixed manufacturing cost 9,880 148,200 Selling and administrative expenses: Variable $9,200 Fixed 6,720 15,920 During August, Head Gear Inc. manufactured 21,300 hats and sold 23,000 hats. Operating data for August are summarized as follows: Sales $161,000 Manufacturing costs: Direct materials $85,200 Direct labor 23,430 Variable manufacturing cost 10,650 Fixed manufacturing cost 9,880 129,160 Selling and administrative expenses: Selling and administrative expenses: Variable $9,200 Fixed 6,720 15,920 Required: 1a. Prepare income statement for July using the absorption costing concept. Head Gear Inc. Absorption Costing Income Statement For the Month Ended July 31 Cost of goods sold: DUO 1b. Prepare income statement for August using the absorption costing concept. Head Gear Inc. Absorption Costing Income Statement For the Month Ended August 31 Cost of goods sold: $ 1 2a. Prepare income statement for July using the variable costing concept. Head Gear Inc. Variable Costing Income Statement For the Month Ended July 31 > Variable cost of goods sold: Fixed costs: Previous Nex Fixed costs: 2b. Prepare income statement for August using the variable costing concept. Head Gear Inc. Variable Costing Income Statement For the Month Ended August 31 Variable cost of goods sold: LUI Fixed costs: Fixed costs: $ costing due to part of costing is less than 3a. For July, operating income reported under manufacturing costs that are expensed. 3b. When large changes in inventory levels occur from one period to the next, it is possible for management to misinterpret such increases (or decreases) in operating income as due to changes in: > a. costs. b. prices c. sales volume. d. "sales volume", "prices" and "costs" are correct. e. None of these choices is correct. The correct answer is: 4. Based on your answers to (1) and (2), did Head Gear Inc. operate more profitably in July or in August? Explain. Head Gear Inc. was under the variable costing concept. The difference in operating income reported under the absorption costing concept is due to allocating to the