Absorption and Variable Costing Income Statements for Two Months and Analysis During the first month of operations ended July 31, Head Gear Inc. manufactured 35,300 hats, of which 33,200 were sold. Operating data for the month are summarized as follows: Sales $212,480 Manufacturing costs: Direct materials $127,080 Direct labor 35,300 Variable manufacturing cost 14,120 Fixed manufacturing cost 14,120 190,620 Selling and administrative expenses: Variable $9,960 Fixed 7,270 17,230 During August, Head Gear Inc. manufactured 31,100 hats and sold 33,200 hats. Operating data for August are summarized as follows: Sales $212,480 Manufacturing costs: Direct materials $111,960 Direct labor 31,100 Variable manufacturing cost 12,440 Fixed manufacturing cost 14,120 169,620 Selling and administrative expenses: Variable $9,960 Fixed 7,270 17,230 Required: 1a. Prepare income statement for July using the absorption costing concept. Head Gear Inc. 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: 8 > 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: 2a. Prepare income statement for July using the variable costing concept. Head Gear Inc. ... Previous 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: 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: > 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: Fixed costs: 3a. For July, operating income reported under costing is less than costing due to part of 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: > Fixed costs: 3a. For July, operating income reported under costing is less than costing due to part of 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