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Income statements under absorption and variable costing Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% of capacity during the first month. The following data summarize the results for July: $2,700,000 Sales (5,000 units) Production costs (5,000 units): Direct materials $1,161,000 Direct labor 499,000 Variable factory overhead 81,500 127,500 Fixed factory overhead 1,869,000 Selling and administrative expenses: Variable selling and administrative expenses $57,900 Fixed selling and administrative expenses 24,300 82,200 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. . X Open spreadsheet a. Prepare an income statement according to the absorption costing concept. Gallatin County Motors Inc. Absorption Costing Income Statement Open spreadsheet a. Prepare an income statement according to the absorption costing concept. Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales $ Cost of goods sold Gross profit $ Selling and administrative expenses Operating income $ b. Prepare an income statement according to the variable costing concept. Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July 31 Sales $ Variable cost of goods sold Manufacturing margin $ Marimble colline and ministrative avancer Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July 31 Sales $ Variable cost of goods sold Manufacturing margin $ Variable selling and administrative expenses Contribution margin $ Fixed costs: Fixed factory overhead costs $ Fixed selling and administrative expenses Total fixed costs Operating income $ c. What is the reason for the difference in the amount of Operating income reported in (a) and (b)? Under the absorption costing method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under variable costing , all of the fixed manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the absorption costing income statement will have a higher Operating income than will the variable costing income statement. Feedback Arial B Merge General $ v 7 .00 0 fox H A B D 1 Income statements under absorption and variable costing 2 Gallatin County Motors Inc. assembles and sells snowmobile engines. The company began operations on July 1 and operated at 100% 3 of capacity during the first month. The following data summarize the results for July: 4 5 DATA 6 Sales $2,700,000 5,000 units 7 Production costs: 5,000 units 8 Direct materials $1,161,000 9 Direct labor 499,000 10 Variable factory overhead 81,500 11 Fixed factory overhead 127,500 1,869,000 12 Selling and administrative expenses: 13 Variable selling and administrative expenses $57,900 14 Fixed selling and administrative expenses 24,300 82,200 15 Select the corresponding accounts in the dropdowns in cells B21:B25, B30:B34, B36:B39. Using formulas and cell references, perform the required analysis, and input your answers into the green cells in the C and D columns. Transfer the numeric results for the green 16 entry cells (C21:C25, C36:C37, D30:D34, D38:D39) into the appropriate fields in CNOWv2 for grading. 17 18 Gallatin County Motors Inc. 19 Absorption Costing Income Statement 20 For the Month Ended July 31 Formulas 21 a. A Data + Calculating... File Home Insert Draw Page Layout Formulas Data Review View Help Editing Arial 10 B Tv A Merge v General .00 .00 >0 B21 fx A G I B E the required analysis, and input your answers into the green cells in the C and D columns. Transfer the numeric results for the green 16 entry cells (C21:025, C36:037, D30:D34, D38:D39) into the appropriate fields in CNOWv2 for grading. 17 18 19 20 Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 Formulas a. Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July31 Formulas 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 b Fixed costs: At Merge v General > n > ,00 v M 21 fx A D F G H E Turiniuias B For the vion cnued JulyT 1 Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July31 Formulas 21 a. 22 23 24 25 26 27 28 29 30 b. 31 32 33 34 35 6 37 38 39 10 11 12 13 14 15 Fixed costs