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:

1

Sales (32,000 units)

$8,000,000.00

2

Production costs (41,000 units):

3

Direct materials

$3,280,000.00

4

Direct labor

2,255,000.00

5

Variable factory overhead

1,025,000.00

6

Fixed factory overhead

615,000.00

7,175,000.00

7

Selling and administrative expenses:

8

Variable selling and administrative expenses

$1,180,000.00

9

Fixed selling and administrative expenses

210,000.00

1,390,000.00

Required:

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)?

* Be sure to complete the statement heading. Refer to the list of Labels and Amount Descriptions provided for the exact wording of the answer choices for text entries. A colon (:) will automatically appear if it is required. Enter amounts as positive numbers unless the amount is a calculation that results in a negative amount. For example: Net loss should be negative. Expenses should be positive.