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 (38,000 units)		$9,500,000.00
2	Production costs (46,500 units):
3	Direct materials	$4,650,000.00
4	Direct labor	1,860,000.00
5	Variable factory overhead	1,162,500.00
6	Fixed factory overhead	697,500.00	8,370,000.00
7	Selling and administrative expenses:
8	Variable selling and administrative expenses	$1,250,000.00
9	Fixed selling and administrative expenses	235,000.00	1,485,000.00

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.