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:

Sales (4,000 units) $2,600,000

Production costs (4,350 units):

Direct materials $1,218,000

Direct labor 522,000

Variable factory overhead 87,000

Fixed factory overhead 130,500 1,957,500

Selling and administrative expenses:

Variable selling and administrative expenses $ 60,000

Fixed selling and administrative expenses 25,000 85,000

Create an income statement according to the absorption costing concept.

Create an income statement according to the variable costing concept.

What is the reason for the difference in the amount of operating income reported in (a) and (b)?