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 (15,500 units)$2,015,000Production costs (20,000 units):Direct materials$962,000Direct labor462,000Variable factory overhead230,000Fixed factory overhead154,0001,808,000Selling and administrative expenses:Variable selling and administrative expenses$280,200Fixed selling and administrative expenses108,500388,700

If required, round interim per-unit calculations to the nearest cent.

a.

Gallatin County Motors Inc.Absorption Costing Income StatementFor the Month Ended July 31

$

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$

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$

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b.income statement according to the variable costing concept.

Gallatin County Motors Inc.Variable Costing Income StatementFor the Month Ended July 31

$

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$

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$

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Fixed costs:

$

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$

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

Under the________

method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under________

, 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

____________ income statement will have a higher operating income.