Income Statements under Absorption and Variable Costing Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for August: Sales (11,500 units) $1,035,000 Production costs (15,000 units): Direct materials $499,500 Direct labor 240,000 Variable factory overhead 120,000 79,500 Fixed factory overhead 939,000 Selling and administrative expenses: Variable selling and administrative expenses $145,500 56,300 Fixed selling and administrative expenses 201,800 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. Shawnee Motors Inc. Absorption Costing Income Statement For the Month Ended August 31 Sales $ 1,035,000 Cost of goods sold Gross profit Selling and administrative expenses Income from operations b. Prepare an income statement according to the variable costing concept. Shawnee Motors Inc. Variable Costing Income Statement For the Month Ended August 31 Sales Fixed factory overhead x Fixed costs: Feedback Check My Work b. Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. Learning Objective 1. c. What is the reason for the difference in the amount of income from operations 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 income from operations than will the variable costing income statement