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 summare the results for August: Sales (14,500 units) $1,305,000 Production costs (19,000 units): Direct materials $632,700 Direct labor 304,000 Variable factory overhead 152,000 Fixed factory overhead 100,700 1,189,400 Selling and administrative expenses: Variable selling and administrative expenses $184,400 Fixed selling and administrative expenses 71,400 255,800 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 1,305,000 Cost of goods sold 907,700 Gross profit 397,300 Selling and administrative expenses 255,800 Income from operations 141,500 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 $ 1,305,000 Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead UNTELLI AssignmentSession Locator &inprogress. * 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 Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead Fixed selling and administrative expenses Total fixed costs Income from operations c. What is the reason for the difference in the amount of income from operations reported in (a) and (b)? all of the fixed income Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the statement will have a higher income from operations than will the variable costing income statement