Income statements under absorption costing and variable costing Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (175,000 units) during the first month, creating an ending inventory of 16,000 units. During February, the company produced 159,000 units during the month but sold 175,000 units at $600 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Number of Total Unit Cost Units Cost Manufacturing costs in February 1 beginning inventory: Variable 16,000 $300.00 $4,800,000 Fixed 16,000 25.00 400,000 $325.00 $5,200,000 Manufacturing costs in February Variable 159,000 $300.00 $47,700,000 Fixed 159,000 28.80 4,579,200 Total $328.80 $52,279,200 Total Selling and administrative expenses in February: Variable 175,000 19.20 $3,360,000 675,000 Fixed 175,000 5.00 Total 24.20 54,235,000 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. Open spreadsheet a. Prepare an Income statement according to the absorption costing concept for February. Enter all amounts as positive numbers. Fresno Industries Inc Absorption Costing Income Statement For the Month Ended February 28 Sales Cost of goods sold: Beginning inventory Cost of goods manufactured Total cost of goods sold Gross profit Selling and administrative expenses Operating income b. Prepare an Income statement according to the variable costing concept for February, Enter all amounts at positive numbers Fresno Industries Inc Variable Costing Income Statement For the Month Ended February 28 Sales Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Foxed costs: Fixed manufacturing costs Nad Selling and administrative expenses Operating income b. Prepare an Income statement according to the variable costing concept for February, Enter all amounts as positive numbers. Fresno Industries Inc. Variable Costing Income Statement For the Month Ended February 28 Sales Variable cost of goods sold Manufacturing margin Variable seling and administrative expenses Contribution margin Fixed costs: Fixed manufacturing costs Fixed selling and administrative expenses Total fixed costs Operating income c. What is the reason for the difference in the amount of Operating income reported in (a) and (b)? Under the absorption costing method, the fixed manufacturing cost induded in the cost of goods sold is matched with the revenues. Under variable costing 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 decreases, the absorption costing income statement will have a lower Operating income