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 (166,000 units) during the first month, creating an ending inventory of 18,000 units. During February, the company produced 148,000 units during the month but sold 166,000 units at $500 per unit. The February manufacturing costs and selling and administrative expenses were as follows: Unit Number of Units Total Cost Cost Manufacturing costs in February 1 beginning inventory: Variable 18,000 $250.00 $4,500,000 Fixed 18,000 23.00 414,000 Total $273.00 $4,914,000 Manufacturing costs in February: Variable 148,000 $250.00 $37,000,000 Fixed 148,000 26.50 3,922,000 Total $276.50 $40,922,000 Selling and administrative expenses in February: Variable 166,000 17.70 $2,938,200 Fixed 166,000 1.00 166,000 Total 18.70 $3,104,200 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. 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 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 $ Fixed costs: $ c. What is the reason for the difference in the amount of Operating income reported in (a) and (b)? all of the fixed 1 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 decreases, the statement will have a lower Operating income. income