Income Statements under Absorption Costing and Variable Costing 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 (14,500 units) Production costs (19,000 units): $2,320,000 Direct materials Direct labor Variable factory overhead Fixed factory overhead $1,124,800 539,600 269,800 180,500 2,114,700 Selling and administrative expenses: Variable selling and administrative expenses $327,800 Fixed selling and administrative expenses 126,900 454,700 If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 Sales 2,320,000 Cost of goods sold 1,613,850 Gross profit 706,150 Selling and administrative expenses Operating income Check My Work 1 more Check My Work uses remaining. 329,087 X Previous Next b. Prepare an income statement according to the variable costing concept. Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July 31 Manufacturing margin Fixed costs: Feedback Under the c. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Feedback 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