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 (15,000 units) $2,400,000 Production costs (19,000 units): Direct materials $1,124,800 Direct labor 539,600 Variable factory overhead 269,800 Fixed factory overhead 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 Cost of goods sold Gross profit Selling and administrative expenses Operating income Check My Work Previous Next Gallatin County Motors Inc. Variable Costing Income Statement For the Month Ended July 31 Sales Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Fixed costs: Fixed factory overhead costs Fixed selling and administrative expenses Total fixed costs Operating income Oo b. Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. 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 included in the cost of goods sold is matched with the revenuen variable costing all of the fixed manufacturing cost is deducted in the period in which it is incurred, Tegardless of the amount of inv change. Thus, when inventory increases, the absorption costing income statement will have a higher operating income. c. Consider what causing the difference in operating income reported under the two methods. There is a need for management to exer care in intretinentininenme rented under artistin when danificant changes in Inventory level Previous Nes All work saved Emal instructor Save and Exit Sub Assignment for 2 Stv 9 W