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 (19,000 units) Production costs (25,000 units): $2,470,000 Direct materials Direct labor Variable factory overhead Fixed factory overhead $1,202,500 577,500 287,500 192,500 2,260,000 Selling and administrative expenses: Variable selling and administrative expenses $350,300 Fixed selling and administrative expenses 135,600 485,900 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 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 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 Feedback Check My Work 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 revenues. Under variable costing manufacturing cost is deducted in the period in which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the absorption costing have a higher operating income. all of the fixed income statement will