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 rst month. The following data summarize the results for July: Sales (20,000 units) $3,200,000 Production oosts (26,000 units): Direct materials $1,539,200 Direct labor 738,400 Variable factory overhead 369,200 Fixed factory overhead 247,000 2,893,800 Selling and administrative expenses: ) Variable selling and administrative expenses $448,500 Fixed selling and administrative expenses 173,600 622,100 If required, round interim per-unit calculations to the nearest cent. c. What is the reason for the difference in the amount of operating income reported in (a) and (1:)? Under the V method, the xed manufacturing cost included in the cost of goods sold is matched with the revenues. Under _' , all of the xed 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