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 (19,500 units) $1,950,000 Production costs (25,000 units): Direct materials $925,000 Direct labor 445,000 Variable factory overhead 222,500 Fixed factory overhead 147.500 1,740,000 Selling and administrative expenses Variable selling and administrative expenses $269,700 Fixed selling and administrative expenses 104,400 374,100 It required, round interim per-unit calculations to the nearest cont. 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 1.950,000 Cost of goods sold 1.157.200 Gross pront 13.00 Selling and administrative expenses 394.100 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 1,950,000 Cost of goods sold 1.357,200 Gross profit 592,800 Selling and administrative expenses 374,100 Operating income 218,700 Feedback Check My Work a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both costs are included as part of factory overhead. 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 1.950,000 Variable cost of goods sold Variable selling and administrative expenses 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 1.950.000 Variable cost of goods sold Variable selling and administrative expenses Contribution margin Fixed costs Fixed factory overhead costs Fixed selling and administrative expenses Total Vixed costs Operating income Check My Wor 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 (D)? Under the method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under 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