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: $2,880,000 Sales (18,000 units) Production costs (23,000 units): Direct materials $1,361,600 Direct labor 653,200 Variable factory overhead 326,600 Fixed factory overhead 218,500 2,559,900 Selling and administrative expenses: $396,800 Variable selling and administrative expenses Fixed selling and administrative expenses 153,600 550,400 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 Direct materials X 59.20 X Variable factory overhead 14.20 X Direct labor X 28.40 X Fixed factory overhead costs X 9.50 X Operating income 111.30 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 Fixed costs: 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 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