Show Me Ho Income Statements under Absorption Casting 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 (17,500 units) Production costs (23,000 units): $1,750,000 Direct materials Direct labor Variable factory overhead Fixed factory everhead $851,000 400,400 204,700 135,700 1.400,800 Selling and administrative expenses Variable selling and administrative expens $248,100 Fixed selling and administrative expenses 96,000 344,100 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 311 Sales Cost of goods sold Cross profe Operating income My L750,000 132000 344100 187,900 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: Bleed factory averhead costs Fixed selling and administrative expenses Operating income 1750,000 1416150x 6. Under variable cutting, the cost of goods manufactured indudes only variable manufacturing costs c what is the reason for the difference in the amount of operating income reportest in (a) and (b) Under the absorption costing TJERAPY 25sts are included as part method, the fixed manufacturing cost included in the cost of girods sald is matched with the revenues Under variable costing which it is incurred, regardless of the amount of inventory change. Thus, when inventory increases, the absorption costing Vincome statement will have a higher operating income of the feed manufacturing c eBook Show Me How 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 (17,500 units) Production costs (23,000 units): Direct materials Direct labor Variable factory overhead Fixed factory overhead $1,750,000 $851,000 409,400 204,700 135,700 1,600,800 Selling and administrative expenses: Variable selling and administrative expenses $248,100 Fixed selling and administrative expenses 96,000 344,100 I 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 1,750,000 For the Honth Inded July 31 Sales 1,750,000 Cost of goods sold 1,218,000 Gross profit 532.000 Selling and administrative expenses 344,100 Operating income 187,900 Check My Work a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and vanable factory 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 Variable cost of goods sold Manufacturing margin Variable selling and administrative expenses Contribution margin Check My Work 1.750,000 1.925.560 X 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 1,925,560 X 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 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 absorption costing income statement will have a higher operating income. Feedback Check My Work Previous Next Emal instructor Swe and EXE Submit Assignment for Grading