There are three parts to this question!

Income Statements under Absorption Costing and Variable Costing a$.$ Prepare an income statement according to the absorption costing concept.

Gallatin County Motors Inc.

Absorption Costing Income

Statement

For the Month Ended July $31$ b$.$ Prepare an income statement according to the variable costing concept.

Gallatin County Motors Inc.

Variable Costing Income Statement

For the Month Ended July $31$

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.

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 $(14,500$ units$)$

Selling and administrative expenses:

Variable selling and administrative expenses $$205,000$

Fixed selling and administrative expenses

$79,300,284,300$

If required, round interim per$-$unit calculations to the nearest cent.