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Income statements under absorption 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 (3,000 units) $2,100,000 Production costs (3,000 units): Direct materials $903,000 Direct labor 388,200 Variable factory overhead 63,300 Fixed factory overhead 99,300 1,453,800 Selling and administrative expenses: Variable selling and administrative expenses $45,100 Fixed selling and administrative expenses 18,900 64,000 This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below. 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 $ $ $ Fixed costs: Gallatin County Motors Inc. Absorption Costing Income Statement For the Month Ended July 31 $ Direct labor Direct materials Gross profit Fixed factory overhead costs according to the variable cost Sales Gallatin County Motors For the Month $ $ $ Fixed 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 than will the variable costing income statement. For the Month Ended July 31 $ $ $ Contribution margin Manufacturing margin Sales Variable cost of goods sold Variable selling and administrative expenses $ $ stod in and (h)