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:

a. Prepare an income statement according to the absorption costing concept.

b. Prepare an income statement according to the variable costing concept.

c. What is the reason for the difference in the amount of operating income reported in (a) and (b)?

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Sales (4,000 units) Production costs (4,350 units): Direct materials ... Direct labor....... Variable factory overhead Fixed factory overhead.... Selling and administrative expenses: Variable selling and administrative expenses.. Fixed selling and administrative expenses... $2,600,000 $1,218,000 522,000 87,000 1,957,500 130,500 $ 60,000 85,000 25,000