1. Inventory Valuation under Absorption Costing and Variable Costing

At the end of the first year of operations, 6,700 units remained in the finished goods inventory. The unit manufacturing costs during the year were as follows:

Direct materials	$38.30
Direct labor	13.80
Fixed factory overhead	5.30
Variable factory overhead	4.70

Determine the cost of the finished goods inventory reported on the balance sheet under (a) the absorption costing concept and (b) the variable costing concept.

Absorption costing	$
Variable costing	$

2. 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 (11,000 units)				$1,540,000
Production costs (14,000 units):
Direct materials		$725,200
Direct labor		348,600
Variable factory overhead		173,600
Fixed factory overhead		116,200		1,363,600
Selling and administrative expenses:
Variable selling and administrative expenses		$211,400
Fixed selling and administrative expenses		81,800		293,200

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
	$
	$
	$

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)?