Income Statements under Absorption Costing and Variable Costing

Crazy Mountain Sports Inc. assembles and sells snowmobile engines. The company began operations on March 1 and operated at 100% of capacity during the first month. The following data summarize the results for March:

Line Item Description	Amount	Amount
Sales (15,500 units)		$1,395,000
Production costs (20,000 units):
Direct materials	$666,000
Direct labor	320,000
Variable factory overhead	160,000
Fixed factory overhead	106,000	1,252,000
Selling and administrative expenses:
Variable selling and administrative expenses	$194,100
Fixed selling and administrative expenses	75,100	269,200

If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. b. Prepare an income statement according to the variable costing concept. Crazy Mountain Sports Inc. Variable Costing Income Statement 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