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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: If required, round interim per-unit calculations to the nearest cent. a. Prepare an income statement according to the absorption costing concept. a. Prepare an income statement according to the absorption costing concept. Feedback T Check My Work a. Under absorption costing, the cost of goods manufactured includes direct materials, direct labor, and factory overhead costs. Both fixed and variable factory costs are included as part of factory overhead. b. Prepare an income statement according to the variable costing concept. b. Prepare an income statement according to the variable costing concept. Feedback Check My Work b. Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. Check My Work b. Under variable costing, the cost of goods manufactured includes only variable manufacturing costs. What is the reason for the difference in the amount of operating income reported in (a) and (b)? Jnder 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. Feedback Theck My Work c. Consider what causing the difference in operating income reported under the two methods. There is a need for management to exercise care in interpreting operating income reported under absorption costing when significant changes in inventory levels occur