Income Statements under Absorption Costing and Variable Costing Fresno Industries Inc. manufactures and sells high-quality camping tents. The company began operations on January 1 and operated at 100% of capacity (48,400 units) during the first month, creating an ending inventory of 4,400 units. During February, the company produced 44,000 units during the month but sold 48,400 units at $80 per unit. The February manufacturing costs and selling and administrative expenses were as follows: a. Prepare an income statement according to the absorption costing concept for the month ending February 28 . Fresno Industries Inc. b. Prepare an income statement according to the variable costing concept for the month ending February 28 . Fresno Industries Inc. 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 decreases, the income statement will have a lower operating income
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