Shawnee Motors Inc. assembles and sells MP3 players. The companybegan operations on August 1 and operated at 100% of capacityduring the first month. The following data summarize the resultsfor August:

Sales (14,000 units)				$1,960,000
Production costs (18,000 units):
Direct materials		$932,400
Direct labor		448,200
Variable factory overhead		223,200
Fixed factory overhead		149,400		1,753,200
Selling and administrative expenses:
Variable selling and administrative expenses		$271,700
Fixed selling and administrative expenses		105,200		376,900

If required, round interim per-unit calculations to the nearestcent.

a. Prepare an income statement according to theabsorption costing concept.

Shawnee Motors Inc.
Absorption Costing Income Statement
For the Month Ended August 31
	$
	$
	$

b. Prepare an income statement according to thevariable costing concept.

Shawnee Motors Inc.
Variable Costing Income Statement
For the Month Ended August 31
		$
		$
		$
Fixed costs:
	$
		$

c. What is the reason for the difference in theamount of income from operations reported in (a) and (b)?

Under the (absorption or variable ) method, the fixedmanufacturing cost included in the cost of goods sold is matchedwith the revenues. Under (absorption or variable), all of the fixedmanufacturing cost is deducted in the period in which it isincurred, regardless of the amount of inventory change. Thus, wheninventory increases, the (absorption or variable) income statementwill have a higher income from operations than will the variablecosting income statement.