Shawnee Motors Inc. assembles and sells MP3 players. The company began operations on August 1 and operated at 100% of capacity during the first month. The following data summarize the results for 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 nearest cent.

a. Prepare an income statement according to the absorption costing concept.

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

b. Prepare an income statement according to the variable 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 the amount of income from operations reported in (a) and (b)?

Under the (absorption or variable ) method, the fixed manufacturing cost included in the cost of goods sold is matched with the revenues. Under (absorption or variable), 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 (absorption or variable) income statement will have a higher income from operations than will the variable costing income statement.