The Net income of the Income statement under the absorption costing equals Sh 14,000.
<h3>What is Direct materials?</h3>
= 1,000 x 10
= Sh 10,000
<h3>What is Direct labor?</h3>
= 1,000 x 7
= Sh 7,000
<h3>What is Variable manufacturing overhead?</h3>
= 1,000 x 3
= Sh 3,000
<h3>What is Fixed manufacturing overhead</h3>
= 1,000 x (7,500 / 1,500)
= Sh 5,000
Company Q
Income Statement
Revenue (1,000 x 45) 45,000
<u>Cost of goods sold:</u>
Direct materials 10,000
Direct labor 7,000
Variable Manufacturing overhead 3,000
Fixed manufacturing overhead <u>5,000</u> <u>(25,000)</u>
Gross Margin 20,000
Variable Selling and admin expenses 2,000
Fixed Selling and admin expenses 4,000
Total Selling and admin expenses <u>(6,000)</u>
Net Income <u>14,000</u>
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