Answer:
<u>Income statement according to the absorption costing</u>
Sales                                                                                         2,600,000
Less Cost of Goods Sold
Opening Stock                                                          0
Add Cost of Goods Manufactured 
Direct materials                                                   1,218,000 
Direct labor                                                           522,000 
Variable factory overhead                                     87,000 
Fixed factory overhead                                        130,500
Less Closing Stock (1,957,500/4,350)×350      (157,500)       1,800,000
Gross Profit                                                                                   800,000
Less Period Costs :
Selling and administrative expenses: 
Variable selling and administrative expenses                           (60,000)
Fixed selling and administrative expenses                                (25,000)
Net Income                                                                                    715,000
Explanation:
<em>Product/Manufacturing Cost - Absorption Costing = Direct Materials + Direct Labor + Variable Overheads + Fixed Overheads</em>
<em>Period Cost - Absorption Costing  = All Non - Manufacturing Costs</em>
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