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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