Answer:
Income under absorption costing = $1,100,000
Explanation:
Marginal and absorption costing are two different methods to deal with fixed production overheads and and decide whether or not they are included in valuation of inventory.
<u>Valuation of inventory</u>
Opening and closing inventory are valued at variable cost under variable costing. Whereas in absorption costing, opening and closing inventory are valued at full production cost (including fixed production overheads).
<u>Reconciling profits reported under two different methods</u>
When inventory levels increase or decrease during a period then profits will differ under absorption and marginal costing because of fixed production cost.
Net Income under absorption costing = Income under variable costing + fixed production cost in ending inventory – fixed production cost in beginning inventory
= $1,050,000 + $300,000 - $250,000
= $1,100,000
