Answer:
The operating income for May under absorption costing is $325,000
Explanation:
For computing the operating income under absorption costing, the calculation is shown below
Sales - Cost of good sold = Gross Profit
Gross Profit - Selling & Admin Expenses = Net income
By following these two equations we can easily compute net income
First we compute the gross profit
where,
Sales is $900,000
And cost of good sold = Fixed cost of goods sold + Variable cost of goods sold
So, cost of good sold = $100,000 + $250,000 = $350,000
Thus, the Gross profit is $900,000 - $350,000 = $550,000
Now, after computing the gross profit, the selling and admin expenses of variable and fixed should be deducted from gross profit
So,
= $550,000 - $100,000 - $125,000
= $325,000
Hence, the operating income for May under absorption costing is $325,000
