Sales $2,150,000 Manufacturing costs: Direct materials $960,000 Direct labor 420,000 Variable manufacturing cost 156,000 Fixed manufacturing cost 288,000 1,824,000 Selling and administrative expenses: Variable $204,000 Fixed 96,000 300,000 Required: 1. Prepare an income statement based on the absorption costing concept.

Net income 26,000

Explanation:

Absorption costing classifies costs as production cost and non-production costs (selling and distibution, administration e. t. c)

Income statement using Absorption costing

$

Sales Revenue 2,150,000

Less cost of goods sold

Direct material 960,000

Direct labour cost 420,000

Variable manufacturing 156,000

Fixed manufacturing 288,000

production cost (1,824,000)

Gross profit 326,000

Selling and distribution

Variable 204,000

Fixed 96,000

(300,000)

Net income 26,000