Finch-Hutton Machine Works Ltd. uses standard costs based on a practical capacity of 1050 tractor bearings per month. Actual production for the month of January was 980. Standard variable cost per unit is $11, and budgeted monthly fixed manufacturing overhead is $78,750. Actual costs for January were $11,760 and $78,400 for variable and fixed, respectively. There was no work-in-process inventory at the beginning or end of January. Finished goods inventory had no balance at the beginning of January; January sales were 900 units at $135 per unit. Non-manufacturing costs totaled $38,000. Variances are prorated to inventory and cost of goods sold based on account balances before proration.

Required:

1. Prepare an income statement in gross margin format using absorption costs.

2. Determine the balance of finished goods inventory at the end of January.

3. Determine the variances of fixed and variable overheads in as much detail as possible.