The total gross margin and net operating income under absorption costing are computed as follows: Sales $ 3,311,000 Cost of goods sold 2,580,000 Gross margin 731,000 Selling and administrative expenses 671,000 Net operating income $ 60,000 Sales (43,000 units x $77 per unit) = $3,311,000 Cost of goods sold (43,000 units x $60 per unit) = 2,580,000 Selling and administrative expenses [(43,000 units x $5 per unit) + $456,000] = 671,000