Requirements:1. Compute the net income for each month using variable costing. 2. Compute the monthly breakeven point under variable costing. 3. Explain to Ms. Gale why profits have moved erratically over the three month period shown inthe absorption costing statements above and why profits have not been more closely rated tochanges in sales volume. 4. Identify and discuss the advantages and disadvantages of using the variable costing method forinternal reporting purposes. 5. Reconcile the absorption costing and the variable costing net operating income figures for eachmonth. Case 2-1 "Now this doesn't make any sense at all," said Florence Gale, financial vicepresident for Warner Bros. Company. "Our sales have been steadily rising over the lastseveral months, but profits have been going in the opposite direction. In September wefinally hit P2,000,000 in sales, but the bottom line for that month drops off to a P100,000loss. Why aren't profits more closely correlated with sales?"The statements to which Ms Gale was referring are shown below:July AugustP1,750,000 P1,875,000Sales (P25)Less: Cost of Goods SoldBeginning InventoryCost applied to production:Variable MFTG costFixed MFTG costCost of Goods ManufacturedGoods Available for SaleLess: Ending InventoryCost of Goods SoldUnder/OverApplied Fixed OHAdjusted CGSGross MarginLess: Selling and Admin ExpenseNet income(loss)80,000765,000595,0001,360,000Production in unitsSales in units320,000720,000560,0001,280,0001,440,000 1,600,000320,000400,0001,120,000 1,200,000(35,000)(0)1,085,000 1,200,000P665,000 P675,000620,000650,000P45,000P25,00085,000 80,00070,000 75,000SeptemberP2,000,000Klein, a new graduate from a USCE who has just been hired by Warner, has stated to Ms.Gale that the contribution margin approach, with variable costing, is a much better way toreport profit data to management. Sales and production data for the last quarter follow:July AugustSeptember60,00080,000Additional Information about the company's operations is given below:a. 5,000 units were in inventory on July 1400,000540,000420,000960,0001,360,00080,0001,280,000140,0001,420,000P580,000680,000P(100,000)b. Fixed manufacturing overhead costs total P1,680,000 per quarter and are incurredevenly throughout the quarter. This fixed manufacturing overhead cost is applied tounits of product on a basis of a budgeted production volume of 80,000 units permonthc. Variable selling and admin expenses are P6 per unit sold. The remainder of theselling and admin expenses on the statements above are fixed.d. The company uses FIFO inventory flow assumption. Work in process inventories areinsignificant and can be ignored."I know production is somewhat out of step with sales," said Karla E, the company'scontroller. "But we had to build inventory early in the quarter in anticipation of a strike inSeptember. Since the union settled without a strike, we than had to cut back production inSeptember in order to work off the excess inventories. The income statements you have arecompletely accurate.

Name: Requirements:1. Compute the net income for each month using variable c
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Description: Requirements:1. Compute the net income for each month using variable costing. 2. Compute the monthly breakeven point under variable costing. 3. Explain to Ms. Gale why profits have moved erratically over the three month period shown inthe absorption