Savannah, Inc. is a company that manufactures and sells a single product. Unit sales for each of the four quarters of 2017 are projected as follows. Quarter Units First 80,000 Second 150,000 Third 550,000 Fourth 120,000 Annual total 900,000 Savannah incurs variable manufacturing costs of $0.40 per unit and variable nonmanufacturing costs of $0.35 per unit. Savannah will incur fixed manufacturing costs of $720,000 and fixed nonmanufacturing costs of $1,080,000. Savannah will sell its product for $4.00 per unit.AccountingDetermine the amount of net income Savannah will report in each of the four quarters of 2017, assuming actual sales are as projected and employing the integral approach to interim financial reporting. (Ignore income taxes.) Repeat the analysis under the discrete approach.AnalysisCompute Savannah’s profit margin on sales for each of the four quarters of 2017 under both the integral and discrete approaches. Discuss the effects of employing the integral and the discrete approaches on the degree to which Savannah’s profit margin on sales varies from quarter to quarter.PrinciplesExplain the conceptual rationale behind the integral approach to interim financial reporting
Cost-Volume-Profit Analysis
Cost Volume Profit (CVP) analysis is a cost accounting method that analyses the effect of fluctuating cost and volume on the operating profit. Also known as break-even analysis, CVP determines the break-even point for varying volumes of sales and cost structures. This information helps the managers make economic decisions on a short-term basis. CVP analysis is based on many assumptions. Sales price, variable costs, and fixed costs per unit are assumed to be constant. The analysis also assumes that all units produced are sold and costs get impacted due to changes in activities. All costs incurred by the company like administrative, manufacturing, and selling costs are identified as either fixed or variable.
Marginal Costing
Marginal cost is defined as the change in the total cost which takes place when one additional unit of a product is manufactured. The marginal cost is influenced only by the variations which generally occur in the variable costs because the fixed costs remain the same irrespective of the output produced. The concept of marginal cost is used for product pricing when the customers want the lowest possible price for a certain number of orders. There is no accounting entry for marginal cost and it is only used by the management for taking effective decisions.
Savannah, Inc. is a company that manufactures and sells a single product. Unit sales for each of the four quarters of 2017 are projected as follows.
| Quarter | Units |
| First | 80,000 |
| Second | 150,000 |
| Third | 550,000 |
| Fourth | 120,000 |
| Annual total | 900,000 |
Savannah incurs variable
Accounting
Determine the amount of net income Savannah will report in each of the four quarters of 2017, assuming actual sales are as projected and employing the integral approach to interim financial reporting. (Ignore income taxes.) Repeat the analysis under the discrete approach.
Analysis
Compute Savannah’s profit margin on sales for each of the four quarters of 2017 under both the integral and discrete approaches. Discuss the effects of employing the integral and the discrete approaches on the degree to which Savannah’s profit margin on sales varies from quarter to quarter.
Principles
Explain the conceptual rationale behind the integral approach to interim financial reporting
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