Savannah, Inc. is a company that manufactures and sells a single product. Unit sales for each of the four quarters of 2020 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.

Accounting

Determine the amount of net income Savannah will report in each of the four quarters of 2020, 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 2020 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.