Savannah, Inc. is a company that manufactures and sells a single product. Unit sales for each of the four quarters of 2012 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 2012, assuming actual sales are as projected and employing the integral approach to interim financial reporting. (Ignore income taxes.)

Analysis

Compute Savannah’s profit margin on sales for each of the four quarters of 2012. What effect does employing the integral approach instead of the discrete approach have 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.