“I don’t understand how I can go from a profit to a loss when I sell more units.” This comment aptly sums Emily Johnson’s frustration with her accounting statements. Emily owns and operates a small firm that sells prefabricated sheds used for storing lawn equipment. Her business is seasonal, exhibiting wide swings in sales and production.
Emily’s one product sells for $1,000 per unit. Variable manufacturing costs are $200 per unit, with fixed manufacturing costs amounting to $750,000 per month. Emily’s monthly marketing costs are given by the equation $100,000 + ($25 × units sold). Each month, Emily allocates costs to units based on actual expenses and production.
Emily began March and ended April with zero inventories. She sold 1,000 units in March and 1,250 units in April. Emily produced 1,500 units in March.

Required:
a. Prepare Emily’s income statement for March and April under absorption costing. In addition, determine the cost of Emily’s March ending inventory under absorption costing.
b. Prepare Emily’s income statements for both March and April under variable costing.
c. Reconcile the difference between variable costing net income and absorption costing net income.
d. Comment on the reconciliation, and indicate why Emily’s total profit over the two months is the same under both methods. Also indicate why Emily’s absorption costing income decreases from March to April even though she sold more units in April than in March?