The vice-president of Abscorp Ltd. is not happy. Sales have been rising steadily, but profits have been falling. In September 2016, Abscorp had record sales, but the lowest profits ever. The results for the months of July, August, and September 2016 follow:

You have been asked to explain to the vice-president that the problem is more a matter of appearance than reality by reinterpreting the results in a variable-costing format. You obtain the following information that will help you:

Additional information about the company's operations is as follows:
• There were 5,000 units of finished goods in the opening inventory on July 1, 2016.
• Fixed manufacturing overhead costs totalled $1,680,000 per quarter and were incurred evenly throughout the quarter.
The fixed manufacturing overhead cost is applied to the units of production based on a budgeted production volume of 80,000 units per month.
• Variable selling and administrative expenses are $6 per unit sold. The remaining selling and administrative expenses on the comparative monthly income statements are fixed.
• The company uses a FIFO cost flow assumption. Work in process inventories are small enough to be ignored.
Instructions
(a) Calculate the monthly break-even point under variable costing.
(b) 1. Calculate the net income for each month under variable costing.
2. Reconcile the variable-costing and absorption-costing net incomes for each month.
3. Explain why profits have not been more closely related to changes in the sales volume.

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ABSCORP LTD. Comparative Monthly Income Statements (in thousands) Sales (@ $25 per unit) Less cost of goods sold tember $2,000 $1,750 Opening inventory 320 400 Costs applied to production Variable manufacturing (@ S9 per unit) Fixed manufacturing overhead Cost of goods manufactured 765 595 1,360 1,440 320 1,120 35 1,085 665 620 $ 45 720 560 1,280 1,600 540 420 960 1,360 80 1,280 140 1,420 580 680 Goods available for sale Less ending inventory Cost of goods sold 8 1,200 Underapplied (overapplied) fixed overhead Adjusted cost of goods sold Less selling and administrative expenses Net income (loss) 1,200 675 650 $ 25 (100 Production Sales July 85,000 units 70,000 August 80,000 units 75,000 September 60,000 units 80,000