The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Skin CareProducts Inc., has dropped sharply because of recent competition from a similar product. The company'schemists are currently completing tests of various new formulas, and it is anticipated that themanufacture of a superior product can be started on December 1, one month in the future. No changeswill be needed in the present production facilities to manufacture the new product because only themixture of the various materials will be changed.The controller has been asked by the president of the company for advice on whether to continueproduction during November or to suspend the manufacture of aloe vera hand lotion until December 1.The controller has assembled the following pertinent data:Smooth Skin Care Products Inc.Income Statement - Aloe Vera Hand LotionFor the Month Ended January 31Financial CategoriesSales (400,000)Cost of goods soldGross profitSelling and admin expensesLoss from operationsCategoryDirect materialsDirect laborVariable manufacturing costsVariable selling and admin. ExpensesFixed manufacturing costFixed selling and admin. ExpensesDollar Amount$$$$The production costs and selling and administrative expenses, based on production of 400,000 units inOctober, are as follows:I$32,200,00028,330,0003,870,0004,270,000(400,000)Dollar Amount$15 per unit17 per unit35 per unit10 per unit$1,500,000 for January270,000 for January Sales for February are expected to drop about 20% below those of the preceding month. No significantchanges are anticipated in the fixed costs or variable costs per unit. No extra costs will be incurred indiscontinuing operations in the portion of the plant associated with aloe vera hand lotion. The inventoryof aloe vera hand lotion at the beginning and end of November is expected to be inconsequential.Instructionsa. Prepare an estimated income statement in absorption costing form for February for aloe verahand lotion, assuming production continues during the month.b. Prepare an estimated income statement in variable costing form for February for aloe vera handlotion, assuming production continues during the month.What would be the estimated loss in income from operations if the aloe vera hand lotionproduction was temporarily suspended for February?d. What advice should the controller give to management?C.

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The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Ski Products Inc., has dropped sharply because of recent competition from a similar product. The c chemists are currently completing tests of various new formulas, and it is anticipated that the manufacture of a superior product can be started on December 1, one month in the future. No will be needed in the present production facilities to manufacture the new product because onl mixture of the various materials will be changed. The controller has been asked by the president of the company for advice on whether to contine production during November or to suspend the manufacture of aloe vera hand lotion until Dece The controller has assembled the following pertinent data: Smooth Skin Care Products Inc. Income Statement - Aloe Vera Hand Lotion For the Month Ended January 31 Financial Categories Sales (400,000) Cost of goods sold Gross profit Selling and admin expenses Loss from operations Direct materials Direct labor Category The production costs and selling and administrative expenses, based on production of 400,000 unit October, are as follows: Variable manufacturing costs Variable selling and admin. Expenses Fixed manufacturing cost Fixed selling and admin. Expenses Dollar Amount $ $ $ $ H $ 32,200,000 28,330,000 3,870,000 4,270,000 (400,000) Dollar Amount $15 per unit 17 per unit 35 per unit 10 per unit $1,500,000 for January 270,000 for January

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 2PA: The demand for solvent, one of numerous products manufactured by Logan Industries Inc., has dropped...