Accounting 1B Class Notes Chapter 20-Variable Costing for Management Analysis The demand for solvent, one of numerous products manufactured dropped sharply because of recent competition from a similar product. The co currently completing tests of various new formulas, and it is anticipated that the manufacture of a superior product can be started on June 1, one month in the future. No changes will be needed in the present production facilities to manufacture the new product because only the mixture of the vanous materials will be changed. by Mac n' Cheese Industries Inc, has The controller has been asked by the president of the company for advice on whether to continue production during May or to suspend the manufacture of solvent until June 1. The controller has assembled the following pertinent data: Mac n' Cheese Industries Inc. Income Statement-Solvent For the Month Ended April 30, 2016 Sales (4,000 units). Cost of goods sold Gross profit Selling and administrative expenses.. Loss from operations... $500,000 424,000 $ 76,000 102,000 $(26,000) The production costs and selling and administrative expenses, based on production of 4,000 units in April, are as follows: Direct materials Direct labor Variable manufacturing cost Variable selling and administrative expenses Fixed manufacturing cost Fixed selling and administrative expenses S45 per unit 20 per unit 16 per unit 15 per unit 100,000 for April 42,000 for Aprill Sales for May are expected to drop about 20% below those of the preceding month. No significant changes are anticipated in the fixed costs or variable costs per unit. No extra costs will be incurred in discontinuing operations in the portion of the plant associated with solvent. The inventory of solvent at the beginning and end of May is expected to be inconsequential. ons Prepare an estimated income statement in absorption costing form for May for solvent, assuming that production continues during the month. Round amounts to two decimals. Prepare an estimated income statement in variable costing form for May for solvent, assuming that 1. production continues during the month. Round amounts to two decimals. What would be the estimated loss in income from operations if the solvent production were temporarily suspended for May? What advice should the controller give to management? 3