Question
Income Statements underAbsorption CostingandVariable Costing The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Skin Care Products Inc., has dropped
Income Statements underAbsorption CostingandVariable Costing
The demand for aloe vera hand lotion, one of numerous products manufactured by Smooth Skin Care Products Inc., has dropped sharply because of recent competition from a similar product. The company's 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 changes will be needed in the present production facilities to manufacture the new product because only the mixture of the various materials will be changed.
The controller has been asked by the president of the company for advice on whether to continue production 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 StatementAloe Vera Hand Lotion
For the Month Ended October 31
Sales (400,000 units) $32,000,000
Cost of goods sold 28,330,000
Gross profit $3,670,000
Selling and administrative expenses 4,270,000
Loss from operations $(600,000)
The production costs and selling and administrative expenses, based on production of 400,000 units in October, are as follows:
Direct materials $15per unit
Direct labor 17per unit
Variable manufacturing cost 35per unit
Variable selling and administrative expenses 10per unit
Fixed manufacturing cost $1,530,000for October
Fixed selling and administrative expenses 270,000for October
Sales for November 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 aloe vera hand lotion. The inventory of aloe vera hand lotion at the beginning and end of November is expected to be inconsequential.
Required:
1.Prepare an estimated income statement in absorption costing form for November for aloe vera hand lotion, assuming that production continues during the month.
Smooth Skin Care Products Inc.
Estimated Income StatementAbsorption CostingAloe Vera Hand Lotion
For the Month Ending November 30
$________ fill in the blank_2
Cost of goods sold:
$_________fill in the blank_4
______________fill in the blank_6
______________fill in the blank_8
fill in the blank _10
fill in the blank _12
$____________fill in the blank_14
Selling and administrative expenses:
$____________fill in the blank_16
_______________fill in the blank _18
______________fill in the blank _20
$____________fill in the blank_22
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