PR 20-2A Income statements under absorption costing and variable costing The demand for solvent, one of numerous products manufactured by Mac n' Cheese Industries 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 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 various materials will be changed. 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 $500,000 424,000 76,000 102,000 $(26,000) Cost of goods sold Selling and administrative expenses... The production costs and elling 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 $45 per unit 20 per unit 16 per unit 15 per unit 100,000 for April 42.000 for April 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 associ- ated with solvent. The inventory of solvent at the beginning and end of May is expected to be inconsequential