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 Statement-Aloe Vera Hand Lotion For the Month Ended October 31, 2016 1 Sales (400,000 units) 2Cost of goods sold 3 Gross profit 4Selling and administrative expenses $32,000,000.00 28,330,000.00 $3,670,000.00 4,270,000.00 $(600,000.00) Operating loss The production costs and selling and administrative expenses, based on production of 400,000 units in October, are as follows Direct materials Direct labor Variable manufacturing cost Variable selling and administrative expenses Fixed manufacturing cost $15 per unit 17 per unit 35 per unit 10 per unit $1,530,000 for October 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 Statement-Aloe Vera Hand Lotion For the Month Ended October 31, 2016 1 Sales (400,000 units) 2Cost of goods sold 3 Gross profit 4Selling and administrative expenses $32,000,000.00 28,330,000.00 $3,670,000.00 4,270,000.00 $(600,000.00) Operating loss The production costs and selling and administrative expenses, based on production of 400,000 units in October, are as follows Direct materials Direct labor Variable manufacturing cost Variable selling and administrative expenses Fixed manufacturing cost $15 per unit 17 per unit 35 per unit 10 per unit $1,530,000 for October
