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 anticlpated 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

mbiture of the various materials will be changed.

The controller has been acked by the president of the company for advice on whether to continue

production during November or to suxpend the manufacture af aloe vera hand lotion untll December $1.$

The controller has assembied the following pertinent data:

Smooth Skin Care Products Inc.

Income Statement $-$ Aloe Vera Hand Lotion

For the Month Ended January $31$

The production costs and selling and administrative crpenses, based on production of $400,000$ units in

October, are as follows:

Sales for February are expected to drop about $20h$ below those of the preceding month. No significant

changes are anticipated in the foed coets or varlable costs per unit. No extra costs will be incurred in

discontinuing operntions in the portion of the plant assoclated with aloe vera hand lation. The inventory

of aloe vera hand lotion at the beginning and end of November is expected to be inconesequential.

Instructions

Prepare an estimated lincome statement in absocption costing form for February for aloe vera

hand Iotion, assuming production continues during the month.

b$.$ Prepare an estimated income statement in variable coeting form for February for aloe vera hand

lottion, assuming production continues during the month.

c$.$ What would be the estimated loss in income from operations if the aloe vera hand lotion

production was temporarlly suspended for February?

d$.$ What advice should the controller give to management?